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What Motivates Business Environmental Management: Sticks, Carrots or Both? David Ervin Professor of Environmental Studies Patricia Koss Associate Professor.

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Presentation on theme: "What Motivates Business Environmental Management: Sticks, Carrots or Both? David Ervin Professor of Environmental Studies Patricia Koss Associate Professor."— Presentation transcript:

1 What Motivates Business Environmental Management: Sticks, Carrots or Both? David Ervin Professor of Environmental Studies Patricia Koss Associate Professor of Economics Cody Jones Graduate Research Assistant Portland State University June 6, 2007

2 Context for Greening Business Environmental problems are widespread and public demand for EQ continues strong. Environmental problems are widespread and public demand for EQ continues strong. Regulatory compliance and enforcement costs are trending higher. Regulatory compliance and enforcement costs are trending higher. More NGOs see limits in using legislation and the courts and favor more collaborative approaches. More NGOs see limits in using legislation and the courts and favor more collaborative approaches. Increasing number of firms perceive revenue and cost rewards for being green (e.g., ISO 14001). Increasing number of firms perceive revenue and cost rewards for being green (e.g., ISO 14001). Net effect – More responsibility for environmental management is shifting to the business sector and NGOs Net effect – More responsibility for environmental management is shifting to the business sector and NGOs

3 Key Questions 1. What motivations are most important in prompting “voluntary” or “business-led” environmental management (BEM) for which firms? 2. Does BEM improve environmental quality? 3. What role(s) can the public sector play in fostering cost-effective BEM?

4 Motivations for BEM Reduce cost (waste) Reduce cost (waste) Increase productivity Increase productivity Mitigate or preempt environmental regulations Mitigate or preempt environmental regulations Access and serve ‘green’ markets Access and serve ‘green’ markets

5 Motivations for BEM Manage legal and financial risks Manage legal and financial risks Improve relations with stakeholders, e.g., community, labor Improve relations with stakeholders, e.g., community, labor Manage competitors (first-mover advantage) Manage competitors (first-mover advantage) Owner/CEO personal preferences Owner/CEO personal preferences

6 Oregon Business Decisions for Environmental Management Grant from U.S. EPA Program on Corporate Environmental Behavior and Effectiveness of Government Intervention Grant from U.S. EPA Program on Corporate Environmental Behavior and Effectiveness of Government Intervention June 2003 – June 2007 June 2003 – June 2007 Universities: PSU, U. Illinois Champaign- Urbana (Madhu Khanna & Cameron Speir), and Oregon State (Junjie Wu & Teresa Hall) Universities: PSU, U. Illinois Champaign- Urbana (Madhu Khanna & Cameron Speir), and Oregon State (Junjie Wu & Teresa Hall) Comprehensive survey of BEM in Oregon Comprehensive survey of BEM in Oregon Analysis to inform public policy that furthers cost-effective BEM Analysis to inform public policy that furthers cost-effective BEM

7 Sample Focused on facility level Focused on facility level Selected six industrial sectors Selected six industrial sectors –Wood products manufacturing –Food manufacturing –Electronics manufacturing –Truck transportation –Construction of buildings –Accommodation (hotels, etc.) 1964 facilities with 10 or more employees (OR Employment Dept.) 1964 facilities with 10 or more employees (OR Employment Dept.)

8 Survey Identified environmental management motivations, practices, and performance measures from literature and industry interviews Identified environmental management motivations, practices, and performance measures from literature and industry interviews Survey structure Survey structure 1. Environmental management motivations 2. Facility environmental practices 3. Facility environmental performance 4. General information, e.g., size

9 Sample Ordered Response Question Please indicate the extent each of the following factors has influenced environmental management at your facility in the last 5 years. (Please check only ONE box for each factor.) NoGreatDo Not InfluenceInfluenceKnow ▼▼▼▼▼▼ ▼▼▼▼▼▼ a.Customer desire for environmentally friendly products and services  1  2  3  4  5  D b.Customer willingness to pay higher prices for environmentally friendly products/services.  1  2  3  4  5  D

10 Respondents 689 responses 689 responses 35.1% response rate ( ) 35.1% response rate ( ) Responses from 31 of 36 counties Responses from 31 of 36 counties Small facilities predominate; mean number of employees = 24 (73% < 50) Small facilities predominate; mean number of employees = 24 (73% < 50) 89% privately held 89% privately held 79% independent 79% independent No significant bias by facility size or geographic region No significant bias by facility size or geographic region

11 Some General Findings 54% reported > 6 competitors 54% reported > 6 competitors 42% percent sell directly into retail 42% percent sell directly into retail 42% reported at least one 2004 regulatory inspection 42% reported at least one 2004 regulatory inspection 2% reported penalties, lawsuits, infractions 2% reported penalties, lawsuits, infractions 13% reported some R&D capacity 13% reported some R&D capacity 2.4% average revenue spent on env mgmt 2.4% average revenue spent on env mgmt 20% reported participating in VEPs 20% reported participating in VEPs

12 Motivations, Influences and Priorities Customers M = 2.65, SD = 1.38 Interest Groups M = 2.14, SD = 1.27 Investors and Lenders M = 2.98, SD = 1.45 Parent Company M = 3.86, SD =1.12 Regulations M = 3.25, SD = 1.40 Competition M = 2.69, SD = 1.36 Upper Management M = 3.70, SD = 1.05

13 Barriers High day-to-day costs Uncertain future benefits Emp. appraisals Risk of downtime Upfront time commitment Knowledgeable staff High upfront expense M = 3.29, SD = 1.28 M = 3.63, SD = 1.36 M = 3.11, SD = 1.33 M = 2.30, SD = 1.29 M = 2.86, SD = 1.40 M = 3.21, SD = 1.26 M = 2.36, SD = 1.29 M = 2.77, SD = 1.23 Emp. rewards

14 Environmental Mgmt Practices Environmental training for employees Environmental training for employees Internal environmental standards Internal environmental standards Documented environmental policy Documented environmental policy Well-defined environmental goals Well-defined environmental goals Regular environmental audits Regular environmental audits Green purchasing policy Green purchasing policy Environmental cost accounting Environmental cost accounting Environmental standards for suppliers Environmental standards for suppliers 60% had implemented at least one 60% had implemented at least one

15 Environmental Actions Continuous efforts Continuous efforts Employee awareness Employee awareness Adequacy of training Adequacy of training Goals guide decisions Goals guide decisions Standards above regulation Standards above regulation Well-defined procedures Well-defined procedures Audits for own goals Audits for own goals Standards for suppliers Standards for suppliers Public reporting Public reporting Environmental cost accounting Environmental cost accounting Employee incentives Employee incentives Mean = 2.7, SD = 1.2 Mean = 2.7, SD = 1.2

16 Pollution Prevention Queries Efforts have been made to reduce spills and leaks of environmental contaminants. Efforts have been made to reduce spills and leaks of environmental contaminants. Recycling has increased and landfilling has been reduced. Recycling has increased and landfilling has been reduced. Pollution prevention is emphasized to improve environmental performance. Pollution prevention is emphasized to improve environmental performance. Production systems have been modified to reduce waste. Production systems have been modified to reduce waste. Products have been modified to reduce environmental impacts. Products have been modified to reduce environmental impacts. Raw materials are chosen to reduce impacts. Raw materials are chosen to reduce impacts. Mean = 3.8, SD = 1.1 Mean = 3.8, SD = 1.1

17 Performance Measures Impacts queried Impacts queried –Wastewater and dewatering discharge –Solid waste and recycling –Hazardous or toxic wastes –Carbon dioxide (CO 2 ) emissions –Hazardous air emissions –Electricity and natural gas (selected) –Green building/energy efficiency (construction) –Diesel and biodiesel use (transport) Measures: outcomes, compliance, changes Measures: outcomes, compliance, changes Lowest response rates (from 2% to 94%) Lowest response rates (from 2% to 94%)

18 Basic Economics of BEM Choices of EM policies, practices and actions depend on their expected benefits and costs over time. Choices of EM policies, practices and actions depend on their expected benefits and costs over time. Expected benefits (monetary and non- monetary) are approximated by relative responses to various motivations. Expected benefits (monetary and non- monetary) are approximated by relative responses to various motivations. Expected costs/risks are captured by the responses to strength of various barriers. Expected costs/risks are captured by the responses to strength of various barriers. Environmental performance depends on the expected relative benefits and costs for each facility over time. Environmental performance depends on the expected relative benefits and costs for each facility over time.

19 Preliminary Multivariate Analysis Facility environmental management includes three interrelated decisions Facility environmental management includes three interrelated decisions 1. Select environmental management policies/practices (Q 12) 2. Choose extent of environmental and pollution prevention actions (Q 14) 3. Environmental performance depends on intensity of environmental practices, extent of environmental action, and other factors (analysis underway)

20 Analytical Approach Used principal components (PC) to estimate indices (0 ≤ I ≤ 1) for environmental policies/practices, actions, and performance Used principal components (PC) to estimate indices (0 ≤ I ≤ 1) for environmental policies/practices, actions, and performance Used PC also to estimate indices for various motivations and barriers Used PC also to estimate indices for various motivations and barriers Estimated system of equations in which pollution prevention actions depend on practices, and environmental performance depends on practices and actions Estimated system of equations in which pollution prevention actions depend on practices, and environmental performance depends on practices and actions Econometric (3SLS) methods Econometric (3SLS) methods

21 Econometric Analysis of Environmental Policies/Practices Explanatory Variables Coefficient Std Error Constant Significant env. issue concern % revenue spent on env. mgmt Multinational Frequency of env. inspection # penalties, lawsuits, sanctions Annual revenue less than $25M Annual revenue >$25M, $25M, <100M Upper mgmt age **.0582

22 Explanatory variables Coefficient Std Error Upper mgmt age **.0521 Competitiveness.1432**.0631 Cost and other barriers **.0461 Investor pressure.1432***.0472 Regulatory pressure Management attitudes.4623***.0657 Interest group pressure Consumer pressure LM statistic Econometric Analysis of Environmental Policies/Practices

23 Preliminary Findings for Environmental Policies/Practices Upper management attitudes show the largest positive influence. Upper management attitudes show the largest positive influence. Managers over 60 and competitiveness and investor pressures also exert significant positive effects. Managers over 60 and competitiveness and investor pressures also exert significant positive effects. A composite of barriers (e.g., upfront costs) significantly decrease policy/practice intensity. A composite of barriers (e.g., upfront costs) significantly decrease policy/practice intensity. Regulatory, consumer and facility characteristics do not show significant effects. Regulatory, consumer and facility characteristics do not show significant effects.

24 Econometric Analysis of Env/Pollution Prevention Actions Explanatory variables Coefficient Std Error Constant.0972.???? Significant env. issue concern Publicly traded Privately owned <11 close competitors to 50 close competitors Frequency of env. inspection ***.0218 Annual revenue less than $25M Annual revenue >$25M, $25M, <100M

25 Econometric Analysis of Env/Pollution Prevention Actions Explanatory variables Coefficient Std Error ENVPRACTICES.4762*.2542 Competitiveness Cost and other barriers Investor pressure Regulatory pressure.1792***.0492 Management attitudes Interest group pressure Consumer pressure.1190**.0507 LM statistic Hausmann test.3392***

26 Preliminary Findings for Env/Pollution Prevention Actions Practice intensity shows a significant and positive effect on environmental action. Practice intensity shows a significant and positive effect on environmental action. Regulatory pressures & inspections also exert significant positive effects. Regulatory pressures & inspections also exert significant positive effects. Consumer pressures are directly associated with increased env. action. Consumer pressures are directly associated with increased env. action. Management attitudes, investor pressures and competitiveness exert indirect positive effects on action through environmental practice intensity. Management attitudes, investor pressures and competitiveness exert indirect positive effects on action through environmental practice intensity. Perceived barriers exert an indirect but negative effect on action. Perceived barriers exert an indirect but negative effect on action.

27 VEP Participant (VPP) Characteristics Participants reported higher revenues Participants reported higher revenues Participants had more employees Participants had more employees Participants were located in 27 counties Participants were located in 27 counties Construction (236) Food (311) Wood (321) Electronics (334) Transport (484) Hotels (721) 30% 16% 20% 22% 5% 20% VPPsNPs Average # Employees Median # employees 3322 Average Revenue $28 M $10 M Median Revenue $7 M $3 M

28 Program Participants & Nonparticipants Mean Number of Practices NMSDtdf VEP Participants VEP Participants Nonparticipants Nonparticipants Pollution Prevention Actions VEP Participants VEP Participants Nonparticipants Nonparticipants

29 VPP Performance Results Overcompliance for at least one impact: 57% of VPPs versus 30% of NPs Overcompliance for at least one impact: 57% of VPPs versus 30% of NPs Solid waste: VPPs recycled 59%, NPs averaged 44% Solid waste: VPPs recycled 59%, NPs averaged 44% Energy efficient equipment in Construction: VPPs averaged 54%, NPs averaged 32% Energy efficient equipment in Construction: VPPs averaged 54%, NPs averaged 32% Green building in Construction: VPPs averaged 28%, NPs averaged 9% Green building in Construction: VPPs averaged 28%, NPs averaged 9%

30 Preliminary Implications Commitment to environmental policies/ practices is shaped heavily by upper management attitudes and other pressures, (e.g. investor pressures). Commitment to environmental policies/ practices is shaped heavily by upper management attitudes and other pressures, (e.g. investor pressures). The level of environmental action is significantly influenced by regulatory effects and perceived consumer interests, apart from practice intensity. The level of environmental action is significantly influenced by regulatory effects and perceived consumer interests, apart from practice intensity. The absence of significant effects by facility characteristics, e.g., size, when motivations and barriers are properly specified, is notable. The absence of significant effects by facility characteristics, e.g., size, when motivations and barriers are properly specified, is notable. VEP participants report significantly more overcompliance, and higher recycling, energy efficiency, and green building efforts than nonparticipants, but the causes are uncertain. VEP participants report significantly more overcompliance, and higher recycling, energy efficiency, and green building efforts than nonparticipants, but the causes are uncertain.

31 Future Analysis Checking for self-selection and non- respondent bias Checking for self-selection and non- respondent bias Delineate ‘voluntary’ environmental practices and action, and the significant influences on them Delineate ‘voluntary’ environmental practices and action, and the significant influences on them Probe sector differences Probe sector differences Augment reported environmental performance with secondary data Augment reported environmental performance with secondary data Test the influences on environmental performance, and the relationships with environmental practices and action Test the influences on environmental performance, and the relationships with environmental practices and action

32 Publications Project Website Project Website –http://obep.research.pdx.edu/ –“Reports” OBDEM Summary Report OBDEM Summary Report Hall, Teresa, “Business Decisions for Voluntary Environmental Management: Motivations, Actions and Outcomes,” M.S. Thesis, Oregon State University, Hall, Teresa, “Business Decisions for Voluntary Environmental Management: Motivations, Actions and Outcomes,” M.S. Thesis, Oregon State University, Jones, Cody, “Voluntary Environmental Program Participation in Oregon: Summary Statistics,” MEM report, Portland State University, Jones, Cody, “Voluntary Environmental Program Participation in Oregon: Summary Statistics,” MEM report, Portland State University, Motivations for Voluntary Environmental Management (forthcoming) Motivations for Voluntary Environmental Management (forthcoming)

33 Questions and Comments?


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