Jennifer Nash
Technology, Business, and Environment Program
Massachusetts Institute of Technology jnash@mit.edu
617 253-3586
© Jennifer Nash
Prepared for the National Academy of Sciences/National Research Council
Workshop on Education, Information, and
Voluntary Measures in Environmental Protection
November 29-30, 2000
Washington, DC
________________________________________________________________________
This paper has been prepared with support from the Emerging Strategies Division, U.S.
Environmental Protection Agency, Dr. Daniel J. Fiorino, Director. The views expressed, as well as mistakes and omissions, are the author's, not EPA's. Two students provided valuable research assistance: Anand Patel and Stephanie Okasaki. Thanks to Philip Byer for his helpful comments.

Introduction
Since the late 1980s a number of trade associations have established codes of management practices with a two-fold purpose: to improve members' environmental performance and to demonstrate this improvement to critical public audiences. Trade association codes call on firms to move beyond regulatory minimums and to continually improve their efforts in community involvement, pollution prevention, and product stewardship. Until recently, however, most trade associations had done little to monitor the extent to which members were actually putting codes into practice or to sanction those who failed to implement required practices.
In his book, The Logic of Collective Action , Mancur Olson (1965) observes that members of a large group, acting in a rational, self-interested fashion, will not act to achieve their common good without being coerced to do so. This observation holds true even when there is unanimous agreement among members about what their common good is and how it should be achieved. Olson's observations raise questions about the potential of trade association codes as tools in environmental protection. While private sector managers may want citizens and regulators to view their industry's environmental conduct favorably, they may not believe that improving their own firm's environmental performance is in their self-interest.
This paper is divided into three parts. The first part explores the question of why certain trade associations have developed environmental codes for their members. The second part considers the effectiveness of trade association codes in improving environmental performance. The third section offers conclusions about where trade association codes may be achieving results.
I. Characteristics of trade associations that regulate the environmental performance of their members
Trade associations are nonprofit organizations of business competitors in a single industry (Bradley 1965). They have historically served two functions: enhancing the collective welfare of members through lobbying and legal action, and providing direct
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service to members through educational programs, market information, and group discounts. Trade associations rely on membership support in order to operate.
Membership is voluntary. Most trade associations raise their operating revenues from fees and dues assessed upon members. Boards of directors, made up of executives from member firms, set policy for the group.
Of the thousands of trade associations that operate at the national level in the U.S., only about seven have developed codes of environmental management practice, listed in
Table 1
1
. In this paper, discussion focuses primarily on codes of practice in the chemical industry, with references to other trade association codes to draw out similarities and differences. The efforts of the National Paint and Coatings Association and the National
Association of Chemical Recyclers are not discussed, although they merit attention 2 .
1 These environmental codes were identified in an MIT survey of trade associations conducted in 1999.
Since that time, several trade associations, such as the National Association of Metal Finishers, the
American Furniture Manufacturers Association, and the American Portland Cement Alliance, have shown interest in code development and have begun to launch programs. Other trade associations, such as Steel
Manufacturers Association, have established guiding environmental principles.
2 For a fuller discussion of the codes listed in Table 1, see Nash 1999.
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Table 1. Codes of environmental management practice promulgated by U.S. trade associations
Trade Association
American Chemistry Council (ACC) -- formerly Chemical
Manufacturers Association (CMA)
Code name and year established
Responsible Care, 1989
National Association of Chemical Distributors (NACD)
National Association of Chemical Recyclers (NACR)
Responsible Distribution Process (RDP), 1991
Responsible Recycling, 1993
National Paint and Coatings Association (NPCA)
American Petroleum Institute (API)
American Forest & Paper Association (AF&PA)
American Textile Manufacturers Institute (ATMI)
Coatings Care, 1996
Strategies for Today's Environmental Partnership
(STEP), 1990

Sustainable Forestry Initiative (SFI), 1994

Environmental, Health and Safety Principles,
1995

Encouraging Environmental Excellence (E3),
1992

Quest for the Best, 1993
Trade associations are in a constant battle to secure and maintain members. By taking on the role of environmental regulator of its industry, a trade association runs the risk of alienating members. Members that feel undue pressure can simply quit. Firms can enjoy many of the benefits of membership, such as economic benefits that may result from trade association lobbying activities, without paying membership dues. Trade associations develop environmental codes because their boards of directors perceive that the benefits of environmental self-regulation exceed the costs. What are these benefits?
The American Chemistry Council (formerly known as the Chemical
Manufacturers Association) developed Responsible Care in 1989, when public opinion polling showed that a large portion of the public believed the chemical industry had no self-control, did not listen to the public, and did not take responsibility for its operations
(Rees 1997). Before 1970 the chemical industry had been essentially free to manage its environmental impacts as it saw fit. By 1980, after Congressional passage of the major environmental statutes, this freedom was gone; the perception among chemical industry managers was that the industry was “run, not just regulated, from State and Federal
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Agencies” (Hoffman, quoting Chemical Week editorial, 1995: 190). Explained Earnie
Deavenport, President of Eastman Chemical, “a great many [people] believe[d] that the country would be far better off without a chemical industry at all ” (Deavenport, 1993: 9).
A defining event for the chemical industry’s public image problem was the 1984 massive chemical release in Bhopal, India, which killed thousands of people. While the oil industry has not been associated with human tragedy on such a scale, its operations have devastated wildlife and ecosystems. The huge oil spill from the Exxon Valdez oil tanker in March 1989 focused public attention on the hazards of the oil industry. Not only was the reputation of the Exxon company damaged, the public perception of the entire industry fell significantly, prompting an editorial in an oil industry trade journal to urge firms to adopt a "group approach [toward building public trust] ... mean[ing] more than companies' acting responsibly alone" (Oil & Gas Journal, 1990). In 1990 the
American Petroleum Institute launched its environmental code, Strategies for Today's
Environmental Partnerships, in response.
Public perception of the forest and paper industry parallels in many respects views about chemicals and petroleum. During the late 1980s and early 1990s CEO's of the largest U.S. forest and paper companies commissioned extensive public opinion research to probe public attitudes. The results were dismaying. Many people, about 55% of those asked, believed the industry did not practice sustainable forestry. An even larger percentage found the industry was doing a "poor job" in its efforts protecting wildlife, conserving resources, protecting air quality, and protecting lakes and steams (AF&PA,
1998). AF&PA board members, like their counterparts at ACC, decided that public relations alone would not dissipate these concerns. "Credibility can be enhanced only if we have clear behavioral changes and our message communicates this change” (AF&PA,
1998: 10).
Public opinion spurred environmental regulation. In June 1990 the U.S. Fish and
Wildlife Service ruled to list the northern spotted owl as a threatened species. This decision eliminated timber harvesting from about nine million acres of land in the Pacific
Northwest, the owls’ habitat (Bossong-Martines 1999a). In addition to the Endangered
Species Act, the Clean Air and Clean Water Acts have had a substantial impact on
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forestry companies. Compliance with federal and state environmental regulations has required significant capital spending. Firms have been required to add secondary treatment plants, control plant emissions, reduce the use of elemental chlorine, and fulfill recycling commitments. Environmental spending has accounted for about 14% of capital outlays made by the U.S. forest and paper industry since the late 1980s, according to the
U.S. Department of Commerce (Bossong-Martines 1999a).
As the discussion above suggests, codes have been developed by industries which citizens and government perceive lack self-control, cannot be trusted, or are inherently unsafe. The challenge to the textile industry’s legitimacy has come from a different source: low-cost textile production in developing countries. The major focus of the
American Textiles Manufacturing Institute (ATMI) has been to fight for import quotas, tariffs, and trade agreements favorable to the industry. It has enacted numerous campaigns to build public support for textiles and clothing manufactured in the U.S. — its “crafted with pride in the U.S.A.” program, begun in 1983, is its longest sustained promotional effort (Morrissey 1999). It launched Encouraging Environmental Excellence
(E3) in 1992 publicize the environmental accomplishments of members. The association hoped to use the program to distinguish members’ products from imports that might be produced under less environmentally responsible conditions. In addition, customers of the industry, particularly The Gap, Eddie Bauer, and Levis, had begun to ask questions about the environmental performance of their suppliers, some of whom are ATMI members. E3 founders believed that demonstrating environmental responsibility to these customers might help, over time, to strengthen their business relationships.
The public’s negative perception of the chemicals, petroleum, and forestry industries helps to explain the decision of their trade associations to develop environmental codes of conduct. These codes are specifically designed to improve the environmental performance of member firms and to demonstrate this improvement to critical public audiences. But why does the public hold these industries in such low regard, while accepting the risks of other similar manufacturers? The public's relatively high esteem of the pharmaceutical industry is a case in point. Pharmaceuticals are nothing more than chemicals specifically designed for human and other animal intake.
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The pharmaceutical industry has experienced its share of widely publicized problems arising out of unintended consequences. A recent study found that more than 100,000 people die each year in the U.S. as a result of the side effects of drug therapies (Grady
1998). Yet the public’s perception of the pharmaceutical industry has less of the negative quality that characterizes its view of the chemical industry, and much less controversy is associated with the introduction and maintenance of drugs than of chemicals. According to Tom White of the Pharmaceutical Manufacturers Association, the pharmaceutical industry has no plans to implement an industry code because it would not fulfill a perceived need of its members.
Unlike the pharmaceutical industry, which markets its products directly to consumers, industries that have developed codes tend to be commodity manufacturers.
They sell to other firms that process their product into something else. Chemical products, for example, nearly always require further processing before marketing to end users. Most chemical products go through several manufacturing processes, often undertaken at different firms, before final sale. Similarly, many firms in the oil, wood pulp, and textile industries rarely market their products directly to consumers (Bossong-
Martines 1999, a, b). They rely on intermediaries to manufacture their products into forms that consumers buy. Industries that manufacture commodities that require further processing before sale to end-users tend to assume a collective identity in the public's mind. The problems of one company color public perception of the entire industry.
Therefore, commodity industries will be more likely to develop environmental codes, which are intended to improve the public image of the industry as a whole.
In addition
, codes are more likely to emerge in industries dominated by large firms than by industries made up of many members of small size. The chemical, oil, and forestry industries tend toward an oligopolistic structure, with a small number of very large firms dominating the industry (Bossong-Martines 1999, a, b). These large firms internalize a large portion of the collective reputation of the industry (Olson 1965). Large firms are more visible and therefore held responsible for the behavior of the collective.
Also, large firms have sufficient resources to cover the relatively high fixed costs of code development
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The chemicals, petroleum, and forestry industries have used codes as defensive strategies to protect themselves from external interference in the form of public regulation. These industries have faced particular problems interacting with the public due to the high environmental impacts of their operations, public distrust, and an inability to demonstrate the value of the products they manufacture. Firms in these industries have been "tarred with the same brush" of environmental irresponsibility, no matter what their actual performance. They have used codes in an attempt to develop a new public identity based on the values of responsibility, caring, partnerships, excellence, and sustainability.
This discussion suggests several hypotheses concerning the conditions that lead trade associations to develop environmental codes. First, industries adopt voluntary codes only if pressed by public opinion or to meet customer demands for strong environmental performance. Second, commodity industries and industries dominated by a few large firms are more likely to develop codes than industries that market their products directly to consumers or that are made up of small, heterogeneous organizations.
Third, codes function mainly to deflect regulation rather than reduce environmental impact.
II. Effectiveness of trade association environmental codes in improving environmental performance
Olson's theory of groups raises the question of whether trade association codes actually lead to improvements in the environmental performance of members. Firms that belong to the trade associations that have developed codes have a common interest in fostering public approval and a favorable regulatory climate for their industry. They may have antagonistic interests when it comes to implementing environmental practices that impose costs on their operations. If rational, self-interested managers know that other members of their group are investing in environmental performance improvement, they may not make this investment themselves.
Do codes promote improvement, or provide shields to hide poor performance? In this section, this question is explored through two approaches: by considering what codes, in theory, require firms to do, and by examining empirical evidence.
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A. Establishing environmental objectives for managers
A key mechanism by which trade association codes of practice could change environmental performance is by changing the values of managers. Trade association codes could change values by establishing new environmental objectives for member firms. Firms that sign on to the Sustainable Forestry Initiative pledge to “promote habitat diversity” and “practice a land stewardship ethic.” Firms that participate in Responsible
Care must implement a pollution prevention program that achieves “ongoing reductions in wastes and releases, first to source reduction, second to recycle/reuse, and third to treatment.” These objectives, if taken seriously by managers, could change what they consider important and how they act.
The environmental objectives embodied in trade association codes can be visualized as a spectrum, as in Figure 1, below. These objectives range from compliance with regulation, (a requirement for any organization whether or not managers have signed on to a trade association code,) to sustainable business practices. Regulatory compliance is a minimal level of ambitiousness, while sustainability represents the most ambitious environmental objective for firms. All of the trade association codes listed in Table 1 call on firms to practice product stewardship, an environmental objective near the ambitious end of the spectrum. Product stewardship guidelines call on firms to extend their responsibility for environmental protection beyond their fencelines and to oversee the environmental practices of their suppliers and customers.
How trustworthy or reliable are these trade association calls to action? What types of activities are managers who sign on expected to undertake? Codes vary in the degree to which they require managers to work toward achieving the objectives they espouse. At a minimum, trade associations simply require that managers declare their commitment to code objectives. The textile industry's Encouraging Environmental Excellence code requires only that members describe how they have worked with suppliers and customers to address environmental concerns. The chemical distributors' code, in contrast, specifies that members must "work with end-use customers to foster proper use, handling, and disposal of products commensurate with product risk" and "cease doing business with
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customers whose practices are inconsistent" with the code.
Publish performance results
Audit performance
RC
RDP
Set targets
Establish policy
Declare commitment
E3
STEP
SFI
Regulatory compliance
Community involvement
Pollution prevention
Product stewardship
Sustainability
AMBITIOUSNESS
Figure 1. Trade association codes vary in terms of the ambitiousness of the objectives they establish and their trustworthiness or reliability as guides for action.
Trade associations provide discretion to members to meet code commitments in their own way, at their own pace. Importantly, with the exception of the requirement in some codes to achieve regulatory compliance, codes do not set performance standards.
For example, ACC’s distribution code requires that companies “implement...chemical distribution risk reduction measures that are appropriate to the risk level” (Chemical
Manufacturers Association 1997) Companies use their own judgment about what constitutes an “appropriate” response.
B. Ensuring performance through trade association oversight
The role of trade associations in monitoring members’ code adoption, and sanctioning members that fall behind, has in recent years begun to take shape. This evolution is particularly apparent for codes in the chemical industry, Responsible Care
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and Responsible Distribution Process. The ACC board of directors voted to require
Responsible Care adoption as a condition of membership in 1989. At first there was no deadline for implementation, and individual members’ progress was known only to a consultant hired to tabulate results for the membership as a whole. In 1996 the ACC board set December 31, 1999 as the date when all members were expected to have fully implemented all management practices. The same year the board decided to disclose the names of firms whose Responsible Care programs were lagging to the board's
Responsible Care committee. These firms were contacted by board and staff members and urged to do more. Reportedly, some firms resigned under pressure to improve
Responsible Care performance. ACC's position is that it has not expelled any members.
In 1998 the ACC began to require firms to establish at least one performance goal and to publicly report progress toward meeting it. In June 2000 the board decided to rank some aspects of members' code performance, on a scale of 1 to 191 (the number of member companies), and distribute this ranking to its membership.
In 1994 ACC introduced the option of management systems verification.
Management systems verifications (MSVs) ensure that a firm has a system in place to meet code requirements, but do not assess the performance of these systems. For example, an MSV for Responsible Care would ensure that a company had a documented plan for responding to chemical transportation incidents. It would not evaluate the effectiveness of the plan. ACC has hired a private consultant, Verrico Associates, to conduct all management systems verifications for members. Verrico assembles a verification team made up of chemical industry managers and selected external stakeholders. ACC requires that the team include a community participant. The team interviews company personnel that have been assembled into panels that combine functional areas. For example, a panel of managers from risk assessment, distribution, and sales might be brought together and asked questions concerning the company’s product stewardship activities. ACC’s protocol for management systems verification lists the questions each panel is to be asked. The panel responsible for product stewardship activities, for example, is asked, “How does your company assess risk for existing products?” and “How do you track the performance of your customers and review it with
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them?” The verification team also walks around the plant, randomly interviewing employees, and talks with facility neighbors, suppliers, and distributors. Verrico
Associates prepares a report of “findings and opportunities” identified through the verification. The report is owned by the company, and managers decide with whom they will share it.
Management systems verification is discretionary for ACC members. As of July
2000 approximately half of all members had had their Responsible Care programs reviewed. A recent development in the automobile industry may encourage more chemical companies to undergo verifications. In September 1999, Ford and General
Motors (GM) announced that they will require all of their first-tier suppliers to be certified to ISO 14001, the international environmental management system. ACC staff members have negotiated with automakers to convince them that Responsible Care is at least equivalent to ISO 14001. Ford remains skeptical of ACC's verification procedures.
In early negotiations with ACC, Ford is insisting on having an independent third party conduct an ISO audit. As one possible solution, Verrico Associates may partner with ISO certification companies for future verifications (Schmitt 2000).
In response to manufacturers' questions about the environmental practices of distributors, in 1991 the National Association of Chemical Distributors launched a program of its own called Responsible Distribution Practice (RDP). The system for monitoring and sanctioning established by NACD goes beyond Responsible Care in several respects. For NACD, management systems verification is mandatory, not discretionary. NACD uses third-parties rather than industry peers to conduct the verifications. NACD has a history of suspending and terminating memberships for noncompliance, while ACC staff members emphasize that they work with lagging firms to improve their performance. Finally, NACD's verification system includes an option for review of environmental performance. ACC's review only ensures that a management practice is in place.
Initially NACD required biannual self-assessments from members, the first of which was due on July 1, 1992. The NACD board of directors suspended the memberships of several companies for not meeting this deadline (Morris 1993), although
11

all of these companies later fulfilled NACD's requirements and rejoined the trade association (Morris 1995). In October 1994, NACD began to require companies to mail their environmental policies to Underwriter Laboratories, a third-party verifier, to ensure compliance with RDP. The memberships of three companies were terminated in 1995 for refusing to take part (Morris 1995). In May 1998, NACD voted to require members to submit to on-site third-party audits of their management systems by Science Applications
International Corporation (SAIC). This review went beyond mail-in policy verification by ensuring that code management practices were actually in place. Nine companies had memberships terminated for refusing to undergo this on-site review. Although NACD publicly states terminations in press releases, the association refuses to name these former members.
The impetus for these requirements came from NACD’s membership. Many
NACD members were frustrated by the demands placed on them by supplying chemical manufacturers. Contracts signed with ACC members granted manufacturers free license to audit distributor facilities. Auditing distributors' environmental and safety practices is required by Responsible Care. NACD members were encouraged to adopt a unified, third-party auditing protocol to put an end to the logistic problems faced by distributors having to undergo different assessment protocols from each one of their suppliers. In addition, NACD chose to form its own auditing protocol, rather than adopt a protocol created by ACC, because many members had suppliers outside of ACC (Morris 1997).
NACD members are required to undergo verification every three years, a cycle that began in January 1999. By April 2000, SAIC had conducted over 120 verifications.
Companies found by SAIC to have deficient management systems are given one year to correct identified problems and pay for an additional re-verification. As of April 2000,
SAIC had found that three companies required re-verification. Verified companies are granted ownership of SAIC’s report. Usually, this report is not made available to the public.
As already noted, management systems verifications ensure that a firm has management practices in place, but not how well those practices are actually working. A group of ACC members has maintained that MSVs do not provide sufficient assurance.
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These manufacturers have negotiated with NACD to create an additional form of performance verification to be used for distributors that handle particularly hazardous chemicals. The chemical manufacturers that have participated in these negotiations with
NACD are Dow Chemical, Eastman Chemical, ExxonMobil, FMC Corporation, Shell
Chemical, Stepan, and Vulcan Chemical. Negotiations have resulted in a protocol called
Site Class Verification (SCV).
NACD staff members explain that ACC members are under pressure to fulfill their product stewardship code, which requires that they ensure that distributors live up to the environmental protection practices of Responsible Care. The SCV process helps manufacturers decide whether a distributor is a suitable business partner. While an MSV might indicate that a distributor had a documented procedure for unloading hazardous chemicals from trucks, for example, SCV would describe how trucks were actually unloaded at a distributor's facility. The costs of Site Class Verifications are paid by a group of 18 chemical manufacturers. Before establishing or renewing a business relationship, these manufacturers are now able to obtain an SCV report on the distributor's environmental conduct. SCVs, unlike MSVs, are not required by NACD as a condition of membership since not all distributors do business with this group of chemical manufacturers.
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Mandatory fines
Public disclosure
Expulsion
Disclosure to peers
Peer pressure
SFI
RC
NACD
E3
Introspection STEP
Selfmonitoring
Self-reporting Voluntary verification by peers
Mandatory verification by third parties
Public review
MONITORING
Figure 2. Trade associations use a range of approaches to monitor code adoption and to sanction laggards (Lenox 1999)
The programs trade associations are using to monitor and sanction code performance are depicted in Figure 2. No U.S. trade association, as yet, requires public disclosure of the results of verifications. While the textile industry has not established a verification program, planning is underway to put such a program into place.
Empirical evidence
Only two empirical studies have documented how firms respond to trade association codes. Both focus on Responsible Care adoption. The first, based on data collected in 1995, is qualitative exploration of adoption practices in 16 mid-sized firms
(Howard et al. 2000). Authors found four general types of responses: “Drifters”,
“Promoters”, “Adopters”, and “Leaders”. Drifters were companies that said Responsible
Care had little impact on their activities. Changes were limited to documenting existing practices. Promoters, who used Responsible Care mainly to promote a strong
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environmental reputation to external stakeholders, saw Responsible Care as an adjunct to existing environmental programs. It reinforced what they were already doing, but did not cause them to rethink their activities. People in this group spoke of Responsible Care as
“formalizing” and "standardizing” what they already did.
Adopters were firms that saw Responsible Care as a valuable tool for improving their environmental practices. Not only were environmental and communications staff handling Responsible Care activities; product managers, designers, and marketing staff were also involved. Finally, Leaders spoke about Responsible Care being a “whole new way of thinking.” They believed that their environment, health and safety practices were strong prior to Responsible Care, but the initiative offered a way to go further. In these firms, significant resources had been applied to Responsible Care implementation, and senior management took an active role in overseeing it.
While noting substantial variation in adoption practices, Howard et al. also found that a number of practices had been implemented by virtually all of the companies interviewed. The most significant common practice was increased involvement by employees in local community relations. Many interviewees expressed the view that interacting with the community was the whole purpose of Responsible Care.
A second common response was in the area of distribution practices. All of the participating companies said that they now require much more of their distributors than they had before Responsible Care. All 16 companies had put in place an audit system to assess their carriers’ safety and handling practices. They require distributors to provide them with documentation of their procedures, and in many cases chemical company employees inspected their distributors’ facilities. Several of the firms had offered training programs to distributors, and a handful had ceased to use distributors that did not meet criteria under Responsible Care.
The second study (King & Lenox 2000) is a quantitative comparison of the environmental performance of firms that participate in Responsible Care with firms that do not. Comparisons are based on toxic releases reported to the U.S. Environmental
Protection Agency's Toxic Release Inventory during the period 1990 through 1996. The authors found that firms that participate in Responsible Care reduce their toxic releases
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no faster than comparable chemical firms that do not participate. They argue that the lack of mechanisms for observing and sanctioning individual firm performance has led to free riding by low-performing firms. While some ACC members are improving environmental performance faster than the norm, a large group is lagging behind, slowing progress for the group overall. The authors conclude that the “commons” being protected by
Responsible Care is not the “physical commons” (King & Lenox 2000: 713) of a clean and healthful environment. Rather, Responsible Care is intended to protect a
“reputational commons” (King & Lenox 2000: 713) that has been weakened by the industry’s past environmental practices. Without the threat of sanctions by informed outsiders, opportunism has eroded Responsible Care’s effectiveness.
It is important to note some of the limitations of these two studies. Both studies report results from the years prior to ACC's recent attempts to improve its oversight of members' Responsible Care progress. Management systems verifications, introduced in
1994, have only recently become common practice. King and Lenox's study only observes changes in toxic releases, while Responsible Care addresses many other aspects of environmental performance. King and Lenox do not attempt to assess those aspects of
Responsible Care that Howard et al. identified as particularly robust, community participation and oversight of distributors. Yet the studies suggest that ACC board and staff members have more work to do to ensure that Responsible Care functions as a reliable system of industry self-regulation. Studies suggest that firms adopt Responsible
Care in their own way, at their own pace, and that results in terms of environmental performance vary substantially.
This discussion poses an additional set of hypotheses. First, the effectiveness of trade association environmental codes in improving environmental performance depends upon the ambitiousness of their objectives. Second, effectiveness depends upon the degree to which the code is designed to foster actions that are consistent with these objectives, that members are expected to do what they say. Third, effectiveness depends upon the strength of trade association monitoring and sanctioning efforts.
III. Conclusion: Where codes may be achieving results
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Trade associations have developed environmental codes to demonstrate to critical public audiences that members are controlling their environmental behavior voluntarily.
Empirical studies of Responsible Care suggest that this code— the most developed of all
U.S. trade association efforts in environmental self-regulation— has failed to reliably improve firms' internal management practices. When it comes to how environmental management is practiced within the plant, Responsible Care appears to reinforce existing norms rather than bring about higher standards. Adoption practices appear to vary substantially depending on managers' pre-existing commitments to environmental protection.
Trade associations are in a constant battle for membership and must walk a fine line between being inclusive and commanding minimal standards. The mechanisms they have developed for monitoring and sanctioning laggards have been limited. Trade associations are taking steps to strengthen these areas, but their ability to establish authority over members is uncertain. With the exception of Responsible Distribution
Process, which requires external verification as a condition of membership, firms choose whether to have their management systems externally verified. About half of ACC's members have had their systems reviewed, and only a small number of AF&PA's membership have taken this step. Those who choose management systems verification own the results and need not share them.
Olson's observations about the behavior of groups helps to explain these findings.
When managers of a firm know that their environmental performance will not be observed, it may be in their rational self-interest to invest less heavily in environmental performance improvement than their competitors. Studies of Responsible Care adoption suggest that some members are using this code to deflect criticism and hide performance, although the ACC's recent steps to establish performance goals and improve monitoring may, over time, change this result.
While managers' responses to Responsible Care vary with respect to internal operations, this code has fostered a fairly uniform response in the ways managers interact with external constituencies. Responsible Care has had a strong impact on managers' oversight of their distributors. One manifestation of this impact is the decision by the
17

National Association of Chemical Distributors to develop an environmental code of its own, based on Responsible Care. This code includes programs to observe and sanction members that are considerably stronger than other trade associations'. Chemical distributors know that, to fulfill the requirements of Responsible Care, chemical manufacturers will need to review their distributors' environmental practices. To appeal to these suppliers, and establish some control over the review process, distributors have initiated their own program. The NACD example suggests that, as the motivation for developing and maintaining an environmental code shifts from defensive public relations to an appeal to customers, code requirements may also shift. As codes are used increasingly in business transactions, trade association programs for monitoring and sanctioning members' performance may become more common and effective.
This discussion suggests that some aspects of environmental performance may be more amenable to private regulation than others. An industry's management of the environmental practices of its suppliers, distributors, and customers may pose fewer conflicts than its management of its own members. Trade association codes appear to be fostering a system of what could be called lead industry regulation, rather than industry self-regulation. Under a system of lead industry regulation, dominant firms, such as members of the ACC, establish environmental management practices for the industries and firms that depend on them, such as those represented by NACD. Ford and GM's decision to require their suppliers to become certified to ISO 14001 is a further example of lead industry environmental regulation.
A direct and effective sanction is simply to discontinue a business relationship.
Through its distribution and product stewardship codes, ACC members have used this sanction effectively, and NACD has responded with a code of practice that complements
Responsible Care. NACD’s sanctioning authority over its own membership is substantially greater than ACC’s. Its members have learned that environmental performance is a component of their business success, and may feel they benefit from an environmental code which clarifies customer expectations and reduces transaction costs.
While in the past trade association codes served primarily as defensive measures to improve public opinion and forestall public regulation, codes are now assuming a role
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in business. Trade associations are adding measures to observe the environmental practices of their business partners, and to sanction, with a decision to do business elsewhere, those who do not live up to their codes. This observation leads to a final hypothesis: Environmental codes may be most effective when large businesses enforce them on their trading partners.
More research is necessary to learn whether such monitoring and sanctioning programs lead to better environmental results. Lead industry regulation may repeat the problems of the public environmental regulatory system: inefficiency, rigidity, and limitations in scope. Empirical studies of the effectiveness of codes such as Responsible
Distribution Process, which incorporate the elements of monitoring and sanctioning still missing from Responsible Care, are needed to assess the role of these efforts in environmental protection.
In undertaking this research, it will be important to compare the environmental performance of firms participating in trade association codes with those that do not. Only through comparative studies will it be possible to understand the degree to which code adoption causes performance to improve. One way to structure future empirical studies would be to take advantage of the natural experiment of customer mandates for code adoption. …
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