Incentives for environmental self-regulation and implications for environmental performance

The increasing reliance of environmental policy on market-based incentives has led firms to shift from regulation-driven management approaches to proactive strategies involving the voluntary adoption of environmental management systems (EMSs). We examine the factors leading to differences in the quality of EMSs adopted by a sample of S&P 500 firms and the implications of EMS quality for their environmental performance measured by toxic releases per unit sales. We show that a threat of liabilities and pressures from consumers, investors and the public are motivating EMS adoption. Further, the effect of consumer pressure on EMS is stronger for firms with a lower propensity to adopt: that is, consumer pressure raises the EMS quality of firms that would otherwise be low adopters. With regard to environmental performance, a higher quality EMS leads to lower toxic emissions per unit output, particularly for firms that had higher past pollution intensity. We also find that EMSs result in reductions in both off-site transfers and on-site releases per unit output but not in hazardous air pollutants per unit output. Regulatory and market based pressures are not found to have a direct impact on toxic release performance. Rather, the effect of regulatory and market pressures on toxic releases is indirect, i.e., by encouraging institutional change as manifested by the increase in EMS quality.(This abstract was borrowed from another version of this item.)