Neil Gunningham

Explaining Corporate Environmental Performance: How Does Regulation Matter?

Explaining Corporate Environmental Performance: How Does Regulation Matter? Robert A. Kagan Dorothy Thornton Neil Gunningham How and to what extent does regulation matter in shaping corporate behavior? How important is it compared to other incentives and mechanisms of social control, and how does it interact with those mechanisms? How might we explain variation in corporate responses to law and other external pressures? This article addresses these questions through an study of environmental performance in 14 pulp and paper manufacturing mills in Australia, New Zealand, British Columbia, and the states of Washington and Georgia in the United States. Over the last three decades, we find tightening regulatory requirements and intensifying political pressures have brought about large improvements and considerable convergence in environmental performance by pulp manufacturers, most of which have gone ‘‘beyond compliance’’ in several ways. But regulation does not account for remaining differences in environmental performance across facilities. Rather, ‘‘social license’’ pressures (particularly from local communities and environmental activists) and corporate environmental management style prod some firms toward better performance compliance than others. At the same time, economic pressures impose limits on ‘‘beyond performance’’ investments. In producing large gains in environmental performance, however, regulation still matters greatly, but less as a system of hierarchically imposed, uniformly enforced rules than as a coordinative mechanism, routinely interacting with market pressures, local and national environmental activists, and the culture of corporate management in generating environmental improvement while narrowing the spread between corporate leaders and laggards. I. Introduction I n what ways and to what extent does regulation matter in shaping corporate behavior? How important is it compared to The authors are grateful to scores of pulp mill managers, regulatory officials, industry consultants, and environmental activistsFall of whom must remain anonymousFfor their cooperation and insight. David Sonnenfeld, Kathryn Harrison, Peter May, and anonymous reviewers all gave us valuable advice on earlier drafts. Biyi Abesina provided valuable research assistance. The Center for the Study of Law and Society, University of California, Berkeley, provided space, administrative assistance, and social support for the research project that led to this article, and the Smith Richardson Foundation funded our research. Please direct correspondence to Robert A. Kagan, Center for the Study of Law & Society, University of California, 2240 Piedmont Ave., Berkeley, CA 94720; tel: (510) 642-4038; email: rak@uclink4.berkeley.edu. Law & Society Review, Volume 37, Number 1 (2003) r 2003 by The Law and Society Association. All rights reserved.

The New Collaborative Environmental Governance: The Localization of Regulation

This article examines the new collaborative environmental governance, an enterprise that involves collaboration between a diversity of private, public, and non-government stakeholders who, acting together towards commonly agreed goals, hope to achieve far more collectively, than individually. Such an approach appears to blur the familiar sharp boundaries that separate ‘the state’ from civil society, yet we still know very little about exactly what this blurring of public and private adds up to, and what its implications are. This new form of governance is examined through the lens of three Australian case studies. Each of these studies involves participatory dialogue, flexibility, inclusiveness, transparency, institutionalized consensus-building practices, and, at least to some extent, a shift from hierarchy to heterarchy. The paper examines the relationships between new and old governance, the architecture of these new initiatives, the role of the state, and the importance of negotiating in ‘the shadow of hierarchy’.

Sources of Corporate Environmental Performance

What motivates business firms to significantly improve their environmental performance? Why do some companies achieve better environmental performance than others? Through a study of 14 pulp mills in the U.S., Australia, New Zealand, and Canada, this article shows that more stringent regulatory requirements and increasing political pressure have brought about large improvements and convergence in environmental performance over the last 30 years, with many mills exceeding compliance requirements. In addition, corporate environmental management style and social license pressures from local communities and environmental activists have prodded some facilities further beyond compliance than others, while economic pressures have limited just how far ahead facilities have been willing to move.

Toward Optimal Environmental Policy: The Case of Biodiversity Conservation

Introduction .................................................... 244 I. The Context for Policymaking .......................... 247 A. The Importance of Biodiversity Conservation ...... 247 B. Pressures on Biodiversity ........................... 248 C. Australias Biodiversity Record ..................... 249 D. Biodiversitys Special Features ...................... 251 E. Evaluation Criteria ................................. 252 II. Towards an Optimal Policy Mix ......................... 253 A. Motivational and Informational Mechanisms and Instrum ents ......................................... 255 1. Motivational Instruments ....................... 256 2. Informational Instruments ...................... 257 B. Voluntary Instruments .............................. 259 C. Property Rights and Price-Based Instruments ...... 263 D. Regulatory Instruments ............................. 271 E. The Role of Precautionary Regulation .............. 274 F. Mixing Voluntary, Property Right, Price-Based, and Regulatory Approaches ............................. 276 III. D esign Criteria ......................................... 279 A. Designing for Precaution ........................... 280 B. Preference for Underlying Causes .................. 281

Harnessing third parties as surrogate regulators: achieving environmental outcomes by alternative means

The need to design innovative strategies alternative or complementary to that of government regulation is becoming increasingly apparent. This article examines one such innovation: to use both business and commercial entities and non-commercial third parties as surrogates for, or complements to, direct government regulation. This strategy will still involve government intervention, but selectively and in combination with a range of market solutions, and of public and private orderings. The contexts and circumstances in which third parties might be used as surrogate regulators are considered; the impediments to them acting in this role and the extent and circumstances in which they might be overcome are identified; and the roles that governments might play in facilitating, encouraging or otherwise ensuring that third parties do act successfully as surrogate regulators are examined. Copyright

Non-State Governance and Climate Policy: The Fossil Fuel Divestment Movement

This article charts the evolution of the divestment movement, a transnational advocacy network that uses a range of strategies to shame, pressure, facilitate, and encourage investors in general, and large institutional investors in particular, to relinquish their holdings of fossil fuel stocks in favour of climate-friendly alternatives. It describes the movements central characteristics and the strategies it employs, it maps its basic architecture and the potential role it plays in the broader climate change regime complex, and shows how it represents a novel form of private investor-targeted climate change governance, operating primarily through symbolic political action and as a norm entrepreneur. Given the potential importance of the movement, the model it may provide for other forms of private governance, and the paucity of analysis of its implications for climate change mitigation, this article addresses an important descriptive and analytical gap in the climate policy literature. Policy relevance The early success and rapid growth of the divestment movement suggests it may play a significant role within the broader sphere of climate change policy. This article shows how the movement has used the aggregation, packaging, and dissemination of scientific fact and moral argument, and local and international campaigning, direct action, lobbying, and knowledge construction to steer the actions of investors. More broadly it demonstrates how shaming, persuasion, and empowerment can be used as strategies to bring about economic and political change and to catalyse the ‘energy revolution’ that many see as the essence of effective climate change mitigation. In so doing, the article indicates how climate policy can be advanced by novel forms of private governance, and (so its proponents would argue) how more might be achieved by unconventional means and leveraging the private sector than governments have managed by conventional means in some two decades.

Confronting the Challenge of Energy Governance

There is a compelling argument for developing a low carbon emissions trajectory to mitigate climate change and for doing so urgently. What is needed is a transformation of the energy sector and an ‘energy revolution’. Such a revolution can only be achieved through effective energy governance nationally, regionally, and globally. But frequently such governance is constrained by the tensions between energy security, climate change mitigation and energy poverty. At national level, there is a chasm between what is needed and what governments do ‘on the ground’, while regionally and globally, collective action challenges have often presented insurmountable obstacles. The article examines what forms of energy law, regulation and governance are most needed to overcome these challenges and whether answers are most likely to be found in hierarchy, markets, or networks.

Regulation and the Role of Trust: Reflections from the Mining Industry

The role of prosecution in achieving compliance with social regulation is a highly contentious issue, nowhere more so than with regard to work-related injury and death in the New South Wales mining industry. Following a mining disaster, political pressure prompted the mines inspectorate to abandon its traditional ‘advise and persuade’ approach in favour of a much tougher, deterrence-oriented approach. Our field-work suggests that while the former approach can result in regulatory capture, the latter can be equally counterproductive. In the mining industry, interactions between inspectors and the regulated industry are frequent and ongoing and trust is central to constructive relations. When those relations break down (as under an inappropriate prosecution policy) then dialogue ceases, information is withheld rather than shared, in-firm accident investigation, prevention, and remedial action are inhibited and both sides retreat to a form of adversarialism that undermines regulatory effectiveness. Through a 20-year case study of the mines inspectorate, the article demonstrates the centrality of trust to regulatory effectiveness, how it can be lost, and how it can best be regained.

A shale gas revolution for China

The question of whether China is on the verge of a ‘shale gas revolution’ is examined. This has potentially significant consequences for energy policy and climate change mitigation. Contrary to the optimistic reading of some commentators, it argues that various technological, environmental, political, regulatory and institutional factors will constrain the growth of Chinas shale gas market and that such a revolution might in any event have consequences that are at best mixed, at worst antithetical to climate change mitigation.Policy relevanceChinas reserves of unconventional gas have the potential to transform energy policy, as has occurred in the US, resulting in the substitution of shale gas for coal in the energy mix. Because gas emits only approximately half the GHG per unit as coal, such a move would have important implications for climate policy. However, substantial obstacles stand in the way of the ‘energy revolution’ that some policy analysts see China as embarking upon. The need to acknowledge these obstacles, particularly those relating to regulation and governance (and whether or to what extent they can be overcome), is an issue of profound importance to the future of climate and energy policy.

Green alliances: conflict or cooperation in environmental policy

Environmental partnerships (‘green alliances’) between NGOs and business, provide an additional policy option which can make a variety of contributions to environmental protection and ultimately, to sustainable development. Yet despite the potential policy significance of such partnerships, our knowledge of, what works and what does not work, and or how best to design such partnerships, remains very limited. From the authors own empirical work and from the broader analytical and empirical literature, this article seeks to identify the circumstances in which such partnerships can most beneficially be formed, their major commercial and environmental benefits, and the design factors which will influence their success.Environmental partnerships (‘green alliances’) between NGOs and business, provide an additional policy option which can make a variety of contributions to environmental protection and ultimately, to sustainable development. Yet despite the potential policy significance of such partnerships, our knowledge of, what works and what does not work, and or how best to design such partnerships, remains very limited. From the authors own empirical work and from the broader analytical and empirical literature, this article seeks to identify the circumstances in which such partnerships can most beneficially be formed, their major commercial and environmental benefits, and the design factors which will influence their success.