Determinants of an Environmentally Responsive Firm – an empirical approach

Henriques, I. & Sadorsky, P. (1996) “Determinants of an Environmentally Responsive Firm – An empirical appraoch” Journal of Environmental Economics and Management 30, 381-395 (1996) Article No. 0026

This article I think has a lot of relevance with this course as it was an extensive empirical study done on how and what will help to change the corporate mindset into implementing environmental measures. Henriques and Sadorsky’s findings were that a firms formulation of an environmental plan is positively influenced by the following:
• Customer Pressure
• Shareholder Pressure
• Government Regulatory Pressure
• Neighbourhood / Community Pressure

The authors carried out a survey of 750 Canadian companies of which 400 filled out the questionnaire. The survey results clearly indicated that, when firms were asked to specify the most important pressure source for creating an environmental plan, government regulations eqaulled almot 50% of the pressure and customers only 17%. This result I think is visible considering the fact that there is yet not sufficient pressure I would argue coming from the consumer. In contrast, the authors found that firms formulation of an environemntal plan is negatively influenced by the following:
• Other lobby group pressure sources
• Firms sales-to-assest ratio

An interesting finding was that firms in the natural resource sector are far more likely to formulate enivronmental plans, while firms in the service sector are less likely to have any plans. In todays society, the authors state that a firms decision making process is greatly influenced by environemntal regulations. They cite two main reasons as to why these regulations are necessary:
• Externalities – when the production of a good / service results in costs, such as pollution damage, which in the absence of regulation are unlikely to be born by the producer.
• Imperfect Information – whereby workers and consumers may be only partially aware of the health hazards associated with various occupations, consumer products or food stuffs.
A firm deciding to implement an environmetal plan must consider such benefits as the acquisition and/or maintanence of market share, efficiency gains and, importantly, increased positive reputation. Costs are inccured, such as: the cost of implementing the environmental plan, regulatory compliance costs and the associated opportunity costs forgone. To read more follow this link….

Henriques and Sadorsky highlighted five factors which, they argue, influence the likelihood that a corporation will draw up an enviromental plan:
• Environemntal Pressure – internal and external
• Financial Position of the company
• Attitude in relation to the environment
• Firm Size
• Industry Regulation

In defining an environemtally responsvie firm, the authors carried out an estimation sample of 331 firms, in which only 57 companies had plans which satisfied the following characterisitics:
1. Had a formal document describing the environmental plan
2. Had presented the plan to shareholders
3. Had presented the plan to employees
4. Had an environmental EHS unit
5. Had a board or management committee dedicated to dealing with environmental issues.
136 companies met at least one of these criteria, while the remaining firms in the study had no environmental plans.

In conclusion, I found the findings to be unsurprising but beneficial in their aim to educate and highlight the issues. The investigation and methodoly carried out by the authors was also both impressive and thorough and it highlights the fact that there is abundance of room left for further analysis regarding environmental issues and firms accountability.

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Posted in corporate sustainability, government policy

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