Tuesday, February 14, 2017

Our Secret Environmentalism: We Don’t Say We Are Sustainable

Firms are under continued pressure to certify themselves as virtuous, good, effective, high quality, and any number of other positive things. Often they display the certification prominently. For example, if you type “General Motors ISO” or “General Electric ISO” into Google, it will fill in “9001,” because both companies display prominently on the web that they are ISO 9001 certified.

There is an interesting exception to this. Many firms are certified as environmentally responsible through the Dow Jones Sustainability Index, but four out of ten DJSI firms do not display this certification. Why would a firm with such a positive achievement not promote it? Chad Carlos and Ben Lewis have a new article in Administrative Science Quarterly that looks at the reasons for this silence, and they find that it is a strategic silence. They are silent because it is a way of avoiding attention, and attention to sustainability could be risky for the firm.

Firms don’t announce why they stay silent about an environmental certification, of course, but we can see how they behave. Carlos and Lewis found that they are more likely to invoke strategic silence if they run the risk of looking like hypocrites. The main problem for firms is to lose their reputation through being called out as less sustainable than they claim to be or should be. So, we should expect firms that have good environmental reputations to be more concerned about looking bad if their commitment to the environment is called into question. That is exactly what Carlos and Lewis found.

Shareholders can file resolutions against firm actions that go against sustainability. If they do, and if the firm has a good environmental reputation to begin with, the firm is especially likely to be strategically silent about the DJSI certification. Other stakeholders can target the firms through boycotts, demonstrations, and other protest actions. If they do, and if the firm has a good environmental reputation to begin with, the firm is likely to be strategically silent about the certification. It’s clear that those firms already seen as good on environmental issues are very careful not to have this reputation damaged by any charges of being hypocritical. That means sometimes keeping the sustainability certification out of sight, to avoid attracting attention.

The evidence is interesting because certification is usually an initiative to do three things: make firms follow a standard, make firms influence others to follow the standard, and make firms compete to beat the standard. The firms that were secret environmentalists broke this chain by only doing the first of these three steps. Through their strategic silence they did not influence other firms, and they did not compete to be the most environmental either. Many try to influence firms, for many purposes, but it is important to keep in mind that firms also want control over what they do, and they have a wide range of actions to escape the control of others.

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