Dec 4 2019
The United Nations Climate Change (COP25) World Climate Summit that is currently taking place in Madrid is the most recent initiative by world governments to pursue an agreement on legal frameworks to help safeguard Earth.
This is Alberto Aragón Correa. Professor of Business Management, University of Granada. Image Credit: UGR Divulga.
However, there are still many important voices that question how effective the laws are in bringing down pollution.
Those who oppose the regulation claim that laws can result in systems that are highly rigid and incapable of adapting to technological variations. Others feel that firms will discover ways to avoid legal controls and that laws do not lead to major progress. However, this evaluation of research on the subject indicates a scenario that is, in fact, much more positive toward the potential of environmental regulation.
A group of three researchers led by Alberto Aragón, Professor of Business Management at the University of Granada, carried out a thorough review of the key empirical research outcomes on environmental regulation and business management. The focus of the study was to provide recommendations based on points of consensus.
The study was performed along with Professor Alfred Marcus (University of Minnesota) and Professor David Vogel (University of Berkeley) and is ready for publication in Academy of Management Annals—the world’s leading research journal according to impact factor in the categories of “business” and “management.”
The research carried out by Aragón, Marcus, and Vogel studied the results of nearly 70 studies published in top academic journals worldwide. Overall, the samples of the studies assessed comprised of around 97,000 observations made by firms conditional on various environmental regulations.
The studies looked into firms and regulations from a number of countries, focusing specifically on the United States but also including firms situated in Canada, Taiwan, China, Australia, the European Union, Costa Rica, and India, among others. The findings of the current study differentiate between the effects of voluntary and compulsory environmental regulatory pressure.
Compulsory laws are the most extensively known, and the studies showed that these exerted a more powerful effect on bringing down pollution among the firms in question than any other factor examined—even more than the pressures given by customers.
Moreover, the team identified variations between the effects attributed to the investigations that assist firms to use specific technologies to realize compliance and those that help them to accomplish specific objectives or outcomes.
In competitive terms, technology-centric performance standards can be more challenging because fixed systems can become obsolete or may be incompatible with the specific conditions of many firms.
However, those that are based on setting goals allow each firm to choose the most suitable procedures at all times and support them to constantly improve if the goal is related to that of the best performers.
Such result-based regulations have been found to be strikingly more effective, but all compulsory environmental regulations exert great power among firms to minimize pollution. Simultaneously, the studies found no significant, generalized decline in competitiveness or profitability among firms due to their execution of these regulations.
Several firms even become more competitive because of the technological advancements related to their efforts to meet the compulsory standards. Moreover, the option of self-regulation was designed exactly to allow even more flexibility for firms.
In the recent past, voluntary environmental regulation has been established to be a very popular development, but its results concerning the impulse to bring down environmental impact have been moderate. Self-regulation implies that the company is free to adhere to a particular standard, or not.
The ISO 14000 systems or the EMAS system introduced by the European Union are among the most popular voluntary environmental regulations. Globally, nearly 400,000 companies have voluntarily obtained an ISO14001 certificate to exhibit their compliance via an environmental management system in their facilities.
Weak Compliance Control
The study carried out on this type of standard exposes two distressing factors. Firstly, compliance control is usually weak, which weakens the reliability of the system. Secondly, many firms tend to focus on the administrative needs to realize certification, ending up in the trap of “symbolic compliance.”
However, all of the studies emphasize that voluntary regulations present facets that make them supposedly interesting, given that specific conditions are met in their design.
After an in-depth review of the scholarship dealing with this matter, Aragón, Marcus, and Vogel suggest a series of recommendations for future regulations, highlighting the significance of three central aspects.
First, organizations and governments that endorse voluntary regulations should be attentive not only with the regulation itself, but also with its tracking, to guarantee its effectiveness. Second, the regulations should concurrently seek to involve both compulsory and voluntary elements, in an effort to integrate the flexibility and effectiveness that symbolizes each type.
Finally, the study recognizes that changes in regulatory requirements worldwide produce temptations for several governments and firms, which believe that by decreasing their environmental efforts, they can secure economic benefits.
Therefore, international regulations that are endorsed by the countries regarded as the heaviest polluters would be an important step toward realizing crucial future progress. The team looks positively to events such as the World Climate Summit, while acknowledging that only very less globally coordinated regulatory advances have been realized to date.