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Saving the Environment?
Environmental Policies of Japanese Firms andTheir Effectiveness
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Dilemma of Risk Society
Retreat of the state Neoliberalism, degregulation, and privatization Rhetoric?: retrenchment Regulatory capacity either shrink or did not increase in line with the
increase risks
Expansion of the corporate domain Corporations as both producers and managers of environmental
risks Shareholder value movement -> Short-term profit orientations
leading to perverse incentives to take excessive risks
Limitations of a command-and-control approach toenvironmental regulation
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Self-Regulatory Mechanisms
Internal self-regulation structures and personnel Environmental offices and executives
Transparency Environmental reports, accounting, and auditing
Environmental management systems ISO 14001 international standards makers
Environmental certifications Eco-labels
Market-based mechanisms Socially responsible investors
International organizations UN Global compact
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Issues
Decoupling
External regulatory and normative pressures lead to symboliccompliance (Edelman 1992; Dobbin and Sutton 1998)
Relative performance
Variation across different self-regulatory mechanisms
On which environmental outcomes? Choose and focus (or ignore)
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Japan
Growing regulatory and global normative pressures
But with few coercive compliance mechanisms
Emerging corporate environmental activism Beyond energy-savings from the 1970s
Diffusion of environmental self-regulatorymechanisms
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Regulatory Shifts since the 1990s
The New Basic Environment Law (1993)
Law Concerning the Promotion of the Measures to
Cope with Global Warming (2001)
Revisions of Energy Conservation Law (1993, 1998[top runner approach], 2002, 2005, 2008)
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Global Pressure
Kyoto Protocol to the UN Framework Convention onClimate Change (UNFCCC)
Adopted by 37 member countries including Japan
Ratified in 2002 and entered into force in 2005
The government pledged to reduce greenhouse gas emissionsby 6% against the levels in 1990 by 2012
The government decided not to participate the Kyoto Protocolextension in 2011
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Normative Pressures upon Business
Legal mandates for central and local governments toproduce and execute energy-saving plans
Voluntary cooperation by businesses Need to demonstrate good faith
Corporate social responsibility (CSR)
Plethora of voluntary compliance measures
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Diffusion of Environmental Offices & Reports
0
50
100
150
200
250
300
350
400
450
500
#Firms
Env. Office
Env. Report
New Basic Environment Law (1993)
Kyoto Protocol (1997)
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Environmental Office and Executive, 2006-2012
0%
10%
20%
30%
40%
50%
60%
2006 2007 2008 2009 2010 2011 2012
%Firms
Env. Office
Env. Executive
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Environmental Report, Accounting, and Auditing
0%
10%
20%
30%
40%
50%
60%
70%
80%
2006 2007 2008 2009 2010 2011 2012
%Firms
Env. Report (Third
Party Consultation)Env. Report (No ThirdParty Consultation)
Env. Accounting
Env. Audit
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Environmental Management System (EMS)
0%
10%
20%
30%
40%
50%
60%
70%
80%
2006 2007 2008 2009 2010 2011 2012
%Firms
ISO 14001
Firm's Own
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Eco-Labels
0%
2%
4%
6%
8%
10%
12%
14%
16%
2006 2007 2008 2009 2010 2011 2012
%Firms
Type 1
Type 2
Type 3
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Socially Responsible Investment (SRI) Index
0%
1%
2%
3%
4%
5%
6%
7%
8%
2006 2007 2008 2009 2010 2011 2012
SRI Index (Global)
SRI Index (Domestic)
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UN Global Compact
0%
2%
4%
6%
8%
10%
12%
14%
2006 2007 2008 2009 2010 2011 2012
%Firms
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CO2 Emissions, Japan
1,000,000.00
1,050,000.00
1,100,000.00
1,150,000.00
1,200,000.00
1,250,000.00
1,300,000.00
ThousandMetricTons
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Do these various corporateenvironmental self-regulation
measures lead to substantiveenvironmental commitment by
companies?
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Data
Sample 1,000 major publicly-traded Japanese firms
Unbalanced panel data from 2006 to 2012 (5,001 firm-years; onaverage 5 observations for each firm)
Data source: Toyo KeizaisCSR database
Environmental expenditures Facilities
Water
Management system R&D
Social activities
Conservation
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Control Variables
Explanatory variables
14 indicators of corporate CSR and environmental practices
Control variables Total assets, fixed assets, profitability
32 industry dummy variables
6 Year dummy variables
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Method
Heckman selection model
To deal with sample selection bias (not all firms reportenvironmental expenditures)
Robust standard error To deal with dependence among observations from the same
firm
Facilities Water Mgt. Sys. R&D Social
Activities
Conserva
-tion
Non-Censored
2,100 1,845 2,082 1,843 1,956 2,141
Censored 2,901 3,156 2,919 3,158 3,045 2,860
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Environmental Expenditures
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2006 2007 2008 2009 2010 2011 2012
100MillianY
en Facilities
Water
Env. Sys. Mgt.
R&D
Social Activities
Conservation
Table 2. Environmental Expenditure, Heckman Selection Models, Robust Standard Erros
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Outcome Equat ions Facilit ies Water Env. Mgt . Sys. R&D Social Activities Conservat ion
Environment Office 0.240 -0.320 .767*** 0.428 0.044 .554***
(0.157) (0.371) (0.142) (0.352) (0.203) (0.160)
Environment Executive .237* 0.192 -0.007 .700*** -0.018 0.120
(0.104) (0.226) (0.108) (0.194) (0.160) (0.090)
Environmental Report 0.914 1.443* 0.135 0.519 0.753 0.230
(Third Party Consultation) (0.480) (0.601) (0.408) (1.152) (0.482) (0.423)
Environmental Report 0.783 1.228* -0.175 0.608 0.528 0.122
(No T hird P arty Consultation) (0.478) (0. 575) (0.396) (1. 138) (0.470) (0. 422)
Environmental Accounting 0.459 2.018 1.314*** 0.260 -0.798 1.639***
(0.447) (1.186) (0.316) (1.117) (0.487) (0.407)
Environmental Auditing -0.165 0.536 .848* 0.501 -0.381 -0.069
(0.208) (0.503) (0.341) (0.637) (0.375) (0.238)
EMS: ISO14001 0.364 0.436 .567* 0.311 -0.107 0.229
(0.242) (0.513) (0.289) (0.352) (0.442) (0.256)
EMS: Firm's Own 0.498 -0.729 0.595 -0.048 -0.699 0.210
(0.276) (0.905) (0.397) (0.464) (0.565) (0.293)
Eco-Label, Type 1 -0.051 .740* 0.049 0.460 -0.068 0.162
(0.130) (0.290) (0.115) (0.250) (0.183) (0.111)
Eco-Label, Type 2 -0.189 0.324 0.163 0.370 -0.107 -0.165
(0.133) (0.249) (0.116) (0.259) (0.140) (0.116)
Eco-Label, Type 3 .589* 0.758 .608** 0.036 0.240 0.305
(0.237) (0.492) (0.197) (0.366) (0.235) (0.214)
SRI Index (Global) .263* 0.278 .234* .718** 0.160 .213*(0.106) (0.234) (0.097) (0.220) (0.158) (0.098)
SRI Index (Domestic) .194* 0.452 0.183 0.454 0.200 .325**
(0.099) (0.244) (0.099) (0.234) (0.160) (0.109)
UN Global Compact -0.017 0.447 .248* 0.080 .373* 0.009
(0.124) (0.285) (0.117) (0.296) (0.165) (0.126)
Controls
Total Assets .816*** .362* .642*** .701*** .769*** .792***
(0.096) (0.177) (0.072) (0.147) (0.103) (0.079)
Property, Plant, and Equipment 0.103 0.142 0.040 0.025 0.013 0.032
(0.057) (0.110) (0.043) (0.078) (0.040) (0.052)
ROA -2.181** -0.443 -1.347 2.453 0.763 -0.904(0.835) (1.563) (0.764) (2.068) (0.934) (0.708)
Intercept -6.213*** -5.384* -7.041*** - 9.066*** - 5.988*** - 5.429***
(0.994) (2.149) (0.796) (2.272) (1.539) (0.836)
32 Industry Dummy Variables (Included) (Included) (Included) (Included) (Included) (Included)
6 Year Dummy Variables (Included) (Included) (Included) (Included) (Included) (Included)
Rho 0.026 0.437 0.092 -0.011 -0.370 0.023
Sigma 1.079 2.018 0.011 1.925 1.402 1.026
Log Likelihood -4,162.284 -5,001.894 -4,101.149 -4,899.424 -4,538.595 -4,206.290
N. Company Years 5,001 5,001 5,001 5,001 5,001 5,001
N. Uncensored Company Years 2,100 1,845 2,082 1,843 1,956 2,141
N. Companies 999 999 999 999 999 999
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Environmental Report
-50%
0%
50%
100%
150%
200%
250%
300%
350%
Third PartyConsultation
No Third Party
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Environmental Accounting & Auditing
-100%
0%
100%
200%
300%
400%
500%
600%
700%
Env. Accounting
Env. Audit
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SRI Index
0%
20%
40%
60%
80%
100%
120%
Global
Dometic
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UN Global Compact
-10%
0%
10%
20%
30%
40%
50%
60%
Facilities Water Env. Mgt. Sys. R&D SocialActivities
Conservation
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Summary
Facilities Water Mgt. Sys. R&D SocialActivities
Conserva-tion
Env. Off. + +
Env. Exe. + +
Env. Rep.(third Party)
+
Env. Rep (NoThird Party) +
Env. Acc. + +
Env. Audit +
ISO 14001 +
Firms OwnEMS
Eco-Lab. (T1) +
Eco-Lab. (T2)
Eco-Lab. (T3) + +
SRI (Global) + + + +
SRI (Dom.) + +
UNGC + +
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Conclusion
Substance or symbolism? Some promising outcomes but mostly less than what has been
promised
Self-regulation or self-serving?
Corporate environment spending for the sake of maintainingenvironmental management systems
Need for public monitoring of private self-regulation
Challenges ahead (e.g., financial and fiscal crisis)
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