Corporate environmental strategies as tools to influence regulation

Corporate environmental initiatives have been attributed to a variety of different motives, including cost‐cutting, marketing to ‘green’ consumers willing to pay extra for environmentally friendly products, and shaping future government regulation (including the possible preemption of regulation). Understanding what really motivates corporate environmentalism is important for policymakers, since the effectiveness of government environmental policies depends in large part on how corporations will respond to them. We focus on the welfare implications of two alternative strategies firms may use to shape government regulations: (i) attempting to preempt future legislation altogether or (ii) failing this, to soften the impact of new laws by inducing regulators to set relatively weak standards. We show that while the first sounds threatening to social welfare, it produces political cost savings that outweigh any weakening of environmental performance. The second motivation, however, raises corporate profits, but not by enough to outweigh the resulting loss of environmental quality. Copyright © 1999 John Wiley & Sons, Ltd and ERP Environment.