2 Methodology
3.4 Across the Social Sciences: Variation in Firm Environmental Behaviour
The above section outlined key economic theories that provide insights into why carbon pricing may be used and what methods should be considered when calculating an ICP value.
However, this climate-related topic can benefit from theories from a range of social sciences, as well as, economics: other disciplines can help to explain discrepancies between the value predicted by economic theory and the reality of ICP values. This section outlines a number of alternative theories that provide potential explanations for the reasoning behind the apparent variation in firm environmental behavior and policy.
In turn, these may suggest reasons as to why such variation can be seen in ICP values.
3.4.1 Sources of Pressure: Stakeholders and Regulation
Firstly, it can be argued that particular pressure sources have a central influence on firm environmental policy; for example, stakeholder or regulatory pressure (Pulver 2007, 46).
In terms of pressure from stakeholders, this could include such wide-ranging influencers as governments, non-governmental organization (NGOs), consumers or shareholders.
Kassinis and Vafeas argue that varying characteristics of such “stakeholder pressures”
are what lead to variance in firm environmental policy (2006, 156). For instance, industries with a higher carbon footprint may experience pressure to mitigate and manage their environmental impact from climate-focused NGOs (leading to the use of an ICP). On the other hand, industries that rely heavily on end consumer purchasing patterns may use higher ICP values as a way to manage their public relations and to fit with consumer opinion.
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Similarly, it could be argued that the regulatory environment in which a firm operates shapes its internal policy (Pulver 2007, 47). For example, it could be that where a carbon tax exists in a country, a company operating in this jurisdiction may design their ICP so that the value is equal to this tax. This would be a relatively straightforward and pragmatic way for a company to place a value on the direct cost that they incur in relation to carbon emissions. Accordingly, variance in country regulation could be reflected in the variance present in the ICP values seen within internationally operating companies.
3.4.2 Shared Networks
Alternatively, from a sociological perspective, other theories argue that inter-manager networks have a central influence on firm environmental policy.
The institutional model and environmental contestation approach both focus on this area of influence: networks and shared knowledge creation between key company actors, such as, managers are seen to have an significant influence on environmental policy (Pulver 2007, 47). Such networks could be within particular industries or across a variety of industries. For example, they could be formed through common educational or country backgrounds.
In particular, the environmental contestation approach argues that “co-created, shared understandings of market opportunities, likely regulatory outcomes and consumer behavior are key drivers in firm environmental behavior” (Pulver 2007, 50). Similarly, new institutionalist models state that decisions and actions made by companies are driven via the “process of shared knowledge creation by the firm (itself) and other actors in its organizational field” (Pulver 2007, 47).
As such, these theories could help to explain the variation in ICP value seen between companies that appear to have very similar activities (for example, between oil giants such as Royal Dutch Shell and Exxon Mobil). If particular networks or areas of shared knowledge can be identified, these groups may demonstrate homogeneity in company environmental policy (and, thus, ICP value).
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3.4.3 Typologies of Firm Greenness
Rather than looking at inter-company relationships, it could be argued that the nature and extent of a firm’s own “greenness” is what has the most influence on its
environmental policy (Pulver 2007, 47).
For instance, Petulla categorises a company’s approach to environmental management into three types: “crisis-oriented, cost-oriented and enlightened” (1987, 72). Each category refers to a different level of compliance and interest in environmental issues.
For instance, ‘enlightened’ companies have the most “sophisticated” and long-term environmental policy based on an (apparently genuine) interest in tackling current and future climate challenges (Petulla 1987, 79 and 88). In contrast, ‘cost-oriented’
companies simply accept that compliance with environmental regulation is a legitimate business cost and so implement the minimal necessary compliance (Petulla 1987, 76).
Alternatively, ‘crisis-oriented’ companies delay implementation of environmental policy until as late as possible and only put it into use when it is seen to be absolutely necessary (Petulla 1987, 73).
This classification of firms helps to identify the motivation for their environmental policy. As such, a company’s motivation could influence the value they place on their ICP. For example, a company wishing to truly implement ICP into their daily and future decision-making may base their ICP value on expected carbon regulation. In contrast, a company simply wishing to appear concerned with the environment (but will actually not implement ICP as strictly as they profess) may have a very high ICP. Such a high ICP value would have no practical significance to the company itself but would send a public relations message that they are concerned with the high environmental costs related to carbon emissions. This usage would be classified as “green marketing” by Weinberg (1998, 247).
3.4.4 Systemic Influences
Other theories suggest that it is the broader, systemic background in which a company operates that affects their environmental policy. There are two key approaches that focus on this systemic-influence: the ‘treadmill of production’ model and ecological modernization theory (Pulver 2007, 48).
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The ‘treadmill of production’ model, assumes an economic system with “ever-increasing production” coupled with “ever-“ever-increasing environmental impacts” on the basis of unlimited wants combined with competition between firms (Pulver 2007, 48).
As such, this ever-expanding system means that environmental challenges will continue to be unresolved (Gould, Pellow and Schnaiberg 2008, xii). Under this model, it could be argued that ICP would not be introduced or used at all or, if it were, then it would have no influence on business operations.
Ecological modernization, on the other hand, views society as one that will increasingly adapt to ecological needs so that capitalism and environmental protection can coexist (Knutsen and Ou, 68). Accordingly, this approach would have a more optimistic view of ICP, with such pricing being an example of how business practices can adapt to coexist with the environment. As such, it could follow that the value placed on ICP would be the value that would allow the environment to be protected, whilst not damaging the capitalist system.