Non‐Mandatory Approaches to Environmental Protection

TLDR

Environmental protection has shifted from regulation‑driven, adversarial government push to proactive, voluntary, business‑led self‑regulation, supported by increased disclosure of firm environmental information to mobilize market and community demand. This paper provides an overview of non‑mandatory approaches to environmental protection and surveys theoretical literature on their economic efficiency relative to mandatory approaches. The study examines evidence on how information disclosure influences investor and community pressure on firms to improve environmental performance. It also discusses empirical findings on the factors motivating self‑regulation by firms and its implications for their economic and environmental performance.

Abstract

The approach to environmental protection has been evolving from a regulation‐driven, adversarial ‘government‐push’ approach to a more proactive approach involving voluntary and often ‘business‐led’ initiatives to self‐regulate their environmental performance. This has been accompanied by increasing provision of environmental information about firms and products to enlist market forces and communities in creating a demand for corporate environmental self‐regulation by signaling their preferences for environmentally friendly firms. This paper provides an overview of the non‐mandatory approaches being used for environmental protection and surveys the existing theoretical literature analyzing the economic efficiency of such approaches relative to mandatory approaches. It also discusses empirical findings on the factors motivating self‐regulation by firms and its implications for their economic and environmental performance. It examines the existing evidence on the extent to which information disclosure is effective in generating pressures from investors and communities on firms to improve their environmental performance.