© International Review of Public Administration 141

2013, Vol. 18, No. 3

ACT IN GOOD FAITH?

THE EFFECTIVENESS OF U.S. VOLUNTARY
ENVIRONMENTAL PROGRAMS*

SEONG-GIN MOON
Inha University, South Korea
&
KILKON KO, PH.D.**
Seoul National University, South Korea

This study identifies the factors and their associated motivations that can
influence corporate environmental performance in U.S. voluntary environmental
programs (VEPs). The effectiveness of the programs is discussed. We construct
an ordered logit regression model to estimate the voluntary environmental
performance of 330 firms that participated in the Green Lights/Energy Star for
Buildings (GL/ESBs) program between 1995 and 2000. Our analysis suggests
that corporate participants with motives that are aligned with market interests
are more likely to complete their environmental pledges to a higher level than
those whose primary intent is to relieve institutional and regulatory pressures. It
also provides strong evidence of corporate opportunism in the program.

Keywords: voluntary environmental programs, the Green Lights/Energy Star for

Buildings program, corporate environmental performance.

INTRODUCTION

Voluntary environmental programs (VEPs) were introduced to improve the efficiency

of traditional command-and-control pollution control mechanisms that have been criticized
for high regulatory costs and the adversarial nature of the regulatory framework. Instead
142 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

of controlling industrial pollution behavior via prescribed standards and sanctions, VEPs
provide industries with a variety of incentives and the discretion necessary to achieve
progressive environmental goals that exceed the extant regulatory requirements.
VEPs have enjoyed high currency, largely due to the win-win paradigm of
environmental protection that reduces industrial pollution while simultaneously offering
the resultant economic and institutional benefits. As to the economic benefits, participation
in voluntary programs may reduce pollution (a form of waste) and thus production costs
(Porter & Linder, 1995). Participation can also produce a positive corporate environmental
image that helps attract customers who value environmentally friendly products (Khanna
& Damon, 1999) and environmentally conscious investors (Khanna et al., 1998; Konar
& Cohen, 1997). Banks and insurance companies reward participation because it reduces
the risk of potential environmental liabilities (Hibiki et al., 2004). In terms of institutional
benefits, participation can signal firms’ progressive environmental efforts, which help to
both garner legitimacy and meet social expectations (Rivera, 2002; Rivera & deLeon, 2004,
Rivera et al., 2006; Gunningham et al., 2003). Similarly, it might also reduce regulatory
scrutiny and pressure, thus leading to fewer inspections and less monitoring (Potoski &
Prakash, 2005a; Scholz, 1991).
Despite the optimism about VEPs, debate continues over the effectiveness of these
programs with regard to the promotion of environmental performance among participants
through voluntary means (Borck & Coglianese, 2009; Koehler, 2007). Recently, the
effectiveness of VEPs has come under close scrutiny. This scrutiny is also related to a
sea change in Washington’s approach to policy making, which emphasizes government
regulation over industry self-regulation, e.g., the climate change issue. Critics warn against
VEPs by suggesting that they can breed “environmental opportunism” or “free-riding”
behavior, which is defined as “symbolic activities taken (e.g., public relations campaigns)
by firms to demonstrate their environmental commitment, while their underlying practices
and values remain unchanged” (Howard et al., 2000: 78). This symbolic gesture is taken in
order to benefit from the substantive environmental actions of others without contributing
their own share of environmental action pledged to VEPs (Delmas & Keller, 2005).
Related benefits of free-riding include enhancement of the corporate environmental image,
improvement of customer relations (Hoffman, 2001), disguising a poor environmental
performance record (Darnall & Sides, 2008; King & Lenox, 2000; Rivera & deLeon, 2004;
Rivera et al., 2006; Welch et al., 2000), and some relief from regulatory oversight (Lyon
& Maxwell, 1999). Above all, this type of environmental opportunism undermines the
credibility and viability of VEPs (Delmas & Keller, 2005).
To date, only a few studies have evaluated the effectiveness of VEPs, and the empirical
results of the studies that suggest the existence of environmental opportunism are not
convergent (Koehler, 2007). Therefore, we assess the effectiveness of a voluntary program
by posing the following two questions: (1) Does environmental opportunism exist in
VEPs? (2) What determines good-faith environmental performance in the programs?
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 143

We examine the first stage in the Energy Star for Buildings (ESBs) five-stage program—
the Green Lights (GL) program—in which a firm voluntarily pledges to install energy-
efficient lighting systems in its facilities within five years of joining. The two major foci are
evaluating whether GL/ESBs participants display good faith in the performance of program
compliance, and identifying the conditions and factors that can affect performance. To
do so, we use descriptive statistics and an ordered logit regression model to estimate the
determinants of good-faith environmental performance in the program between 1995 and
2000.

GL/ESBS VOLUNTARY ENVIRONMENTAL PROGRAM

The GL program was established by the EPA in 1991 and incorporated into the first
stage in the ESBs five-stage program in 1995. The GL/ESBs remained as a standalone
program until 2000. Initially, the GL served to inform the U.S. Climate Change Action
Plan1 (1993), which was initiated by President Clinton. Later, it operated as a part of the
Climate Change Action Plan along with other similar voluntary programs, such as the
Climate Challenge (1994), Climate Wise (1994), and Cool Community (1991) programs
(Brunner & Klein, 1998). The program is designed to reduce a firm’s carbon footprint by
encouraging it to install energy-efficient lighting technology, such as electronic ballasts,
occupancy sensors, reflectors, and compact fluorescents, in its facilities. The significant
aspect of this project is related to the facts that “lighting accounts for 20–25% of all
electricity sold in the United States” and that 80–90% of total lighting electricity use is
consumed by industrial facilities (U.S. EPA, 1997: 3). The efficient use of energy slows
global climate change because it reduces the volume of carbon dioxide emissions by utility
companies.
The GL/ESBs program is one of the most recognized pollutioncontrol programs and
was highly promoted as the most feasible means to mitigate the impact of global climate
change (Moon, 2008; Brunner & Klein, 1998). This program’s popularity is largely due
to the absence of policy consensus on how and to what extent greenhouse gases should be
mitigated, along with conflicting political interests and scientific uncertainty concerning
global climate change.
To join the GL/ESBs program, firms need to sign a memorandum of understanding
(MOU) that states their agreement to survey all of their facilities and, within five years of
joining, upgrade lighting where energy efficiency in their building can be increased (U.S.
EPA, 1997). The choice of lighting technology is up to the participants. In exchange for
participation, the EPA offers technical assistance and training, public advertisement about
the participants’ environmental commitment, and opportunities to exchange with other
organizations information on best practices for energy management through monthly online
conferences and annual meetings (Moon & Bae, 2011; U.S. EPA, 2004).
144 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

THE INSTITUTIONAL DESIGN OF VEPS AND ENVIRONMENTAL

OPPORTUNISM

To VEPs, environmental opportunism is of particular concern, since most lack explicit

sanction mechanisms to compel the firms to improve their environmental performance
(Dietz & Stern, 2002; Delmas & Keller, 2005). VEPs provide firms with discretion and
incentives to meet environmental goals (normally exceeding regulatory requirements) that
they commit to when joining the program, rather than amandate prescribed standards and
sanctions to accomplish these goals. In the U.S., voluntary programs generally lack explicit
control mechanisms to ensure implementation progress. Once firms join the programs and
pledge to change their underlying practices, there is no formal institutional mechanism to
compel the attainment of the committed targets for pollution abatement (Potoski & Prakash,
2005a, 2005b). Accordingly, program participants are more likely to free-ride, unless there
is coercion or sufficient positive incentive for them to complete their environmental pledges
(Olson, 1965). Even with little effort to fulfill the program obligations, they can still enjoy
membership benefits, either direct (e.g., program incentives) or indirect (e.g., environmental
reputation and institutional legitimacy).
The level to which voluntary programs are susceptible to environmental opportunism
could be related to the design of VEPs (Darnall et al., 2003; Darnall & Carmin, 2005;
Delmas and Terlaak, 2001; Potoski & Prakash, 2005a). First, deterrent mechanisms,
including monitoring and sanctioning, could play important roles in discouraging free-
riding behavior. Although empirical evidence about the effect of the deterrent mechanisms
on participants’ environmental performance is not consistent across VEP studies,2 some
institutional mechanisms for voluntary programs are generally considered necessary to
ensure that program participants adhere to the program standards (Potoski & Prakash,
2005a). Similarly, while explaining the failure of the Responsible Care program to improve
participants’ environmental performance, King and Lenox (2000) suggest that sociological
pressures alone are not sufficient to prevent free-riding. Second, the public disclosure of
program members’ environmental performance might discourage opportunistic behavior.
Such actions could help stakeholders identify good performers and bad performers, which
enables the stakeholders to pressure and sanction free-riders (Delmas & Keller, 2005).
A typical example for using this informal sanctioning mechanism as a measure against
poor environmental performance is environmental information that discloses program
participation, such as the Toxic Release Inventory (TRI; Stephen, 2002). Third, program
incentives associated with environmental performance in VEPs could affect the probability
of free-riding behavior (Delams & Keller, 2005). Organizations are more likely to fulfill the
pledged environmental goals when they perceive sufficient benefits from doing so (Olson,
1965); the perceived benefits should be sufficient to offset the cost of the environmental
actions. The perception of program benefits varies with the organizations’ resources and
the contexts in which organizations exist. Finally, the regulatory regimes under which
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 145

voluntary programs operate could influence the environmental performance of program

participants. When programs work within strong regulatory regimes, such as the U.S.
EPA–sponsored 33/50, participants are more willing to fulfill their non-binding program
agreements. This is largely because participants understand that “nonfulfillment will trigger
regulatory or legislative action that would be more costly” (Segersen & Miceli, 1998;
Welch et al., 2000: 410). In this case, the regulatory regimes that govern VEPs function as
a background threat of sanctions to deter opportunistic behavior. Conversely, in VEPs that
work under weak regulatory regimes, organizations perceive a limited threat and, therefore,
are less motivated to complete their agreed program responsibilities. Good examples
are the voluntary programs that target carbon dioxide emissions reduction, including the
Department of Energy–sponsored Climate Challenge and GL programs. With the absence
of federal leadership, the U.S. climate change regulatory framework under which these
programs operate is weak.

GL/ESBS PROGRAM AND OPPORTUNISM

Like any other program, the GL/ESBs program is susceptible to opportunism among
its participants for several reasons. First, the agreement organizations make with the GL
program is not legally binding, and there is no institutional mechanism to deter them
from shirking their program responsibilities. Although program participants are annually
required to submit self-reports about their progress, the reports are of a proprietary nature.
Second, a program feature—the public advertisement about the program’s participants—
has more to do with the public promotion of participation than distinguishing participants
with good performance from those with bad performance. The program intends to attract
new participants rather than discourage environmental opportunism. Last, without federal
leadership, the climate change regulatory regime in which the GL program operates is
weak. Accordingly, participants are less likely to feel regulatory background threats and are,
therefore, less committed to the program’s obligations. Thus, participants are less likely to
act in good faith—fulfilling the program obligation of upgrading to energy-efficient lighting
systems in their facilities’ eligible square footage.
Conversely, the private benefits that the program offers could positively affect
participants’ environmental performance. Specifically, when firms expect to obtain sizable
private benefits and incentives by implementing the program requirement, the installation
of energy-efficient lighting systems in their facilities, they are more willing to complete
it. One of the major private benefits is related to the reduction of electricity demands and
utility costs. In 1998, the annual energy cost savings through the GL program was more
than $800 million, and in 2000, through the Energy Star Strategy, of which the GL program
was a part, the total energy savings amounted to $11 billion (EPA, 1999, 2000; Moon,
2008). In addition to the energy savings, participants’ fulfillment of the program obligation
146 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

enhances their environmental reputation. The EPA publicizes its participants’ good
performance through annual reports, newspapers, and other media (EPA, 2000; Moon,
2008). The promotion of environmental reputation helps attract environmentally conscious
consumers and investors, which increases the firms’ competitiveness in their markets.

FACTORS, MOTIVATIONS, AND VOLUNTARY ENVIRONMENTAL

PERFORMANCE

It is important to understand how a firm’s characteristics and contexts that indicate

its motivations to join a voluntary program could affect the fulfillment of the program
agreement. We argue that a firm’s characteristics and contexts that interact with program
features influence the perception of the private benefits that it hopes to obtain in return for
fulfilling program pledges.3 When the private benefits that a firm perceives are greater than
the private costs of fulfilling the program covenant, the firm’s environmental performance
in a VEP is more likely to be substantive.
Accordingly, we examine a firm’s characteristics and related motivations—market and
institutional—for joining the GL/ESBs program and association with the program’s
obligation. Market motivations include GL/ESBs participation as a strategic move that
responds to “green” market pressures from consumers for “environmentally friendly”
products and from the public for firms to be environmentally responsible. In addition,
participation in the GL/ESBs program can help reduce production costs by saving
electricity and, therefore, make participants more competitive. On the other hand,
institutional motivations are related to firms’ intent to participate in order to relieve
institutional pressures from both regulatory agencies and environmental activist groups.
Participation can signal firms’ progressive environmental actions, which can reduce
regulatory oversight and weaken community-based environmental activism.

MARKET MOTIVATIONS AND ENVIRONMENTAL PERFORMANCE

IN THE GL/ESBS PROGRAM

Participation in the GL/ESBs program could bring about two major market benefits that
affect firms’ environmental performance within it. The first is related to the acquisition
or establishment of a “green” reputation that is considered a valuable and rare resource4
that enhances firms’ market competitiveness (Barney, 1991; Hart, 1995). Recently in
the U.S., due to a rapidly growing green market segment, projecting a positive corporate
environmental image has become more important than ever, as an increasing number
of consumers have indicated that a corporate green reputation is an important factor
influencing their purchasing decisions (Kleiner, 1991). They are willing to spend more for
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 147

environmentally benign products (Arora & Cason, 1996; Adler, 2006). The green reputation
is particularly crucial to firms with proximate contact with final consumers, i.e., consumer
goods producers, since they are highly visible and their environmental performance is
easily scrutinized (Moon & Bae, 2011; Moon, 2008; Moon & deLeon, 2007). Market
pressures can stem not only from consumers but also from suppliers, competitors, industrial
associations, community groups, and investors (Henriques & Sardoski, 1996; Koehler,
2007). This environmental vigilance can discourage firms from free-riding because the
disclosure of their environmental shirking lowers consumer and other stakeholder groups’
confidence, and thus degrades their market performance. Moreover, recovery from this
tainted environmental image is costly and requires a long time to overcome fully. Therefore,
firms with proximate contact with final consumers are more likely to view the program
covenant as an opportunity to advance their market competitiveness and are more likely to
fulfill the covenant. This expectation was formulated as the first study hypothesis:

H1: A firm with proximate contact with consumers is more likely to make good faith
environmental performance in the GL/ESBs program.

In addition to the reputational benefit, the fulfillment of the program requirement

considerably reduces utility bills (EPA, 2004). As of 1996, GL participants were reported
to have saved $440 million in energy costs and on average reduced energy use for lighting
by 40 percent (EPA, 1997; Howarth et al., 2000: 479). The Energy Star strategy, of which
the GL program is a part, helps organizations “eliminate energy waste at 7 billion kilowatt-
hours annually” (EPA, 1998: 2). The reduced energy use can enable participants to reinvest
their energy cost savings in capital investment and other expenditures, as well as to cut their
production costs, which makes the participants more competitive in the marketplace. Larger
firms can accomplish higher energy cost savings than smaller firms due to their greater
economy of scale. Therefore, larger firms are more likely to make a serious effort to fulfill
their program obligations. This leads to the second study hypothesis:

H2: A larger firm is more likely to make good-faith environmental performance in the
GL/ESBs program.

Even with the potential market benefits that the program offers, the GL/ESBs
investment is risky for firms that do not have “sufficient financial capacity to cushion the
possible investment losses” (Moon, 2008: 1108). As the pollution prevention (P2) program
indicates, the GL/ESBs program demands “continuous investment in energy efficient
lighting upgrades and considerable time for employees to be trained and obtain relevant
experiences and knowledge” (Moon & Bae, 2011; Moon, 2008: 1108). This demanding
investment requirement makes it difficult for participants who lack the financial capacity to
complete the program’s covenant. It is estimated that for the GL participants, the investment
148 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

needed to upgrade lighting systems can average approximately $400,000,5 although it

can fluctuate greatly, depending on the size of the upgrade project (EPA, 1998). When
considering maintenance costs and other costs such as training and hiring staff over time,
we expect that the size of investment required for this GL project is likely to be greater.
As a result, participants who do not have the financial capacity to offset possible
investment losses from the GL/ESBs investment are more likely to free-ride. Conversely,
participants with sufficient financial capacity view their program pledge as an opportunity
to advance market interests and are more likely to complete the program agreement.
Consequently, the third study hypothesis can be stated as follows:

H3: A
 firm with sufficient financial capacity is more likely to make good-faith
environmental performance in the GL/ESBs voluntary program.

INSTITUTIONAL MOTIVATIONS AND ENVIRONMENTAL

PERFORMANCE

A firm makes progressive environmental commitments through the GL/ESBs program,

hoping that they signal environmental responsiveness and help ease the institutional
pressures of meeting environmental expectations from both regulatory agencies and
community environmental groups. Institutional pressures are likely to be greater for
firms with poor environmental track records (“dirty” firms) since they tend to be subject
to regulatory and environmental scrutiny (Arora & Cason, 1996; King & Lenox, 2000).
Recently, these poor performers could have become more vulnerable to institutional
pressure since the TRI was created by the Superfund Amendments and Reauthorization
Act of 1986, which makes it easier for community members to access information on
the amounts of listed chemicals released to environmental media (air, land, water) (Press
& Mazmanian, 2006; Stephen, 2002). In this regard, the GL/ESBs participation is an
attractive option for dirty firms to consider since it signals their seriousness about reducing
their negative impact on the environment and helps relieve institutional pressure. However,
the fulfillment of the program’s obligations (upgrading lighting systems) is not in the firms’
immediate interests since the program does not link with mitigating their own problems,
such as pollution reduction. Rather, these lighting upgrade efforts (and therefore lowered
energy consumption) help reduce greenhouse gas emissions from utility companies. In
addition, the weak U.S. climate regulatory regime could make regulatory agencies less
attentive to pollution prevention efforts (abatement in greenhouse gas emissions) made by
the GL/ESBs program. The fourth study hypothesis can be stated as follows:

H4: A
 firm with a poor environmental track record is less likely to make good-faith
environmental performance in the GL/ESBs voluntary program.
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 149

Participation in the GL/ESBs program is also attractive to a firm in an industry with a

poor environmental track record, since it can help overcome “the negative common
environmental image it shares, not to mention promoting an environmental image of its
own” (Moon & deLeon, 2007: 486). Improving an industry’s collective environmental
image helps redress adverse government agency perceptions and protects against more
stringent regulations that can lead to higher compliance costs (Moon & deLeon, 2007: 486).
Opposed to the institutional benefits from participation, meeting the program requirements
does not offer the obvious environmental benefits (pollution reduction) that firms need in
order to help move them beyond their industry’s tainted environmental image. For this
reason, the firms’ participation in the GL program is more likely to remain a symbolic
action than a substantive action. Finally, the fifth study hypothesis can be stated as follows:

H5: A firm in an industry with a poor environmental track record is less likely to make
good-faith environmental performance in the GL/ESBs voluntary program.

DATA AND MEASURES

To test our five hypotheses, we examined the environmental performance of participants

in the GL/ESBs program between 1995 and 2000. The five-year time frame was chosen
since it is the period in which participants must fulfill their lighting upgrade commitment.
Furthermore, after being incorporated into the ESBs program, the GL program remained as
a standalone program until 2000.
We included a list of firms that signed the GL/ESBs MOU with the EPA (i.e., GL/
ESBs participants) as of 1995 in the sample after imposing the following restrictions. First,
firms should be publicly traded in the U.S. stock market. This is because most financial
and organizational data are limited to publicly traded firms. Second, firms should be
U.S. owned. Foreign-owned firms were excluded because they tend to display different
environmental behavior; environmental reputation is crucial for U.S. firms to establish
relations with customers (King & Shaver, 2001). The final sample size was 330.

Dependent Variable Measure

Corporate environmental performance in the GL/ESBs program was measured by

evaluating each participant’s implementation report or the equivalent Electronic Progress
Report6 for the lighting upgrade it completed within the five-year period. Participants
were required to submit a report at least annually to the EPA under the GL/ESBs MOU.
Those that completed at least 90 percent of their pledged program requirement (28 firms)
were coded as 3, those that completed between 50 percent and 90 percent of their pledged
150 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

requirement (20 firms) as 2, and those that completed less than 50 percent of their pledged
requirement (282 firms) as 1.

Independent Variable Measures

The independent and control variables were measured one year before firms started to
submit the Progressive Report.
Proximate contact with final consumers is related to whether firms manufacture final
(consumer) products, including pharmaceuticals and automobiles. The U.S. Department
of Labor defines final products as “commodities that will not undergo further processing
and are ready for sale to the final demand user, either an individual consumer or business
firm.”7 We identified the final-goods producers by referring to Standardized Industrial
Classification (SIC) codes. The final-goods producers were coded as one, otherwise zero.
Financial performance is the financial well-being of a firm. The most widely accepted
measure for this is return on assets, which is the ratio of sales to total assets (millions of
dollars) (Russo & Fouts, 1997). The related data were acquired from the Standard & Poor’s
COMPUTSTAT database.
Size of firm was measured by a firm’s total sales, which was obtained from the
COMPUSTAT database. We employed logarithms to reduce skew in this variable.
Three measures were used to measure poor environmental track record of a firm. The
first variable measure was the total number of Resources Conservation and Recovery
Act (RCRA) corrective actions that a firm with previous contamination at its operational
facilities was compelled to undertake between 1988 and 1990 in exchange for the
retention of RCRA permits. The corrective actions include (1) extensive site assessments
that investigate the presence of on-site contamination of land or ground water and (2)
remediation activities that stabilize the contaminated sites to prevent further risk to human
health and the environment. The second measure was the toxic chemical emission
intensity, which divides a firm’s total toxic chemical transfer and releases by its revenues
(in thousands of dollars) in 1990. The final measure was the compliance index value,
which describes the total value of penalties assessed between 1988 and 1990 against a
firm for violation of the major environmental statutes, including the RCRA, Clean Air
Act, Clean Water Act, Safe Drinking Water Act, Toxic Substances Control Act, Federal
Insecticide, Fungicide and Rodenticide Act, Occupational Safety and Health Act, Mining
Safety and Health Act, Atomic Energy Act, and Endangered Species Act. The penalties
were normalized using the firm’s revenues in thousands of dollars in 1990. The data on
the variable measures to describe corporate environmental track records were obtained
from the Investor Responsibility Research Center’s Corporate Environmental Performance
Profile Directory (CEPPD) (1992). Poor environmental track records of an industry
are the average of each environmental track record measure, including RCRA Collective
Actions, firms’ toxic chemical emission intensity, and normalized compliance index value
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 151

(i.e., the total number of environmental track records assessed for firms that belonged to the
industry between 1988 and 1990 divided by the total number of firms). The data on these
poor environmental track record measures of an industry were obtained from the CEPPD
(1992).

Control Variable Measures

As to the control variables, we included measures that describe organizational

characteristics, including a firm’s capital investment intensity, size, and industrial sector,
as well as state contextual measures, such as a state’s environmental pressure, political
ideology, and gross product.
Capital investment intensity of a firm is the ratio of total capital expenditure to total
number of employees, indicating how much a firm spent on capital expenditures per
employee (in millions of dollars). We obtained the data from the COMPUSTAT database.
A firm that previously made a large capital investment is likely to feel less confident about
investing in labor-intensive pollution-prevention projects, such as ISO 14001 (Darnall,
2003; Delmas, 2002; Delmas & Montiel, 2008) and the GL program (Moon & deLeon,
2007).
Community environmental pressure of a state is the combined scale of state
environmentalism. This aggregates four traditional measures used to evaluate regional
environmental pressure across states (Manzur & Welch, 1999). The traditional measures
include the distribution of memberships in major U.S. environmental organizations, such
as the National Resources Defense Council and Nature Conservancy (Wikle, 1995),
environmental attitudes of the public toward environmental spending between 1972 and
1996 (Davis & Smith, 1996), pro-environmental voting records in Congress averaged for
all members of the House and Senate over the years 1970 to 1990 (Hall & Kerr, 1991), and
environmental policy initiatives that pertain to recycling, landfills, toxic waste, air pollution,
water quality, agriculture, energy, and transit (Hall & Kerr, 1991).
Political orientation of a state government institution is the liberalness of the state
government. The measure was obtained by calculating the number of Democratic and
Republican party delegations in each house of the state legislature, including the state
governor (Berry et al., 1998). States with a more liberal political orientation are more
likely to address environmental problems aggressively than their conservative counterparts
(Ringquist, 1993), which ultimately could affect firms’ decision to participate in voluntary
programs.
We used six dummies to control for industrial sector: SIC codes 1000–1900 (mining
and construction), 2000–2700 (food, textiles, wood products), 2800–3000 (chemical and
petroleum refining), 3100–3900 (rubber, leather, metal products, electronics), 4000–4800
(transportation, communication), 4900 (electric and utilities), and 5000–9900 (retail,
banking, hotel, other services). These industry dummies were used to control for the levels
152 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

of regulatory stringency and costs across industries (Henriques & Sadorsky, 1996; Moon &
deLeon, 2007). For example, chemical and natural resources industries (e.g., wood, mining)
operate under greater stringent regulation than the retail services industry.

EMPIRICAL MODEL AND RESULTS

To test our hypotheses, we adopted an ordered logit regression model (OLRM) to

predict the level of corporate participants’ environmental performance in the GL/ESBs
program. When adopting OLRM, it is important to verify if the assumption of parallel
regressions implicit in the model holds. The parallel regression assumption suggests that
the slope coefficients of probability curves (in this case, the different level environmental
performance probability curves) should be nearly similar or identical (Long, 1997). When
the model violates the assumption, the adoption of OLRM can introduce potential bias. To
test whether the model adopted in this study meets the assumptions, a Wald (or Brant) test
was used. The test result confirmed that the model does not violate the assumption (failed
to reject at the .5 level).
Table 2 reports the descriptive statistics that describe the means and standard deviations.
Table 3 shows the empirical results of OLRM. To investigate whether the corporate
participants completed their pledged agreement with the EPA under the MOU, the
descriptive analysis showed strong evidence of environmental opportunism. More than 90
percent of the participants completed no more than 50 percent of their pledged agreement,
and only about 8 percent of participants completed more than 90 percent of the pledged
agreement during the five-year period.
Table 3 suggests that firms with proximate relations with final consumers were more
likely to try to complete their program obligations (p<.05). Being a firm with proximate
contact to final consumers (i.e., consumer goods producer) increased the likelihood of
completing at least 50 percent of the pledged agreement by 3.2 percent on average.
In addition, the size of a firm was strongly and positively related to good-faith
environmental performance in the GL/ESBs program (p<.001). One unit change in size
increased the probability of completing at least 50 percent of the pledged agreement by
1.3 percent on average. However, corporate financial capacity and previous environmental
track record were not statistically related to the pledged environmental performance.

CONCLUSION

This study is an initial discussion of whether VEPs can breed environmental

opportunism. It also identifies the factors and their associated motivations associated with
corporate good-faith environmental performance in the GL/ESBs program. Our analysis
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 153

presents strong evidence of corporate opportunism in the GL/ESBs program. In addition,

corporate participants with motives that are aligned with market interests are more likely to
complete their environmental pledge to a higher level than those whose primary intent is to
relieve institutional and regulatory pressures.
This pattern of corporate environmental opportunism displayed in the GL/ESBs
program can be explained by the following points. First, the GL/ESBs program is not
equipped with any deterrent mechanisms to discourage free-riding behavior by participants
(enjoying program membership benefits with little or no effort to adhere to the pledged
membership agreement). Second, the climate regulatory regime under which the program
operates is weak in the absence of federal leadership, meaning that there are no regulatory
background threats to compel fulfillment of the program agreement (Welch et al., 2000).
Third, firms’ perceived private benefits from faithfully undertaking their program pledges,
i.e., energy savings, may not be greater than the perceived costs of fulfilling the program
obligations, i.e., upgrading lighting systems. In this program context, it is natural for
corporate participants to free-ride.
Regarding the relationship between factors and their associated motivations and
corporate environmental performance in the program, we found the following. First,
corporate participants with market motives to obtain a “green” reputation and reduce
energy costs are more likely to make the good-faith environmental progress promised in
the program than those with institutional intent to relieve pressure from the public and
regulators. In particular, firms with proximate contact with consumers, i.e., consumer goods
producers, are more likely to fulfill their pledge. For them, a good environmental reputation
is an important and invaluable resource that makes them competitive. In addition, larger
firms are more likely to view the GL/ESBs project as an opportunity to save on energy
costs in their facilities, and thus make a serious attempt to complete their program pledge.
This is largely because energy savings for larger firms, due to economies of scale, are likely
greater than for smaller firms. In addition, larger firms feel less vulnerable to the risk of
possible financial losses from lighting replacement.
Contrary to the initial expectation, there was no statistical relationship between
corporate financial capacity and environmental performance. This insignificant statistical
result may be related to the fact that the EPA provided program participants with financial
assistance in locating loans and funding that they needed to implement their program
pledge. This financial assistance can weaken the importance of firms’ financial capacity in
fulfilling their program agreement. In addition, factors associated with a poor environmental
track record of a firm and an industry are not significant in terms of estimating substantive
environmental performance in the program. The major reason for this result is that no direct
environmental benefit is attached to the fulfillment of the program pledge; fulfillment does
not lead to progress in addressing firms’ own environmental problems, such as reducing
pollution emissions from their facilities. Rather, it helps reduce emissions by utility
companies.
154 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

To conclude, it seems that corporate environmental efforts in VEPs are related

to the program design. Good-faith environmental performance is more likely when
there are strong private benefits attached to the programs, or sanctions for participants’
noncompliance with program obligations. This result is consistent with Olson’s (1965)
theoretical argument on collective action problems, describing that individuals and
organizations are not willing to promote a collective good, i.e., environmental protection,
unless they perceive sufficient benefits from doing so or explicit sanctions for not doing so.
In order for VEPs to draw good-faith environmental performance from their program
participants, policymakers need to pay attention to program design. In the case of the GL/
ESBs program, program incentives are not sufficient to draw good-faith environmental
performance from program participants; some kind of deterrent mechanism, such as
monitoring and sanctioning, is necessary to prevent participating firms from opportunistic
behavior. This deterrent mechanism is particularly imperative in countries with a weak
climate regulatory regime, such as the U.S. The GL/ESBs program operates under a climate
regulatory regime that can function as a regulatory background threat to compel program
participants to complete their pledge.
As to the implications, the regulatory context in which voluntary programs are operated
is important for the design of VEPs. First, in countries with a strong regulatory background
threat for VEPs, incentive mechanisms that provide private benefits, either economic
(financial incentives) or political (e.g., less monitoring, regulatory relief), to firms that
fulfill program requirements would be sufficient. On the other hand, in countries with a
weak regulatory background threat for VEPs, program incentives may not be sufficient to
encourage good-faith environmental performance. They could merely breed opportunistic
behavior by program participants. To prevent that, programs need some kind of legally
binding rules or deterrent mechanisms that compel program participants to complete their
pledges. In this case, only the firms that are willing to pay the high price of legal sanctions
can shirk their program responsibilities.
However, our empirical findings should be interpreted with caution, due to the limitation
of the study. The limitation is related to the sampling framework, which constitutes
primarily large firms (i.e., publicly traded U.S. firms). The exclusion of small and medium-
sized firms from our sample prevents us from generalizing our empirical findings to the
general population of firms.
As for future studies, it would be interesting to compare corporate environmental
performance across voluntary programs with different program designs, including deterrent
measures and incentives, and operating in differing regulatory regimes. In addition, the
evaluation of corporate participants’ environmental performance can be made across
different voluntary programs, i.e., public (government-sponsored), unitary (industry
association–sponsored), and negotiated (binding contract between government and
firm). Such a comparative evaluation will help capture systematic variation in corporate
environmental performance among and between voluntary programs and help to understand
December 2013
how a firm performs in the program. In addition, it would be interesting to examine how
corporate environmental performance in voluntary programs varies according to the timing
of joining the program, i.e., early and late joiners (see Delmas & Montes-Sancho, 2010).
Table 1. Variable Coding
Variables
Dependent variable
Corporate environmental
performance in the GL/ESB
Independent variables
Proximate contact with final
consumers
Financial performance
Size of firm
A firm's poor envrionmental track
record
An industry's poor envrionmental
track records
Control variables
A firm's capital investment
intensity
Community environmental
pressure of state
Political orientation of a state
government insitution
Industrial sectors
Seong-gin Moon & Kilkon Ko, Ph.D 155
Variables Coding
Coding
3 when firms completed at least 90% of their pledge, 2 when firms
completed between 50% and 90% of their pledge and 1 when firms
completed less than 50% of pleges
1 when firms manufacture final (consumer) products and 0 otherwise
Ratio of sales to total assets (millions of dollars)
Log (firm's total sales)
1. Total number of a firm's collective actions required by Resources
Conservation and Recovery Act (RCRA) between 1988 and 1990;
2. A firm's toxic chemical emmission intensity (total toxic chemical
transfers and releases/ firm's revenue; 3. A firm's compliance index
value (total value of penalities resulting from violation of the major
environmental statutes (More details are found in the variable measure
section)
Average of the total number of each envrionmental track record
assessed for firms that belonged to the industry between 1998 and
1990
Ratio of total capital expenditure to total employees (millions of
dollars)
Combined scale of state environmentalism that aggregates four
traditional measures for regional environmental pressure, including
the distribution of major US environmental organization membership,
environmental attitudes of the public toward environmental spending,
and pro-environmental voting records in Congress (More details are
found in the variable measure section).
Liberalness of a state government obtained by calculating the govenor
and the number of Democratic and Republican party delegations in
each house of the state legislature (Berry et al., 1998)
Six dummies for SIC codes 1000-1900 (mining and construction),
2000-2700 (food, textile, wood products), 2800-3000 (chemical and
petroleum refining), 3100-3900 (rubber, leather, metal products,
electronics), 4000-4800 (transportation, communication), and 5000-
9900 (retail, banking, hotel, other services).
156 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

Table 2. Descriptive Statistics

Variable Obs. Mean Std. Dev. Min Max
Level of environmental performance pledged in GL/
330 1.230 0.590 1 3
ESB program
Log (Firm size) 330 3.044 1.207 -0.799 6.635
Financial performance ($ million) 330 1.092 0.739 0.093 4.919
Capital investment intensity ($ million) 330 180.717 224.748 9.985 1586.254
Proximate contact with consumers 330 0.552 0.498 0 1
RCRA corrective actions 330 0.964 8.321 0 148.810
Toxic chemical emission intensity 330 1.065 2.783 0 24.210
Penalty index value 330 393.649 6873.115 0 124865.000
Industry average of RCRA corrective intensity 330 0.931 3.273 0 24.800
Industry average of toxic chemical emission intensity 330 1.146 2.548 0 15.680
Penalty index value of an industry 330 20.657 78.055 0 761.950
Community environmental pressure 330 0.516 0.174 0.1 0.750
Political orientation of a state government 330 59.360 19.806 5.75 92.875
Gross state product 330 267.232 129.642 62.13 517.350
December 2013 Seong-gin Moon & Kilkon Ko, Ph.D 157

Table 3. Ordered logit regression of corporate environmental performance in the GL/ESBs program
Level of environmental performance
Coef. Std. Err. Marginal effect
pledged in GL/ESB program
Market motives
Log (Firm size) 0.5806*** 0.1651 .0013
Financial performance ($ million) -0.1521 0.2606 0.0034
Capital investment intensity ($ million) 0.0001 0.0012 2.74E-06
Proximate contact with consumers 1.076** 0.5055 0.0238
Proximate contact with consumers
RCRA corrective actions -0.1516 0.2489 0.0034
Toxic chemical emission intensity 0.1205 0.1143 0.00271
Penalty index value -0.0026 0.0082 0.0001
Industry average of RCRA corrective intensity -0.1169 0.1768 0.0026
Industry average of toxic chemical emission intensity -0.3225 0.2445 0.0072
Penalty index value of an industry -0.0018 0.0078 0.00001
Community environmental pressure 1.5517 1.5508 0.0348
Political orientation of a state government -0.0141 0.0119 0.00005
Gross state product -0.0022 0.0016 0.00007
Industry dummies
SCI 1000-1900 1.8514 0.9847
SCI 2000-2700 -0.4306 0.6891
SCI 2800-3000 1.2345 0.6338
SCI 3100-3900 0.2696 0.5068
SCI 4000-4800 -0.7720 0.9027
SCI 4900 0.9447 0.8505
/cut1 3.6185 1.1224
/cut2 4.2971 1.1323
Log likelihood -139.0900
χ²-value 39.1000
Prob. > χ² 0.0043
Pseudo R2 0.1154
***p<.001, **p<.05, *>.1

NOTES

* This work was supported by Inha University Research Grant

** Corresponding Author
158 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

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Seong-gin Moon is an associate professor at the Department of Public Administration and

Graduate School of Public Policy at Inha University in South Korea. His research focuses
on environmental policy and nonprofit management, philanthropy, and voluntary behavior.
162 Act in Good Faith? The Effectiveness of U.S. Voluntary Environmental Programs Vol. 18, No. 3

His work has been published in several journals, including Public Administration Review,
Social Science Quarterly, and Nonprofit and Voluntary Sector Quarterly.

Kilkon Ko is an associate professor at the Graduate School of Public Administration, Seoul

National University. He is editor-in-chief of the Asian Journal of Political Science. He has
published articles on Chinese corruption, policy evaluation and analysis and occupation,
and safety regulation and network analysis.

Received: July 23, 2013

Revised: September 04, 2013
Accepted: October 1, 2013