Showing papers in "Business Strategy and The Environment in 1994"

Measuring strategic environmental performance

Abstract: It is now widely acknowledged that environmental issues will increasingly affect the performance of firms in western countries, both in the short and in the long run. Environmental issues can act on revenues and on costs. They can influence revenues when a firm follows a ‘green strategy’, i.e. it enhances the characteristics of environmental compatibility of its products or it promotes a credible image of a ‘green company’, that employs only clean technologies. They can influence costs as, on the one hand, more limiting environmental standards can result in higher manufacturing and non manufacturing costs and, on the other hand, programmes focused on improving environmental performances can result in less spoils and wastes, hence in lower costs. Hence, environmental performance should be a structured part of the management control system of an industrial firm. Unfortunately, it is not completely clear how accounting information can be structured in order to obtain this result. This paper is aimed at developing a set of information that can be used for a managerial control focused on the environmental performance of an industrial firm. This paper is organized in three main sections. Section I describes the conceptual requirements of a management control system based on accounting information for monitoring the environmental performance of an industrial firm (completeness, long term orientation, external orientation, measurability and cost). Section II analyses different classes of Environmental Performance Indicators (EPI) used in practice. Both accounting measures (prevention costs and investments; operating environmental costs; contingent environmental liabilities) and non financial measures (physical indicators; compliance) are considered. Section III suggests an integrated approach to the design of a management control system focused on environmental issues, where different classes of indicators are used jointly. More specifically, two integrated systems, one mostly based on physical measures and aimed at external communication, the other focused on accounting measures and supporting managerial decision making, are suggested.

Business environmental performance measurement

Abstract: Organisations face increasing demands to measure their environmental performance. This is necessary in order to achieve sustainable development to reassure financial stakeholders that their investments are not at risk, to satisfy the demands of regulators and other non-financial stakeholders and to provide information for customers and employees. Measures can be grouped into ten generic categories - impact, risk, emissions /waste, input, resource, efficiency, customer, financial, normalised and aggregate. At least six different approaches to using measures can be identified - production, auditing, ecological, accounting, economic and quality. Although there has been some limited cross-fertilisation, in most cases they have developed in isolation from each other and have had different drivers, measurement focii and metrics. In order to achieve the comparison, integration and business relevance which is routine in financial performance measurement, a seventh approach - that of strategic environment-related performance measurement - is both needed and beginning to develop. The long term challenge is to stretch measurement systems to include the sustainability of business activities (through impact measures) and the competitive advantage they are creating (through customer and financial measures). A ‘balanced scorecard’ of measures is essential too, as is clear identification of the customers of the measures. The comparison which is facilitated by standardised measurement is also a powerful spur to continuous improvement of environmental performance.

Environmental management in devon and cornwall's small and medium-sized enterprise sector

Abstract: This paper suggests that environmental impacts can be reduced in the SME sector through more detailed, less generic model developments for each industrial sector based on best practices and not on strategic management systems. It also suggests simplification of environmental support organisations and advocates the development of the concept of Energy Performance Contracting to Environmental Performance Contracting. There are undoubtedly many ways in which SMEs can improve their environmental performance but it is questionable that within the present economic system environmental sustainability will ever be achieved. Increased environmental regulation would certainly level the playing field but would not change the fundamental attitudes towards the environment as a generator of maximum wealth for the sole purpose of short term consumption. Self regulation is certainly the ultimate goal, where individuals and businesses recognise and respect the environment on more of an holistic level and where other individual utilities are gained from work aside from financial gain. The argument is that this radical (used here in its true sense to mean from the root) change of economic priorities could be achieved through a fair trading system run on a bioregional level. However at the moment self regulation within the present economic system seems ineffective as the environment is simply not a priority for SMEs. Small scale environmental improvements may occur but results from this research suggest that commitment to the environment on a practical rather than theoretical level needs to exist for substantial change to take place. This commitment is unlikely to increase substantially within an economic system that does not attach higher value to the environment. The attainment of environmental sustainability would require a fresh analysis of the economic system and our own individual consciousness.

Towards commercial and environmental excellence: A green portfolio matrix

Abstract: This article examines the strategic framework and options available for product strategy towards commercial and environmental excellence. It defines the environmental dimension as a ‘moving target’, explores a conceptual framework to integrate commercial and environmental dimensions and elaborates a ‘green portfolio matrix’. The proposed matrix is also empirically investigated as to its practical validity by using a set of secondary data including twelve product cases. Using the matrix, a company can diagnose its existing product mix from an environmental point of view, and furthermore can establish future ‘targets’ for an environmentally-friendly product portfolio. In addition, the matrix can be used as a framework for comparative analyses between strategic business units or for longitudinal assessment of a specific business entity.

The durability of consumer durables

Abstract: The life span of a product is a key component in assessing its environmental impact. Until very recently, however, product durability was far from prominent in the environmental debate. This has begun to change due to mounting concern about waste, the prospect of producer ‘take back’ schemes and the importance of quality in highly competitive international markets. This has led to product durability emerging on the business and environment agenda. This paper explores the significance of product life spans and identifies currently available data on the life-span of consumer durables. It defines product life and argues that, from an environmental perspective, optimum product life, rather than maximum product life should be the goal. It suggests that potential advantages to businesses of manufacturing and retailing products with longer life spans include improved environmental foresight (i.e. a greater responsiveness to new social trends, changes in consumer behaviour and tighter government regulations), an enhanced reputation for quality, greater potential market share and increased customer loyalty. Addressing claims that manufacturers deliberately make products with the intention that they should have life spans below the known technical potential, the paper identifies some of the influences upon manufacturers which encourage shorter product life spans. Finally, some means by which longer life products might be encouraged are proposed.

Business and the genesis of the European Community carbon tax proposal

Abstract: The purpose of this paper is to examine the role of business in the regulatory process associated with the carbon tax proposal. The first part of the paper describes the Community's climate change policy, noting first the essential features of Community environment policy-making, the role of consultation with industry and the significance of the ‘subsidiarity’ principle. This part of the paper moves on to examine the carbon tax proposal and its evolution since 1990. The second part of the paper addresses the specific role which business played in influencing the development of the carbon tax proposal. The general strategy of business was to block the proposal entirely. The paper identifies the potential impacts of the tax on business, implications for corporate strategies and the specific channels through which business influenced the tax proposal, by participating in public debates, through representations to different directorates of the European Commission or by making a case to national authorities. The final part of the paper attempts to draw some lessons about: the business position in relation to large scale environmental problems such as climate change; business responses to economic instruments such as the carbon/energy tax; and the wider relationship between public authorities and business in regulatory processes. The question of whether this relationship has entered a new phase or whether there is still ‘business as usual’ is addressed.

Regulating the environment: Changing from constraint to gentle coercion

Abstract: This article examines the changes in regulatory practices which have taken place in Denmark over the last twenty years. Danish environmental policy has been subject to several rounds of regulatory reform, aimed at streamlining existing regulation and making it more effective. Several new policy instruments have in this process been added to the regulatory repertoire, increasing the flexibility of the regulatory system. The strategic approach to the development and implementation of environmental policy, adopted by the Danish government, marks a change of regulatory regime, i.e. a change in the way environmental problems are perceived and in the choice of instruments to remedy these problems. The article argues that this is the result of the regulatory learning processes, and that the emerging regulatory regime, based on cooperation, represents a different way of harnessing the market forces than traditionally advocated. The article concludes that this regulatory regime opens up for a more systemic approach to preventing pollution.

The setting of voluntary agreements between industry and government: Bargaining and efficiency

Abstract: This paper aims at providing a preliminary economic analysis of the efficiency of an emerging environmental policy instrument: the so-called voluntary agreement. The use of a data base we have built containing 75 existing agreements in 12 OECD countries allows us to stylise these empirical objects. They are mutually agreed contracts signed between a national administration and a coalition of firms. They include a set of physical pollution reduction objectives to be reached by the firms. According to classical economic categories, they are similar to a traditional policy instrument, i.e. direct regulation, but one which has been devised after an intense negotiation process. As regards efficiency, the key question lies in the impact of such negotiations. In our analytical framework, we distinguish two subjects of negotiation: the collective environmental objective, i.e. the physical amount of pollution to be globally suppressed via the completion of the contract, and the means required to reach the collective objective, i.e. the allocation rule of private pollution reduction objectives. According to these categories a major asymmetry arises in the negotiation structure. When the dominant dimension of the negotiations concerns the environmental objective, firms are clearly opposed to the administration because of their eagerness to obtain as low an objective as possible. In that case, voluntary agreements do not seem to be an original policy approach. They can be compared with classical consultation processes of interested parties when designing new regulations and raise similar questions: the efficiency of information collection and the dangers of regulatory capture. But when the subject being bargained concerns the means to reach environmental objectives which have already been fixed, individual firms become rivals. The logic of such negotiations lies in inter-firm bargaining arbitrated by the administration. Voluntary agreements tend to be an original negotiation-based policy instrument. Decentralised bargaining improves the allocative efficiency.

The limits and possibilities in designing the environmentally sustainable firm

Abstract: In the mid-1980s national and international pressures re-emerged on organisations to take responsibility for the environmental externalities created by industrial activities. With the Brundtland Report (1987) strong support for the principle of sustainable development in the protection of the natural environment emerged. This instigated organisations to engage in the development of environmental policies, incorporation of environmental strategies in product development, assessment of environmental impact of products and production activities, and increased green advertising. In spite of promising industrial environmental activities, a recent Swedish study (Arnfalk and Thidell, 1992) shows that the dominant force for environmental efforts remains legislation - or threats thereof - rather than integration of environmental criteria in designing and developing product- and production systems. To understand the limited response to environmental challenges we explored the sources of inertia in relation to environmental change activities in industrial networks (i) theoretically through a review of inter-organisational literature on industrial networks and change, and institutional approaches to organisation; and (ii) empirically through some insights from three case studies of the mobilisation and coordination activities in industrial networks involved in substituting the use of Chlorofluorocarbons, CFCs, in refrigerators, and in the production processes of flexible foam and circuit boards. The theoretical review suggests that organisations are embedded in dependency relationships with other organisations that will restrict the material resources and social relations any given actor has to its relevant environment and, hence, influence possible actions and outcomes of environmental change. Product, production, and administrative systems are highly coordinated and adapted to each other which places considerable limitations on the willingness and ability of network actors and systems, to change. The empirical studies show interdependencies and inertia in the technological as well as the relational systems. Evidence of the internalising of environmental problems into individual or network behaviour was not found. Instead, when forced to change, actors cooperated to find solutions within established relationships that did not alter existing products and production systems. On the firm and network levels of observation the pattern of response that emerged during the change processes was the diffusion of solutions, not by strategic design, but through overlapping and interlocked network relations, i.e., through processes of institutionalisation. Our study suggests that the re-orientation processes towards environmental sustainability in a firm can best be understood in the context of structures and processes on the network rather than on the organisational level.

Corporate environmental commitment: developing the operational concept

Abstract: This article attempts to develop an operational measure of the notion of Corporate Environmental Commitment (CEC), through an examination of CEO's perceptions of their firms' behaviour regarding a number of environmental items. This is done by identifying a number of salient items in the literature and integrating them into a survey instrument. The mail survey was administered to the key informants of the 1000 largest organisations in Australia of which 306 responded. Iterative Factor-Analysis of the data revealed that the questionnaire items (55 items in total) could be statistically collapsed into four factors representing the overall degree of ‘Corporate Environmental Commitment’. The four factors were (1) the degree to which environmental audits are emphasised as an environmental evaluation tool (Audit); (2) the existence and role of a clear and well disseminated environmental policy (Policy); (3) consideration of environmental impacts in assessing future corporate activities including investments & projects (Future Activities) and (4) incorporation of environmental issues in corporate appraisal systems (Appraisal Systems). Internal consistency within each of the four factors revealed significant reliability of all factors. It is suggested that the use of the four-factor method uncovered in this study bears significant practical relevance, allowing firms to assess their environmental commitment (EC) at the corporate level.

Pioneering descriptions of corporate greening: Notes and doubts on the emerging discussion

Abstract: This article reviews the emerging discussion on corporate greening The pioneering authors are found to have drawn on a number of perspectives in their descriptions of the greening process Their views emphasise the choice of an environmental strategy, reform in management systems, organisational change, cultural change and institutional change In spite of this conceptual diversity, the first accounts almost unanimously assume that greening will be, and should be, a top-down process starting from the top management and being implemented through formal measures This article suggest that these assumptions should be relaxed and both empirical research and managerial practice should be receptive to other varieties of greening, too In particular, informal and autonomous bottom-up processes may be very important in such a fundamental transition which greening may in some cases prove to be This argument is based conceptually on an institutional view on the logics of managerial action, and empirically on studies in other fields of managerial work and on a case study of environmental management in a Finnish chemicals company

Tales in two countries: An insight into corporate environmental reporting in Denmark and the UK

Abstract: The 1992 EC Fifth Action Plan, ‘Towards Sustainability’, expresses the Commission's commitment to ‘sustainable growth’. Detailed in the plan are requirements and areas of improvement which relate, predominantly, to environmental management. However, financial and environmental management conflict in important and fundamental areas. A failure of management practice and European policy to identify and address this conflict will not only prolong the ecological inefficiencies of industry but will isolate intent and action. This study examines this conflict with respect to training, operational time-horizons, opportunity costs, corporate governance and growth. The Annual Report is the authoritative statement of corporate performance, policy, objectives and culture. Although most reports do provide a broad if summary coverage of the main business activities, such reports are dominated by the needs of financial management. Extensive legislation and professional edicts dictate the contents of these financial reports. From the perspective of the Annual Report, it is a reasonable conclusion that financial performance is a part of whatever constitutes the core values of corporations. From this same perspective, it is also reasonable to infer that in many corporations environmental performance is not a part of corporate core values. This study compares and contrasts the Annual Reports of six environmentally significant companies in Denmark and the UK. The British environmental reports studied are thorough but separate from the Annual Report. On the other hand, the Danish firms incorporate all their environmental reporting within their Annual Reports. Which gives a better expression of a change in corporate core values?.

A case study of ethical/green/environmental funds, corporate governance and stakeholder management

Abstract: This paper investigates how far green, ethical and/or environmental funds are deployed to represent the interests of the individual investors and to what extent the business community is encouraged to adopt ‘greener’ behaviour. Data were collected through a questionnaire and developed in the form of a case study. Twenty green ethical and environmental funds were surveyed in the UK. The main findings are that fund managers claim that their funds are invested on behalf of the investors. They see their fund promoting the ethical/environmental values of the investors. Fund managers further think that they have an influence on companies they invest in and believe in encouraging companies to become better corporate citizens. There is, however, little evidence of funds' action on companies. While green/ethical funds, and more generally the financial community, are potentially powerful instruments of change, they are, however, still very much governed by conventional financial tools and criteria.

Prolonged gestation: Energy efficiency and renewable energy businesses

Abstract: Life cycle theories suggest that businesses evolve through a number of stages: from an embryonic stage of introduction to growth, maturity, and decline. The force that propels their development is consumer acceptance. Industries pass through life cycles as well. However, not all industries pass through each stage of the life cycle, and the duration of stages varies across industries. Some industries skip the slow introductory phase; others avoid the decline stage and are continually revitalised through technological innovation. Still others continue to show substantial promise, but fail to take-off. It is this industry condition, persistent promise without corresponding growth, that we characterise as extended gestation. We believe that energy efficiency and renewable energy (EERE) businesses in Minnesota face the challenge of extended gestation. In this paper, we review the literature on the traditional stages of industry development, explore some of the factors that may lead an industry to remain in a state of extended gestation, and report the results of a study undertaken to better understand the factors that affect the growth of EERE businesses.

Community advisory panels within the chemical industry: Antecedents and issues

Abstract: Community Advisory Panels (CAPs) are currently being sponsored by the American chemical industry as a way to repair lost trust. Over 200 CAPs are currently in operation. Their goals, composition and impact vary. Like governmental advisory committees they run the risk of being vehicles of persuasion as opposed to bodies which bring about organisational or health and safety changes. This article reviews the evidence we have to date about CAP operations and sets an agenda for future research.

The packaging industry is not carried away by public opinion

Abstract: The size and composition of our bin has changed over the years, as a result of the evolution of our way of living and our consumption habits. The wider range of goods now offered to consumers has resulted in significant augmentation of waste discarded in the form of packaging. The latter is estimated to represent about 30% by weight of total domestic waste. More than ever concerned about environmental issues, the public, alarmed by the media, has shown a strong interest in the problem of waste and waste management. Packaging is now felt as excessive, wasteful and bad for the environment, in particular plastic packaging since plastics are not as easily recycled as other materials. This paper, which includes the results of a consumer survey, brings to light the attitude and misconception of European consumers towards packaging and packaging materials and gives another insight into the problem.

Corporate environmental marketing: An environmental marketing action model

Abstract: A model of environmental marketing action and success is proposed, which includes a range of variables and examines the relationship between them. Environmental success is partly determined by the level of Environmental Marketing Action which varies between level 0 and level 8 and which directly determines the extent of environmental marketing success. Perceptions of environmental consciousness, the subjective norm and net total risk determine the level of environmental marketing action. Beliefs with regard to stakeholders and events and the motivation to comply with these beliefs combine to form the subjective norm.

Can transnational aluminium producers be ecologically sustainable? A case study of Jamaica's bauxite/alumina industry

Abstract: The purpose of this paper is to discuss whether the transnational aluminium corporations currently involved in Jamaica's bauxite/alumina industry are promoting an ecologically sustainable industrial development (ESID). ESID is defined as those patterns of industrialisation that enhance economic and social benefits for present and future generations without impairing basic ecological processes. This discussion will be pursued by comparing actual industrial performance against three proposed conditions that this pattern of industrialisation must satisfy if it is to be deemed ecologically sustainable: (1) It must minimise the degradation of the environment, (2) it must make the most efficient use of man-made and natural capital and (3) it must promote equity. These criteria are applied to two major environmental problems related to bauxite mining and storage of hazardous bauxite waste; rehabilitation of mined out bauxite fields and storage of hazardous bauxite residue. My findings indicate that the current activities of Jamaican bauxite/alumina production to a certain extent can be characterised as ecologically sound, insofar as the biosphere is not severely degraded. This is due to several measures initiated both to prevent environmental degradation as well as enhancing a more efficient use of production inputs. To be deemed ecologically sustainable, however, the industrial activity must also in accordance with the proposed criteria, promote equity. Regardless of extensive corporate initiatives beyond regulatory compliance, a significant share of Jamaica's potentially productive lands remains destroyed and/or occupied. Thus, 1 question whether the present pattern of Jamaican bauxite/alumina production can be characterised as ecologically sustainable.

The greening of the EC agrochemical market: Regulation and competition

Abstract: This paper analyses the process of harmonisation of national pesticides regulations in the EC. One of the outcomes of this process was, in 1991, the adoption of an EC regulation which includes new environmental requirements for pesticides to be sold on the EC market. This regulatory process shows an example of trade-off between competition policy and environmental policy. After having described the competition in the agrochemical sector, the paper examines this trade-off in two ways. Firstly, the behaviour of industrial interest groups throughout the process and their influence in the devising of the regulation is considered. Secondly, the impact of competitive issues on the implementation of part of the 1991 regulation (i.e. the re-registration of old pesticides commercialised in the EC) is analysed. This case study confirms some general results of the regulatory capture theory but it also points out some limits of these theories: firms seemed to be much more sensitive to negative pay-offs than to positive ones when deciding to become involved in this regulatory process. A second insight brought up by this case study concerns the link between competition policy and environmental policy and its influence on the efficiency of the latter. Environment-competition trade-off in the agrochemical sector confronts the regulator, when it adopts environmental policy, with two risks: a risk of changing the structure of the industry (from a differentiated and innovative one to a commodity one) if the regulator does not provide sufficient pay-offs for environmental R&D costs, or a risk of allowing part of the industry to increase monopoly rents. Both risks would affect environmental efficiency, either by reducing the innovation in the sector or by over-protecting ‘greener’ pesticides from competition on price.

From market failure to organisational failure

Abstract: In this paper, we argue that environmental economists who have dedicated their attention to problems of market and regulatory failure have been remiss in ignoring the potential for failure in the one institution that actually manages environmental resources - the business firm. Traditionally the firm has been modelled as a unitary, rational, optimising persona ficta. There is, however, abundant empirical and theoretical evidence to suggest that the business firm is an imperfect institution in that there are systematic deviations between the environmental objectives of the firm's leaders (principals) and the actions of the firm's employees (agents) which determine environmental performance. In the paper, we draw parallels between the causes of market failure and public policy tools to correct them on one hand and the causes of organisational failure and the management tools suited to their remedy on the other. Although much of the paper is concerned with the interrelationship between public policy that promotes sustainability and business policy to fashion a sustainable enterprise, our work is relevant irrespective of the reason why a firm's principal may want to improve environmental performance. No matter what the reason, the principal must concern him- or herself with operationalising objectives in management systems. It is consistent with the precautionary principle to assume that employees will do what the firm measures and rewards, not what its principal says is important. We build a verbal model, based on the language of principal-agent theory, to analyse how different management instruments might be employed to improve the firm's environmental performance. The model is one of three decision makers in a vertical hierarchy. Each of the first two has various instruments at its disposal to influence the behaviour of the agents subordinate to it. In the end, the goal is to ensure consistency between social, economic, and personal objectives. The specific management tools we analyse, with reference to the formal modelling which has appeared in the literature, include the compensation system, quantification and monitoring of non-financial objectives, internal pricing, horizontal task restructuring, centralisation vs. decentralisation of decision making, and corporate sanctions of agents for negligence. We conclude the paper by reiterating that the corporate policy statements to the effect that the firm should respect the environment are insufficient to ensure that result. In addition, firms' principals must operationalise that goal in the systems of measurement and control which govern the behaviour of those who really matter - the employees.