Chapter25PerezJan2011

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BAR-ILAN UNIVERSITY

LAW SCHOOL(Israel)

Bar-Ilan University Public Law and Legal Theory Working Paper

12 September 2011

Between Soft Law and Greenwash: the

Compliance Dynamic of Civil Forms of

Environmental Regulation

Oren Perez

Forthcoming, David Levi-Faur, ed . Handbook on the Politics of Regulation

(Edward Elgar, 2011-12)

Bar Ilan University, Faculty of Law

Israel

Oren [email protected]

© 2011. All Rights Reserved.This paper can be downloaded without charge from the

Social Science Research Network Electronic Paper Collection:

http://ssrn.com/abstract=1926218

mailto:[email protected]







Abstract

Over the last years, the environmental regulation system has undergone radical changes.

Various private normative schemes, including voluntary corporate codes, environmental

management systems, “green label” schemes, environmental reporting standards, green

financial schemes and green indexes, have taken an increasingly important role in the

environmental regulatory field. One of the key questions raised by this phenomenon is the

issue of efficacy. To what extent, these multiple instruments of private ordering have a

meaningful social effect? This question has to be considered in the context of the recurring

accusation that these ‘soft’ instruments are nothing but a ‘greenwash’ ploy: a façade of environmental regulation, whose only objective is to enable corporations to continue without

disruption with their ecologically destructive practices. The ‘greenwash’/private regulationconundrum reflects a broader dilemma concerning the circumstances under which firms will

take environmental actions that go beyond what is prescribed by law. The paper begins by

outlining the evolving terrain of private environmental ordering. It argues that these new

forms of private governance have taken a globalized ‘face’ – a process that has begun in the

mid-1990s. The first section of the paper discusses the unique features of this emerging fieldof transnational private governance, highlighting, in particular, the multiple links and cross-

sensitivities between the distinct schemes, which create a novel ensemble regulatory structure.

The second section discusses the efficacy puzzle, contrasting between different theoretical

accounts of compliance. It argues that the commonly used concepts of “soft law” and “green-

wash” do not capture the complex social dynamic underlying these new f orms of governance

and that it is wrong to dismiss these instruments as ‘cheap talk’. The paper concludes with abrief exploration of the future of private regulation at the global sphere.



Between Soft Law and Greenwash: the Compliance

Dynamic of Civil Forms of Environmental RegulationOren Perez*

* Professor, Bar Ilan University, Faculty of Law, Ramat Gan 52900, Israel

Oren [email protected]

Over the last years, the environmental regulation system has undergone radical

changes. Various private normative schemes, including voluntary corporate

codes,1

environmental management systems,2 “green label” schemes,

3

environmental reporting standards,4

green financial schemes and green indexes,5

have taken an increasingly important role in the environmental regulatory field.6

One of the key questions raised by this phenomenon is the issue of efficacy.

To what extent, these multiple instruments of private ordering have a meaningful

social effect? This question has to be considered in the context of the recurring

accusation that these ‘soft’ instruments are nothing but a ‘greenwash’ ploy: a

façade of environmental regulation, whose only objective is to enable

corporations to continue without disruption with their ecologically destructive

practices (Waddock 2008: 105; Schwartz and Tilling 2009: 296).7

The

‘greenwash’/private regulation conundrum reflects a broader dilemma concerning

1E.g., OECD Guidelines of Multinational Enterprises, the International Chamber of Commerce

Business Charter for Sustainable Development.2 E.g., ISO 14001, the EU EMAS scheme and the Responsible Care program.3 E.g., the Forest Stewardship Council certification scheme, the US Energy Star program. 4

E.g., the Global Reporting Initiative Sustainability Reporting Guidelines (“GRI”) and the AA1000

Assurance Standard.5 Green financial schemes include codes regulating lending practices and “ethical” investment

standards. Green indexes include, e.g., the Dow Jones Sustainability Indexes and FTSE4Good series.6

Some of the foregoing instruments, such as the GRI, also cover non-environmental issues. There are

similar instruments covering other aspects of the corporate responsibility issue, such as the SA8000

standard, dealing with human rights of workers (http://www.sa-intl.org/ ).7 For a definition of greenwash see CorpWatch, ‘Greenwash Fact Sheet’, 22 March 2001

(http://www.corpwatch.org/article.php?id=242) and Lyon and Maxwell (2007).



http://www.sa-intl.org/



http://www.corpwatch.org/article.php?id=242








the circumstances under which firms will take environmental actions that go

beyond what is prescribed by law.

The chapter begins by outlining the evolving terrain of private

environmental ordering. It argues that these new forms of private governance

have taken a globalized ‘face’ – a process that has begun in the mid-1990s. The

first section of the chapter discusses the unique features of this emerging field of

transnational private governance, highlighting, in particular, the multiple links

and cross-sensitivities between the distinct schemes, which create a novel

ensemble regulatory structure. The second section discusses the efficacy puzzle,

contrasting between different theoretical accounts of compliance. It argues that

the commonly used concepts of “soft law” and “green-wash” do not capture the

complex social dynamic underlying these new forms of governance and that it is

wrong to dismiss these instruments as ‘cheap talk’. The chapter concludes with a

brief exploration of the future of private regulation at the global sphere.

I. Environmental ‘private ordering’ as a globalized, intertwined process

The emergence of private environmental schemes with global reach is a relatively

new phenomenon. From the beginning of the 1980s to the mid-1990s the field of

private governance was highly fragmented, consisting of segregated contractual

arrangements and uncoordinated organisational routines. However, since the mid-

1990s the nature of the field has changed: new centres of global governance have

emerged, transforming the field into a much more ordered domain. This change

influenced all the facets of the governance game – from the norm-production process

to implementation and enforcement. As I will demonstrate below, a unique feature of



this emerging field of private governance is the multiple links and cross-sensitivities

between the distinct regimes, forming what I call an ensemble regulatory structure. By

ensemble regulation I refer to a collection of autonomous regulatory schemes that

form a regulatory network, clustering around a common core of basic principles, and

exhibiting positive enforcement and normative externalities. There are in other words,

positive complementarities among the ensemble’s sub-systems with respect both to

their impact on firms’ behaviour and their underlying normative commitments.

It is beyond the scope of this chapter to give a detailed historical account of

this transformative process. The following three examples are therefore

illustrative and non-exhaustive. Consider first the global market for

environmental management systems ("EMS"), which is dominated today by ISO

14001 environmental management system.8

ISO 14001 is a set of procedures and

organizational practices, which are used to assist an organization in achieving its

environmental goals through a process of continual improvement . The standard

gives the organization the freedom to choose between self-certification and third-

party certification and evaluation. Nonetheless, one of the unique features of the

ISO 14000 series is the comprehensive system of third-party certification and

auditing that evolved around it. This private enforcement system draws on the

institutional support of the International Organization for Standardization, and the

National Standards Institutions affiliated with it, and is perceived – despite

various limitations - as relatively trust-worthy and efficient (Potoski and Prakash

2005).

8 ISO 14001 was released in 1996 (and revised in 2004); ISO 14001 (2004) Environmental

management systems - Requirements with guidance for use. Further guidelines regarding theimplementation of ISO 14001 EMS are included in ISO 14004 (2004) Environmental management

systems - General guidelines on principles, systems and support techniques .

http://www.iso.org/iso/en/CatalogueDetailPage.CatalogueDetail?CSNUMBER=31808&ICS1=13&ICS2=20&ICS3=10&scopelist=ALL





Before the publication of ISO 14001 countries employed numerous and

often conflicting sets of environmental management programs (Melnyk, Sroufe,

and Calantone 2003: 330). ISO 14001 has however quickly positioned itself as

the most prominent global EMS standard (Albuquerque, Bronnenberg, and

Corbett 2007). The standard has received strong support from large multinational

enterprises (“MNEs”), especially in environmentally conscious countries

(Nishitani 2010). Up to the end of December 2008, 188,815 certificates had been

issued in 155 countries, reflecting a steady year to year increase (Perkins and

Neumayer 2009; ISO 2009: 12). The adoption of ISO 14001 as the EMS of the

EU EMAS scheme is another reflection of its global success.9

Another example of the globalization of private environmental standards is

the field of sustainability reporting, which has undergone a similar transformation

from fragmented self-regulation to centralized global governance. Firms,

especially MNEs, have been publishing non-financial information since the

1980s. However, these social – environmental reports varied greatly in their style

and form (Maltby 1997; UNCTAD 2003: paras. 34, 38; Waddock 2008: 93).

While there was a process of convergence and reciprocal learning between firms

(Tile 2001), there was no central coordination.

The disordered landscape of the 1990s was transformed over the last ten

years into a much more ordered domain, with the emergence of global private

codes that set out clear rules for sustainability reporting and external assurance.

The most important code is the set of reporting standards produced by the Global

Reporting Initiative (“GRI”). The GRI published its first set of guidelines for

9 See: http://ec.europa.eu/environment/emas/index_en.htm.



sustainability reporting in 2002; the last version was published in 2006.10

The

objective of the GRI Guidelines is to provide a “trusted and credible framework

for sustainability reporting that can be used by organizations of any size, sector,

or location” and could facilitate open dialouge about sustainability using a

“globally shared framework of concepts, consistent language, and metrics ”.11

The

2006 Guidelines require organizations to provide information on the economic,

environmental, and social aspects of their activities.12

This choice is supported by

the idea that “achieving sustainability requires balancing the complex

relationships between current economic, environmental, and social needs in a

manner that does not compromise future needs” (emphasis added).13

The GRI

Guidelines dominate the global market of sustainability reporting, having a

particularly strong influence over the disclosure practices of MNEs (KPMG

2008).14

This process of global convergence was supported by two intertwined

processes. First, the incorporation of disclosure requirements in other private

Corporate Social Responsibility (“CSR”) instruments. Thus, for example ISO

14001, the EU EMAS scheme and Responsible Care include extensive disclosure

requirements. Disclosure requirements also form part of the ranking criteria used

by FTSE4Good and Dow Jones Sustainability Index ("DJSI").15

The 2006

10GRI, Sustainability Reporting Guidelines (Amsterdam: Global Reporting Initiative, 2002); GRI, RG

– Sustainability Reporting Guidelines, (Amsterdam: Global Reporting Initiative, 2006). In the

following discussion I will refer to the 2006 text.11

Ibid .12 2006 Guidelines, at 8, 25 – 34; 2002 Guidelines, at 9, 34.13 2002 Guidelines, at 9; see also, 2006 Guidelines, at 8.14

For a comprehensive list of firms using the GRI guidelines see:

http://www.globalreporting.org/GRIReports/GRIReportsList/ . 15 FTSE4Good Inclusion Criteria require high impact companies to publish environmental report

(FTSE 2006: 3). DJSI Corporate Sustainability Assessment Criteria also include a requirement of environmental (and social) reporting (see: http://www.sustainability-

index.com/07_htmle/assessment/criteria.html).

http://www.globalreporting.org/GRIReports/GRIReportsList/


http://www.sustainability-index.com/07_htmle/assessment/criteria.html









Equator Principles require each subscribing institution to publish an annual report

elaborating on the way it has implemented the Principles (principle 10).

Governmental intervention has provided a second line of support. First,

national securities regulators have recognized that the disclosure requirements of

securities laws require more extensive disclosure of environmental data, due to

the recognition that environmental data is necessary to a proper assessment of

firms’ economic situation.16

Mandatory environmental disclosure programmes,

such as the US Toxics Release Inventory (“TRI”) programme, the European

Pollution Emissions Register (“EPER”), and the Canadian National Pollutant

Release Inventory (“NPRI”) provided another source of support, by further

extending firms’ disclosure obligations.17

The GRI scheme goes, however,

beyond the requirements of these two types of state-sponsored disclosure

programs, by extending the disclosure requirements to ethical and labour issues,

by expanding the scope and scale of the ecological data that must be disclosed

and by not basing the disclosure requirement on an economically defined notion

of materiality.

The GRI Guidelines offer two complementary compliance mechanisms

(GRI 2006: 1-4). First, the GRI secretariat offers to check the reporter self-

declaration of its reporting. A second alternative is to have the report reviewed by

third party. The growth of the market of sustainability reporting has also

generated demand for independent external assurance (Simnett, Vanstraelen, and

16 See, e.g., EPA Enforcement Alert, vol 4, No 3 (October 2001)

(www.epa.gov/compliance/resources/newsletters/civil/enfalert ) and Perez (2006).17

See, respectively: http://www.epa.gov/tri/, http://eper.eea.eu.int/eper/ and www.ec.gc.ca/pdb/npri,

UNEP et al (UNEP, World-Bank, and Institute 2003: 110-112) and Brehm and Hamilton (1996: 445).

Several European countries have taken a more radical step adopting regulations requiring large or state-

owned companies to publish sustainability reports, see, e.g. the Danish initiative(http://www.eogs.dk/graphics/Samfundsansvar.dk/Dokumenter/Proposal_Report_On_Social_Resp.pdf)

and the Swedish initiative (http://www.sweden.gov.se/content/1/c6/09/41/25/56b7ebd4.pdf ).

http://www.epa.gov/compliance/resources/newsletters/civil/enfalert



http://www.ec.gc.ca/pdb/npri



http://www.sweden.gov.se/content/1/c6/09/41/25/56b7ebd4.pdf








Chua 2009). Two prominent global codes that seek to regulate the emerging field

of external assurance are the International Standard on Assurance Engagements

("ISAE 3000") promulgated by the International Auditing and Assurance

Standards Board18

and AccountAbility AA1000 Assurance Standard.19

The GRI

Guidelines also include various references to other external standards.20

A third example of private ordering ‘going global’ is the field of sustainability

indexes. These indexes should be considered in the broader context of the new ethical

investment movement. Ethical investment is the “process of identifying and investing

in companies that meet certain baseline standards or criteria of Corporate Social

Responsibility…' (Social-Investment-Forum 2006: 2). From a legal perspective,

ethical investment represents a form of private rule-making, in which private investors

contract with financial institutions to invest on their behalf, subject to certain

investment rules that are designed by the financial institution. It is thus a process of

both self-regulation and standard contracting. This process has evolved in a highly

fragmented environment (EU-Commission 2001: 22), with each financial institution

devising its own set of investment criteria, sometimes relying on external

consultancies. This disordered picture has changed with the evolution of new centres

of governance. I will focus here on the role of sustainability indexes in this new

emerging field of governance.21

18 See http: http://www.accountability21.net/uploadedFiles/Issues/ISAE_3000.pdf and

http://www.ifac.org/IAASB/ . 19

See www.accountability.org.uk.20

Thus, for example, the Guidelines require organizations to list all the external economic,

environmental, and social codes to which the organization subscribes or endorses, including any

environment-related performance or certification system (GRI 2006: 23, 27).21Other sources of governance are transnational networks involving different stakeholders, UNEP new

Principles for Responsible Investment and public regulation. See, further (Perez 2008).

http://www.accountability21.net/uploadedFiles/Issues/ISAE_3000.pdf



http://www.ifac.org/IAASB/






The primary providers of sustainability indexes are the Dow Jones Indexes

and the FTSE Group, the world leaders in the stock index market.22

The Dow Jones

Sustainability Indexes track the financial performance of the leading sustainability-

driven companies worldwide. The first index in this ‘family’ – the Dow Jones

Sustainability World Index (“DJSI World”) – covers the top 10 per cent of the leading

sustainability companies out of the biggest 2500 companies in the Dow Jones Global

Total Stock Market Index. Since the launch of the DJSI World in 1999, other indexes

have been added to the series.23

The FTSE4Good Index Series was launched in July

2001. It was designed to “measur e the performance of companies that meet globally

recognised corporate responsibility standards, and to facilitate investment in those

companies”.24

The Dow Jones and FTSE indexes focus on positive criteria to select

companies although both also employ certain negative criteria (excluding certain

industries, such as tobacco producers and companies manufacturing whole weapons

systems).25

The Dow Jones Sustainability Indexes and the FTSE4Good Indexes influence

the corporate world in several different ways.26

First, the methodologies used by the

22 Some other noteworthy social – environmental indexes are the FTSE KLD 400 Social Index (formerly

known as the Domini Index) , the Vigeo Index series, the Australian SAM Sustainability Index

(AuSSI), the Canadian the Jantzi Social Index, and Calvert Social Index; see:

http://www.kld.com/indexes/ds400index/index.html, http://www.vigeo.com/csr-rating-

agency/index.php?lang=en, http://www.aussi.net.au/ , http://www.jantzisocialindex.com, http://www.calvertgroup.com/sri-index.html. Other related players are ranking initiatives, such as

CRO’s 100 Best Corporate Citizens (http://www.thecro.com), Global 100: The Definitive Corporate

Sustainability Benchmark (http://www.global100.org/ ), and Business in the Community Corporate

Responsibility Index (http://www.bitc.org.uk/ ). I think that the fact that the FTSE4Good and DJSI are

not just ranking exercises, but actually act as a focal source for financial decisions make them more

influential. Also, the institutional structure in which they are embedded is much more developed.23

Fur the full list see: http://www.sustainability-index.com/07_htmle/indexes/overview.html.24 See: http://www.ftse.com/Indices/FTSE4Good_Index_Series/index.jsp. The FTSE4Good Index

Series encompasses four tradable and five benchmark indices, representing Global, European, US,

Japan (benchmark only) and UK markets. The FSTE group launched two additional indexes:

FTSE4Good Environmental Leaders Europe 40 Index and FTSE4Good IBEX Index.25 For a detailed description of the selection methodologies of both index families see (FTSE 2006;

Dow-Jones 2010).26The social impact of sustainability indexes has not been studied extensively so far, so the following

claims should be seen as plausible hypotheses, calling for further empirical research.

http://www.kld.com/indexes/ds400index/index.html


http://www.vigeo.com/csr-rating-agency/index.php?lang=en




http://www.aussi.net.au/



http://www.jantzisocialindex.com/



http://www.calvertgroup.com/sri-index.html


http://www.thecro.com/



http://www.global100.org/



http://www.bitc.org.uk/














two index families to select and rank companies and their ultimate selections

constitute a normative benchmark for the whole ethical investment market. Second,

the ranking and the continuous engagement of the index teams with participants firms

influence firms’ behaviour. Finally, the normative benchmark developed by the

indexes influence the thematic horizon of CSR discourse as a whole.27

The ranking criteria used by both indexes include various references to other

global codes. Thus, for example, both indexes refer to EMS and environmental

disclosure in their ranking criteria. The FTSE4Good Inclusion Criteria state, for

example that high impact companies with ISO certification and EMAS registrations

are considered to meet several core indicators, which are required from such

companies. (FTSE 2006: 3). High impact companies are also required to publish

environmental report, which needs to be sufficiently detailed (FTSE 2006: 3). The

Dow Jones ranking process, as reflected in the Corporate Sustainability Assessment

Questionnaire which is sent to firms as part of the ranking process, similarly

emphasizes the existence of a certified EMS requirement and the firm's commitment

to environmental (and social) reporting.28

The following table captures the global convergence process depicted above.

Table 1: the Universe of Global Private Environmental Ordering (Partial Picture)

Field Past

Governanc

e Structure

Current

Governa

nce

Structure

: Global

Code

Level of

Specific

ity

Responsibl

e

Organizati

on

Compliance

Mechanisms

Environme

ntal

Manageme

nt

Uncoordina

ted,

organizatio

nal

managemen

ISO

14001,

Responsi

ble Care

High Internationa

l

Organizatio

n for

Standardizat

Private external

verification (relatively

robust in the case of

ISO 14001)

27

A good example for this phenomenon is inclusion of new climate change criteria in the FTSE4Goodcriteria in 2007.28 See SAM Research Corporate Sustainability Assessment Questionnaire (2009) paras. 38-41.



t schemes ion,

Internationa

l Council of

Chemical

Association

s (ICCA),

Environme

ntal Impact

Assessment

in the

Private

Financial

Sector

Uncoordina

ted,

organizatio

nal risk-

assessment

schemes

Equator

Principles29

High Joint

Governance

by

Participatin

g Banks

Voluntary reporting

mechanism

(http://www.equator-

principles.com/reporting

.shtml)

Sustainabil

ity

Reporting

Uncoordina

ted,

organizatio

nal

disclosureformats

GRI

Guideline

s

High Global

Reporting

Initiative

GRI (documents check),

Private External

Assurance (drawing on

global codes)

Assurance

Practices

None ISAE

3000,

AA1000

Assuranc

e

Standard

High the

Internationa

l Auditing

and

Assurance

Standards

Board;

AccountAbi

lity

None

Sustainabil

ity Indexes

None FTSE4Go

od, DJSI

High FTSE, Dow

Jones

Private compliance

governed by FTSE andDow Jones and drawing

on external consultants

(Eiris & SAM)

Green

labels

sustainable

forests

None Forest

Stewards

hip

Council

global

label30

High Forest

Stewardship

Council

Independent

certification bodies

accredited by the Forest

Stewardship Council

II. Private environmental governance: greenwash or alternative regulation

I argued above that the over-used notions of “soft law” and “green-wash” do not

capture the complex social dynamic generated the new universe of private

29 There are close links between the Equator Principles and the GRI Financial Services Sector

Supplement (See, e.g., FS2. Procedures for assessing and screening environmental and social risks inbusiness lines).30 There is some competition between ISO 14001 and the FSC rules, see, Stringer (2006).



environmental governance. The debate about the effectiveness of these private

schemes is informed by two key conceptual contrasts: the distinction between

the logics of "consequences" and “appropriateness” (March and Olsen 2004,

1998). and the contrast between individualism and institutionalism (Ghoshal

2005: 85; Rocha and Ghoshal 2006).

The foregoing distinct theoretical positions lead to different hypotheses

regarding the potential impact of soft regulation. Weaving together the individualist

perspective and the assumption that the logic of "consequences" dominates the

corporate order (the “economic-optimizer” model) leads to a highly sceptical view of

the capacity of soft-law instruments to trigger substantial behavioural impacts.31

First,

it is assumed that firms will not be willing to bear the costs of joining some voluntary

scheme unless these initial costs can be economically justified (e.g., by prospective

efficiency or reputational gains). Second, joining a voluntary program does not in

itself guarantee that the firm will comply with its provisions. If a firm can benefit, for

example, from the reputation associated with ISO 14001 certification or inclusion in

FTSE4Good or DJSI without making any real changes to its behavior it will

(presumably) take this option. The question whether firms will follow this path

depends solely on the strength of the enforcement framework associated with these

private regimes; i.e., it can be answered solely through a calculus of (economic)

“incentives”. Economists thus distinguish between economically justified CSR -

strategic CSR - and altruistic CSR, which requires firms to forego profits (Reinhardt,

Stavins, and Vietor 2008: 219; Lyon and Maxwell 2008: 241). From the perspective

of agency cost theory altruistic CSR is viewed as a case of corporate-governance

31For studies using the economic viewpoint see Coglianese and Lazer (2003: 707), Prakash and

Potoski (2006: 41, 79) and Kollman and Prakash (2002: 48).



failure, generated by the ability of under-monitored managers to use corporate

resources to advance their ideological agenda.32

The economic optimizer model does not deny, though, the possibility that

some voluntary codes will yield beyond-compliance actions. However, such

result must be grounded in economic calculation. Thus, for example, Potoski and

Prakash ‘green club’ model suggests that firms may certify to ISO 14001 because

of the standard’s contribution to firms’ reputation. Because the ISO 14001

scheme is associated with a relatively effective system of external verification,

firms cannot capture the standard’s reputational benefits without making real

effort to implement the standard (Prakash and Potoski 2006).

Stakeholder theory offers another explanation for the possible efficacy of

soft law instruments, by highlighting the way in which external stakeholders may

influence the firm’s internal dynamic. Gunningham et al argue in this contex t that

firms operate under "multifaceted 'license to operate'", reflecting the multiple

claims (economic, social and legal) they have to deal with (Gunningham, Kagan,

and Thornton 2004: 329). The adoption and implementation of soft law

obligations constitutes a rational response (economic wise) to these pressures

(Gunningham, Kagan, and Thornton 2004: 326-328; Donaldson and Preston 1995:

75).33

In contrast to the foregoing models the institutionalist and pluralistic-self

schools take a more nuanced approach to the question of the potential effect of

soft law instruments, postulating further paths through which they can influence

32 From this perspective, altruistic CSR is no different from the ‘greed capitalism’ which characterized

the 2009 financial crisis; the solutions are also similar: the adoption of organizational or incentive-

based mechanisms, ensuring that the incentives of the firm’s managers and shareholders are aligned

(Bebchuk and Spamann 2009; Stiglitz 2009).33

Stakeholder theory has also a normative facet, which argues – contra to the agency-cost model - thatmanagers ought to pursue the interests of multiple stakeholders – not just those of the shareholders

(Donaldson 1999: 238).



the corporate dynamic. I want to highlight in this context two ideas: first, an

alternative model of the firm - the polyphonic model, and second the unique

ensemble structure of the global private regulatory order.

The polyphonic model conceptualizes the firm as a dynamic, self-

organized decisions-processing system, which can accommodate multiple

logics.34

The calculative logic of profit maximization, while important, constitutes

only one of these co-occurring logics. One of the key issues highlighted by the

polyphonic model is the reciprocal interaction between the firm's structure and

culture and the attitudes and beliefs of the employees. The firm is depicted as an

autonomous social system that interacts with the workers in a reciprocal process

of structural coupling. In this context the polyphonic model draws on a pluralistic

concept of the self which takes into account the possibility that managers,

employees and shareholders may be driven by a complex set of motives (Ghoshal

2005; Perez 2008: 157-162; Richardson 2008: 180-185).

The polyphonic model provides a more open-ended framework for thinking

about the reasons causing firms to adopt voluntary schemes and the impact of such

schemes on firms’ behaviour and internal structure. In particular, the model seeks to

unfold the institutional dynamic generated by the adoption of voluntary schemes. By

introducing new routines into the organization, standards such as ISO 14001, the

Equator Principles or the GRI Sustainability Reporting Guidelines can change the

firm's internal dynamic, moving it into a new equilibrium trajectory, which enmeshes

together environmental and economic goals, and reflects greater organizational

sensitivity to ecological concerns. The various routines underlying the ISO 14001

34 The model draws on Niklas Luhmann's communication-based theory of social systems (Luhmann

1995, 2000) and on Richard Nelson's concept of 'social technologies' (Nelson and Sampat 2001; Nelson1991). For further elaboration of this model, and application in the context of ISO 14001, see Perez,

Amichai-Hamburger and Shterental (2009).



EMS for example, ensure that environmental concerns will receive a stronger

presence in the firm's decision-making process, allowing for the discursive expression

of motivations and ideas that may have been suppressed under the previous regime

(Perez, Amichai-Hamburger, and Shterental 2009). New routines for selecting,

ordering and processing information change the organization's cognitive horizon,

enabling the generation of environmentally-related data which would not have been

available to the organization beforehand.

Another important process highlighted by the polyphonic model is the

potential virtuous cycle that the adoption of voluntary schemes such as ISO

14001 can generate between the new organizational reality and the motivations

and beliefs of the employees.35

There is in this context a potential amplifying

feedback between the organizational and individual levels, in which the

transformation of the institutional culture facilitates changes at the psychic level

(e.g., in terms of environmental commitment and loyalty to the organization),

which in turn support the institutional changes instigated by the voluntary

standard (e.g., by increasing the employees' willingness to invoke the new

conceptual apparatus introduced by the standard and to implement its routines) .

This virtuous cycle between the organizational and individual levels can

unleash economic resources which were not available in the previous organizational

setting, both by affecting the employees' internally-driven willingness to engage in

pro-environmental behaviors and by increasing employees' commitment to the

organization.36

These two processes explain the capacity of voluntary green standards

to effectuate enduring changes within firms and also provide additional explanation

35 This idea is mentioned by other CSR scholars (Reinhardt, Stavins, and Vietor 2008: 226; Portney

2008: 264, 266). However, these authors do not offer a detailed socio-psychological model that canexplain the mechanics of this virtuous cycle.36 For empirical analysis supporting this claim see Perez, Amichai-Hamburger and Shterental (2009).



for the ability of firms' to bear the costs of certification (e.g., ISO 14001) without

sacrificing profits. The endorsement of private green schemes can thus form an

important part in the creation of a corporate culture that draws on social norms, rather

than relying exclusively on economic incentives (Perez, Amichai-Hamburger, and

Shterental 2009: 597-601; Ariely 2008: 80-83).

Adopting an institutionally sensitive frame of observation also highlights

the importance of the broader institutional setting in which distinct CSR

instruments operate. In particular it calls our attention to the way in which the

ensemble structure of the new global private order intervenes in the processes that

take place within ‘CSR’ firms. First, the cross-linkages between the different

standards create a system of positive enforcement externalities, in which the

compliance mechanisms of each regime also serve as an enforcement agent of the

other regimes in the network, generating an amplified compliance effect. The

consequence of this effect is that firms entering into the world of CSR will find it

increasingly more difficult to reap the reputational gains associated with

voluntary CSR codes without undertaking real organizational efforts.37

Once a

firm starts publishing environmental reports drawing on the GRI guidelines,

adopts a certified EMS (ISO 14001 or Responsible Care), and enters the reputable

list of either FTSE4Good or DJSI, it becomes increasingly more difficult to

renege on its multi-dimensional promises.

But the ensemble structure of this new private order has also another more

subtle effect. There is a positive feedback between the multi-focal invocation the

idea of sustainability across the ensemble, the normative standing of the idea as a

moral-political principle and the moral legitimacy of the ensemble and each of its

37 This cross-regime effect is neglected by some authors; see, e.g., (Schwartz and Tilling 2009: 296).



constituent regimes. The mutual engagement with the concept of sustainability

through the distinct regime-spaces and the normative cross-reference it facilitates

is thus a source of positive normative externality

Which of these alternative accounts of the social dynamic underlying the

world of private environmental governance is more accurate? Unfortunately the

current empirical literature does not provide a conclusive answer to this question.

There are good indications within the literature that some of these soft legal

instruments succeed in effectuating social change. Thus for example, various

studies have documented the positive effect of ISO 14001 on firms’

environmental commitment and ecological footprint (Prakash and Potoski 2006;

Perez, Amichai-Hamburger, and Shterental 2009; Chatterji and Toffel 2010).

Other studies have pointed, although more tentatively, to the positive influence of

sustainability indexes on firms’ CSR profile (Slager 2009; Chatterji and Toffel

2010). However, the exact causal dynamic underlying these success stories

remain unclear; unfolding it faces difficult methodological challenges (Borck,

Coglianese, and Nash 2008). There are relatively few studies that attempt to

unfold the internal institutional dynamic of firms that adopt voluntary codes

(Perez, Amichai-Hamburger, and Shterental 2009; Slager 2009). It is also clear

that the social impact of different programs may be dissimilar, thus calling for

contextual research and differentiated policy reactions (Borck and Coglianese

2009). One of the key challenges for future research lies in the development of

better understanding of the internal dynamic of organizations, as they react to

private environmental programs, drawing on multi-dimensional research

techniques (Fine and Elsbach 2000; Hancke 2009).



III. Conclusions

The new universe of private environmental governance has created an intricate

network of governance, which is not only intensely inter-connected but also

interacts with the public regulatory system in various ways. Public regulators are

drawing on private standards not only as sources of inspiration but also as

alternative forms of governance. It is tempting, in the aftermath of the 2009

financial crisis to dismiss this universe of private governance as irrelevant and

non-credible. This will be a mistake, I believe, first, because it disregards the

positive enforcement and normative externalities generated by the ensemble

structure of this field of governance. Second, because it underestimates the

virtuous, reciprocal dynamic that the adoption of voluntary codes may instill in

the firms adopting them.

The expansion of private regulation over the last decade represents a

robust social process, which is likely to further expand in the next decade. The

ISO CSR standard (ISO 26000)38

and DuPont and Environmental Defense

framework for the responsible development, production, use and disposal of

nano-scale materials39

are just two examples of new possible entrants into this

network. In parallel, existing schemes, such as ISO 14001 and GRI are constantly

expanding. While this chapter has argued that it is a mistake to dismiss t hese soft

legal instruments as cheap talk, highlighting their steering capacity, it should also

be noted that these instruments remain constrained by the current capitalist order.

These intertwined schemes can deliver incremental changes, supplementing

governmental intervention. Any radical changes to the way in which corporations

38

See, http://www.iisd.org/standards/csr.asp. 39See, http://www.edf.org/article.cfm?contentID=4821.

http://www.iisd.org/standards/csr.asp



http://www.edf.org/article.cfm?contentID=4821







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