What Kinds of Firms Are More Sensitive to Public Disclosure Programs for Pollution Control? The Case of Indonesia’s PROPER Program

This paper analyzes differences in firms’ responsiveness to PROPER, Indonesia’s public disclosure program for industrial pollution control. The overall effectiveness of this program at achieving emissions reductions and its low regulatory costs earned it a good reputation around the world. PROPER had no deterrents or incentives other than those that arose indirectly from publicly disclosing information about the environmental performances of firms. We analyzed plant-level data to relate short- and longer-term environmental responses to facility characteristics. The results revealed that foreign-owned firms were consistently more likely to respond to the environmental rating scheme, compared to private domestic firms. This is a clear and important insight with consequences for a number of issues, such as understanding the pollution haven debate. Also, firms located in densely populated regions, particularly in Java, responded more positively to the public disclosure of PROPER ratings. The main observed effect, however, occurred at the initial level of environmental performance of firms. Those firms that had bad environmental performance records felt pressure to improve, but once the initial abatement steps had been taken, the incentives to improve further appeared to diminish.