does_it_pay_to_be_green - 2008 Ambec and Lanoie 45 Does It...

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Does It Pay to Be Green? A Systematic Overview by Stefan Ambec and Paul Lanoie Executive Overview The conventional wisdom concerning environmental protection is that it comes at an additional cost imposed on firms, which may erode their global competitiveness. However, during the last decade, this argued basically that improving a company’s environmental performance can lead to better economic or financial performance, and not necessarily to an increase in cost. The aim of this paper is to review empirical evidence of improvement in both environmental and economic or financial performance. We systematically analyze the mechanism involved in each of the following channels of potential revenue increase or cost reduction owing to better environmental practices: (a) better access to certain markets; (b) differentiating products; (c) selling pollution-control technology; (d) risk management and relations with external stakeholders; (e) cost of material, energy, and services; (f) cost of capital; and (g) cost of labor. In each case, we try to identify the circumstances most likely to lead to a “win-win” situation, i.e., better environmental and financial performance. We also provide a diagnostic of the type of firms most likely to reap such benefits. S ince the publication of the Brundtland Report in 1987 and the subsequent Earth Summits in Rio de Janeiro (1992) and Johannesburg (2002), sustainable development has become one of the foremost issues facing the world. It is rec- ognized that natural systems can be especially vulnerable to human activity because of limited adaptive capacity, and some of these systems may undergo significant and irreversible damage. Fur- thermore, recurrent smog alerts, acid rain, holes in the ozone layer, global warming, and the loss of biodiversity are among the growing evidence that such a calamity is indeed possible—and occurring faster, in many cases, than scientists originally thought. That is why environmentalists in partic- ular, and the general population more broadly, believe that a business-as-usual approach is wor- rying. This kind of concern is likely to become more pressing in the future as young generations become even more sensitive to these issues. Managers have long associated environmental protection with additional costs imposed by gov- ernment, which in turn erode a firm’s global com- petitiveness. This view relies on a basic paradigm: In general, markets work well to reach optimal use of scarce resources, so that government interven- tion is useful only for redistributing revenues, or when markets are no longer fulfilling their role effectively. This is precisely what occurs in the case of environmental problems. One of the pre- requisites for the adequate functioning of markets is the existence of well-defined ownership rights. In the case of environmental resources available
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This note was uploaded on 11/12/2010 for the course ECON M134 taught by Professor Bresnock during the Spring '08 term at UCLA.

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does_it_pay_to_be_green - 2008 Ambec and Lanoie 45 Does It...

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