Global Standards and the Environmental Performance of Industry

Abstract

In this paper we examine the emergence of firm-based global environmental standards as an approach to managing the environmental performance of complex global production networks. Firm-based global environmental standards exist when a firm defines a uniform set of process and product environmental performance requirements that must be adhered to by all of a firm's facilities around the world, even if these firm-based standards exceed the requirements of local and national environmental regulations. We identify increasingly stringent end-market environmental regulation, as well as growing concern over the need to protect a firm's reputational capital and operating legitimacy, as two key drivers of the adoption of firm-based environmental standards. Our analysis suggests, however, that firms are responding to these external drivers in part because of the characteristics of global production networks—a production form that depends on the ability to produce from any manufacturing plant to any end market. The paper examines the impact of firm-based environmental standards through case studies of a cement plant in Thailand and an electronics manufacturing plant in Penang, Malaysia. In line with the literature on new institution economics, the case studies demonstrate that firm-based standards are providing a platform for learning and innovation within the firm.