Management values trump regulations

David Erwin

The evidence is mounting: The vast majority of Oregon businesses are making decisions based on their potential impacts on the environment. Most top managers of Oregon businesses feel responsible for the environment. 

A comprehensive study funded by the U.S. Environmental Protection Agency (EPA) and conducted jointly by Portland State University (PSU), Oregon State University (OSU) and the University of Illinois at Urbana-Champaign (UIUC) surveyed 689 Oregon businesses with at least 10 employees in six industries: building construction, food manufacturing, wood products manufacturing, computer and electronics manufacturing, ground transport and accommodation. The study, known as the Oregon Business Decisions for Environmental Management (OBDEM) Project, appears to be the most comprehensive study of its kind.

Across all the industries, of all motivations queried, the idea that upper management believes it has a moral responsibility to protect the environment received the highest average rating. Over 82 percent agreed or strongly agreed with this idea, and only five percent did not. Nearly 65 percent also agreed their organization should help conserve society’s limited natural resources. Moreover, when asked whether upper management supported environmental protection even at substantial cost, 55 percent agreed or strongly agreed.

These numbers suggest that strong management attitudes toward environmental stewardship permeate the Oregon business mainstream, and are no longer simply the purview of leading-edge companies. This finding is particularly robust because the study is unusual in that the sample—dominated by small, privately held businesses—reflects U.S. industry more closely than previous studies, generally dominated by large, publicly traded manufacturers.

Sounds good, but are managers walking the talk? Results from the OBDEM study showed that strong environmental stewardship values had the largest impact on the level of environmental policy and practice, even after controlling for regulation, market and other influences. And stronger corporate environmental policy and practices significantly increased the level of pollution prevention activities. The findings suggest that, contrary to conventional wisdom, many businesses look beyond the financial-bottom-line in environmental decision-making.

Given the pro-environment attitude expressed by most managers in the study, where does environmental regulation fit in? Theory posits that well-crafted regulation—performance-based, not prescriptive—can be critical to voluntary environmental management by identifying issues, setting targets, creating a level playing field, and providing technical assistance, education and other support to businesses working to improve environmental performance.

The OBDEM study offers evidence of the synergy between regulation and voluntary efforts, finding regulatory pressures have a significant influence on both the implementation of environmental management practices and participation in voluntary environmental programs such as EPA’s Energy Star and the U.S. Green Building Council’s LEED (Leadership in Energy and Environmental Design).

A recent study by the Economist, “Doing Good: Business and the Sustainability Challenge” also supports the “synergy hypothesis” by concluding that global business leaders are open to more regulation on social and environmental issues, for example carbon emissions. Essentially, they want clear “rules of the game” with the flexibility to respond in the most effective, lowest-cost ways. 

While OBDEM responses show environmental management depends on management attitudes and regulation, many sources suggest a host of economic forces, ranging from consumer demand, investor pressures and supply chain requirements, to cost control, competition and risk management, contribute to more sustainable business practices.

On the other hand, the cost of environmental management is thought to be a significant drag on voluntary efforts. Considering all factors, the OBDEM study found that investor pressures and competition significantly increased, and cost significantly decreased, environmental management effort. However, none of the market forces were as powerful as upper management values or regulation.

Interestingly, particularly given the importance of regulation, the OBDEM study suggests much voluntary environmental management is “informal.” In all, 36 percent of respondents reported exceeding compliance on at least one regulated impact (such as water pollution), while 44 percent reported improvements in at least one impact area.

Meanwhile, only 20 percent of respondents reported participating in a formal voluntary program, the most popular being Energy Star, LEED, and ISO 14001 certification. Estimates from several studies suggest that program participation is not particularly high, typically up to around 30 percent of a sample.

Indicators of program success are just as important as participation rates. OBDEM data on environmental performance is limited due to low response rates, but the results indicate a possible positive association with program participation. Program participants had implemented more environmental practices on average than non-participants, and reported better performance than non-participants for several specific impacts:

• Participants recycled 59 percent on average, compared to 44 percent of non-participants
• Nearly twice as many program participants reported exceeding solid waste regulations, decreasing solid waste generation, and reducing electricity use than non-participants.
• Over 24 percent of program participants had reduced hazardous wastes, compared to 10 percent of non-participants.

Participants also reported ‘holding the line” better than non-participants—only 3 percent increased electricity use, compared to 38 percent of non-participants.

One caveat is that results for program participants may be more representative of larger companies. Larger companies were more likely to participate in voluntary programs, suggesting such companies can better afford participation costs, or that they are more interested in public recognition than smaller companies. Voluntary programs often offer recognition and use of a logo or other promotional materials as benefits.

The study suggest than many Oregon companies are “walking the talk.” Findings indicate most managers feel a serious environmental responsibility, and this attitude translates into greater environmental efforts. Firms where managers felt greater responsibility had implemented more environmental practices, such as employee training and regular audits, and were making greater efforts at continuous improvement, pollution prevention, and waste reduction.

Regulatory and market forces, and, apparently, voluntary programs, reinforce these efforts. However, low program participation suggests that a “one-size-fits-all” approach is not likely to appeal to most businesses, especially small ones. Meanwhile, costs remain a barrier to voluntary efforts.

Moving forward, aggressive efforts to transition from prescriptive regulation to flexible, performance-based approaches, along with research and education which help develop cost-effective solutions, should pay substantial dividends for both business and the environment. For these researchers, given that management attitudes affect environmental performance so significantly, the big question is: what affects these attitudes? That’s where we’re headed next.

David Ervin is Professor of Environmental Studies and Director of PSU’s Center of Sustainable Processes and Practices, and the study team leader. Cody Jones is a graduate assistant and Ph.D. candidate at PSU. The perspectives, information and conclusions convey the viewpoints of the authors and may not represent the views and policies of the Office of Research and Development and the U.S. Environmental Protection Agency. The authors gratefully acknowledge the many contributions to the OBDEM project by Junjie Wu and Terry Wirkkala at OSU, Madhu Khanna and Cameron Speir at UIUC  and Patricia Koss at PSU. Email questions or comments to ervin@pdx.edu or jonesc@pdx.edu. Project information and a summary of findings are available at: http://obep.research.pdx.edu/.