Sidebar: Market Forces
by Melissa Braddock
In recent years, businesses have been realizing that cleaning up manufacturing processes and preventing pollution in the first place makes good business sense—it’s profitable. Recent research shows that friendly environmental policies attract customers and enhance stock prices, suggesting advantages to good environmental management that extend beyond avoiding government fines.
As a result, many businesses are looking toward sustainable practices to improve their bottom lines. In one study, researchers Michael Russo and Paul Fouts followed the economic and environmental performance of 243 Fortune 500 companies for two years. They found that companies with superior environmental performance had higher returns on investment than competitors. Other studies have concluded that corporations that do well environmentally tend to be less risky investments than those with lower marks.
Applying stringent global environmental standards is more profitable for multinational corporations than defaulting to lower, poorly enforced local standards, according to a study published in the journal Management Science. Of the companies examined, firms choosing to employ their own strict global environmental standard in manufacturing abroad had an average value approximately $10.4 billion higher than those using less stringent local standards. Nearly 60 percent of the companies observed voluntarily adhere to more stringent global standards.
Customers are increasingly demanding products that not only perform their function but also strive to have the least environmental impact. Socially and environmentally screened investment funds are becoming more common and, significantly, many are outperforming traditional funds by large margins.
Market mechanisms and other financial incentives are powerful motivators, but government regulations are still needed to kick-start and supervise industry environmental policies. However, many researchers point out that legislation that is too strict or inflexible can hinder industry’s attempts to find cost-effective environmental solutions.
Economist Richard Damania argues that harsh fines and penalties against polluters are the wrong way to approach the problem, and are likely to do more harm than good, particularly in developing nations where corruption is often rampant. Harsher penalties appear to encourage corruption and bribery, ultimately causing more environmental damage, says Damania. Thailand, for example, has stringent regulations and fines, yet remains badly polluted. Because bribery is so common, more stringent laws simply drive up the asking price for bribes. To afford them, companies step up production (and pollution). Likewise, raising the tax against pollution simply drives up the incentive to give out bribes and under-report emissions.
Problems with corruption are not limited to the Third World. A recent British report stated that Britain’s high green taxes had boosted fuel smuggling and cross-border shopping, costing the Treasury $1.3 billion a year. On the other hand, high landfill taxes in Denmark have boosted construction-waste reuse from 12 to 82 percent in eight years, according to a report by the Worldwatch Institute.
—Melissa Braddock, FONZ intern.
ZooGoer 32(1) 2003.
Copyright 2003 Friends of the National Zoo.
All rights reserved.
