Corporate environmental commitment in Australia: A sectorial comparison

CORPORATE ENVIRONMENTXI, C O M M l T m N T IN A U S T W A SECTORLAL CO2MpARISON Michael Polonsky and Rachid ZeEane

Department of Management, University of Newcastle, New South Wales, Australia and Patrick Medley, Environmental Management Services Coopers & Lybrand Consultants, Sydney, Australia Introduction

An increasing number of companies today are 'going green' by implementing policies and procedures that take more consideration of the environment. 'Ibis is concomitant with a growing awareness of the benefits to be gained from harnessing social responsibilities and enhancing environmental commitment at corporate level (Hunt and Aster, 1990; Stem, 1991). Concern for public image, rising insurance premiums, increased community awareness of the environment, and the implementation of stiff penalties and fines for noncompliance with environmental legislation have aIso made going green an integral component of the everyday operation of many businesses Westigian, 1991). Almost as a 'fait accompli', contemporary corporations no longer make decisions based solely on economic lass or gain. They are often forced to consider potential environmental impacts. Perhaps the most obvious ingredient for the enhancement of environmental commitment at corporate level is the emergence of green consumers. Concurrent with changes in individual purchasing behaviour is the increasing collective pressure on producers of goods and services to produce ecologically friendly products using ecologically friendly materials and processes (hIcIntosh, 1991). In fact, the promotion of goods and services positioned to address the needs of the environmentally conscious consumer are regarded as the most prominent marketing phenomena of the 1990's (Davis, 1991). The green consumer has arguably become the most powerful force in changing business environmental policies. Forward-looking companies are increasingly trying to End ways to better their profits while simuItaneousIy helping the environment. Tbis often amounts to identifying opportunities in environmental management that contribute to competitive advantage (Greeno, 1991). Increasingly, major multinational firms are prepared to enhance their expenditures to ensure that their waste is properly disposed of both by auditing potential disposal sites and specifying the most suitable type of disposal (Gabb, 1989). A survey of US executives found that pressures for increased environmental protection are having an effect on corporate strategic planning and operational procedures (Cotter, 1988; Vandermenve, 1990). A manifestation of the activities of political and consumer groups and changing social values is a consumer preference for green goods. Amongst the major trends in this regard are: the rapid diffusion of green products, an increasing number of customers preferring the pro-green firms, and increased acceptance by customers of recycled goods and packaging. In response to these pressures, many companies are adjusting their overall corporate strategies to meet these demands which are often backed up by a flurry of environmental legislation. More so,many of the large companies in different cornen of the globe are coming to realise that improving their environmental performance actually improves their business potential (Cotter, 1988). The purpose of this study is to examine, compare and profile the extent of management environmental commitment in the Australian context. The study is an initial investigation and is based on a survey of 331 of the largest companies operating in Australia. Table 1 provides a distribution of the sample by industry and economic sectors. In addition to a general appreciation of patterns of environmental commitment, the study focuses on a comparison of such patterns across the three major economic sectors represented in the sample. The issue of environmental commitment and its manifestation at managerial levels has gained very little consideration in academic research. This is most exemplified by the lack of conceptual developments and empirical research in this area. It is one of the aims of the present study to

Busxr?~~s STRATEGY ARD THE E ~ O K ~ ~ E N T VOLOyr 1. PAlrr 2. smma 1992

25

provide evidence to delineate the use&= developments in future research.

of conceptual considerations and motivate potential

~

Sector [Number, Percent]

.

Industry

Number

Percentage

Primary Sector (Sector 1)

Agriculture/Fomstry/Fishing

2

(0.6)

[26,7.9%]

Mining

24

(7.3)

Consbuclion

16

(4.8)

Minerals/Cherricals

24

(7.3)

Metal Goods

38

(11.5)

Other Manufaduring

85

(25.7)

Transportation

15

(4.5)

Wholesale/Retail

38

(11.5)

Utilities

5

(1.5)

Finance

43

(13.0)

Tertiary Sector (Sector 3)

Property

10

(3.0)

[142.42.9%]

Communications

18

6.4)

Community Services

3

(0.9)

~

Secondary Sector (Sector 2) [163,49.2%]

4

Tourism/Entertainment/PersonalServices

(3.0)

101

I

331

I

(100.0)

1

Characteristics of Corporate Environmental Commitment A close and thorough examination of the most recent literature on the issue of corporate environmental commitment and its related implementations ~ v e a l as number of c ~ c ~ t i c s / a r e a s that might provide landmarks of differentiations across organisations in this regard. These areas revolve around (1) the existence and implementation of formal environmental policies; (2) the structural manifestation of policy implementation, including board representation;(3) the use/conduct of environmental audits; (4) the extent of enviromental considerations in performance evaluation and ( 5 ) the adoption of environmental considerations in new investments and new ventures.

Environmentd Poncy Organisations are introducing a variety of corporate policies to address their environmental needs. In many cases these policies are designed such that they can be well implemented. In other cases the policies are developed without sufficient support mechanisms within the organisations. It is essential that policies are effectively implemented. If this is not the case the adoption of the policy will not impact on the behaviour of the organisation or the activities that it may wish to control. One key element in reaching any targets set out in the environmental policy is that a finn must be able to evaluate its own performance. This requires that firms set measurable goals and that they must know their organisation's environmental starting position. Environmental policies do not exist in a static business environment, organisations develop these programs over time. The worst mistake that companies can make when setting environmental health and safety policies is believing that they can get away with less protection than their stated goals call for.

26

C o ~ p o r u ENVIRONMENTAL ~g C O M ~ ~ I T ~M ~ EA N m-T

A SECTORIAL COMPARISON

Structural Manifestations: Board Representations The involvement of shareholders in substantive corporate governance issues, like those raised by environmental concems, is a significant step forward in the longdelayed development of management acmuntability to shareholders. When social and public policy issues become intertwined with and affect a corporation's profit, shareholders begin to assert their ownership rights. A company paying millions in environmental fines and clean-up fees and fighting the legal system to keep ik chief executive out of jail will not be maximising shareholder value m o w and Deal, 1991). Some of the UK's largest distribution companies are espousing a variety of green concerns by way of formalKing the representation of the environmental function at the strategic level. For example, British Rail, the UK's largest freight operator, recently appointed environmental policy experts to develop a plan for the future of the company that ensures it can go green in a cost-effective mamer (see Dundas, 1991). In the same vein, British Telecom has begun to deal with the environmental issue on 2 fronts. It has issued a policy statement outlining the company's environmental intentions and has established a new post of Environmental Issues Manager, with the objective of coordinating new initiatives (see Jabeq 1991). In the US there arc also signs of shuctural manifestations of industry's concern for its own environmental actions. United Technologies Corporation established strong holds for environmental staff throughout the company. There, the role of the corporate environment staff was strengthened in its 0perati0~1units,environmental standards were revised, and the company launched more training in environmental issues (Daniell, 1991).

The Role of Environmental Audits An environmental audit is now the most recognised strategy used to assess a business' impact on the environment The audits usually include any necessary actions to help safeguard the environment by improving management control and ensuring that environmental policies me1 regulatory requirements. A significant benefit from a thorough, on-going environmental auditing program is its ability to identi@ fbtwe &ends within the organisation and find ways to exploit them, as well as improve on past behaviour.

There is a growing awareness of the benefits to be gained from reporting social responsibility in both the private and public sectors. For instance, in one of its reports, the British Audit Commission (see Gray, 1989) encouraged the development of coordinated strategies and proposed that all those involved in urban regeneration projects should participate in a local regeneration audit that would highlight the activities required and enable a greater appreciation of the projects most likely to secure the greatest benefit for the area. At the same time, environmental audits are increasingly being offered by a range of consultancy firms as a result of the growing commitment to environmental, or green, issues. The environment audit, which essentially is a management tool, could prove to be a useful marketing tool in its own right.

Environmental Considerations in Performance Evaluation Consumers who are increasingly sensitive to environmental issues and better informed about corporate performance are creating complex new challenges for market-oriented environmental management, In the lBO's, the public is focusing less on environmental regulation and more on purchasing behaviour. Companies that can demonstrate strong environmental performance will reap market benefits; those that do not will be penalised in the marketplace. For instance, with the US Environmental Protection Agency's (EPA) Toxic Release Inventory (TRI), the public has access to an annual 'report card' on how companies perfenvironmentally. In market-oriented environmental management programs, envhonmental performance is used to gain a competitive advantage (Wells, 1990). European companies are also facing W1 public disclosure of environmental information. Full disclasure will won be required by the European Commission's Freedom of Access to Information Directive. The European Community's (EC) so-called eco-audit is a voluntary program that would help companies comply with the directive. ' h e eco-audit could serve as a yardstick io measure improvements in environmental performance. There also is a push in Europe for new management

BUSINESS STRATEGY AND TEE E~W~ZON-MENT VOLUME

1. PART 2.8-

1892

27

aaitudes toward the environment Ohservers and environmental managers a p that disclosure makes good business sense. Manufacturers registered under the eco-audit plan would be required to undertake regular self-assessments. These internal audits could cover all areas of business operation, including compliance with government regulations, employee training, choice of raw materials, and waste management (see Gdges, 1991).

Environmental Considerations in Business Investments and New Ventures

The world-wide environmental movement is reshaping the fundamental basis for h c i a l decisions. Investment decisions are made in a risk-reward matrix; calculations of profit and risk must include information regarding the indusw in gue~tion,competitive factors, regional considerations, and regulatory policies. Environmental concern are now a part of that matrix. Since environmental legislation often has enormous h c i a l implications, it can easily create what financial analysts call 'event risk',a category of risk singularly difficult to anticipate. Financial professionals are increasing their level of a w a r e n e and sophistication with regard to environmental issues and their effect on financial decision making (Bohn, 1988). Companies and institutions are themselves becoming increasingly conscious of environmental considerations in investment decisions. In selecting socially responsible investments, h c i a l institutions and other providers of investment funds are giving increasing preferences to projects and firms with environmentally sound motives (Martinez, 1991; Miano et al, 1991). In fact, in the past 20 yean or so,expansive liability schemes inseacd into many environmental statutes have exposed lenders to unanticipated risks and acquainted the financial community with environmental considerations. In the US for instance,a bank can he. held liable when a borrower with a hazardous waste problem develops financial difficulties and the bank involves itself in the borrower's operation. Banks and investors are taking extra precautions to avoid becoming a potentially responsible party and to preserve a defence if the bank is targeted as a liable party (Walsh et 01, 1990). Because of increasing attention and liability assignment in the environmental area, bankers are carrying out increased environmental evaluation of their customers in order to lessen their own exposure. An aggressive, customeraiented strategy involves the establishment of a due diligence process for environmental risk by incorporating environmentalrisk management into the established loan underwriting process (Miano ef al. 1991). As a result, in the US in 1982 for instance, only one mutual fund invested exclusively in environmental sector companies. Today, at least 8 mutual funds and 3 unit investment trusts invest in the sector and many more are expected in the future (Rose, 1990). More recently, the trend has intensified. About 100 resolutions on the environment were tabled at US companies' annual general meetings in 1990. Some institutions are starting to apply environmental criteria to all their funds. In the UK, major financial institutions are wing to build environmental criteria into all of their investment decisions;

In merger negotiations, buyers are increasingly demanding that contracts include an indemnity provision to make the seller responsible for any residual clean-up costs after the transaction takes place. The banking community is also becoming more concerned about potential liability casts and is requiring environmental risk assessments to avoid problems that could wipe out the equity ,of the company (see Kiesche, 1988).

The above characteristics and trendsprovide a useful framework upon which the degree of corporate environmental commitment could be approached and examined in comparative terms. On the basis of similar characteristics, Hunt and Auster have developed a continuum for examining environmental management programs (Hunt and Aster 1990). However, they focused essentially on the notion of organisation commitment and program design, fuaher refining these characteristics to include a variety of sub-areas. Methodological Approach The present study examines the issue of environmental commitment with an emphasis on sectorial comparisons. As such, it is comparative in nature and does not examine individual firms or industries. There is an implicit assumption that the organisations and industries within a sector

28

BUSINESS STRATEGY AND TEE ENVIRONMENT voune 1. PART 2. smrrm 1992

CORPORATE ENVIROIpld&IPTAz. COMMITMENT IN A~STIULXK A SBCTORUL C o a r p l l ~ ~ e o r r behave in a similar fashion. If 811 analysis of individual industries were used it would also imply that all organisations within an industry behave similarly.

Sample QuestioMaires were mailed to the 1OOO largest firms in Australia in March and April 1991. ?he variable used to determine size WIIS based an 6rm turnoveri The list of companies was drawn fmm an existing data bank compiled and regularly updated by a major management consulting organisation. 'Ibis factor is reflected in the distribution of firms within industries (Table 1).

For the purpose of this study the firms were aggregated into three secto~~. The first or primary sector including industries such as agriculm, forestry, fishing and mining. The secondary sector comprising all manufacturing induspiesand the tertiary sector comprising support, service and nonmanufacturing industries. The primary sector appears to be under represented and this may be due to the methodology used in determining the lo00 largest organisations. The s w e y s were distributed to the chief executive officer (CEO) of each h. In cases where the h n s were subsidiaries of overseas parent companies the survey was sent to the Australian CEO. There was no contact prior to distribution of the survey and there was no follow up activity. Given these factors a response rate of 33.10% is ex&emely promising. "here was no attempt to adjust for non-response bias, but given the number of firms represented in each industry it is assumed that the sample is representative of the population. The s w e y had a covering letter and was distributed by a well known large international management consulting group, which has a special environmental consulting unit The survey, which was developed by this unis relied on the companies' international experience to guide them in the survey design.

Measures The assessment of environmental commitment was based on a series of forced-choice questionnaire items reflecting the areas and characteristics discussed above. The questionnaire was designed to access the process that organisations use to develop their environmental ethic. The areas examined covered all key elements of the e n v b e n t a l management process. These include industry background, environmental policy, envkmmental responsibility, legislative awareness and investment considerations. The survey comprised twenty-four questions, many of which had sub-sections. Taking the subsections into account there were a total of fifty questions asked. Given that the survey was structured such that a certain response to a question caused respondents to skip sub-sections, the response rate for particular questions varies. These variations are reported in Tables 2 and 3.

I

I

Table 2: Sectoral Analysls of Actual Sample Responses

Primary

Secondary

(Max 1-1-26)

( M a x 11-163) sector 2

Variables

sector 1

N i N f % Environmental policy

26

Distribute policy to all employees

17

i Pos i f 13 i i 2 i

Environmental policyfor more than 2 years

13

f

Ecologically sustainable development (ESD) objective

9

Res

Tertiary (Max n-142) sector 3

N i N i % f Pos i

Res 50.0

163

28.6

47

7

53.8

68

6

66.7

61

1

i

N

f

N

Res f Pos

f

i

Total n-331

%

N i N f % f Pos i

Res

68

i 41.7

142

i

33

f 23.2

331

32

88.1

24

f

15

f

62.5

78

26

38.2

33

f

8

f

24.4

26

i 42.7

28

i

19

i 67.9

BUSINESS STRATEGY lvQD THE ElwIROKaaENT VOLmOc 1. PART 2. smmn 1 9 8 2

114

f

i

49

i 62.8

114

i

41

36.0

98

i

51

f

34.4

52.0

29

Variables

HmerY

sector 1 N f Poi f

Tertiaty (Max 11-142)

-dary (Max n-163)

(Max n-26)

%

N

i

Rer

i

25

7

f 14.3

57

f

3

8.1

N

i

i i

Res

N i Poa

i

N

%

Rer

Time allocation d BR more than 50%

7

i i i

Environmental management speaalist

26

i

17 f 65.4

163

i

41

i 25.2

Environmental performance consideration

26

i

18

69.2

im

i

69

37.a

142

Formal environmental audit

26 f 15 f 57.7

161

i

82

i 50.9

135

CEO very aware of environmental legislation

26

162

i

94 f 58.0

141

CEO very aware of penaitiesflegal implications

26

i 49.4

141

Consideration of general financial impact

25 f

Environmental board representation (BR)

Consider env. impact of: Acquisitions Capital projects Operationalinvestments New productlaunches Environmental issues are an opportunity

N.Res

f 28.0

158

57 f 35.8

i

21

i

15

i

80.8 57.7

;

80

162

f

N

B

f Poi

141

i

: 1

i

f

POJ.

29 f

i 28.6

Q3

f 31.0

13 i 14.0

12.0

75 i 22.6

20

14.1

107 i 32.3

i

30

i 22.2

i

50

35.5

i

37

Q

142 f 17

i

i 26.2

322

127 i 39.4

328

165 i 50.2

329

132

i 40.1

54.3

321

204

i 63.6

51.3

290 302 297 287

QQ 67 75 109

34.1 22.2 i 25.3 38.0

314

211 f 67.2

I

f

20.0

158

111

i

70.3

138 f 75

i

i

i

f

i i

20.0 5 1 i 4.0 1 i 4.0 15 78.9

146 132 149 147

i i

33 i 22.6 14 10.6 21 i 14.1 37 i 25.2

119 125 i 123 i 121 j

61 52 53 57

i 47.1

i

10

155

i

108

134

95

5

i

25

%

i

i 25 25 25 18

i

29 f 20.6 I 325

I

5

Total n-331

sector 3

-2

i i 40.0

-

Number d responses to that question N.Pos positive in that sector

-

i

68.4

i 41.6 43.1

70.9

Number d positive responses Percent

-

-

Percentage d

In many cases these questions delved inta very specific areas of environmental management, one example is that enviromental audits were there which had 30 relevant questions. For the purpcse of this study only 17 questions were examined, two of which dealt specifically with environmental audits. The questions examined were composed of a variety of types including bivariate, interval and likert type. Table 2 lists the questions, number of responses and positive response rate with Table 3 listing the means, variances for each sector, as well as the question type. ~

~~~

Table 3: Analyslr of M ~ MResponses

Bivariate

Environmental policy

f 1.5

0.510

163

1.42 f 0.495

142

i

1.23

0.424

7 j 0.29

0.488

47 i 0.68 i 0.471

24

i 0.65 i

0.495

1.764

61

i 1.796

30

i 1.90

1.73

26

(l-no,2 V S ) Distribute policy to all employees

Year policy existed

so

Bivariate (O-no. 1-yes)

Interval (Yew)

9

i

f

3.61

BUSXNE.SS STRATXGY AND T

i

2.30

~ ENVIRONMENT E

voum 1,PART 2. SUMMER 1983

Tabla 3 continued..

.

Variables

Question type

Environmental board representation (BR)

BLvariate (1-no, 2-Ye3)

Time allocation Board Member (percent) -

Primary sector 1

interval Bivariate (1-no. 2-yes)

Environmental perimance consideration

Bivariate (1-no, 2-yes)

Formal environmental audit

Bivariate (ino, 2 ~ 3 )

CEO awareness of environmental legislation

Likert (5 point scales,bwer score less a-)

CEO awareness ol penalties/legal implications

Likert (5 point

Consideration of general financial impact

Btvariate (1-no, 2-yes)

Environmental issues opportunity

N.Res sector

-

Tertiery sector 3

[% of tlme)

Environmental management specialist

Consider environmental impact o t Acquisitions Capital projects Operational investments New product launches

Secondary sector 2

scales, lower score less aware)

Bivariate (1-no, 2-yes)

Bivariats (2-00. 7-yes)

Number of responses to that question N.Pos

-

Number of positive responses Percent

-

Percentage of positive in that

Analysis

The sectorial data were analysed using three different methodologies. Firstly, the mean response for each sector, pair-wise comparisons and c~os~-sector analysis was undertaken. The mean responses are given in Table 3, with the pair-wise and cross-sector analysis in Table 4. The variables are analysed using t-tests and f-tests for the relevant groups. The total sample responses were then factor analysed as well as a factor analysis on the speciEc sectom. Appendix 1 gives the variable composition of each factor for the total sample and each sector. The factor scores for each sector based on the population factors were then compared, both in a pair-wise and cross-sectorial fashion. These results can be seen in Table 5. h t l y , thrm dimensional plots of the three most relevant factors were compared. The three factors chosen were based on the fact that these were the most @portant for each sector, the responses for the three sectors were statistically different from each other and the scree-test determined that in reality there were only three, not Eve, relevant factors. The three dimensional plob represent distance weighted least squares smoothing. Distance weighted least squares (orDWLS) fit a surface through a set of points by least squares. Unlike linear or low order polynomial smoothing, however, the surface is allowed to flex locally to fit the data better. Every patch on the surface requires four weighted multiple regressions on all points. This method produces a locally weighted threedimensional surface using an algorithm developed by McLain (1974). The program used to produce these plots was the graphic software recently developed by Wdkinson (1990).

31

.

CORPORATE ENVIRONMENTAL C ~ ~ M E wN AUSTRAL^ T A SECTORIAL COMPARISON

Results The results of this study can be divided into three broad sections, those relating to individual sectors, those relating to pair-wise comparison a d those that occur acall three sectors. lhis type of interpretation applies for all methods used. Each type of analysis wiIl be d i s c u s s e d for all three methods. Comparisons of Means

One of the simplest methods to analyse the data is to examine the mean responses to the various questions listed in Table 3 and the percentages that responded positively to questions in Table 2. One important point to note is that the sector size can influence the t-statistic and fstatistic as the calculation of the pooled variance is 'weighted' based on the relevant sample sizes.

ness of penaltiesflegal

-*

prob c 0.001

..

prob c 0.01

prob c. 0.05

A quick visual analysis indicates that no more than half of the sample in any one sector has environmental policies. The propaction of tertiary sector firms who have environmental policies are

statistically different from the primary or secondary sector and cross-sectorial analysis indicates that there are significant statistical differences, though not between the primary and secondary sector in the pair-wise analysis.

32

BUSINESS STRATEGY AND THE ENVIRONMENT

voum 1. PART 2.8moran 1992

C~RPORA ENVERON~~E~VTAL T~ COMMITMENT M A u s m' A SgCToRIAL COlrapARIson

It appears that within sector two and three a majority or organisations who have environmental policies actually distribute them to their employees, with only sector one have a minority of organisations doing so. Sectors two and three both have statistically similar distributions,with only sector one and two statistically different. There is no statistical difference across the three sectors.

The members of the secondary and tertiary sector who have environmental policies have had these policies for less than two years. R h q sector members who have environmental policies have had them for more than two years. This is verified in the t-tests analysis where sector one is statistically different from both sector two and tbree. A majority of organisations in the primary and secondary sector had an organisational goal of ecological sustainable development (ESD). In the case of sector three approximately 50% had ESD as a goal. Overall there are statistical differences in the cross-sectorial proportions. When board responsibility for environmental matters was examined it was found that a minority of organisations in all sectors had board members with specific environmental responsibility. The proportions in the various groups was not similar, sector three and two were significantly different This caused the f-statistic to show that there were differences in cross-sectors. For those organisations in each sector who did have such a board member, they spent approximately 15% of their time on environmental issues for sectors one and two and 25% of their rime on these issues in sector three. Once again there are cross-sectorial differences.

Less than 50% of all organisations in each sector had an environmental manager/specialisf and the proportions were all statistically different. This variable is where the sectors showed the greatest amount of pair-* statistical differences. In the case of having environmental performance as a general performance consideration less than 50% of each sector responded positively, though sector two was vcry close with 49.6%. Both pair-wise and cross-sectorial analysis showed differences. A related area is that of whether organisations believed that there was a financial impact on the organisations of being environmentally active. Here a majority of organisations in secondaq and tertiary sectors perceived this to be true, with only a small percentage (20%) of primary organisations agreeing. Overall the responses were statistically different, though sector one was not statistically different from either sector two or three. A key environmental management tool is the environmental audit. In Lhis study the primary and secondary sectors had approximately 50% of their members undertake these audits. Sector three had 41% undertake these audits.

There were two questions which relate to chief executive officers' (CEO)awareness to various environmental regulation and penalties. For both questions, CEO's indicated that they were aware of these issues across all sectors, although CEO's in sector three were least aware. The mean response for all pair-wise and cross-sectorial analysis was, however, statistically different A major area of environmental concern relates to new investments, business, acquisitions or products. For the primary sector a majority of organisations only considered the environmental impact on new product launches, the other areas were supported by a small proportion of the respondents ranging from 456-202. These responses were similar to those of the secondary sector, although new product launches did not receive nearly the same level of high support (252%). Overall the tertiary sector considered the environmental impact of new activities statistically more than the other two sectors. The crosssectorial analysis showed a difference between all sectors.

The last issue examined related to environmental activities offering themselves as an opportunity or threat In the primary sector 40% of the respondents believed that environmental activities were an opportunity, a factor which was accepted by 68.4% of respondents in the secondary sector and 70.9% in the tertiary sector. Overall the cross-sectorial responses were statistically different, but sector three was not statistically different from either one or two. These results show that there are differences between sectom and these dirferences are not consistent, i.e. in some cases two sectors are similar while in others they are different. It appem that overall sector b e e is the most different from the other two. In many ways sector three has less

BUSWESS STRATEGY AND THE ENVIRONMENT V O L m a I. PART 2. Bnuylcn 1992

33

environmental involvement, that is it has fewer environmental policies, fewer members with board representation for environmental issues (though those that do have more of a time commitment), fewer environmental management specialists, fewer environmentalaudits and lower CEO awareness. However, sector three companies were man likely to believe that environmental activities were opportunities, and were more likely to have environmental sustainable development as an organisationat objective, to have board level respoasibiities for the environment, spend more time on t h e issues and consider the mvhmmntal impact of acquisitions, capital projects and operational investment. It appears they are more aware relative to their longer run activities than the other sectors. The primary and secondary sector were the mast similar. They only responded differently, in a statistical sense, for seven of the seventeen variables. In all cases where statistical differences occurred, except two, the primary sector behaved in a more responsible fashion. The two exceptions were in the areas of environmental concerns being pwceived as an opportunity and the percentage of organisations which distributed their environmental policy to employees. The first dflereuce is importan4 for in most cases the primary sector d i e s on the environment to operate, SO BS it becomes more constrained it has Seen fewer opportunities.

Factor Analysis All variables examined in this study were factor analysed for both the entire sample and the three ~ e c t oU~si.ng the population as the relevant sample, it was found that there were five factors which had an eigen value greater than one. (A scree test on these five factors indicated that there were only in actual fact thee factors of relevance. 'This latter fact will be of importance latter.) The factors that were found were: Factor 1 - Existence of Policy and Policy Implementation Factor 2 - Environmental Considerations in New Investments and Ventures Factor 3 - Environmental Considerations in Corporate Objectives and Performance Evaluation Factor 4 - Commitment of Board and Board Members Factor 5 - Environmental Opportunities Appendix 1 lists the variable that loaded on the factors for the total sample and the three sectors. Though these population factors explained over 70% of the variation in the total sample they did not fit h e individual sectors equally well. This might be expected given the results discussed in the means section. Table 5 lists the t-values and f-statistics for the pair-wise and cross-sectorial comparisons.

I Table 5: Comparison of Factors Across Sectors (Based on Total Sample Factor Scores) Comparison of secton 1 6 2

Factors

T-value Factor 1 Existence d policy and policy Implementation Factor 2 Environmental considerations in new investments and ventures Factor 3 Environmental considerations in corporate objectives and performance evaluabn

I Prob

I I

Comparison of sectors163

34

Cross sectoral comparison

I I 1 I I 1

T-value

I Prob

-2.119

.W6

T-value

3.168

I Prob

T-value

.002

10.058

la312

.756

-0.433

666

4.202

-2.091

.038

41661

Factor 4 Commtment of board and board members Factor 5 Environmental opportunities

I

Comparison d sectDn263

1.a30

-2.678

Busmesa STRATEGY ~ l rm l ~ENVIRONMENT vourrnc 1. PART 2. suM.wx 1991

3.652

I

Prob

.002

C~R~ORA ENVIRONIUENTAL TE

Coxaurrmm IN AUSTRALU * A s&cToRUL C O M P A R I S O N

As can be seen from Table 5 , factor four is not statistically different across the three sectors, nor is it different in any of the pair-wise comparisons. This implies that it has a similar impact on all sectors. Factor five is not statktically different in the crw-sectorial analysis (i.e. the f-value is not significant at the 95% level). However, some differences do exist in some of the pair-wise comparisons. These results imply that factors four and five do not impact on the sectors differently. This is indeed interesting as the factor composition as described in Appendix 1 indicates that the factor composition is indeed different. This may relate to the fact that the scree test showed that these two factors were not relevant in this analysis. This may explain why these conflicting results arise. The three important factors are Factor one (Existence of Policy and Policy Implementation), Factor 2 (Environmental Considerations in New Investments and Ventures) and Factor 3 (Environmental Considerations in Corporate Objectives and Performance Evaluation).

As can be seen in Table 5, overall the factor scores cross-sectors are statistically different, though pair-wise analysis indicates there are some similarities between individual sectors. Sector one and two appear to be the most similar with two and three being the most different. This result is interesting when the variable composition of the factors is examined in Appendix 1. It appears that these factors are very similar in their composition (though in factor three the loadings are not always the same sign). Given that the same variables load on the same factors and the factor scores are different there must be some underlying difference in the sectorial behaviour that accounts for the differences. These results again c o b that here are sectorial differences in environmental behaviour, although they indicate that there are three important factors for environmental behaviour. One of the most interesting results is an analysis of Factor 3 which has two variables relating to CEO awareness which are important for all sectors, but the loadings of all sectors are negative in sign.

Discussions Determining the degree of environmental concern and the commitment an organisation has is a complex matter. This requires that a criterion be developed which not only evaluates the key issues and examines the mde-offs, but that examines the organisational formulation and effectiveness of policy implementation. Given tbe difficulties with comparing issues and with determining the effectiveness of implementation it appears that this area is one in which extensive research is required. There may be no one satisfactory method for evaluation, but there must be a starting point. Given the research evidence provided in this study, it appears that sectorial differences do impact on environmental management, but there are also differences within sectors.Further research would prove useful. Such m a r c h might examine whether 'other' variables might be relevant to more than a single sector and determine how these variables impact on environmental management commitment. This study has shown that in some cases there are no sectorial differences. It must also be realised that firms develop their corporate culture over time and therefore it is important to track organisational behaviour. This aligns itself with the Hunt and Auster idea of moving through a progression of environmental management. It may be that there are factors which enable organisations to progress more rapidly than others. If this is the case then it is essential that these characteristics be determined and attempts be made to incorporate these basic management characteristics with all organisations to ensure that they two reach a higher level of behaviour. There is ample evidence to suggest that the degree of environmental commitment and its related implementations in the service sector remain substantially lacking. For instance, environmental and hospitality offcials in Canada have complained that the current irdi-astruchue in the hospitality industry was inadequate for environmentally conscious meetings and conventions. Their main suggestions stemming from these observations is that competition ultimately will drive the hospitality industry toward greater environmental commitment @-adford, 1989).

In their conceptualisation of environmental organisational commitment Hunt and Aster (1990) included the areas of mindset of managers, resource commitment, and support and involvement of top management. Program design included the areas of performance objectives, integration with

Busm~ssSTRATEGY AM) THE ENVIRONMENT voum

1, PART 2.

-s

1993

35

departments, reporting s t N c ~ e s(both internal and ex&) functions (PR, Legal, Design, Uanufachuing).

and involvement with specialist

Hunt and Auster compiled these areas into five stages of environmental management programs. These can be summarised into: Beginner - Low hancial commitment, no involvement of top management, no environmental programs, management believes no need for environmental programs; Fire Fighter - Fioance projects as they arise, minor top management involvement, no fonnal environmental programs but resolve issues as they ariSe; Concerned Citizen - Small consistent budget, top management theoretically involved, management believes environmental policy worthwhile, policies show corporate responsibility; Pragmatist - Sufficient funding, top management a w a and involved, management believes environmental management is important,policies attempt to minimise fixms' environmental impacs Proactivist - Open ended funding, active involvement of top management in environmental policy setting and they believe it is a priority, policies attempt to include active management of environmental issues. The impiications of these five groups is that an organisation is in one stage of environmental management at a time. This supposition is flawed as corporate culture is evolving and all amxs may not be evolving at the same pace. This may cause a problem when evaluating organisational environmental conscious. Take the following example: Company A has an extremely well d e h e d policy, but its implementation is ineffective, while Company B has a superficial environmental policy but it is effectively implemented. In this example which company is more environmentally conscious? This debate gets even more complex once tradeofb within either the policy or implementation components are included. The results of this study show that organisations are indeed in more than one stage of environmental management development at a time. Therefore it is difficult to put any one sector or firm in any unique category.

Concluding Remarks: Controversies and Challenges Business and industry executives are increasingly viewing rhe environment as one of their biggest and most problematic issues. Company managers are seeking ways to respond to difficult greenversus-growth issues and to go beyond environmental compliance and manage for competitive advantage (Harrison, 1991). Many Australian manufachuing executives today, especially those in industries question whether they can be environmentally conscious and competitive (Ogilvie, 1990, Walker 1991). In Australia, for the past 25 years, people in industry have been voluntarily and totally committing themselves to the safety ethic. At the same time, the environmentalethic has been acknowledged only begrudgingly by these individuals. The deep community concern about the enviroment has brought a new dimension and intense focus to the environmental issue. Given the historical relationship of confrontation and hostility, it is understandable that misuust should abound between the environmentalist view and the induseial view. There is some hope for establishing a new relationship between the two camps if industry accepts the risk of taking the initiative and is sensitive to the fact that there is mistrust on both sides. Two-way communication is essential so that industry understands environmental concern and the community is knowledgeable and infumed about industry (Ogilvie, 1990). However, managing environmental problems, or being green, is becoming more difficult because members of the community, including public offcials, the news media, and even children, have become educated and more sophisticated and have high expectationsabout the environment in which they live. This poses serious constraints on the levels of commitment and implementation in different sectors, in addition, opposition to corporate activities (Dundas, 1991; Lukaszewski, 1991). Some business and industry executives are viewing the environment as one of their biggest and most problematic issues. Company managers are seeking ways to respond to difficult green-versus-growth

36

BusmEse STRATEGY ARD TEE ElwIRoNlldENT

voum 1. P-

% SINHnt laaz

CORPORATE ENVIRONMENTAL COMMITMENT M A ~ S T R *~ALSECTORIAL I~ COMPARISON

issues and to go beyond environmental compliance and manage for competitive advantage (Harrison, 1991).

In addition to being lean and mean, organisations m now under pressure to prove they are environmentally clean and green. Businesses are almost constrained to harmonise their own interests with those of investors, consumers, managemenf unions and employees. Investors and consumers are showing their concern by redirecting investments or boycotting products. The work-place issue requires working out differences while continuing to operate under the same mf. Management has begun to react., largely by way of establishing broad-banded policies, essentially product and operations-oriented ways, to environmental issues. The role of employees in shaping a more environmentally sound organisation should, of course, not be underestimated seller, 1987; Foster, 1989; O'Farrell, 1990).

The rising ti& of environmentalism is affecting the financial services sector. Banla tbat do not take an active position on environmental issues may find themselves reacting defensively to a host of social, financial and regulatory pressures. The neutrality of financial institutions is readily breached when society identiEes a problem and a connection between that problem and the business of moving money. The environment can be somelhing that plunges the business of banking into the midst of social controversy (Klei, 1990; Sarokin and Schulkin, 1991). Clearly, the environment is no longer just something that makes good copy for the public relations team; companies now have to manage their environmental activities in a more proactive fashion. Someone has to see that plank operate as cleanly as possible, and someone has to find ways to deal with legislation that makes past practice illegal or that removes processes and techniques that were once part of everyday factory life. The question is whether companies of the 90's and beyond will sustain today's interest.

The authors would like to thank Coopers & Lybrand Consultants (Australia)for their mistance in rhk study and f o r making rheir dara available to us. References

1. Appleton, E., (1991) 'The Greenest of the Green', Marketing Journal, March 28th, pp.22-23. 2. Bohn, J.A., (Jr.), (1988) 'How Environmental Issues Affect Financial Professionals', Financier V01.15, NO.4, April, pp.9-11. 3. Bradford, M., (1989) 'Risk Managers' Conference: Pollution Called Top Worry', Business Insurance, Vo1.23, No.39, September 25, pp.3-14. 4. Bruce,L., (1989) 'How Green is your Company?' International Manugemenr, January, pp.24-27. 5. Carson, P. and Moulden, J., (1991) Green is Gold: Business Talking to Business abouf The Environmental Revolution, Harper Business, Toronto. 6. Cotter, M., (1988) 'Take Good Care', Chief Erecfcrive, March 1988, pp.32-36. 7. Daniell, R.F., (1991) 'Remolding the Environmental Function', Directors and Boards, Vol. 15, No.4, Summer, pp.14-16. 8. Davis, J.J., (1991) 'A Blueprint for Green Marketing', Journal of Business Strategy, V01.12, NO.4, JuIY-Au~us~, pp.14-17. 9. Anon, (1989) 'The Terror of E n v h m e n t a l Liabilities', Directors and Boards, Vo1.13, No.4, Summer pp.26-35. 10 Dundas, J., (1991) 'Transport and Distribution: The Green Scene', Munugement Today, July, pp.68-70. 11 Anon, (1990) 'Environmental Investment: Greenbacks', Economist, Vo1.320, No.7718, August 3, pp.73-74 12. Foiter, A., (1989) 'Decent Clean and True', Managemem To+, February, pp.56-60. 13. Friedman, F.B., (1991) Practical Guide to Environmental Management, Environmental Law Institute, Washington DC. 14. Gabb, A., (1989) 'March of the Waste Merchants', Management Toduy, October, pp.58-64. 15. Gilges, K., (1991) 'Eco-Audit Green Eyeshades Take On a Whole New Meaning', Chemical Engineering, Vo1.98, No.5, May, pp.82N-82V. 16. Gray, R., (1989) 'Social Audit: Responding to Change?', Management Accounting, V01.67, No.11, December, pp.8-9.

BUSINEss STRATEGY AM) THE ENVIRONMENT V O L m e 1. PART 9. smryrn 1 9 9 2

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CORPORATEE N V I R ~ N V ~ C CovvrryBlrr ~~TU I I Am~

-AS&CTORUL Comm(10~

17. Green, S.,(1988) 'Undtrstanding Corporpte Culture nnd Its Relation to Strategy', fnfernufionul Studies of Management and Orgadsation, Vo1.18, No2, pp.6-28. 18. Greeno, J L , (1991) 'Good EnVirOnmental hbaganent Can Sharpen Competitive Strategies', Envimnment Today, V01.2, N0.6. July-August, pp.49. 19. Harrison, EB., (1991) 'Ploughing New G d in Environmental Affairs', Public Rekztions JourMl, Vol.47, N0.4, Mid, pp.32-22. 20. Hunt, CB. and Auster, ER, (1990) 'Proactive EnvironmentalManagement: Avoiding the Toxic Trap', Sloan Munugement Review, Wmter, pp.7-18. 21. Jabez. A., (1991) 'Going for Green', Tekwm World, June, pp.36-38. 22. Keller, G.M., (1987) 'Industty and the Environment: Toward a New Philosophy', viral Speeches, Vol54, NOS, December 15% pp.154-157. 23. Kestigiau, M., (1991) 'The Greening of Accwntancy', Australian Accounrant, Vo1.61, N0.8, pp.20-28. 24. Kiesche, E.S., (1988) 'Facing the EnvirOnmental ChiU on Acquisitions', Chemical Week, Vo1.143, N0.12, September 21, pp.26-29. 25. Lukaszewski, J.E., (1991) 'It Ain't Easy Being Oreen', h c u r i v e Speeches, Vo1.5, N0.11, June, pp. 17-22. 26. Martinez,MN., (1991) 'Employees Opt for Socially Right Investments', H R Magazine, Vo1.36, No.3, March, pp.36.38. 27. McIntosh, A., (1991) 'The Impact of Envhnmental Issues on Marketing and Politics in the 1990's', Journal of the Market Research Society, V01.33, No.3, pp.205-217. 28. Mcbin, D H ,(1974) 'Drawing Contours h m Arbitrary Data Points', Thc ComputerJourMl, NO.17, ~ ~ 3 1 8 - 3 2 4 . 29. Miano, S.T. and Campbell, J.M., (1991) 'Focus on Financing - Environment - Part 1: Providmg Lenders with Superfund Relief; Part 2: Self-protection from Cleanup Liabilities', Mergers and Acquisitions, Vol26, No.1, July-August, pp:28-32. 30. Minow, N. and Deal,M., (1991) 'The Shareholders' Green Focus', Direaors and Boards, Vo1.15, No.4, Summer, pp.35-39. 3 1. Ogilvie, G., (1990) 'The Env-imnmentlIndustry Debate: A Personal View', Prucrising Manager (Australia), Vol.10, No2, Wmter, pp5-7. 32. O'Farrell K., (1990) 'The Case for "Clean and Green"in the Workplace', C a d i a n Bwiness Review (Canada), Vo1.17, No.4, W'ter, pp.26-29. 33. Rose, R.A., (1990) 'How Green Is Your Money: Environmental Funds Arc Ripe for the Picking', Succts, V01.37, No.9, November, pp.14. 34. Sarokin, D. and Schulkin, J., (1991) 'Environmental Concerns and the Bushes of Banking', Journal of Commercial Bank Lending, Vo1.73, N0.6, February, pp.6-19. 35. Shearer, J.W., (1990) 'Business and the New Environmental Imperative', Brrsiners Quarterly, Winter, pp.48-52. 36. Stem, AJ., (199 1) 'The Case of the EnvironmentalImpasse', Harvard Bminers Review, Vol.69, No.3, May-June, pp.14-29. 37. Vandenewe, S. and Oliff, MD., (1990) 'Customers Drive Corporations Green', Long Range Plunning, Vo123, N0.6, December, pp.10-16. 38. Walker, K.G., (1991) 'Lean,Mean and Green', Chief hcutiw, No.68, June, pp.30-33. 39. Walsh, WJ., Zalenski, W.E. and Tripoli, LN., (1990) 'Contaminated Collateral: Avoiding Environmental Liability', ABA Bonk Compliance, Vol.11, N0.3, Aprilppring, pp.14-20. 40. Wells, RP., (1990) 'Environmental Performance Wd Count in the 1990'~'~ Markring News, Vo1.24, N0.6, March 19% pp.22. 41. Wilkinson, L., (1990) Sygraph: System for Gmphics, Evanston, II: Systat Inc.

38

Busmess S T l u T e c Y AND TBE ENVIRONMENT voum 1. Paar 2.8rrylan 1992

I ADDendlX 1: Varlabh Comporltlon of F-ra ..

for Sectors m d San F d o r 5:

Variables

Environment .1

opponunirbr

Environmental Policy

T S1 S2 S3

Distribution of policy to all employees

T Sl S2 S3

I Years policy

existed

T S1 5 2 53

/Emlogically sustainable development (ESO) objective

T S1 S2 S3

Environmental board representation

T S1 S2 S3

l i m e allocation of board member (percent) Environmental management specialist

's1

s1 T S1 S2 53

s1

S2

'S1

52

'S1 52 s3

's3

5 1 s2 53

s1

s2

s3

TSlS2s3 TS1 S2S3 T S1 S2 s3 TS1 5253

s1

TS3

s1

IF o m ra l environmental audit

1

T

Environmental petformam consideration

T

T S1 52 S3

7 'S1 5 2 's3

CEO awareness of environmental legislabon

I

7 'S1 '52

CEO awareness d penaltiesflegal

*s3

implications Consideration d General Finanaal impact Consider environmental impact of:

Acquisitions Capital projects Operational investments New product launches Environmental issues opportunity

s1

BUSINESS STRATEGY AND TEE E N W R O m N T VOUNE 1. PART 2.8morm 1992

s1 'S1 T 52 S3

39