Free Corporate Responsibility In Creating Environmental Value: Essay Sample

LITERATURE REVIEW

Corporate Responsibility in Creating Environmental Values
Corporate social responsibility is a result of the dwindling resources facing mankind (Gray, 2006). The quality of life will diminish significantly by the first part of the twenty-first century if aggressive steps aren’t taken. However, this seems in the distant future to a society based on ever-expanding consumerism, a business environment focused on consistent growth, and an audience not entirely convinced of the prospect.
Corporations have a responsibility only to the government in adherence to law and to the stockholders for acquisition of profit. With increasing awareness of the potential for corporations to contaminate the environment during the process of production, the public is demanding accountability outside the usual focus of a business. The question has been asked whether a company has a responsibility to protect the environment beyond what is mandated by law. The corporations must determine if their responsibilities to the environment supersede their responsibilities to their stakeholders. In the present paper, it is discussed if it is necessary to sacrifice profitability in response to standards for corporate social responsibilities (CSRs). It is hypothesized that it is not necessary to do so if corporate strategy includes environmental protection into future production processes (Barnett, 2015).
The primary concern of corporations is the ability to maintain profitability while complying with formal regulations and ethical decisions concerning effects of the environment. During the process of production, there are circumstances where a company makes the decision to proceed with a method that is detrimental to the social or ecological environment. For example, there is a large movement by corporations based in the United States to extract oil from Nigeria (Shaw, 2012). As a result, there has been demonstrated support of military actions that persecute and sometimes even kill local citizens who protest the activities. A situation where environmental pollution has occurred was when the Williams Energy spilt approximately 250 barrels of mixed natural gas liquid and benzene in 2013 which worked its way into the waterway (Upton, 2013). Williams uses the process of fracking in drilling for natural gas near Parachute, Colorado. There have been no published repercussions for this accident to date. If Williams had chosen to adopt an attitude of corporate environmental responsibility, the company would have addressed the situation publicly, informing the residents of the spill and actions that were being taken (as they should have been) to clean up the harmful chemicals from the area.
Corporate environmental impact is not simply related to pollution; for instance, if the construction of a port along a river disrupts the habitat that is important to a species, there may be no pollution involved. However, the environment has been negatively impacted. Deforestation is not a polluting action, but has resulted in drastic negative environmental consequences in the rain forests (Bradford, 2015).
Guenster, Bauer, Derwall, and Koedijk (2010) analyzed financial and environmental performance reports from the period of 1997 to 2004 of 519 firms on the relationships between their level of financial performance and eco-efficiency. Eco-efficiency can be defined in terms of lessening environmental impact created by production processes; this may be through decreased use of energy, material, water, recycling, effective elimination of hazardous waste, or controlling dangerous emissions or other by-products (Businessdictionary.com, 2015).
The study revealed that corporations who reported the most eco-efficient operations performed around 6 percent better annually in the period from 1995 to 2003 than competitors reporting less eco-efficiency; control were put into place for sector exposure, risk differentials, and types of investments. Al-Tuwaijri et al. (2004) reported a significant correlation between “good” eco-efficiency reports and “good” financial performance reports. Studies in Japan obtain the same results as those seen on research in the United States (Nakao, Amano, Matsumura, Genba, and Nakano, 2007). In addition, they discovered the same results for small businesses as for large corporations. Lee, Herold and Yu (2015) investigated two small and medium enterprises (SMEs) in Sweden and found that environmental strategies were viewed as profit-sacrificing rather than as profit-making. Their lack of CER activities were attributed to lack of funds and managerial experience. This causes the motivation to commit to eco-efficient practices to go from slight to none.
The conclusions of the study by Guenster et al. (2010) are important for senior management of companies who don’t was to sacrifice financial performance for eco-efficiency and vice versa. Al-Tuwaijri et al. (2004) suggests changing the view of corporate environmental strategies as a burden with associated costs to one that perceives the expense as a future opportunity created by pollution of the environment. They believe that successful performance of the company financially and environmentally is based on management attitude. Shoukry, Saad, Eltemsahi, and Abolfotouh (2012) conducted a study that demonstrated employees in a company have poor knowledge of law regarding the environment and fairly neutral feelings about most issues dealing with ecology; some problems elicit a large amount of concern. This indicates the necessity of education managers on all levels of the factors involved in corporate environmental responsibilities. These should include the financial information and research results concerning involvement in eco-efficient programs. Hongtao and Yi (2007) conducted a survey of mid- and upper-level management of middle and large enterprises in China and addressed the concepts of “to do good to do good” and “to do good to do well”; the former was based on the financial ability of the company to support CER activities while the latter looked at the activities as a way to reap social returns for the organization in the future. They reached the conclusion that manager in both instances continue to see participation in CER programs as a trade-off with profitability. This is reflected in the results that showed managers with less number of years with the company, lower position, and younger in age were more supportive of the CER programs; these managers placed environmental responsibility alongside or more important than profitability of the company.
Investors use reports on environmental impact to formulate decisions for placement of funds. They tend to show an inclination toward opportunities offered by companies that are aware of their responsibilities to environmental sustainability (Al-Tuwaijri et al., 2004). Companies have come to realize the importance of active CER programs to investors. A study conducted with 533 companies in China by Meng, Zeng, Shi, Qi and Zhang (2014) found a correlation between corporate environment performance and reporting. Companies with mixed levels of performance had poorer reporting results than organizations with either less or more performance. Poor performers tended to avoid disclosing negative information such as what the violation was and how much was fined and good performers supplied more quantitative data. The researchers drew the conclusion there is not a relationship between eco-efficiency activities and disclosure due to unreliable reporting practices by companies.
Wei, Xie, and Posthuma (2011) examined the investor consequences of litigation against companies from 1980 to 2001. When the lawsuits were filed and became public, the value of the company’s stock significantly fell. If the suit was filed under the Environmental Protection Association’s superfund statute, the firms experienced a significant decrease in equity value. The result of the study was that environmental impact is expensive for corporations apart from governmental fines.
However, the reporting system reveals issues with interpretation. Studies by Aggarwal (2013), Al-Tuwaijri, Christensen, and Hughes (2004), Gray (2006) and Nakao et al. (2007) discussed the same topic. Guenster et al. (2010) felt the time variant’s influence on the environmental performance’s valuation shows a relationship resulting in a drift. This differential in valuation grew during the interval measured. In addition, Al-Tuwaijri et al. (2004) found the amount of information in the environmental reports was more favorable when they included quantifiable data. For instance, Jenkins and Yakovleva (2006) discussed the CER of the global mining industry using the 10 largest international mining companies. They particularly focused on the development of reporting procedures and disclosure of eco-efficient activities. They found significant differences in the sophistication of the styles and content among the corporations. Verfaillie and Bidwell (2000) discussed that there are methods recognized internationally for changing information about applicable eco-efficient indicators into common units. For example, in the case of greenhouse gas equivalents, this isn’t an issue; however, there are not commonly accepted methods of reporting hazardous waste.
Research conducted by Aggarwal (2013) found mixed results when comparing financial performance reports with reports of eco-efficient compliance; they ranged from negative results to no results to mixed results to positive results. However, the firms reporting positive results were in the majority. Al-Tuwaijri et al. (2004) attributes the discrepancy in reported results to the idea that researchers do not acknowledge there are interrelationships between financial performance, eco-efficiency performance, and disclosure concerning eco-efficiency activities.
Within the United States, companies expressing concern regarding compliance with government regulations about environmental sustainability were divided into three categories: businesses that use less rigorous standards regarding environmental preservation, businesses that use the more stringent U.S. standards in global operations, and businesses that impose on themselves standards more severe than those enforced by any country (Guenster et al., 2010). Hay, Stavins and Vieto (2005) found that firms can exhibit corporate environment responsibility without effecting profitability, but they rarely do so; when they do, it is generally in response to a specific circumstance. Computation of results indicate those firms that use self-imposed standards more harsh than those placed upon them by exterior forces had a greater valuation than companies in the other two categories. Magness (2006) studied the valuation of a company after a mining accident. She found related conclusions to self-imposed standards for environmental concerns. Following the accident, the public viewed the company more favorable one year later after frequent press releases concerning the company’s activities to correct the impact on the environment. Magness’ study also found the possibility of obtaining financing one year later was better than if strictly financial reports were offered.
Consumer awareness has been improved concerning the companies practicing effective corporate environmental and social responsibility (O’Rouke, 2012). Consumers in 2012 became vocally concerned when it was revealed by the New York Times that the Apple corporation was being irresponsible in CSR activities (Chun, 2011). Shoppers turned from Nike in the late 1990’s and Walmart when connections were made to sweatshop production activities overseas (O’Rouke, 2012). Shoppers are empowered by smartphone apps for company information when they act on their values when spending their dollars.
Al-Tuwaijri et al. (2004) propose that resources that have not been used effectively, completely, or efficiently result in pollution; by resolving the source of the pollution, these resources can be use for an improved bottom line. Along these line, Russe and Fouts (1997) believe there are two types of environmentally-friendly activities reported for eco-efficiency. One type involves “end-of-pipe” methods that clean up pollution created by production; this type of pollution is discussed by Al-Tuwaijri et al. (2004). The other type is company processes that prevent the pollution from occurring in the first place. The firm practicing pollution prevention was associated more heavily with future corporate value. The findings of Guenster et al., 2010) supported these conclusions.
There is a need to increase reliability in eco-efficiency reporting with enhanced enforcement. On the one hand, a consistency in evaluating factors requires training and a standard for accuracy. The United Nations (2003) developed a manual for the recognition and preparation of eco-efficiency indicators. Using the correct indicator dictates which sub-processes to use. This type of system would allow more uniform methods to promote the evaluation of the quality of environmental reporting. Verfaillie and Bidwell (2000) published a report for the World Business Council for Sustainable Development promoting clear methodologies for data associated with eco-efficiency. Environmental performance reports employ a complicated mixture of parameters that address various influences and measurement techniques are frequently new or not widely accepted.
On the opposite side of the issue, some firms want to appear compliant with regulations and show participation in environmental protection to seem more appealing to investors and the general public when they are not actually doing so. Unfortunately, this can be accomplished by distributing incorrect information; this is called “greenwashing” (Sourcewatch.org, 2015). It appears these companies spend more fund in greenwashing activities than they would in actually committing the company to anti-pollution involvement.
Aggarwal (2013) proposes additional research to examine influences such as governance, the economy, and societal factors on the association between organizational sustainability and profitability. Nakao et al. (2007) think a vital area for additional research is to investigate the apparent valuation improvement differential when comparing firms that are victorious and those that are not in relation to being eco-efficient. Using imagination in developing research for accountability in corporate social responsibility will result in work that is more revealing and original (Gray, 2007). Verfaillie and Bidwell (2000) stress that corporations need to include margins of error on the data provided in their environmental reports. In order for users to grasp the meaning of the information provided, boundaries of data collection, the impact of market changes, influence of specific environmental factors, and other pertinent comparisons are essential. Otherwise, the reports become an exercise in compliance rather than sources of usable information. Many businesses use indicators in addition to accumulating data on environmental impact, but the results are not always capable of comparison since the indicators were developed by the company specifically for its own use. By standardizing eco-efficiency indicators, future reporting can become as routine as today’s selection of indicators of financial performance.
Managerial support is vital to the success of CER activity implementation and when managers are educated concerning the financial of such participation, there is no reason profitability should suffer to do so. As younger managers move into positions of importance, there is a possibility the initiation and adherence to eco-efficient operations will become more prominent.
The conclusion of the literature review is that companies involved in preventative measures against pollution were not required to decrease profitability in order to do so. The study by Al-Tuwaijri et al. (2004) reports a strong association between good financial performance and good eco-efficiency performance and the results are important for investors and managers alike. In addition, the concept of corporate social responsibility is harmonious with corporate financial success, particularly when frank reporting of activities with impact on the environment is included. Nakao et al. (2007) state that the ability to move into a market economy that is more eco-efficient is more likely when policies regarding environmental measures are based on accurate information.

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