After the Second World War the business leaders and governments of all developed nations focused their efforts towards growing and strengthening their economies, in turn this fuelled the industrial capacities of these nations; many historical commentators label this era as the beginning of environmental degradation. The majority of the influential people of that time held the view that spending capital on a businesses environmental performance had an adverse effect on its economic performance; this view can be summarised in a then commonly used phrase: “pollution pays” (Worthington, 2009).
Metcalf (et al., 1995) argue that there is no clear or agreed upon definition of ‘greenness’, which has made it difficult for many writers to empirically evaluate and measure corporate environmental performance. However, one of the first systematic attempts to describe positive environmental performance was made in 1989 by the Coalition for Environmentally Responsible Economics (CERE) (Minow and Deal, 1991). More recently, organisations uphold Environmental Management Systems to assess their environmental performance, from this came about national and internationally recognised accreditations; BS7750 (Welford and Gouldson, 1993), EMAS (the European Eco-Management Auditing Scheme) and the ISO14001, which superseded the BS7750 to be internationally recognised.
The neo-classical economic view that ‘pollution pays’ changed in the 1980’s-90’s and was known as the ‘Revisionists View’; dubbed by the famous Harvard professor and Management Guru Michael E Porter, and was adopted by influential people like Al Gore and many famous business practitioners. The revisionists view held the notion of a ‘win-win’ hypothesis, the idea that by investing in the environment, businesses can benefit. From this era onwards environmental issues became increasingly important to a broad range of corporate stakeholders, including consumers, shareholders, potential investors, creditors, regulators, employees and the general public.
Competitive Advantage became Michael Porter’s (1985) earlier studies and is still widely used by both academics and practitioners. His book ‘Competitive Advantage: Creating and Sustaining Superior Performance’ highlights three generic strategies firms may use to achieve competitive advantage. The three strategies are defined within two dimensions, strategic scope and strategic strength. Strategic scope is the demand-side dimension it looks at the size and composition of the market a firm wishes to target (Segmentation Strategies); and strategic strength is the supply side dimension, which looks at the core competencies of the firm. The organisation has most control in the supply side dimension. Smith and Flanagan (2006) use the basis of Porter’s writings to further reiterate the two competencies that are most important to a firm. Product Differentiation; which happens when an equal price is charged by two or more companies for the same service, yet one firm’s service is greater, by quality, quantity, or any other means. Cost Leadership takes place when one company can provide equal services as its competitors, but for a more appealing price. The arena for competitive advantage has since changed, consumers now more widely recognise competitiveness and appeal in a organisations corporate social responsibility.
In 1975, the 3M company pioneered a new path to control pollution, rather than just collecting and treating waste; they sought to prevent the creation of waste in the first place. The program, Pollution Prevention Pays (known as 3P) served as a model for many companies, according to Hart and Ahuja (1996) who conducted an empirical study of 500 companies, reported that between 1975 and 1990 3M reduced their total pollution by 530,000 tons and, according to internal sources saved over $500 million through lower raw material, compliance, disposal and liability costs. Al Gore (1992) a politician who ran for presidency has adopted the ‘win-win’ view of the relationship between business and the environment: strict environmental regulation might actually improve competitiveness by encouraging efficiency and innovation.
“Eco-efficiency is reached by the delivery of competitively priced goods and services that satisfy consumer needs and bring quality of life while progressively reducing ecological impacts and resource intensity, through the life cycle, to a level at least equal with the Earth’s estimated carrying capacity” (Darabaris, 2008). Improving a company’s environmental performance encourages a culture of innovation, where the firm looks within its task force for new ideas in improving eco-efficiency, this is turn will inhabit more product or service differentiated strategies which can be sustainable to the organisation. Implementation of new technologies to improve environmental performance will also create eco-efficient strategies as cost leadership. (Repetto, 1995)
The majority of authors writing in this field support the revisionists view that it is economically viable to improve upon a firm’s environmental performance. Relatively few authors have opposed the view, those that have follow a ‘Friedmanite’ school of thought; Milton Friedman heralded by many as the Intellectual Champion of Conservatism released a famous quote in the New York Times magazine (September 13, 1970) reading: “the business of business is to do business”. This quote became the basis for most the arguments against the notion that firms can gain a competitive advantage by improving steps towards environmental performance.
Gallarotti (1995) argued in the opening paragraph of her article in the Columbia Journal of World Business that managers continue to see environmental strategies as detrimental to the principal goals of profitability. Guimaraes and Liska (1995) also discuss in their article that there is little evidence on the benefits from environment-oriented measures.
Many writers in this topic have commented that the research carried out in this field is flawed, as many authors have adopted a homogeneous approach to businesses or have limited empirical research to Larger organisations; namely Fortune and S&P 500. The reality is not all organisations are the same, and in the UK eighty percent of businesses are made up of small to medium enterprises (SMEs); Authors and commentators argue that regulations have been passed for the benefit of larger organisations who can easily meet the costs involved with regulatory eco-efficiency measures, this ultimately has created a form of barrier to entry in some markets (Karagozoglu and Lindell 2000).
Dowell (et al. 2000) and Bonifant (et al. 1995) have commented similarly about how research is flawed when considering the size of an organisation, like many others they make suggestions and recommendations for further research to be carried out on smaller organisations in aid of reaching a conclusion. Reinhardt (1998) implies in his journal that there may be a ‘curve’ in the benefits (to the business owner) of increased environmental performance, when cross referenced with corporate size, he comments that there is small benefit little if at all to be eco-compliant, larger organisations that are privately owned benefit greatly, and then companies that are floated on the stock exchange do not receive as much benefit, as shareholders take on the view of an investor expecting maximum dividend.
Friedman’s literature and teachings have evoked many debates, a more recent would be the debate held by The Economist entitled: ‘The Business of Business’ in New York on November 2nd 2008. The debate was between Clive Crook who is a senior editor of the Atlantic Monthly and also a columnist for the National Journal, William Wilkinson a researcher for the Cato Institute, both who support a Friedmanite view on the topic. John G Ruggie who is a special representative of Business and Human Rights for the United Nations Secretary General and Bennet Freeman, Senior Vice President for Social Research and Policy at Calvert, both the latter speakers respectfully hold a revisionists view on the topic, supporting the overall notion that it is competitively advantageous for firms to be eco-efficient.
Crook began the debate with commenting that decision makers in any given organisation are accountable to firstly customers, owners and then the citizens or government. Firms must fundamentally be concerned about their relationships with employees and suppliers, neighbours and local communities and then ultimately society via media and public opinion. He then stated that if you create new obligations for top-level managers you weaken the ones they already have. He ended his opening statement with “Managers should not be creating public policy, that is the business of Government.”
The statements delivered by both Ruggie and Freeman were weak in comparison, they both repeated that there is no systematic evidence which suggests that financial performance suffers as a result of corporate social responsibility (CSR). That CSR creates opportunities and encourages investment into the organisation. They argued that managers decide upon the best long-term interest of a business (The Business Judgement Rule) and that growth comes from the application of research.
Wilkinson closed the debate with a very thought-provoking quote: he argued that “Executives are present because they have proved to fatten a company’s bottom line, not for their moral judgement; boardrooms are not filled with moral philosophers. They manage shareholder risk and value.” Peter and Sarah Stanwick (2001) support the arguments of Clive Crook and Will Wilkinson; their article supports the view that CEOs are not rewarded based on the environmental reputation of the firm.
In conclusion to this paper, arguments both for and against have been presented to the reader, ultimately there are many more authors supporting the notion of Michael E Porter which suggests that there is more evidence showing that competitive advantage can be gained from taking steps towards improving a firms environmental performance. However flaws have been identified in the research by several authors suggesting further research in the topic, particularly to research relating to size and capabilities of an organisation. Other variables that are internal to a firm must also be considered in future research for example, management structure and culture.
External variables include location, as there is not a standardised form of regulation for multi-national organisations. Another key external variable that was highlighted in the Economist debate that has not yet been mentioned in the paper is the economic climate, as it currently holds a huge leverage on current decision-making in organisations.
Rhodes (et al. 2008) from the Boston Consulting Group bluntly commented in their article that all businesses should hold onto any cash that they might have, during the current state of the economy. With this in mind it may prove counter productive, maybe even suicidal for an organisation to make expenditures which are not entirely necessary.
The author’s personal view on the topic is that as individuals and organisations alike we all have an impact on the environment in our day-to-day actions, though actions taken towards improving environmental performance may or may not appear to be economically beneficial to the organisation, profit should not be the only premise for compliance, instead businesses should feel it is a moral objective. However, considering the current economic situation, firms should not be forced through legislation to take on any unnecessary risk, instead businesses should be aided by government in improving environmental performance. We are currently experiencing social reform in the re-adoption of Keynesian policy, it is maybe now time that we as an entire society unite to tackle environmental degradation together with businesses.
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