GLOBALIZATION'S spread has heightened concerns about the ability of national governments to regulate the conduct of multinational corporations with respect to environmental protection. National legal frameworks for environmental protection are less effective when companies easily can cross borders in pursuit of new business opportunities. Falling barriers to trade and foreign investment allow multinationals to take advantage of cross-country differences in environmental regulations: they can use foreign investment and global outsourcing strategies to relocate polluting activities to countries with lax environmental regulations.
However, the impact of multinational companies on the global environment may not be as negative as critics fear. Multinationals increasingly are facing non-governmental pressures for environmental protection. In response to these pressures multinationals are "self-regulating" their own and their suppliers' environmental conduct by setting "voluntary" standards that exceed the standards mandated by national government regulations. Multinationals' self-regulation can complement government regulations and can help to overcome the failure of national government regulations in the global economy.
While multinational companies' activities cause concern, multinationals also can be viewed as part of the solution to global environmental problems. Many groups participating in the United Nations Conference on Environment and Development held in Rio de Janeiro in 1992 agreed that business self-regulation is an essential element in achieving sustainable development. Multinationals have the financial, technical and organizational capabilities to address environmental issues.They can transfer these capabilities - developed partly in response to stringent environmental regulations in some countries - to their subsidiaries and suppliers in countries with less stringent regulations. These transfers likely will benefit other firms in the local economy, as domestic managers, workers and suppliers have the opportunity to learn about current environmental management principles and technologies.
In the last decade we have seen the emergence of new actors in the international arena that influence firms' environmental conduct. These actors are not a part of the national governments that traditionally have regulated firm conduct, but instead represent a wide range of other stakeholders.
Non-governmental organizations that advocate on behalf of a broad range of social and environmental interests have become important players in the globalization debate. Because NGOs have mobilized cross-nationally, they can play a role in filling the gaps that arise in a world where legal and political structures still are organized primarily at the level of nation-states.
The ability of NGOs to exert global influence on firm conduct has increased tremendously. NGOs have changed their strategies from influencing legal and policy-making processes to focusing on directly affecting firms' environmental conduct.
NGOs monitor corporate activities and publicly target firms using techniques ranging from street demonstrations to sophisticated public relations campaigns that put pressure on firms through mass media. NGOs also influence the behavior of customers in the marketplace by articulating environmental concerns and framing alternatives.
NGOs are extending their pressures through companies' supply chains. By targeting firms with brand reputations at the retail end of supply chains, NGOs are able to use the power and vulnerability of corporate brand names to change the behavior of suppliers in environmentally sensitive industries.
For example, several NGOs carried out highly visible campaigns criticizing the forest product-purchasing practices of Home Depot and Lowe's to force them to require firms in their international supply chains to adopt responsible environmental practices. As a result both companies committed to give preference in their purchasing policies to environmentally-certified wood products.
This example highlights the importance of environmental certification schemes that allow customers to distinguish between the environmental conduct of different suppliers. A variety of environmental certification schemes have emerged in the past decade, some initiated by NGOs, such as the Forest Stewardship Council's Forest Certification Initiative, and some by other organizations, such as the International Organization for Standardization's ISO 14001 Environmental Management System Certification. Firms can obtain these certifications through independent audits of their environmental management practices.
Empirical evidence shows that multinationals and their suppliers indeed are self-regulating their environmental conduct. Multinationals often adopt stringent internal minimum environmental standards for all their operations worldwide, which thus limits their ability to take advantage of cross-country differences in environmental regulations.
Many studies, including my own research in China, have shown that the environmental performance of multinationals in developing countries with weak environmental regulations often is better than local firms' performance. Studies also suggest that pressures for environmental protection are diffusing through global supply chains and that the influence of customers on environmental conduct has increased relative to regulators since the 1970s.
My research shows that Chinese firms selling to foreign customers are more likely than firms selling to domestic customers to adopt stringent environmental standards and certification schemes. These findings indicate that national government regulations are becoming less important as a determinant of environmental conduct as customer and NGO requirements become more relevant.
While self-regulation cannot replace government regulation, it can complement national regulations especially in developing countries, which often suffer from weak environmental government regulations and/or problems with enforcement of regulations.
Admittedly, firm self-regulation often lacks external enforcement and might not be more than a public relations exercise. Environmental certification schemes that incorporate enforcement through independent audits can mitigate this shortcoming. Accordingly, government regulations will continue to be critical for environmental protection.
But when private firms are motivated and able to participate in self-regulation schemes that are properly conceived, designed and implemented, self-regulation can be a less costly, more flexible and more effective means to achieve environmental protection on a global scale.
(Petra Christmann is an assistant professor of Business Administration in the Darden School.)
Read More
From the Archives: Celebration and Reflection (4/28 - 5/4)
By Clara Franklin and Annabelle Nee | 13 hours agoFrom The Purple Shadows breaking into the Dean of Students’s office to multiple student athletes accused of honor code violations, the graduating class’s four years were a wild ride.
PBS NewsHour correspondent speaks on bringing humanity to international conflict
By Grace Little | YesterdaySchifrin's work exploring Putin’s Russia, his coverage of COVID-19 and his reporting in Afghanistan and Ukraine have earned him various accolades.
Spring meal swipe drive aims to tackle food insecurity at the University
By Nicolas Biernacki | 2 days agoU.Va. Dine facilitated the drive by converting each meal swipe donated by a student into one pound of food that is then donated to the CFP.
