Abstract
This chapter focuses on an increasingly popular phenomenon—corporate environmental responsibility (CER). The key question that is addressed is how CER can be viewed from a law and economics perspective and, more particularly, whether CER can be considered as an example of conditioned self-regulation, i.e., a form of voluntarism which is to some extent backed by government regulation. To answer this question, we analyse CER from a law and economics perspective, providing the arguments why particular firms may engage in altruism on a voluntary basis. We also explain to what extent CER can be a useful instrument in curing the market failure caused by environmental externalities. However, we equally argue that because of a risk of so-called “green washing” some regulation (i.e., control on self-regulatory mechanisms) is perhaps necessary to accompany the effectiveness of CER. We equally address CER within a corporate governance structure, hence addressing principal-agent issues related to the question of whether the interests of shareholders and managers are always aligned as far as the pursuance of CER is concerned. To the extent available, we use empirical studies providing evidence on the effectiveness of CER.
The importance of CER for the case of China is clear: given the huge ecological crisis in China, the question arises whether the (apparent) failure of the current regulatory framework in China can (at least to some extent) be remedied by convincing the corporate world in China of their own interest in moving towards CER. Attention is paid to the question of whether the institutional environment in China is promising as far as the implementation of effective CER mechanisms is concerned.
Mengxing Lu is receiving a scholarship from the China Scholarship Council for her research.
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Notes
- 1.
Carroll (1999) held that the concept of corporate social responsibility had a long history, but CSR did not surge in importance until the 1960s and beyond. Vogel (2006) also argued that, although some principles and practices of CSR could date back to more than a century, it was since the early 1990s that CSR had become a considerably important phenomenon.
- 2.
In some literature, CER is also referred to as environmental CSR.
- 3.
Elkington (1998).
- 4.
See on the increasing popularity of CSR at the government policy level inter alia Moon and Vogel (2008), pp. 303–323.
- 5.
Friedman (1970).
- 6.
See for example Posner (2003), pp. 435–436.
- 7.
Engel (1979), p. 1.
- 8.
See, for example, one of the well-known sustainability indices is the Dow Jones Sustainability Indices (DJSI), which was launched in 1999, as the first global sustainability benchmark. The mission of DJSI is to track the stock performance of the world’s leading companies in terms of economic, environmental and social criteria. According to the Annual Review of Dow Jones Sustainability Indices (2013), about 3000 companies around the world were invited to be assessed by DJSI. More information about DJSI can be accessed at: http://www.sustainability-indices.com.
- 9.
Some scholars observed that in the last decades, CSR rating agencies have experienced a pronounced growth. A CSR rating agency is any organisation that assesses the social and environmental performance of corporations, and its mission is to make corporation’s social and environmental effects transparent and available to stakeholders, and corporations attempt to improve their images by publicising positive ratings. The well-known rating agencies include e.g., RobecoSAM, the MSCI KLD 400 Social Index, and Vigeo. However, despite the rapid development of CSR agencies, there are also growing concerns over the transparency and credibility of rating agencies. See on various issues of rating agencies inter alia Scalet and Kelly (2010), pp. 69–88; Chatterji et al. (2009), pp. 125–169; and Dommerholt (2012), pp. 45–64.
- 10.
The forms and intensity of CSR may differ among different sectors, among different districts and nations (like the U.S. and the European Union), and among nations at different development levels (like developed countries and developing countries).
- 11.
Van den Bergh (2013), pp. 129–199.
- 12.
While some scholars insist on the voluntariness of CSR/CER mechanism, other scholars argue that today CSR/CER consists of both voluntary and mandatory elements. For example, Eijsbouts (2011) holds that “there is no point in debating whether CSR as such should be either voluntary or mandatory” and Kerr et al. (2009) also suggest that both voluntary and mandatory elements can have a “complementary role to play”.
- 13.
Vogel (2006).
- 14.
Some organisations and scholars pointed out that, although today China has developed a relatively comprehensive framework of environmental laws and regulations, there remain many deficiencies in the enforcement of Chinese environmental law and regulation, such as superficial enforcement, inadequate and weak sanctions, lax investigations and delayed punishment, and so on. See on the various problems with environmental law enforcement in China inter alia Wang (2006), pp. 159–194; Ma and Ortolano (2000); and OECD (2006).
- 15.
- 16.
The traditional instrument for environmental protection is environmental regulation, and governmental officials at various levels are responsible for developing, implementing and enforcing important public environmental regulation. See Van den Bergh (2013), pp. 130–133.
- 17.
Coase (1960), pp. 1–44.
- 18.
Kitzmueller and Shimshack (2012), p. 64.
- 19.
Kitzmueller and Shimshack (2012), p. 72.
- 20.
Kitzmueller and Shimshack (2012), p. 73.
- 21.
Martinez Gandara (2013), p. 134.
- 22.
Akerlof (1970), pp. 488–500.
- 23.
See inter alia Shavell (1980), pp. 1–25.
- 24.
For example, because the damage can be wide-spread, victims can believe damage has natural causes, victims cannot be identified, and long latency periods and problems of causation may exist (Shavell 1984, pp. 357–370).
- 25.
Dewees et al. (1996), p. 315.
- 26.
Johnston (2007), p. 353.
- 27.
For a comparison see inter alia Faure and Weishaar (2012), pp. 399–421.
- 28.
Faure (2012), pp. 309–310.
- 29.
Kitzmueller and Shimshack (2012), p. 53.
- 30.
Van den Bergh (2013), pp. 129–199.
- 31.
For example, the flower industry of Colombia, as one of the major exporters of cut flowers to Europe, had created the Florverde program to encourage members to adopt a set of environmental friendly standards to satisfy the high standards of the European Union. See Lyon and Maxwell (2008), p. 244.
- 32.
- 33.
- 34.
See inter alia Philipsen (2003), pp. 38–39. See also the contribution to this book by Piri Damagh and Faure.
- 35.
Indicating a potentially long time laps between the moment of the emission and the moment that the damage may occur.
- 36.
Kitzmueller and Shimshack (2012), p. 52.
- 37.
The data is from The Body Shop International Values Report 2011. An English version of this report can be accessed at: http://www.thebodyshop.com/content/pdf/global-values_report.pdf. Accessed 16 July 2014.
- 38.
Wal-Mart publishes and regularly updates Standards for Suppliers, which are utilised to evaluate employment practices and environmental compliance in facilities producing merchandises for sale by Wal-Mart. The latest version was adopted in April, 2014 and can be accessed at: http://corporate.walmart.com/global-responsibility/ethical-sourcing/standards-for-suppliers. Accessed 1 August 2014.
- 39.
See Wal-Mart’ Standards for Suppliers, which can be accessed at: http://corporate.walmart.com/global-responsibility/ethical-sourcing/standards-for-suppliers. Accessed 1 August 2014.
- 40.
See The Body Shop International Values Report 2011. An English version of this report can be accessed at: http://www.thebodyshop.com/content/pdf/global-values_report.pdf. Accessed 16 July 2014.
- 41.
Friedman (1970).
- 42.
Posner (2003), p. 435.
- 43.
Posner also argued that even in monopolistic markets there are no bright prospects for corporate social responsibility. The reasoning in that case is that it would lead to losses to the shareholder and that for that reason managers would be reluctant to engage in CSR (Posner 2003, p. 436).
- 44.
For example, WWF had called upon Shell to stop its plans for an oil platform off Sakhalin in Russia’s Far East which posed a great threat to the endangered western pacific grey whale. More information can be accessed at: http://wwf.panda.org/?18530/whale-scientists-to-determine-fate-of-shell-project-in-russian-far-east. Accessed 8 September 2014.
- 45.
- 46.
Vogel (2006), p. 16.
- 47.
Crane (2008), p. 308.
- 48.
See more particularly Arlen and Kraakman (1997), pp. 687 and 752–753.
- 49.
Heyes and Rickman (1999), pp. 361–364.
- 50.
See further also Oded (2013).
- 51.
Kitzmueller and Shimshack (2012), pp. 74–75.
- 52.
Kitzmueller and Shimshack (2012), p. 59.
- 53.
Jaffe et al. (1995), p. 133.
- 54.
Porter and Van der Linde summarised these six aspects in Porter and Van der Linde (1995), pp. 99–100.
- 55.
- 56.
Porter (1991).
- 57.
Ambec et al. (2013), p. 9.
- 58.
Ambec et al. (2013), p. 9.
- 59.
Ambec et al. (2013), p. 9.
- 60.
Ambec et al. (2013), p. 16.
- 61.
Esty and Porter (2005), p. 424.
- 62.
Esty and Porter (2005), p. 424.
- 63.
Esty and Porter (2005), p. 425.
- 64.
For further details see Faure (2011), p. 393.
- 65.
Kitzmueller and Shimshack (2012), p. 65.
- 66.
The percentage varies in different food categories. For example, organic products account for larger shares in some categories, such as dairy, fresh fruits and vegetables.
- 67.
The data is from Economic Research Service, United States Department of Agriculture, which can be accessed at: http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx#.U80aJ_mSzts.
- 68.
The data is from a report The Food & Beverage Industry in Germany (Issue 2012/2013) of Germany Trade & Invest (GATI). An English version of this report can be accessed at: http://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry-overview-food-beverage-industry-en.pdf.
- 69.
The data is from the United States Department of Agriculture (USDA). More information can be accessed at: http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture.aspx#.U9ov2PmSzts.
- 70.
Martinez Gandara (2013), p. 24.
- 71.
Ecolabel Index is the largest global directory of eco-labels, currently tracking 458 eco-labels in 197 countries, and 25 industry sectors. More information about the Ecolabel Index can be accessed at: http://www.ecolabelindex.com/. Accessed 7 September 2014.
- 72.
Lyon and Maxwell (2011), p. 9.
- 73.
Martinez Gandara (2013), p. 134.
- 74.
Lyon and Maxwell (2011).
- 75.
Terrachoice Part of the Underwriters Laboratories Global Network. The sins of green washing home and family edition. A report on environmental claim made in the North American consumer market (2010). The English version of this report can be found at: http://sinsofgreenwashing.org/index35c6.pdf.
- 76.
Martinez Gandara (2013), p. 274.
- 77.
Martinez Gandara (2013), p. 275.
- 78.
Martinez Gandara (2013), pp. 297–300. See on certification, notably in comparison to licensing, also the contributions to this book by Shen and Philipsen and by Piri Damagh and Faure.
- 79.
Friedman (1970) held that mangers’ responsibility could be summarised as “making as much money as possible while conforming the basic rules of society, both those embodied in law and those embodied in ethical custom”.
- 80.
See Sect. 3.
- 81.
“Utility derived from the mere fact of doing good yourself ” (Kitzmueller and Shimshack 2012, p. 60).
- 82.
An example is the bank Tridos in Belgium, which is one of the world’s leading sustainable banks. Its mission is to make money work for positive social, environmental and cultural change. The environmental report of Tridos bank can be accessed at: http://annual-report.triodos.com/en/2013/engagement/environmental-report.html?cat=b. Besides, Deutsche Bank and BNP Paribas also constitute good examples that are devoted to becoming responsible banks, and more information about Deutsche Bank and BNP Paribas in this respect can be accessed at: https://www.db.com/cr/en/responsible-business/index.htm and http://www.bnpparibas.com/en/responsible-bank.
- 83.
See on green finance inter alia Bai et al. (2014), pp. 102–150.
- 84.
- 85.
José and Husted (2008), p. 148.
- 86.
For a more detailed analysis from a corporate law perspective see inter alia Olaerts and Schwarz (2012).
- 87.
See, for example, Ryan Jr, and Wiggins III (2004).
- 88.
This can especially be the case where the ownership of shares is widely spread and dispersed because of which a group owning e.g., less than 50 % of share can de facto control corporate policy.
- 89.
Friedman (1962).
- 90.
Any of the strategies defended in Sect. 3.
- 91.
Posner (2003), pp. 435–436.
- 92.
Posner (2003), p. 436.
- 93.
Posner (2003), pp. 428–432.
- 94.
Carroll and Shabana (2010), p. 86.
- 95.
Vogel (2006), p. 16.
- 96.
Carroll and Shabana (2010).
- 97.
Margolis et al. (2009) point out that: “Scholars have been searching for a link between corporate social performance (CSP) and corporate financial performance (CEP) for thirty-five years”.
- 98.
Margolis et al. (2009), p. 4.
- 99.
Kitzmueller and Shimshack (2012), p. 70.
- 100.
Margolis et al. (2009), pp. 5–15.
- 101.
Kitzmueller and Shimshack (2012), p. 70.
- 102.
Margolis et al. (2009), p. 21.
- 103.
Vogel (2006), p. 30.
- 104.
Vogel (2006), p. 33.
- 105.
See supra Sect. 2.
- 106.
Martinez Gandara (2013).
- 107.
See in this respect inter alia Dommerholt (2012).
- 108.
For an overview of this problem and various examples see Choukroune (2013).
- 109.
More particularly Van Dam (2011).
- 110.
Angara et al. (2010).
- 111.
Kitzmueller and Shimshack (2012), p. 76.
- 112.
See Sect. 4.
- 113.
Such as, for example, Ping An Insurance (Group) Company of China (“Ping An”): Ping An is the first insurance company in China to adopt a shareholding structure. By following its philosophy of “Expertise creates value”, Ping An actively fulfils its commitment to corporate social responsibility, pursuing win-win cooperation and progressing in step with all stakeholders. The Group continues to step up its efforts in major disaster relief, the environment, education, the Red Cross, communities and other worthy causes. Ping An has received numerous awards and accolades in recognition of its charitable work, including “The Most Respected Companies of China Awards” for 12 consecutive years, “Best Chinese Corporate Citizen” for 8 consecutive years, and a top ranking in social responsibility reports by listed companies for 5 consecutive years. More information about Ping An in the field of CSR can be accessed at http://about.pingan.com/shehuizeren/jianjie.shtml.
- 114.
Such as for example the Bank of China (BOC): BOC is one of the largest commercial banks in China and has given due regard to corporate social responsibility as an important strategy and commitment to society and will resolutely implement the policies of the state, service the customers, strengthen corporate governance, carry forward excellent culture and support social undertakings to push forward the harmonious development of economy and society and make concerted efforts with the stakeholders to create a harmonious society and become a world-class provider of sustainable financial services. The information above and more information about BOC in the field of CSR can be accessed at: http://www.boc.cn/aboutboc/boccsr/.
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Lu, M., Faure, M. (2016). The Regulation of Corporate Environmental Responsibility. In: Philipsen, N., Weishaar, S., Xu, G. (eds) Market Integration: The EU Experience and Implications for Regulatory Reform in China. China-EU Law Series, vol 2. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-48273-5_10
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