CSR Research: Environmental Sustainability

Environmental innovation can be a positive response to activist pressure from regulators and non-governmental activists.

With the increasing prevalence of sustainability reporting, many firms are becoming more sensitive to the external ramifications—including financial penalties—of their environmental performance. Research finds that poor environmental performance results in increased cost to the company through greater expectations for return on equity and higher interest rates.

Investing in environmental products can improve consumer brand attitude. A recent study found that consumers felt more positively about a brand when it introduced green products.

Researchers studied the effects of the 2001 Climate Change Levy—a climate change policy that the U.K. imposed on manufacturing, and found that it reduced energy intensity in the manufacturing sector, with no negative impact on employment, gross output, or productivity.

Analysts and investors are increasingly interested in firms’ environmental performance to determine how well they manage exposure to environmental risk, and rely on transparent corporate citizenship reporting to make their assessments. This research finds that the market penalizes firms for increases in carbon emissions, yet, on the whole, values companies that proactively disclose carbon emissions more highly.

Some boards may be better positioned to navigate complex environmental issues and prioritize the long-term benefits of environmental performance. Firms with larger, more independent boards comprised of directors that have specialized knowledge of potential environmental impacts (CEOs of other companies, lawyers) have better environmental performance.

A company’s environmental performance affects its financial performance. The market penalizes negative environmental performance—such as high CO2 emissions, and rewards investments in positive environmental performance—such as environmental R&D.

Consumers are more likely to change their behaviors as a result of a carbon tax than an equivalent change in the price of gasoline.

A firm’s pollution prevention or reduction efforts can be significantly enhanced by taking advantage of federal and state support. When voluntary programs such as federal matching grants or state efforts such as technical assistance, educational outreach, awards, and grants are utilized, toxic emissions are reduced more than when they are not.

By making small changes to improve the sustainability of existing systems work processes, companies can significantly improve resource conservation and reduce costs.

Environmental boycotts and proxies are increasingly used by stakeholders to alter a firm’s environmental behavior. Firms seeking to avoid proxy proposals or boycotts would do well to proactively adopt environmental management systems.

Both regulatory mandates and competition have significant effects on a firm’s decision to invest in renewable energy. While both competitors’ actions and policy reduce uncertainty with respect to the perceived value of a resource, firms’ pay greater attention to a regulatory mandate than competition when deciding whether to invest in renewable energy, and what source to choose.