Corporate Environmental Strategies in Emerging Economies

Dietrich Earnhart, Madhu Khanna and Thomas Lyon ()

Review of Environmental Economics and Policy, 2014, vol. 8, issue 2, 164-185

Abstract: Many companies are adopting environmentally friendly management practices in developed countries. However, the benefits of a corporate environmental strategy are less clear in emerging (developing and transition) economies, where environmental regulations may be poorly enforced and social pressures to comply are weak. Thus it is important for business leaders, policymakers, and environmental activists to understand the causes and consequences of corporate environmental strategy in these economies so that they are able to implement effective strategies, develop useful policies, and promote meaningful activities, respectively. Drawing on both the theoretical and empirical literature, this article examines a broad array of drivers behind corporate environmental strategies including internal characteristics of firms, market pressures, and pressures from government and civil society. The empirical findings for developing economies (i.e., those whose physical and human resources, along with institutions, are still developing) suggest that government and civil society provide weak incentives for corporate environmental compliance, foreign ownership and foreign customer pressure improve environmental management practices, and information disclosure programs offer some promise for improving corporate environmental performance. The empirical findings for transition economies (i.e., those transitioning from reliance on the government’s allocation of resources to market-based allocations) also suggest a positive, albeit weaker, role for foreign ownership and foreign customer pressure in improving firms’ environmental performance. However, the findings also indicate that government policies, such as stricter enforcement, granting of permits, and higher rates for emission charges, are more effective in transition economies than in developing economies. (JEL: D21, D22, K32, M14, O13, P28, P31, Q53, Q56)

Date: 2014
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