Corporate Environmentalism: Motivations and Mechanisms

Corporate environmentalism (CE) pertains to firm-level efforts to reduce pollution and resource use along with protecting natural habitats. Importantly, firms pledge to undertake these actions beyond the requirements of the law. Although historically CE efforts focused on resource conservation, their contemporary focus is on pollution reduction to reduce direct harm to humans and their communities and on the protection of environmental sinks. We review two broad categories of CE: direct CE and indirect CE. Direct CE, whether undertaken unilaterally or collectively, pertains to firms themselves adopting policies that reduce the environmental impact of their activities, or disclosing information about their environmental performance. Indirect CE refers to policies of actors (such as financial institutions) that encourage firms seeking their resources (through loans, venture capital, etc.) to commit to environmental stewardship policies. Three key lessons emerge. First, firm-level characteristics, particularly size and economic performance, encourage CE. Second, although pressure from external stakeholders, especially environmental nongovernmental organizations (NGOs), has played an important role in discouraging policies that harm the environment, its effect on encouraging proenvironmental activities remains unclear. Third, the literature is ripe with serious methodological issues. The endogeneity between firms' economic and environmental record and their CE efforts poses difficulty in drawing causal inferences.