Reprinted With Permission of the Helen Dwight Reid Educational Foundation. Published by Heldref Publications, 1319 18th St. N.W., Washington, D.C. 20036-1802. Copyright 1996.

Business Adopts Voluntary Environmental Standards

Over the past decade, private codes of environmental management practice have begun to emerge as a major force in corporate environmental programs. Examples of these codes include the Chemical Manufacturers Association's (CMA) Responsible Care program, the Coalition for Environmentally Responsible Economies' (CERES) principles, the International Chamber of Commerce's (ICC) Business Charter for Sustainable Development, and the international environmental management standard, ISO 14000. Although these codes differ in numerous ways, they have important features in common. First, each requires companies to adopt environmental management systems and to audit their progress toward the environmental goals they set for themselves. Second, to varying degrees, each calls upon firms to involve outside groups, such as suppliers, customers, and community groups, in their environmental programs. Importantly, however, none includes specific environmental performance standards that firms must meet, and only ISO 14000 requires third-party verification of firms' environmental systems.

The proliferation of private codes raises several important questions: Will such nonregulatory initiatives actually change the way companies treat the environment? What factors are likely to cause them to adopt or reject these private initiatives? And will the different codes lead firms in different directions in terms of how they address environmental concerns? This article compares the function of private codes to that of government regulations in the United States. It describes how each of the major codes originated and details the practices a company committed to implementing Responsible Care, the CERES principles, the ICC charter, or ISO 14000 would be required to undertake. How companies actually attempt to meet these requirements is not discussed, but is the subject of ongoing research. The analysis is based on interviews with people involved in developing and implementing the codes as well as the formal materials prepared and disseminated by code organizations.

In essence, private codes of management practice call upon firms to adopt new forms of environmental behavior that are systematic in approach and broad in scope. These codes push firms in directions that are different from those required by environmental regulations, directions that both reflect the emerging public concerns about corporate environmental conduct and hold the promise of safeguarding the environment more effectively.

Private Codes Versus Regulation

The costs and limitations of "command and control" regulation--the predominant public policy approach to the problem of corporate environmental pollution--have become increasingly apparent to policymakers and corporate managers. Private codes address these problems in several important ways.

First, these codes shift some costs to the private sector. Adjusted for inflation, the U.S. Environmental Protection Agency's (EPA) budget has shrunk by about 15 percent since 1980 despite an increasing load of mandated responsibilities.¹ Former administrator William Reilly estimates that EPA has met less than 20 percent of the deadlines imposed by Congress. For instance, both the Clean Air Act and the Clean Water Act called for the establishment of tens of thousands of discharge standards and mandated the creation of vast monitoring networks--all within just 180 days. Today, nearly two decades since the passage of these acts, many of these tasks have yet to be done.² EPA cannot enforce existing statutes and regulations, let alone embark on expanded programs in today's climate of fiscal austerity. Unlike regulation, private codes of management practice do not require public resources to develop and enforce. These codes are created and maintained by industry, and individual firms are responsible for ensuring that they comply.

Second, private codes go beyond the scope of regulation. Regulation, with its strict procedures, is generally considered ineffective for generating the types of changes in corporate policy, organization, and strategy that will lead to environmentally sustainable industrial practices. Typically, regulation has entailed "end of pipe" responses in which firms adopt pollution controls but leave products and manufacturing processes virtually unchanged. The generic character of regulation makes it a cumbersome tool for preventing pollution because prevention strategies generally have to be tailored to the particular circumstances of individual firms. As the analysis below will show, many private codes focus upon fostering changes in corporate policy and management systems, precisely the type of changes that historically have been beyond the reach of regulators. Each of the major codes requires firms to commit to preventing pollution.

Third, codes potentially strengthen corporate legitimacy. Regulation has tended to foster strong adversarial relationships between regulators and companies. Conversations with members of industry and government over the past five years revealed that corporate environmental managers are suspicious of regulators and angry about what they characterize as regulatory capriciousness. EPA staff members, on the other hand, are generally cynical about the motives behind corporate environmental initiatives. This high level of mutual mistrust is part of what Robert Kagan has called a culture of "adversarial legalism," in which policymaking and dispute resolution are characterized by a high degree of legal maneuvering that results in legal deadlock and social inertia.³

By demonstrating corporate knowledge about and commitment to environmental improvement, codes may help companies portray themselves as environmentally competent and thus increase their legitimacy as stewards of the environment.⁴ Over time, increased legitimacy could result in companies being able to devote fewer resources to defensive actions and litigation, which do little for the environment, and more to learning and directly beneficial action.

The principal differences between regulation and private codes are highlighted in Figure 1. The dominant purpose of regulation has been to protect the public and the environment from harm. Thus, its focus has been on developing standards that limit pollution, define technology performance, and specify waste management practices. Government's role has been to promulgate statutes and regulations and to track compliance through reporting requirements and inspections. Administrative and criminal penalties are imposed for noncompliance. Firms with identified environmental problems are the primary targets of regulatory enforcement.

Private codes, in contrast, attempt to foster long-term changes in the ways firms think about the environment and how they integrate environmental aims with other business objectives. While regulation tries to improve performance by defining what firms cannot do--emissions limits that cannot be exceeded, for example--codes offer firms guidance in establishing policies and management systems, in interacting with suppliers and distributors, and in working with the public. Environmental regulation is often characterized as complex and exhaustive. Private codes, on the other hand, are relatively broad and nonspecific: firms assess their own progress in meeting the requirements of the codes, and those with the strongest environmental programs tend to be the major players in code development.

Figure 1. Differences between regulation and private codes.

Regulation	Private Codes
Instituted by government	Instituted by private sector
Enforced by government	Instituted by firms themselves with some third-party verification
Compliance mandatory, with direct sanctions	Compliance voluntary, with indirect sanctions
Largely medium specific (air, water, etc.)	Integrative, docusing on life-cycle impacts "beyond the fence line"
Places emphasis on product and process standards	Places emphasis on management systems
Defines standards for emissions or technology	Lets each firm define own performance, with requirement for continuous improvement
Provides public access to information on compliance	Provides public access to information only in select cases

Origins of the Major Codes

The emergence of private codes of environmental management practice is a recent phenomenon. Responsible Care, CERES, and the ICC charter were developed in the late 1980s and early 1990s. ISO 14000 is under development and will likely be finalized later in 1996. These codes have grown out of public concern about corporate environmental performance and corporate fears about a new round of regulation. Large multinational corporations came together over initiatives that they felt would improve their performance and demonstrate their commitment to the environment.

The private codes discussed here, while often viewed as unrelated, really represent a progression, with each building upon the foundation laid by its predecessor. Thus, Responsible Care laid the groundwork for each of the subsequent codes with its emphasis upon management practices and continuous improvement. CERES, the only code developed by nonindustry groups, added to this foundation a strong focus upon environmental protection and restoration and a requirement for public disclosure of environmental performance. The ICC charter was developed in large part through the work of the Global Environmental Management Initiative (GEMI). GEMI was founded by large firms from a variety of industries who wanted a forum to stimulate critical thinking about the environment and to generate new strategies. ISO 14000 reflects the globalization of commerce, the need to develop a "baseline" of minimal environmental performance, and recognition of the importance of third-party verification of environmental practices. Even though the codes were developed during the same period and in response to a similar set of societal concerns, each of them also grew out of unique sets of circumstances.

Responsible Care

The Responsible Care initiative was originally recommended to CMA by its Public Perception Committee, whose mandate was to recommend some industry initiatives that could "improve the legislative, regulatory, market and public interest climate for the industry."⁵ The objectives of the initiative are to

promote continuous improvement in member company environmental, health, and safety performance in response to public concern, and to assist members' demonstration of their improvements in performance to critical public audiences.⁶

The program was created in the wake of the Union Carbide accidents at Bhopal, India, in 1984 and Institute, West Virginia, in 1985, when public distrust of the chemical industry was strong. Many executives in the chemical industry feared that if they did not respond to public concerns, they would some day be regulated "like the nuclear industry."

In mid-1987, CMA Chairman Bob Clark surveyed CMA members and found that "everyone's number-one or number-two problem [was] the negative public perception of the industry." Further, industry polls showed that the public generally did not distinguish among different chemical manufacturers, but rather saw the whole industry in the same light. For this reason, the major companies in the industry felt vulnerable to public perceptions that were based on the poor performances of other (often smaller) companies. They decided that a single plant or company could do only so much to allay public concerns by its own exemplary behavior, and so CMA devised a mandatory, industrywide program.

CMA's approximately 175 member companies account for more than 90 percent of basic chemical production in the United States and Canada. Two companies that have chosen not to participate are Formosa Plastics, which recently completed the newest large petrochemical complex in the United States, and Agrico, which was the second-largest Toxic Release Inventory emitter in 1992.

In creating Responsible Care, U.S. chemical executives relied heavily on the Canadian Responsible Care program instituted several years earlier. (U.S. chemical manufacturers with Canadian operations first brought Responsible Care to CMA's attention.) The U.S. program has several components: a set of "guiding principles," six "codes," a public advisory panel, and executive leadership groups. The codes address community awareness and emergency response, chemical distribution, pollution prevention, process safety, employee health and safety, and product stewardship.

CMA expects member companies to sign the guiding principles, communicate a commitment to Responsible Care to their employees, and make "good faith efforts" to implement the codes. CMA may revoke the membership of a company that has consistently conducted its operations in a manner not in accordance with Responsible Care. To date, no company has had its CMA membership revoked, however.

Responsible Care-type initiatives exist in approximately 30 countries in addition to the United States and Canada. In the United Kingdom, the national associations of chemical distributors have adopted programs similar to Responsible Care. In France, 360 companies representing 90 percent of basic chemical sales and 70 percent of specialty chemical sales have signed up for Responsible Care. The German chemical industry association held its first Responsible Care workshop in November 1993. And although Danish industry first rejected the program, it is now adopting it.

The CERES Principles

The driving force behind the Coalition for Environmentally Responsible Economies is Joan Bavaria, president of Franklin Research and Development Corporation, a firm dedicated to socially responsible investment. Bavaria and Denis Hayes, an environmental advocate, began to organize CERES in the late 1980s. Bavaria's primary goal was to institutionalize the capability to generate data on corporate environmental management that investors could use in decision-making. She sought "consistent, comparable, and widely disseminated" data that would allow investors to analyze environmental performance in the same way they analyze corporate financial performance:

In 1988, when CERES was put together, there was not enough information to make intelligent investment decisions. What we were hearing from environmental advocates like Greenpeace and what we were hearing from companies was often diametrically opposed. There was no way to know about environmental performance without investigating these companies ourselves.⁷

From the beginning, however, Bavaria's goal was larger than providing information for intelligent investment. She ultimately sought to change the relationship between firms and the public. According to Bavaria, she and the coalition felt that with environmental data publicly available, "trust barriers would be lowered." " The reporting process is a trust-building process," she said."⁸

Bavaria and Hayes began to organize a coalition of investors, environmental advocacy groups, and labor unions. The first order of business for the new group was to develop a common set of environmental principles. This proved to be a challenging task, because each environmental group represented different constituencies.

For example, the World Wildlife Federation membership overlaps about 75 percent with the National Rifle Association. This kept them from agreeing on certain restrictions on resource use that other groups such as Sierra were pushing.⁹

The group named their principles the "Valdez principles" after the Exxon Valdez oil spill. The tenth and final principle, considered most important, stated that companies must annually complete and make public a "CERES report" containing detailed information on corporate environmental practices.

In connection with Earth Day 1990, CERES coordinated a media blitz to encourage a number of Fortune 500 corporations to become founding signatories of the principles. Despite the prominent media coverage, however, fewer than 20 corporations, and none from the Fortune 500, signed the principles. Only small companies and those with strong environmental reputations were willing to participate.

The second part of CERES' strategy was less publicized but arguable more effective than the first. U.S. securities law allows any stockholder who owns 1,000 or more shares of a company for a year to introduce a referendum at that company's annual meeting.¹⁰ Beginning in 1990, CERES' investment groups began placing resolutions before the stockholders of the nation's largest companies, with a direct appeal that they adopt the principles. This strategy was not conceived by CERES itself, but by one of its members, the Interfaith Center of Corporate Responsibility. On average, less than 8 percent of these companies' shareholders supported the Valdez principles. Most resolutions were withdrawn before a vote was reached. Even so, these resolutions offered an opportunity for CERES to air environmental concerns. Many companies promised to review and report on existing corporate environmental programs and, if appropriate, to implement new ones.¹¹

In an effort to attract more members, the coalition became "less adamant and finger-wagging with corporations."¹² Specifically, the principles were amended to eliminate the requirement that each member company have a qualified director responsible for environmental interests. Instead, companies were required to consider demonstrated environmental commitment as a factor in choosing directors. The Valdez principles were also renamed the CERES principles. While CERES had been asking companies to "sign" its principles, it now asked companies to "endorse" them. (Some companies' legal departments had problems with the word "sign" but not with "endorse.") Finally, CERES began to allow companies to make changes to the principles as long as the spirit of those principles was not violated. As Judy Kuszewski, the corporate programs director for CERES, explains: "No one in CERES would say the language of the principles is not important. But the language shouldn't be an obstruction to companies [who are] otherwise interested."¹³

These changes have helped secure the participation of several major corporations. Two notable CERES endorsers--Sun Company and General Motors--modified the principles significantly to make them consistent with their own environmental perspectives. Although Sun endorsed the principles as a "generic environmental code of conduct applicable to business behavior throughout the world,"¹⁴ the corporation did not accept them as an explicit code for its own behavior. Sun's primary concern was that the principles, if taken literally, could eventually force the company out of the fossil fuel business.

Three other large firms have recently joined CERES: H.B. Fuller, Polaroid Corporation, and Arizona Public Service Company. CERES staff members report that they are currently overwhelmed with requests from companies interested in endorsing the principles.¹⁵

CERES expects endorsing companies to continuously improve their environmental performance, maintain an open relationship with it and other outside stakeholders, and be publicly accountable through publication of an annual CERES report. Endorsers pay annual membership dues of $100 to $15,000, depending upon their volume of sales, and are invited to participate in committees that address issues such as the content of the annual report and the recruitment of new members.

CERES is in the process of developing a protocol by which it can revoke the "endorser" status of companies that seriously violate the letter or spirit of its principles. While CERES hopes never to have to revoke an endorser's role in the organization, it felt the need to establish the protocol to protect the integrity of the organization.

GEMI and the ICC Charter

The Global Environmental Management Initiative (GEMI) was formally announced in April 1990, though it had its start months earlier when a group of corporate environmental managers began to meet regularly to discuss environmental management issues. Approximately ten people from large firms in the chemical, electronics, consumer products, and pharmaceutical industries were involved initially. Participants recognized that compliance alone was insufficient to convince stakeholders that their firms were secure from environmental liability. They wanted a forum to share strategies and "war stories," to stimulate critical thinking, and to strengthen dialogue between themselves and interested publics.

From the start there was interest in making the organization's membership diverse because more ideas would be generated through a "cross-fertilization" of thinking. Dorothy Bowers, vice president for environmental and safety policy at Merck & Company, recalls sitting down with a list of industries and picking out a few sectors to target.¹⁶ GEMI then grew slowly through a process of individual contracts; today, it has some 27 members representing large companies from a diverse group of industries.

GEMI members worked closely with the International Chamber of Commerce to draft the Business Charter for Sustainable Development, which contains 16 principles tailored to large multinational corporations. GEMI's participation ensured that the charter received support from U.S. industry. One of GEMI's initial goals was to bring the charter to life by developing a database to track implementation efforts and an environmental self-assessment program to guide companies in this process. Unlike the other code organizations discussed here, however, GEMI has not required its members to adopt or implement the ICC charter. In fact, one of GEMI's founders is the environmental manager of a firm that has decided not to adopt the charter.

Bowers credits the cross-industry composition of GEMI for some of its most important contributions. During its first year, GEMI members brought together the concepts of total quality management and environmental management, coining the term total quality environmental management (TQEM). GEMI soon became the "preeminent facilitator of this discipline," sponsoring a major conference on the topic in January 1991. During its second year, GEMI published a TQEM primer.¹⁷

A third focus of the group's initial activities was stakeholder communications. GEMI has sponsored conferences and focus groups "to enhance the dialogue between business and its interested publics."¹⁸

While GEMI does not require firms to adopt the ICC charter, it does require them to be active in GEMI projects. Members must participate in at least three of the four annual membership meetings and take part in at least one working group.

ISO 14000

The International Organization for Standardization (ISO) was formed in 1946 and is headquartered in Geneva, Switzerland. Its purpose is to facilitate standardization as a means of promoting international trade.¹⁹ While its membership consists of the standards organizations of its 100 member nations, ISO has been an "industry-driven" organization.

ISO standards are documented agreements of technical specifications that companies use as guidelines to ensure that materials and products fit their purpose. For example, the format of credit cards, automatic teller machine (ATM) cards, and phone cards are derived from an ISO standard. Cards that adhere to the standard, which defines such properties as thickness, can be used worldwide.

ISO's first standard, published in 1951, was called "Standard Reference Temperature for Industrial Length Measurement." Later, the organization developed standards for paper sizes, symbols for automobile controls, and metric screw threads. Work focused upon narrow technical and safety issues. This narrow focus shifted in 1987 when ISO issued the 9000 series of quality standards. The ISO 9000 standard provides guidelines for designing and documenting a firm's quality procedures and practices. Development of ISO 9000 was dominated by European manufacturing firms. U.S. firms largely declined to participate, believing that ISO's foray into management "would fail."²⁰ But by 1990, ISO 9000 was rapidly gaining acceptance and becoming a de facto requirement for doing business in many areas.

In the early 1990s, ISO came under pressure to develop an environmental management standard. Joe Cascio, chair of the group that is coordinating U.S. participation in the ISO 14000 negotiations, explains that in 1991, as the United Nations was preparing for its 1992 Conference on Environment and Development in Rio de Janeiro, ISO's director general was approached by the conference leaders. They wanted to know whether anyone from ISO was planning to attend the conference and what ISO "was doing for the environment."²¹ This conversation spurred the formation later that year of ISO's Strategic Advisory Group on Environment (SAGE) to consider the appropriateness of an international environmental management standard. In the fall of 1992, SAGE recommended that ISO proceed with a standard, and a technical committee was created to begin negotiations and drafting. SAGE's findings indicated that an environmental management standard would promote a common approach to environmental management, much as the ISO 9000 series had for quality management; enhance firms' ability to attain and measure improvements in environmental performance; and facilitate trade and remove trade barriers.

As ISO set up its environmental effort, many of the world's major manufacturing countries were in the process of developing environmental management standards of their own. Germany, Japan, and Canada were finalizing product eco-labeling programs. By 1992, approximately 15 countries had developed national environmental management standards. Perhaps most important, the European Union was moving rapidly to develop an international environmental management standard that would include strong provisions for public disclosure of corporate environmental activities. U.S. multinational corporations with European operations were unhappy about this requirement; they felt that because U.S. law already required disclosure of releases (through the Toxics Release Inventory), the European requirements would be unnecessary and burdensome. SAGE members saw these national efforts as potentially disruptive of international trade. In fact, the primary motivation for ISO 14000 was to rein in the standard-setting activities of individual countries through a program of international consensus building.

Some 400 representatives of U.S. industry, including ones from the chemical, petroleum, electronics, and consulting industries, have participated actively in the development of ISO 14000. Having seen the impact of ISO 9000, these firms are anxious to influence what they feel will be an important undertaking. In addition, about 20 representatives of government and public interest groups have been involved in developing the standard.

ISO's technical work is highly decentralized, carried out in a hierarchy of technical committees, subcommittees, and working groups. Subcommittees have been established to develop environmental management standards in the following six areas: management systems, auditing, labeling, performance evaluation, life-cycle assessment, and terms and definitions. The entire series of standards is known as ISO 14000. The management systems subcommittee is furthest along and has nearly finalized its work. Its standard, known as ISO 14001, will form the overarching framework within which many of the other standards in the ISO 14000 series will fit.

ISO 14000, like ISO 9000 and other ISO standards, is intended to apply to a very wide range of organizations and to accommodate diverse geographical, cultural, and social conditions.²² The breadth of the standard thus limits how specific it can be. When completed, the ISO 14000 series will provide a very general schematic to firms of the management systems they should design and document.²³ Like the other private codes discussed in this paper, ISO 14000 will not prescribe specific operational practices or set numerical or other kinds of performance standards that firms must meet. Its purpose will be to provide firms with the elements of an effective environmental management system, thereby helping them to achieve environmental and economic goals:

A system of this kind enables an organization to establish, and assess the effectiveness of, procedures to set environmental policy and objectives, achieve conformance with them, and demonstrate such conformance to others. The overall aim of the standard is to support environmental protection in balance with socio-economic needs.²⁴

Like that of ISO 9000, ISO 14001's framework encourages firms to hire third-party contractors to certify that their management systems accord with the standard. Only firms that go through the process of third-party review will be ISO "registered." Firms that opt simply to declare their compliance with the standard will not be so "registered." Because registration is intended to confer a certain legitimacy upon firms, those in the second group may miss out on one of this code's primary benefits.

What the Codes Require

Private codes of management practice focus upon four elements: corporate environmental management systems, complete life-cycle management, sustainability ad environmental protection policies, and interaction with outside stakeholders. These elements represent society's evolving expectations of business. They are also areas that have generally not been addressed by regulation.²⁵

Environmental Management Systems

To varying degrees, each of the codes calls for sophisticated corporate environmental management systems. Such systems comprise the steps by which managers identify and address environmental problems. These steps include assessing problems, establishing goals, measuring progress, training workers, auditing performance, rewarding or penalizing behavior, and verifying through third-party review.

Assessing environmental problems--ISO 14001 is explicit in its requirement that companies identify the "environmental aspects" of their activities, products, and services that they "can control" and over which they can "have an influence." Several of the Responsible Care codes require some form of environmental assessment, but the pollution prevention code is the most specific, requiring each facility to inventory the waste that it generates and releases. (Responsible Care uses the EPA's Toxics Release Inventory guidelines to determine what and how substances are measured.) The CERES principles do not require companies to assess releases and hazards, although data on chemical use, waste generation, and resource consumption must be submitted by firms completing the annual CERES report. The ICC charter requires no assessment of ongoing activities, although firms must assess the impacts of new projects.

Establishing environmental goals and targets--ISO 14001 calls upon firms to "establish and maintain documented environmental objectives and targets." They must also document the means and the time by which objectives and targets will be achieved. Similarly, the establishment of goals is explicitly required in the following Responsible Care codes: product stewardship, pollution prevention, and process safety. Further, CMA now requires member companies to submit a timetable for the implementation of each code and has suggested that five years from adoption to full implementation is a reasonable timeframe. Neither the CERES principles nor the ICC charter require the establishment of goals or targets. However, the CERES report requires companies to submit information about goals to reduce ozone depleting chemicals, greenhouse gases, hazardous wastes, and chemicals designated as toxic under Title III of the Superfund Amendments and Reauthorization Act (SARA).

Measurement systems--ISO 14001 requires companies to maintain procedures to measure "on a regular basis" the "key characteristics" of their activities that have a significant environmental impact. Responsible Care requires measuring performance against goals in several of its codes; for example, the pollution prevention code calls for "measurement of progress...by updating the quantitative inventory at least annually." The ICC charter requires companies to measure performance on a regular basis. Measurement systems are not addressed in CERES materials

Employee training--Employee training features prominently in the Responsible Care program, ISO 14001, and the ICC charter, which mandate either that companies provide training or that workers have received appropriate training. Employee training is not addressed in the CERES principles, although the CERES report requires companies to document worker training programs.

Self-audits--The codes differ widely in their requirements for self-auditing. CERES requires companies to audit their progress in implementing its principles by completing the annual CERES report. This report includes nearly 100 questions in areas such as materials use, releases to the environment, and emergency response. Completed corporate reports are available to the public. Responsible Care requires companies to annually evaluate the extent to which they have implemented each code. Companies report their progress only in general terms, however, For example, they may indicate that they taken no action, have developed a plan, or have a program in place. These evaluations are not publicly available, although CMA has encouraged its members to share this information with "key audiences." In CMA's annual report on Responsible Care, these data are aggregated into the percentage of companies that have reached particular "levels" of implementation for each code (but not for each practice in each code). For example, in 1994 CMA reported that for the community awareness and emergency response code, 65 percent of its members had code practices in place and another 16 percent were implementing an action plan. Both ISO 14001 and the ICC charter call on companies to self-audit "periodically" or "regularly" to ensure that they are in conformity with "planned arrangements." However, neither organization has taken on the role of collecting or interpreting these audits. GEMI has developed an environmental self-assessment program to help companies determine how far they have come toward implementing the ICC charter.

Rewards and penalties for worker performance--None of the codes focuses to any great degree upon rewards and punishments as motivators of individuals' environmental conduct. ISO 14001 is the most explicit in this regard, indicating that companies must make employees aware of "the potential consequences of departure from specific operating procedures." As part of the CERES report, companies must describe how they recognize and reward outstanding environmental performance. The ICC charter states that companies must motivate employees to conduct activities in an environmentally responsible manner, but does not indicate how they should do this. None of the Responsible Care principles or codes mention rewards or penalties.

Third-party verification--As noted above, third-party verification is a requirement for ISO 14001 registration. Third parties, registered with an accrediting agency that has yet to be chosen, will verify that firms have the environmental management systems required by the standard in place. This requirement is unique to ISO: None of the other codes requires it, at least at present. CMA is piloting a similar type of third-party verification for Responsible Care, but, unlike ISO's, CMA's verification program will be voluntary. So far, two CMA companies have contracted with independent nonprofit groups to verify their management systems. The results, however, have not been made public. The Canadian Chemical Producers Association, by contrast, has instituted mandatory third-party verifications and expects that most members will have been verified by 1996. These results must be made available to interested parties.

CERES maintains that its requirement that companies publicly disclose their environmental self-audits represents a form of verification because it provides the public with opportunities to challenge information that does not appear to be correct. The CERES report includes data on a firm's actual environmental performance, not just the management systems it has put in place. Interested members of the public, armed with the data from a company's CERES report, can ask pointed questions about environmental releases and resource consumption and can seek corroboration from government agencies.

In terms of the practices embodied in management systems, none of the codes is clearly superior. However, with respect to assessing releases, establishing measurement systems, and setting goals, Responsible Care and ISO 14001 include more specific requirements than CERES. The different emphases of these codes may reflect the groups that developed them. Responsible Care and ISO 14001 grew out of large businesses where management skills are highly developed. The CERES principles, by contrast, were developed by environmental advocacy groups and investors, neither of whom had expertise managing diverse, multinational organizations. The CERES report, which places more emphasis on management systems than do the principles themselves, was developed with input from CERES' corporate supporters.

CERES is the only code that requires companies to make the information generated through self-audits publicly available. While the audits conducted under Responsible Care are not made public, they are compiled by CMA. CMA's role in administering these audits strengthens the auditing practices of those who participated. Firms that fail to complete the audits are contacted by a CMA contractor and asked to comply.

A distinguishing feature of ISO is its requirement for third-party verification to obtain registration. Indeed, the ISO standard is in essence a system built to support registration. While participants in the Responsible Care program are now developing techniques for third-party review, this step is being taken only after the code was established. Thus, CMA faces the challenging task of going back and devising ways to verify that firms are living up to its requirements. ISO 14001, in contrast, is being developed with third-party registration as an explicit goal. Only those management practices that are "auditable" are included in the standard.

Life-Cycle Management

Life-cycle management consists of practices that address "cradle to grave" environmental impacts. Firms document and attempt to reduce the environmental harm associated with the extraction of raw materials as well as the transportation, manufacture, distribution, use, and disposal of their products. Environmental regulations have historically focused almost exclusively upon the manufacturing stage of the product life cycle. Private codes of management practice also focus upon manufacturing, but attempt to influence other environmentally significant practices as well.

None of the codes actually requires companies to conduct life-cycle assessments. The ICC charter is perhaps the most explicit of the codes in this respect, saying that companies must "conduct or support research on the environmental impacts of raw materials, products, processes, emissions and waste associated with the enterprise." An ISO 14000 subcommittee is developing general guidelines for conducting and reporting life-cycle assessment studies in a "responsible and consistent manner," but ISO 14001 does not call upon firms to use life-cycle approaches.

Similarly, none of the codes calls for firms to consider upstream and downstream impacts of their products and services. However, the ICC charter says that companies' products must be "safe in their intended use," and Responsible Care and CERES require that companies eliminate the sale of products whose use causes environmental damage. CERES further requires firms to explain how they will prevent the unsafe use of their products by consumers. ISO 14001 is more ambiguous, requiring that companies identify environmental aspects of those products, activities, and services "that [they] can control and over which [they] can be expected to have an influence."

Responsible Care's product stewardship code deals extensively with the conduct of firms' suppliers, who must provide health, safety, and environmental information on their products. Further, firms are required to factor the environmental principles of potential suppliers into their procurement decisions. The ICC charter also addresses supplier conduct, but calls upon companies only to "encourage wider adoption of these principles by suppliers." The CERES principles do not mention suppliers, although the CERES report requires information on criteria for supplier selection. ISO 14001 does not address supplier conduct.

Responsible Care's product stewardship code also explicitly requires that companies provide environmental information to distributors and consumers. Companies are expected to work with distributors and consumers "to foster proper use, handling, recycling, disposal and transmittal of appropriate information to downstream users" and to terminate business relationships with distributors with unacceptable practices. In addition, companies must terminate the sale of products that are used improperly. The ICC charter language is similar but not as explicit, calling upon companies to advise and educate customers and distributors, "encouraging, and where appropriate, requiring improvements." The CERES principles only require that firms inform customers of the environmental impacts of products and services and "try" to correct unsafe use. The environmental conduct of distributors and customers is not addressed in ISO 14001.

While none of the codes fosters all of the life-cycle practices noted above, Responsible Care's product stewardship code is the strongest, requiring firms to monitor and improve the environmental performance of suppliers, distributors, and customers. The ICC charter is also strong in its life-cycle requirements. ISO 14001, by contrast, appears to be weak in its treatment of life-cycle practices. ISO says that firms are only responsible for activities that they can control and influence; firms could interpret this requirement narrowly and, for example, fail to consider their responsibility for the environmental impacts of product use of disposal. Life-cycle management is also not strongly addressed in CERES.

Sustainability and Environmental Protection

Corporate policies that call for sustainability and environmental protection have the potential to shape every aspect of an organization's activities. Neither Responsible Care nor ISO 14001 calls upon firms to address the impact of their activities upon environmental sustainability. The term sustainability does not even appear in Responsible Care principles or codes, and ISO 14001's only reference to it is in an introductory section where it is mentioned as a public concern. By contrast, CERES' statement on sustainability is emphatic, proclaiming that "corporations must not compromise the ability of future generations to sustain themselves." The ICC charter occupies the middle ground, indicating that firms must recognize environmental management "as a key determinant to sustainable development."

Each of the codes contains strong language regarding a firm's responsibility to protect the biosphere. The CERES principles call upon firms to safeguard all habitats affected by their operations and to preserve biodiversity. However, not all CERES endorsers have adopted this principle. The particular wording that the Sun Company has endorsed states that Sun will pay special attention to protecting the "surrounding environment at present facilities" and when planning for new facilities or operations. This is considerably less broad and emphatic than the language of CERES' original principles. Responsible Care requires firms to operate plants and facilities "in a manner that protects the environment." Similarly, the ICC charter stipulates that facilities must be designed and operated to minimize "adverse environmental impact." ISO 14001 is more ambiguous, requiring only that firms "consider" the environmental impacts of their activities, products, and services when setting environmental objectives.

The CERES principles state clearly that companies must use renewable resources in a sustainable manner and that they must conserve nonrenewable resources. Further, CERES requires companies to "make every effort" to use sustainable energy sources. The ICC charter also addresses the issue of resource use, though the actions required of firms are less sweeping. Under this charter, companies must develop products and services that are "efficient" in their use of resources and must design and operate facilities "taking into consideration the efficient use of energy and materials [and] the sustainable use of renewable resources." Neither Responsible Care nor ISO 14001 mentions the sustainable use of resources.

Responsible Care's pollution prevention code requires ongoing reductions in wastes and emissions and places a priority upon source reduction. Similarly, the CERES principles call upon companies to reduce and eliminate waste through source reduction. ISO 14001 requires that a company's environmental policy include a commitment to pollution prevention. The ICC charter requires that companies design and operate facilities "taking into consideration" the minimization of waste generation.

None of the codes explicitly requires compliance with environmental regulations. ISO 14001 goes the furthest in this regard, calling for companies' environmental policies to include a commitment "to comply with relevant environmental legislation." In addition, ISO requires firms to establish procedures to evaluate compliance, as does the ICC charter. The CERES principles do not directly address the issue of compliance. However, CERES does require firms to disclose the number of consent decrees signed and penalties received, as well as information about chemical spills. Nothing in the Responsible Care program's principles or codes mentions compliance. The Canadian Responsible Care program, upon which the U.S. program was based, requires firms to meet the "letter and the spirit of all applicable laws," but apparently this requirement was dropped when CMA developed the U.S. program.

Involving Outside Stakeholders

Increasingly, companies are recognizing that those who live near their facilities and members of environmental advocacy groups benefit from first-hand information about facility operations and that they can contribute importantly to corporate decision making. May firms now have programs in place to anticipate the views of outsiders, to listen to them, and to involve them in decisions. The codes address the role of the public in corporate environmental practice to varying degrees.

Only the CERES principles were developed by groups outside of industry (though they have been revised with input from corporate endorsers). While the process for developing ISO 14000 has technically been open, participation from groups outside of industry has in fact been minimal in the United States.²⁶ (Staff members from EPA played a role in key sub-committee meetings, but participation by state agencies and environmental advocacy groups has been virtually nonexistent.) Recently, key ISO participants have taken steps to encourage these organizations to participate more actively. No apparent opportunities have existed for outside participation in development of the ICC charter. Development of the Responsible Care principles and codes has been limited to a CMA public advisory panel whose members are selected by CMA.

The CERES principles require companies to report annually their environmental releases, violations of the law, workplace hazards, waste management, and many other items. Although the reports that Sun and General Motors have completed for CERES differ in appearance--Sun uses a question-and-answer format with no graphics or color while General Motors provides the information in what staff members call a "user friendly" style--they are comparable, providing the same data in the same order. All participating companies must make their reports available to the public. This requirement is unique to CERES: none of the other codes requires public release of information on corporate environmental performance. The ICC charter, for example, requires only that companies provide "appropriate information" to the public. GEMI has published a primer on external reporting of environmental performance. It offers advice to companies on how to report so as to generate public confidence, but it does not require, or even urge, firms to disclose information. Responsible Care's code for community awareness and emergency response is more specific than the ICC charter, requiring prompt public reporting of information on health and environmental hazards. Under ISO 14001, the only information that must be disclosed is a company's environmental policy.

Responsible Care, CERES, and the ICC charter all require that companies be "open" to outside concerns. Responsible Care requires firms to maintain community outreach programs, while CERES requires them to seek advice regularly from people living near their facilities. ISO 14001 calls upon participating firms to document and respond to communication from outside groups. Unlike the other codes, however, ISO does not stipulate that firms should actively seek dialogue with outside stakeholders.

Incentives to Participate

Firms sign on to a private code of environmental management practice for a variety of reasons. Sometimes they have little choice: Every CMA member, for instance, is required to take part in the Responsible Care program, and observers predict that ISO 14001 registration may soon be required for doing international business. But there are other motivations as well, including a history of environmental problems, a strong public presence, and basic environmental values.

While signing on to Responsible Care or ISO 14001 may not represent a real choice for firms, the degree of their commitment to fulfilling code requirements can and does vary. As a rule, large firms have shown the most commitment to these codes and also to GEMI. Such firms played key roles in developing these codes and, because of their size, have tended to attract the most attention from regulators, environmental groups, and the news media. As a result, they have been the most interested in distinguishing themselves as environmental leaders and in garnering positive press. In addition, large firms often operate a large number of plants in many different locations. Codes offer them a way to ensure consistency across local, state, and even national jurisdictions. Importantly, large firms also have the resources required to implement code practices. For example, many chemical companies employ a full-time Responsible Care coordinator, an expense that is usually not possible for small companies. Large firms may even see codes as a way to undermine their smaller competitors.

Firms with obvious environmental problems may also feel a particular compulsion to become active in private codes. For example, Hampshire Chemical Corporation, a small specialty chemical manufacturer, dramatically changed its environmental programs after a series of accidents and lawsuits in the late 1980s brought environmental issues to the attention of senior management. In addition to initiating its own corporate environmental program, Hampshire's manufacturing manager took on the chairmanship of CMA's community awareness and emergency response task group.

Unlike Responsible Care and ISO 14001, participation in CERES and GEMI are purely voluntary. Participating companies tend either to maintain a direct sales relationship with the public or to hold corporate values that are strongly consistent with code requirements. Domino's Pizza offers an example of a firm that may have been motivated to join CERES because of its strong public presence. Even though environmental protection has historically not been a top concern for Domino's, its high public profile made endorsing CERES a good move. Similarly, Procter & Gamble's leading role in GEMI was probably prompted by its large size and the public's familiarity with its many products.

Polaroid, a recent CERES signatory, is an example of a firm that has adopted a code because of its values. Polaroid has had a long-standing commitment to public reporting of environmental data and was one of the first major companies to publish an annual environmental report--a practice it established in 1988, six years before it endorsed CERES. Joining CERES affirmed the value the company has placed upon disclosure as well as dialogue with environmental groups. These values are widely shared among CERES corporate endorsers.²⁷ For many of these firms, public disclosure and community outreach are explicit corporate goals.

Where Are Codes Leading Industry?

The codes discussed here all direct industry to strengthen their environmental management systems. Beyond this shared emphasis, they offer industry distinct choices in terms of their environmental activities.

Applying Business Tools to Environmental Concerns

Before major environmental statutes were enacted in the United States in the early 1970s, environmental management at most firms consisted of technicians sampling air and water and responding to the limited permitting requirements of state and local laws. For the most part, these activities required little if any attention from senior management.²⁸ After passage of the Clean Air and Clean Water Acts, upper-level managers became involved in environmental concerns, but mostly at the legal level. Often they acted to buffer the company from the changes required by environmental statutes, finding ways to comply without changing products or processes. A major activity was the operation of emissions control equipment.

Private codes played an important role in getting firms to move beyond these rudimentary environmental management activities. All of the codes require participating firms to assess environmental releases, measure an document progress, identify deficiencies through self-auditing, and train workers to follow established procedures. These activities apply the basic management tools and strategies of production, sales, and distribution to specific environmental concerns. For many companies, code requirements do not represent a radical departure from existing practices. These companies have already expanded their environmental management functions, and signing on to a code requires little change. Rather, the codes help firms tighten their management systems. They provide a framework firms can use to recognize strengths and identify weaknesses, and they impose a discipline that may keep practices going over time.

Ripple Effects

Evidence suggests that once established, code practices tend to ripple throughout organizations, prompting unanticipated changes. One survey of environmental managers at chemical firms reveals that Responsible Care is being used to strengthen communication between plant and corporate offices and to establish information-sharing networks throughout the industry. Firms are also interacting with the people living near their facilities in ways never before imagined. For example, one firm recently provided funding for a community to conduct its own risk assessment of a proposed process redesign.²⁹ These changes are not strictly required by Responsible Care but are outgrowths of its practices. It is probable that the management systems required by other codes would have similar ripple effects.

Focus on Sustainability

Firms participating in CERES and the ICC charter pledge to consider the sustainability of their practices. CERES, in particular, places a heavy burden on endorsing firms, which must promise not to compromise the ability of future generations to sustain themselves, to safeguard all habitats, and to use renewable resources in a sustainable manner. How firms are actually implementing these requirements is uncertain, however. In their CERES reports, Sun and General Motors discuss their programs in energy and resource conservation but do not address the sustainability of their business activities.

Responsible Care and ISO 14001 do not require companies to think about sustainability. An important question is whether the environmental management systems required by these codes will eventually lead firms in the direction of sustainability. Will these codes, through their imposition of environmental management practices, raise the consciousness of managers enough that they routinely consider the environmental sustainability of their actions? And, as these practices become routine, will companies decide, for example, to get out of businesses that are highly resource depleting?

At this time, the data to answer these questions are not available. Some firms, though, do believe that product and process changes are occurring because of the codes. A study of two Canadian chemical companies found that while these firms adopted Responsible Care practices largely out of the self-serving motivation of avoiding regulation, the practices took root in corporate culture through repeated use. The environmental manager at one plant in this study said his firm is terminating the production of hazardous waste faster due to Responsible Care. Another said that his firm is redesigning products in light of environmental concerns raised through this initiative.³⁰

Looking Beyond the Fence Lines

More than any of the other codes, ISO 14001 focuses a firm's attention upon its internal management activities. While the public may see ISO registration as a measure of a company's commitment to the environment, registration requires very little action that would strengthen a firm's relationships with those outside its fence lines. ISO 14001 companies need only concern themselves with impacts within their immediate "control." They may be passive in their relationships with concerned citizens, simply responding to inquiries instead of actively seeking input from outside.

Responsible Care broadens a company's focus to include its external constituencies. By virtue of the program's product stewardship requirements, the sales and marketing divisions must evaluate the environmental performance of suppliers and distributors and discontinue relationships with those who do not meet explicit standards. To meet this requirement, Responsible Care companies are developing programs to train their salespeople to review the environmental performance of their truck and rail carriers, among other activities. Perhaps most significant, Responsible Care requires chemical companies to address the concerns of people living near their plants. As a result, firms must tackle issues like foul odors and truck noise and congestion. These issues might not appear on a company agenda at all without regular conversations with neighbors.

Other codes go beyond Responsible Care's requirements, particularly in terms of demonstrating performance. Firms participating in CERES must self-audit to complete the annual CERES report, and they must disclose this information to any interested party. Many CERES endorsers believe that this disclosure is one of the most powerful features of the code. For them, disclosure implies accountability.³¹

Final Thoughts

Environmental regulation has generally focused upon correcting or preventing environmental problems. As a result, it has tended to concentrate on firms with identified deficiencies in environmental performance. By contrast, private codes of management practice fill an important niche neglected by regulation: They show firms how to respond to the growing public demand for improved environmental practices.

The codes discussed in this article differ widely in their origins. The major motivation for Responsible Care was to improve the environmental performance of the chemical industry and thereby to build public trust. The founders of CERES also sought to build trust between companies and the public, but focused upon disclosure of environmental performance indicators as the means to do this. GEMI's purpose was to provide a forum for corporate environmental leaders to pool knowledge and develop environmental strategies, such as TQEM. The ISO 14000 series arose out of large multinational corporations' desire to overcome barriers to international trade at a time when many industrialized countries were developing their own environmental management standards.

Large firms, firms with obvious environmental problems, and those with high public profiles have been the driving forces behind private codes. Firms with a strong commitment to environmental excellence and public disclosure have also played an important role.

To varying degrees, all of the codes emphasize the creation of environmental management systems that require goals, timetables, auditing, and training. Many U.S. firms already have some form of environmental management system in place. Codes thus provide a framework these firms can use to extend these systems throughout their organizations, to identify weaknesses, and to keep the systems going even when priorities shift.

In other ways, however, the codes differ significantly and are leading firms in different directions. Two important areas of divergence are the degree to which firms must focus upon the environmental sustainability of their actions and the nature of their interaction with groups beyond their fence lines--suppliers, distributors, customers, community residents, and the interested public. Whether the environmental management practices required by these codes are raising the overall environmental consciousness of managers remains an unanswered question, however.

NOTES

1. P. R. Portney, "The Evolution of Federal Regulation," in P. R. Portney, ed., Public Policies for Environmental Protection (Washington, D.C.: Resources for the Future, 1990), 10.
2. Ibid., page 22.
3. R. Kagan, "Adversarial Legalism and American Government," Journal of Policy Analysis and Management 10, no. 3 (1991): 369-406.
4. It is important to note, however, that the Responsible Care program appears to have had little positive impact on public attitudes toward the chemical industry's environmental performance.
5. Chemical Manufacturers Association, Improving Responsible Care Implementation: Enhancing Performance and Credibility (Washington, D.C., 1993) tab 2.
6. Ibid.
7. J. Bavaria and S. Dodson, "Valdez Principles Picking Up Steam," Business and Society Review, 22 March 1992, 2; and J. Bavaria, address to the Environmental Law Institute, Boston, Mass., 21 February 1995.
8. J. Bavaria, address to the Environmental Law Institute, note 7 above.
9. A. J. Hoffman, "The Environmental Transformation of American Industry: An Institutional Account of Organizational Evolution in the Chemical and Petroleum Industries (1960-1993)," (Ph.D. dissertation, Massachusetts Institute of Technology, Cambridge, Mass., February 1995), 273.
10. C. Snow Jr., "Putting Mother Earth in the Boardroom," Worldpaper, June 1990, 15.
11. B. A. DeVore and S. C. Jones, "Companies Eye Valdez Principles," National Law Journal, 2 September 1991, 15.
12. M. Parrish, "GM Signs on to Environmental Code of Conduct," Los Angeles Times, 4 February 1994, D1.
13. Judy Kuszewski, Brad Sperber, and Mark Tulay, personal communication with the authors, 9 March 1995.
14. D. Cogan, "Sun Shines on CERES Principles," Investor's Environmental Report 3, no. 2 (1993): 6-11.
15. Kuszewski, Sperber, and Tulay, note 13 above.
16. Dorothy Bowers, personal communication with the authors, 21 February 1995.
17. Global Environmental Management Initiative, Total Quality Environmental Management: The Primer (Washington, D. C., 1993).
18. Global Environmental Management Initiative, Environmental Reporting in a Total Quality Management Framework (Washington, D.C., 1994).
19. C. G. Hemenway and J. P. Gildersleeve, What is ISO 14000? Questions and Answers (Fairfax Station, Va.: CEEM Information Services, 1995).
20. J. Cascio, address to the MIT Working Group on Business and the Environment, Cambridge, Mass., 25 April 1995.
21. Ibid.
22. International Organization for Standardization, Environmental Management Systems: Specification with Guidance for Use, ISO Committee Draft 14001, ISO TC 207/SCI/WG1 (Geneva, Switzerland, February 1995).
23. The analysis in this article is based on the draft standard of May 1995. Joe Cascio, head of the U. S. team that is participating in the development of the standard, predicts that this draft will be changed little if at all before it is finalized in 1996.
24. International Organization for Standardization, note 22 above.
25. Code provisions are detailed in Chemical Manufacturers Association, Responsible Care: A Public Commitment--Guiding Principles (Washington, D. C., 1991); Chemical Manufacturers Association, Community Awareness and Emergency Response Code of Management Practices (Washington, D.C., undated); Chemical Manufacturers Association, Distribution Code of Management Practices (Washington, D.C., undated); Chemical Manufacturers Association, Pollution Prevention Code of Management Practices (Washington, D. C., undated); Chemical Manufacturers Association, Process Safety Code of Management Practices (Washington, D.C., undated); Chemical Manufacturers Association, Employee Health and Safety Code of Management Practices (Washington, D.C., undated) Chemical Manufacturers Association, Product Stewardship Code of Management Practices (Washington, D.C., undated); Global Environmental Management Initiative, Environmental Self-Assessment Program (Washington, D.C., 1992); Coalition for Environmental Responsible Economies, CERES: Guide to the CERES Principles (Boston, Mass., 1994); Coalition for Environmentally Responsible Economies, 1994 CERES Report Standard Form: Annual Environmental Report Form for Companies Endorsing the CERES Principles for 1994 Calendar Year (Boston, Mass., 1994); and International Organization for Standardization, note 22 above.
26. ISO 14000 delegations from other countries have generally been dominated by representatives of government and public interest groups.
27. A. M. Gelfand, "The CERES Principles: Does Adopting a Voluntary Code of Management Produce Corporate Accountability?" (master's thesis, Massachusetts Institute of Technology, Cambridge, Mass., June 1995), 79-80.
28. F. B. Friedman, Practical Guide to Environmental Management (Washington, D.C.: Environmental Law Institute, 1992), 7-15.
29. J. Nash and J. Howard, "The U.S. Responsible Care Initiative: The Dynamics of Shaping Firm Practices and Values," (working paper, Massachusetts Institute of Technology, Cambridge, Mass., November 1995), 17.
30. A. J. Green, "Assessing Organizational Culture: Do the Values and Assumptions of Canadian Chemical Companies Reflect Those Espoused by 'Responsible Care'?" (master's thesis, Massachusetts Institute of Technology, Cambridge, Mass., September 1995), 122-63.
31. Gelfand, note 27 above, pages 101-16.