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Are voluntary environment programs effective in improving the environmental performance: evidence from polluting Indian Industries

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Abstract

This paper examines the effectiveness of voluntary environmental programs (VEP) adopted by the firms in improving their environmental performance in an emerging economy like India by using data from steel, cement and power sectors. Environmental performance of a firm is represented by its environmental efficiency estimated using directional distance function approach. We estimate a truncated regression model with bootstrapped standard errors to investigate the effectiveness of VEP. We find that there is no significant relationship between the adoption of multiple VEP and the environmental performance of a firm. The results concur with such studies conducted in developed economy like the US and Japan wherein the presence of the prescriptive norms deter the firm to take any additional initiative other than complying to the regulatory requirement.

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Notes

  1. We could get information for 19 firms belonging to cement sector, 20 firms belonging to the steel sector and 10 firms belonging to the power sector.

  2. For details on the VEP adopted by Indian firms see appendix on Voluntary Environmental Programs in India.

  3. ACE Equity is a desktop based application which gives a comprehensive and analytical statistics for company information with user friendly navigation (http://www.accordfintech.com/ace-equity).

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Authors and Affiliations

  1. Department of Business Economics, South Campus, University of Delhi, New Delhi, 110021, India

    Shivananda Shetty

  2. Department of Economics, Delhi School of Economics, University of Delhi, Delhi, 110007, India

    Surender Kumar

Authors
  1. Shivananda Shetty
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  2. Surender Kumar
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Correspondence to Surender Kumar.

Appendix: Voluntary environment programs in India

Appendix: Voluntary environment programs in India

VEP can be classified under three categories depending on the level of regulatory intervention that influences a firm. First types are purely voluntary wherein there is intervention by the regulators and the firms participate in such VEP purely on the basis of the management decision which again is based on the benefit a firm accrues from participating in such programs. The key benefit would be to provide a firm with a structured approach to manage the environmental aspects of the process and also to provide the firm a green image which it can promote in the market place. One of the major reasons for promoting a green image is the consumer’s preference for green products for which they are willing to pay a premium price thus providing the firm with an incentive to earn revenue at a better margin. Second type of VEP is public voluntary schemes wherein regulators play a role of catalyst by initiating the programs and then providing the participating firm a recognition which enables the firm to differentiate itself as a green firm and also create a positive image with the regulators. Third type of VEP are the ones in which regulators play a key role in initiating, monitoring and managing the entire program with a high probability of mandating such program in future. Majority of VEP in India has been limited to environmental policy, EMS and ISO 14000 certification. We have identified various types of VEP under the above categories which are being followed by the firms in India.

  1. 1.

    Environmental policy: This is a formal statement issued by the top management of a firm highlighting its commitment towards environmental compliance, protection and sustainability. The policy provides managers necessary guidelines to help them set objectives and goals. A firm generally showcases its policy to all the stakeholders of the firm to provide them the assurance of its commitment.

  2. 2.

    ISO 14000 certification: A firm’s the environment management system as per the guidelines provided by ISO 14000 standards. It provides the firm with the continuous improvement process to enable them to improve the environmental performance over a period of time. ISO 14000 does not mandate the limits hence a firm has the flexibility to choose levels of emission depending on its corporate goals. The firms are audited by an independent third party certification company which is accredited by ISO.

  3. 3.

    TQM (Total Quality Management) seeks to minimise defects and helps in improving quality by reducing waste. This helps firms to produce good outputs and reduce bad outputs. A firm identifies the tangible and intangible requirement of customers and ensures that the process has minimum defect.

  4. 4.

    The firms in India participate in the international market mechanism to reduce carbon emissions, popularly known as CDM (clean development mechanism) wherein the projects undertaken by the firms are validated and verified by an independent agency which are accredited by the United Nation Framework Convention on Climate Change (UNFCCC). Most of the projects under the CDM are energy efficiency, waste heat recovery, use of biomass and other agriculture waste which help the firm to reduce the expensive inputs and also reduce the bad output thereby improving the environmental efficiency of the firm.

  5. 5.

    The firms report environmental performance as per the WRI (World Resource Institute) guideline which are then independently validated by the third party auditors.

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Shetty, S., Kumar, S. Are voluntary environment programs effective in improving the environmental performance: evidence from polluting Indian Industries. Environ Econ Policy Stud 19, 659–676 (2017). https://doi.org/10.1007/s10018-016-0168-z

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