Why Do Firms Strive to Be Green? Explaining the Adoption of Total Quality Environmental Management

Many firms are undertaking environmentally friendly organizational change by applying the philosophy of Total Quality Management with its emphasis on reducing waste and increasing efficiency to improve their management of pollution. This paper investigates the factors that lead to total quality environmental management (TQEM) by large firms. We find that internal considerations stemming from a firm's technical capability, size of operations, and volume of past emissions are positively associated with the TQEM adoption decision. The first two factors are proxies for the firm's costs of adopting TQEM while the third factor is related to the benefits from increasing efficiency and waste reduction, and thus proxies for internally generated demand for TQEM. In contrast, external market and regulatory considerations, such as the desire to improve a firm's image with customers and regulators, earning good-will with regulators and the anticipation of future regulations appear not be associated with the adoption of TQEM. All of the external factors are also better thought of as influencing the firm's benefits from (or demand for) TQEM. Thus, the paper's main conclusion is that the adoption of TQEM is driven mostly by supply-side factors, and that to the extent that demand-side factors are important, they too originate internally within the firm rather than externally from the market and government regulation.