The appeal of voluntary environmental programs: which firms participate and why?

TLDR

Firms join EPA voluntary environmental programs to appeal to green consumers, preempt regulation, obtain regulatory relief, and gain competitive advantage. This study tests hypotheses 1 and 3 to determine the factors that drive firms’ participation in these voluntary programs. The authors analyze participation of S&P 500 manufacturing firms in three EPA programs—33/50, Green Lights, and WasteWi$—across differently regulated pollutants. Results show that publicity drives participation, firms with poorer environmental records join programs on highly regulated pollutants, cautious firms avoid newer programs, and firms value information and technology transfer.

Abstract

Why do firms participate in the EPA's voluntary environmental programs? Possible reasons include: (1) to appeal to consumers who demand ‘green’ products; (2) to preempt government regulation; (3) to seek regulatory relief from the agency; and (4) to gain a competitive advantage over competitors. This article examines the determinants of participation in voluntary environmental programs, focusing on testing hypotheses 1 and 3. To test 2, a different approach is used than in previous literature. The focus is on a specified universe of firms (manufacturing firms in the Standard & Poor 500), and their participation in each of three EPA voluntary programs (33/50, Green Lights, and WasteWi$) referring to differently regulated pollutants is analyzed. Our empirical analyses reveal that (1) publicity is an important component of participation; (2) the worse the environmental track record of the firm, the more likely the firm is to participate, but only in programs directly related to highly regulated pollutants; and (3) firms that scrutinize their environmental performance more carefully are wary of newer programs with uncertain reach of the public and uncertain benefits. Firms appear to value the information/technology transfer aspect of joining a program.