Are there loopholes in environmental law?

A self-regulation program intended to reduce pollution may encourage some companies to clean up their acts, but participation should not be considered a signal of superior environmental performance, according to a study by a team of researchers at Dartmouth College, Hanover, N.H.; Duke University, Durham, N.C.; and the University of Wisconsin, Madison.

The study looks at the International Organization for Standardization's popular ISO 14001 framework for environmental management, which first was adopted as an industry standard in 1996. It allows firms to certify that they have a process in place for managing their environmental performance.

Facilities that obtain certification tended to have adopted environmental management systems previously that reduced pollution at an above-average rate, the researchers found. These facilities appeared to certify with ISO 14001 to communicate the existence of these management systems to their buyers. However, Michael Lenox of Duke's Fuqua School of Business cautions against using ISO 14001 certification as a "Good Housekeeping seal of approval" for a company's environmental performance.

"Our analysis provides evidence that firms with lower environment performance, not higher, have a greater propensity to certify, thereby raising doubts that certification serves as a signal of superior environmental performance," he says. "It's a bit like looking at which homeowners on your street are out in the driveway working under the hood of their cars. Such maintenance may make the cars run better, but it also may indicate which cars are older or aren't running well now."

Thus, pursuit of certification may mean a company is trying to shore up a weakness rather than demonstrate an area of strength. The researchers urge public policymakers, industry groups, and others to recognize a "fundamental paradox" when crafting future standards. ISO 14001 and other certified environmental management standards either can help businesses acquire "beneficial practices" or help distinguish "the wheat from the chaff," but not both.

"Understanding the tradeoffs is particularly important as firms are using ISO 14001 and the ISO 9000 quality-management standard as templates to create standards in areas as diverse as labor management and Internet security," the study concludes.

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