What Motivates What Motivates Business Environmental Business Environmental

Management: Management: Sticks, Carrots or Both?Sticks, Carrots or Both?

David ErvinDavid ErvinProfessor, Environmental Studies, Portland State UniversityProfessor, Environmental Studies, Portland State University

Cody JonesCody JonesGraduate Research Assistant, Portland State UniversityGraduate Research Assistant, Portland State University

November 16, 2007November 16, 2007

Context for Greening BusinessContext for Greening Business

Environmental problems are widespread and Environmental problems are widespread and demand for environmental quality continues to growdemand for environmental quality continues to grow

Environmental regulatory compliance and Environmental regulatory compliance and enforcement costs trending higher with greenhouse enforcement costs trending higher with greenhouse gas controls yet to come gas controls yet to come

More NGOs see limits in using legislation and the More NGOs see limits in using legislation and the courts and favor more collaborative approaches courts and favor more collaborative approaches

Increasing number of firms perceive revenue and Increasing number of firms perceive revenue and cost rewards for being green (e.g., ISO 14001)cost rewards for being green (e.g., ISO 14001)

Net effect – More responsibility for environmental Net effect – More responsibility for environmental management is shifting to the business sector and management is shifting to the business sector and NGOsNGOs

““Oregon Business Decisions for Oregon Business Decisions for Environmental Management (OBDEM)”Environmental Management (OBDEM)”

Funded by the U.S. EPA Program on Funded by the U.S. EPA Program on Corporate Environmental Behavior and Corporate Environmental Behavior and Effectiveness of Government InterventionEffectiveness of Government Intervention

June 2003 – September 2007June 2003 – September 2007 Three universities: PSU, OSU, UIUCThree universities: PSU, OSU, UIUC Comprehensive survey of environmental Comprehensive survey of environmental

management in Oregonmanagement in Oregon Informing public policy to foster voluntary Informing public policy to foster voluntary

environmental management efforts at for-environmental management efforts at for-profit organizationsprofit organizations

Motivations for BEMMotivations for BEM

Reduce cost (waste)Reduce cost (waste) Increase productivityIncrease productivityMitigate or preempt environmental Mitigate or preempt environmental

regulationsregulationsAccess and serve ‘green’ marketsAccess and serve ‘green’ markets

Motivations for BEMMotivations for BEM

Manage legal and financial risksManage legal and financial risks Improve relations with stakeholders, Improve relations with stakeholders,

e.g., community, labore.g., community, laborManage competitors (first-mover Manage competitors (first-mover

advantage)advantage)Owner/CEO personal preferencesOwner/CEO personal preferences

Research QuestionsResearch Questions

1.1. What motivations are most important in What motivations are most important in prompting environmental management for prompting environmental management for which firm types?which firm types?

2.2. Do formal and informal voluntary Do formal and informal voluntary environmental management strategies appeal environmental management strategies appeal to different types of firms?to different types of firms?

3.3. Does business-led environmental management Does business-led environmental management improve environmental performance?improve environmental performance?

4.4. What role(s) can the public sector play in What role(s) can the public sector play in furthering cost-effective ‘voluntary’ business furthering cost-effective ‘voluntary’ business environmental management?environmental management?

Sample and Survey Sample and Survey

Facility level dataFacility level data Six industrial sectorsSix industrial sectors

– Wood products manufacturingWood products manufacturing– Food manufacturingFood manufacturing– Electronics manufacturingElectronics manufacturing– Truck transportation Truck transportation – Construction of buildingsConstruction of buildings– Accommodation (hotels, etc.)Accommodation (hotels, etc.)

Sample and Survey cont’dSample and Survey cont’d Identified environmental management Identified environmental management

motivations, practices, and performance motivations, practices, and performance measures from literature and industry measures from literature and industry interviewsinterviews

Survey topicsSurvey topics1.1.Environmental management motivations Environmental management motivations

and barriersand barriers2.2.Facility environmental practicesFacility environmental practices3.3.Facility environmental performanceFacility environmental performance4.4.General information, e.g. annual General information, e.g. annual

revenues, management agerevenues, management age

Sample Ordered Response Question Sample Ordered Response Question

Please indicate the extent each of the following factors has Please indicate the extent each of the following factors has influencedinfluenced environmental management at your facility in environmental management at your facility in the last 5 years. the last 5 years. (Please check only ONE box for each (Please check only ONE box for each factor.)factor.)NoNo GreatGreat Do NotDo NotInfluenceInfluence InfluenceInfluenceKnowKnow

▼▼ ▼▼ ▼▼ ▼▼ ▼▼ ▼▼a.a. Customer desire for environmentally friendly Customer desire for environmentally friendly

products and services products and services 11 2 2 3 3 4 4 55 DD

b.b. Customer willingness to pay higher prices Customer willingness to pay higher prices for environmentally friendly products/services.for environmentally friendly products/services.

11 2 2 3 3 4 4 55 DD

RespondentsRespondents

689 responses689 responses 35.1% response rate35.1% response rate

– Construction: 34.3% Construction: 34.3% – Food: 37.1%Food: 37.1%– Wood: 37.2%Wood: 37.2%– Electronics: 34.2% Electronics: 34.2% – Transport: 37.3%Transport: 37.3%– Accommodation: Accommodation:

29.9%29.9% 31 of 36 counties31 of 36 counties Small facilitiesSmall facilities 89% privately held89% privately held 79% independent79% independent

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Selected General FindingsSelected General Findings

CharacteristicsCharacteristics– 54% reported > 6 competitors 54% reported > 6 competitors – 42% percent sell directly into retail 42% percent sell directly into retail – 13% reported some R&D capacity13% reported some R&D capacity– 2.4%2.4% of revenues spent on environmental of revenues spent on environmental

management on averagemanagement on average– 42% reported at least one regulatory inspection 42% reported at least one regulatory inspection

in 2004in 2004– 2% reported at least one penalty, lawsuit, or 2% reported at least one penalty, lawsuit, or

infraction in 2004infraction in 2004

Selected General Findings cont’dSelected General Findings cont’d

ValuesValues– The highest average rating was for the idea The highest average rating was for the idea

that facility upper management has a moral that facility upper management has a moral responsibility to protect the environment.responsibility to protect the environment.

– The highest rated priority was complying with The highest rated priority was complying with current regulations.current regulations.

– The least important influence was The least important influence was environmental interest groups.environmental interest groups.

– Cost was the most important barrier to Cost was the most important barrier to environmental management, followed by time.environmental management, followed by time.

Environmental Mgmt Practices Environmental Mgmt Practices (EMPs)(EMPs) 60% had implemented at least one practice60% had implemented at least one practice

– Environmental training for employeesEnvironmental training for employees– Internal environmental standardsInternal environmental standards– Documented environmental policyDocumented environmental policy– Well-defined environmental goalsWell-defined environmental goals– Regular environmental auditsRegular environmental audits– Green purchasing policyGreen purchasing policy– Environmental cost accountingEnvironmental cost accounting– Environmental standards for suppliersEnvironmental standards for suppliers– Periodic publishing of environmental resultsPeriodic publishing of environmental results– Employee compensation for environmental Employee compensation for environmental

performanceperformance

EMP Intensity/EffectivenessEMP Intensity/Effectiveness

Mean = 2.7, SD = 1.2Mean = 2.7, SD = 1.2– Continuous effortsContinuous efforts– Employee awareness Employee awareness – Adequacy of trainingAdequacy of training– Goals guide decisionsGoals guide decisions– Standards above regulationStandards above regulation– Well-defined proceduresWell-defined procedures– Audits for own goalsAudits for own goals– Standards for suppliersStandards for suppliers– Public reportingPublic reporting– Environmental cost accountingEnvironmental cost accounting– Employee incentivesEmployee incentives

Pollution Prevention EffortsPollution Prevention Efforts

Mean = 3.8, SD = 1.1 Mean = 3.8, SD = 1.1 – Reduction of spills and leaks is emphasized.Reduction of spills and leaks is emphasized.– Recycling has increased and landfilling has Recycling has increased and landfilling has

been reduced.been reduced.– Pollution prevention is emphasized to improve Pollution prevention is emphasized to improve

environmental performance.environmental performance.– Production systems have been modified to Production systems have been modified to

reduce waste.reduce waste.– Products have been modified to reduce Products have been modified to reduce

environmental impacts.environmental impacts.– Raw materials are chosen to reduce impacts.Raw materials are chosen to reduce impacts.

Poisson Regression of Types of Poisson Regression of Types of Environmental ManagementEnvironmental Management

Environmental Management Practices Environmental Management Practices – Employee training, internal environmental standardsEmployee training, internal environmental standards– Avoid certification costsAvoid certification costs– Flexible solutionsFlexible solutions

Voluntary Environmental Management Programs Voluntary Environmental Management Programs (VEPs)(VEPs)– ENERGY STAR, LEED, ISO 14001ENERGY STAR, LEED, ISO 14001– 22% reported participating22% reported participating– Public recognition, consumer education Public recognition, consumer education – High cost, prepackaged solutionsHigh cost, prepackaged solutions

Model 1 Model 2 Model 3

Constant 0.45 (0.11)*** -0.69 (0.14)*** -0.80 (0.15)***

EMPLOYEES 0.04 (0.01)*** 0.04 (0.02)*** 0.05 (0.02)***

PUB 0.33 (0.11)*** 0.27 (0.11)** 0.22 (0.12)*

MC 0.23 (0.11)** 0.18(0.11) 0.21 (0.11)*

RD 0.25 (0.09)*** 0.31 (0.10)*** 0.29 (0.10)***

RETAIL 0.05 (0.07) 0.11 (0.08) 0.13 (0.08)*

COMP -0.08 (0.07) -0.10 (0.07) -0.11 (0.07)

ISSUE 0.69 (0.08)*** 0.66 (0.08)*** 0.67 (0.08)***

REGSUM 0.18 (0.03)*** 0.19 (0.03)*** ---

Log Likelihood -859.04

Poisson Regression – Poisson Regression – Number of Environmental Practices (EMPSUM)Number of Environmental Practices (EMPSUM)

Model 1 Model 2 Model 3

FOOD 0.09 (0.14) 0.01 (0.14)

WOOD 0.45 (0.12)*** 0.40 (0.12)***

ELEC 0.25 (0.16) 0.17 (0.16)

TRANSP 0.32 (0.12)*** 0.22 (0.12)*

ACCOM 0.19 (0.12) 0.12 (0.13)

WASTE 0.43 (0.14)***

HAZ 0.42 (0.12)***

WATER 0.25 (0.12)**

HAZAIR -0.16 (0.09)*

Log Likelihood -849.61 -838.97

Poisson Regression – Poisson Regression – Number of Environmental Practices (EMPSUM)Number of Environmental Practices (EMPSUM)

Model 1 Model 2 Model 3

Constant -1.85 (0.26)*** -1.03 (0.29)*** -1.26 (0.32)***

EMPLOYEES 0.08 (0.03)** 0.11 (0.04)*** 0.10 (0.04)***

PUB 0.12 (0.29) 0.34 (0.31) 0.30 (0.31)

MC 0.39 (0.26) 0.38 (0.27) 0.45 (0.28)

RD -0.09 (0.24) 0.18 (0.28) 0.21 (0.28)

RETAIL -0.16 (0.18) -0.12 (0.18) -0.13 (0.19)

COMP -0.38 (0.18)** -0.50 (0.18)*** -0.51 (0.18)***

ISSUE 0.38 (0.19)** 0.46 (0.19)** 0.47 (0.19)**

REGSUM 0.20 (0.06)*** 0.14 (0.06)** ---

Log Likelihood -323.39

Poisson Regression – Poisson Regression – Number of Voluntary Programs (VEPSUM)Number of Voluntary Programs (VEPSUM)

Model 1 Model 2 Model 3

FOOD -1.56 (0.35)*** -1.57 (0.36)***

WOOD -0.89 (0.25)*** -0.90 (0.26)***

ELEC -1.19 (0.37)*** -1.15 (0.37)***

TRANSP -1.56 (0.35)*** -1.59 (0.36)***

ACCOM -0.56 (0.24)** -0.59 (0.25)**

WASTE 0.97 (0.35)***

HAZ -0.16 (0.28)

WATER 0.04 (0.26)

HAZAIR -0.02 (0.22)

Log Likelihood -303.87 -300.26

Poisson Regression – Poisson Regression – Number of Voluntary Programs (VEPSUM)Number of Voluntary Programs (VEPSUM)

Summary of InfluencesSummary of Influences

Facilities more likely to implement practices or Facilities more likely to implement practices or participate in programs (common influences)participate in programs (common influences)– Larger facilitiesLarger facilities– Facilities that perceive environmental issues as a Facilities that perceive environmental issues as a

significant concernsignificant concern– Facilities regulated on a greater number of impactsFacilities regulated on a greater number of impacts

Facilities more likely to implement practicesFacilities more likely to implement practices– Publicly traded, multinational corporations Publicly traded, multinational corporations – Facilities regulated on any impactFacilities regulated on any impact– Wood and Transport, compared to ConstructionWood and Transport, compared to Construction

Facilities more likely to participate in VEPsFacilities more likely to participate in VEPs– Facilities with fewer competitorsFacilities with fewer competitors– Facilities regulated on solid wasteFacilities regulated on solid waste– Construction facilitiesConstruction facilities

Environmental PerformanceEnvironmental Performance

Impacts queriedImpacts queried– Wastewater and dewatering dischargeWastewater and dewatering discharge– Solid waste and recyclingSolid waste and recycling– Hazardous or toxic wastesHazardous or toxic wastes– Carbon dioxide (COCarbon dioxide (CO22) emissions) emissions– Hazardous air emissionsHazardous air emissions– Electricity and natural gas (selected)Electricity and natural gas (selected)– Green building/energy efficiency (construction)Green building/energy efficiency (construction)– Diesel and biodiesel use (transport) Diesel and biodiesel use (transport)

Measures: outcomes, compliance, changesMeasures: outcomes, compliance, changes– Outcomes received the lowest response rates Outcomes received the lowest response rates

(from 2% to 94%)(from 2% to 94%)

Bivariate Performance ResultsBivariate Performance Results

Solid waste: VEPPs recycled 59%, NPs Solid waste: VEPPs recycled 59%, NPs averaged 44%averaged 44%

Energy efficient equipment in Energy efficient equipment in Construction: VEPPs averaged 54%, NPs Construction: VEPPs averaged 54%, NPs averaged 32%averaged 32%

Green building in Construction: VEPPs Green building in Construction: VEPPs averaged 28%, NPs averaged 9%averaged 28%, NPs averaged 9%

Overcompliance for at least one impact: Overcompliance for at least one impact: 57% of VEPPs versus 30% of NPs57% of VEPPs versus 30% of NPs

Improvements during 2004: 80% of VEPPs Improvements during 2004: 80% of VEPPs vs 54% of NPsvs 54% of NPs– Most changes were minimal (1-3%) Most changes were minimal (1-3%)

Basic Economics of BEM Basic Economics of BEM Choices of EMPs and P2 actions depend on their Choices of EMPs and P2 actions depend on their

expected utility to managers and other benefits expected utility to managers and other benefits compared to costs/barriers.compared to costs/barriers.

Expected benefits (utility and monetary) are Expected benefits (utility and monetary) are approximated by relative responses to various approximated by relative responses to various motivation questions.motivation questions.

Expected costs/risks are captured by the Expected costs/risks are captured by the responses to strength of various barriers.responses to strength of various barriers.

Environmental performance depends on the Environmental performance depends on the expected relative benefits and costs for each expected relative benefits and costs for each facility over time.facility over time.

Preliminary Multivariate AnalysisPreliminary Multivariate Analysis

Facility environmental management Facility environmental management includes three inter-related decisionsincludes three inter-related decisions

1.1. Select environmental management Select environmental management policies/practices (EMPs) (Q 12)policies/practices (EMPs) (Q 12)

2.2. Choose extent of environmental Choose extent of environmental and pollution prevention (P2) and pollution prevention (P2) actions (Q 14)actions (Q 14)

3.3. Environmental performance Environmental performance depends on intensity of depends on intensity of environmental practices, extent of environmental practices, extent of environmental action, and other environmental action, and other factors (analysis underway)factors (analysis underway)

Analytical Approach Analytical Approach

Use principal components (PC) to estimate Use principal components (PC) to estimate indices (0 indices (0 ≤≤ I I ≤≤ 1) for environmental 1) for environmental policies/practices, actions, and performancepolicies/practices, actions, and performance

Use PC also to estimate indices for various Use PC also to estimate indices for various motivations and barriersmotivations and barriers

Estimate recursive system of two equations Estimate recursive system of two equations in which EMPs depend on motivations and in which EMPs depend on motivations and other facility characteristics, and P2 actions other facility characteristics, and P2 actions depend on EMPs and other factors. depend on EMPs and other factors.

Econometric (3SLS) methodsEconometric (3SLS) methods

Econometric Analysis of Econometric Analysis of Environmental Policies/PracticesEnvironmental Policies/Practices

Explanatory VariablesExplanatory Variables CoefficientCoefficient Std ErrorStd Error

ConstantConstant -.0745 -.0745 .1092.1092

Significant env. issue Significant env. issue concern concern .0302 .0302 .0234.0234

% 03 revenue spent on % 03 revenue spent on env. mgmt. env. mgmt. .0039.0039 .0087.0087

Owned by parent companyOwned by parent company .0513.0513 .0322.0322

MultinationalMultinational .0133 .0133 .0404.0404

Frequency of env. Frequency of env. inspection 04 inspection 04 .0208 .0208 .0229.0229

Annual revenue less than Annual revenue less than $25M$25M .0056 .0056 .0569.0569

Annual revenue >$25M, Annual revenue >$25M, <100M<100M -.0643-.0643 . . 06670667

Upper mgmt age 20-40Upper mgmt age 20-40 -.-.06020602 . . 05460546

Explanatory variablesExplanatory variables CoefficientCoefficient Std ErrorStd Error

Upper mgmt age 41 - 60Upper mgmt age 41 - 60 -.-.05810581 . . 04550455

CompetitivenessCompetitiveness . . 14401440** ** . . 06080608

Cost and other barriersCost and other barriers -. -. 07640764* * . . 04520452

Investor pressureInvestor pressure . . 10701070**** . . 04580458

Regulatory pressureRegulatory pressure . . 1222**1222** . . 04780478

Management attitudesManagement attitudes . . 40844084*** *** . . 06170617

Interest group pressureInterest group pressure . . 04270427 . . 04860486

Consumer pressureConsumer pressure -. -. 00580058 . . 04940494

Econometric Analysis of Econometric Analysis of Environmental Policies/PracticesEnvironmental Policies/Practices

Preliminary Findings for Preliminary Findings for Environmental Policies/PracticesEnvironmental Policies/Practices

Favorable upper management attitudes Favorable upper management attitudes toward environment show the largest toward environment show the largest positive influence.positive influence.

Competitiveness, regulatory and investor Competitiveness, regulatory and investor pressures also exert significant effects. pressures also exert significant effects.

A composite of barriers (e.g., upfront costs) A composite of barriers (e.g., upfront costs) significantly decrease EMP intensity.significantly decrease EMP intensity.

Consumer and interest group pressures, Consumer and interest group pressures, and facility characteristics are insignificant . and facility characteristics are insignificant .

Econometric Analysis of Econometric Analysis of Pollution Prevention ActionsPollution Prevention Actions

Explanatory variablesExplanatory variables CoefficientCoefficient Std ErrorStd Error

ConstantConstant ..3955***3955*** . . 13841384

EMP (estimated)EMP (estimated) .7599***.7599*** .0805.0805

Significant env. issue Significant env. issue concern concern -. -. 0066 0066 . . 02510251

% 04 revenue spent on % 04 revenue spent on env. mgmt.env. mgmt. .0112.0112 . . 00870087

Owned by parent companyOwned by parent company -.0511-.0511 . . 03240324

Facility has R&D capacityFacility has R&D capacity -.0481*-.0481* . . 02850285

Parent firm has R&D Parent firm has R&D capacitycapacity . 0150. 0150 . . 04240424

Env. agency inspection 04Env. agency inspection 04 . . 04710471****** . . 02350235

Econometric Analysis of Econometric Analysis of Pollution Prevention ActionsPollution Prevention Actions

Explanatory variablesExplanatory variables CoefficientCoefficient Std ErrorStd Error

Annual revenue less than Annual revenue less than $25M$25M .0362.0362 .0584.0584

Annual revenue >$25M, Annual revenue >$25M, <100M<100M .0973.0973 .0684.0684

Upper mgmt age 20-40Upper mgmt age 20-40 ..02080208 . . 05670567

Upper mgmt age 41 - 60Upper mgmt age 41 - 60 ..02890289 . . 04800480

Preliminary Findings for Pollution Preliminary Findings for Pollution Prevention ActionsPrevention Actions

EMP intensity shows a significant and positive EMP intensity shows a significant and positive effect on P2 action.effect on P2 action.– Management attitudes, competitiveness, regulatory, Management attitudes, competitiveness, regulatory,

and investor pressures and barriers exert indirect and investor pressures and barriers exert indirect positive impacts via their effects on EMPspositive impacts via their effects on EMPs

Environmental agency inspection in 2004 exerts a Environmental agency inspection in 2004 exerts a separate and significant positive effect.separate and significant positive effect.

Facility R&D exerts a marginally significant Facility R&D exerts a marginally significant negative effect on P2 intensity?negative effect on P2 intensity?

Preliminary ImplicationsPreliminary Implications

The commitment to environmental The commitment to environmental policies/practices (EMPs) is shaped heavily policies/practices (EMPs) is shaped heavily by upper management attitudes and market by upper management attitudes and market pressures, (e.g. competitors, investors). pressures, (e.g. competitors, investors).

The level of environmental (P2) action is The level of environmental (P2) action is significantly influenced by the degree of significantly influenced by the degree of EMP commitment and regulatory pressure.EMP commitment and regulatory pressure.

The absence of significant effects by facility The absence of significant effects by facility characteristics, e.g., size, when motivations characteristics, e.g., size, when motivations and barriers are properly controlled for, is and barriers are properly controlled for, is notable.notable.

Future AnalysisFuture Analysis

Checking for self-selection and non-Checking for self-selection and non-respondent biasrespondent bias

Delineate ‘voluntary’ environmental Delineate ‘voluntary’ environmental practices and action, and the significant practices and action, and the significant influences on theminfluences on them

Probe sector differencesProbe sector differences Augment reported environmental Augment reported environmental

performance with secondary dataperformance with secondary data Test the influences on environmental Test the influences on environmental

performance, and the relationships with performance, and the relationships with environmental practices and action environmental practices and action

PublicationsPublications Project WebsiteProject Website

– http://obep.research.pdx.edu/http://obep.research.pdx.edu/– ““Reports” Reports”

OBDEM Summary ReportOBDEM Summary Report Hall, Teresa, “Business Decisions for Voluntary Hall, Teresa, “Business Decisions for Voluntary

Environmental Management: Motivations, Actions Environmental Management: Motivations, Actions and Outcomes,” M.S. Thesis, Oregon State and Outcomes,” M.S. Thesis, Oregon State University, 2006. University, 2006.

Jones, Cody, “Voluntary Environmental Program Jones, Cody, “Voluntary Environmental Program Participation in Oregon: Summary Statistics,” MEM Participation in Oregon: Summary Statistics,” MEM report, Portland State University, 2007.report, Portland State University, 2007.

““Motivations for Voluntary Environmental Motivations for Voluntary Environmental Management,” Policy Studies Journal (forthcoming)Management,” Policy Studies Journal (forthcoming)

Questions and Comments?Questions and Comments?