3 kinds of outsiders affect your company’s environmental actions. These stakeholders are wealthy, environmentalists, and/or living in dense areas.
Stakeholders can affect your company’s resources and decisions about the environment. Stakeholders are those who affect (and are affected by) business activities. Stakeholders can be inside the organization — e.g. employees — or outside: e.g. community members and advocacy groups.
Research shows that three kinds of stakeholders outside companies are linked to improvements in firm environmental performance. Firms have better environment performance when their nearby stakeholders stakeholders are wealthy, care about the environment, and/ or live in densely populated areas.
Researchers George Kassinis and Nikos Vafeas studied three of the most polluting U.S industries: chemicals, primary metals, and electric utilities. They looked at toxic releases at 5,133 plants, using the Environmental Protection Agency’s Toxics Release Inventory database.
“There’s a wide variation in toxic emissions from plant to plant, even when facilities operate in the same region and belong to the same industrial sector,” the authors write. “We wanted to understand why.”
To understand what kind of stakeholders affected emissions, the researchers studied the populations around specific plants. Specifically, they examined community income level and population density (at the county level), and environmental action or preferences (measured by state-level membership in environmental groups).
They found that plant pollution levels are lower when per capita income is higher, when population density is higher, and when more residents are members of environmental groups.
Why specific groups drive company action on emissions
While the research couldn’t prove causality, researchers Kassinis and Vafeas see 3 plausible explanations for the results.
Wealthy groups use their resources and power to demand better environmental performance from companies. Their influence may be especially strong locally. “In poor, minority neighborhoods, residents lack the political and financial resources, and hence the power, to challenge corpo rate polluters,” the researchers note.
Politically active groups that care about the environment have an impact. Even relatively minor involvement by individuals – e.g. membership in an environmental organization — can be influential. Organized groups are better able to influence the public policy process, the researchers note, and thus to indirectly affect firms.
In denser areas, more people are affected by pollution, and so may be particularly motivated to pressure companies.
Positive outcomes for companies
Companies respond to environmental pressures from key stakeholders by reducing toxic emissions. For companies in these industries, pollution brings large costs. Improving environmental performance can positively affect financial performance and competitiveness.
How to use environmental stakeholder pressure
Pay attention to groups with power to influence environmental decisions, such as those identified here. Monitoring these groups allows your company to respond effectively, the researchers note. Some companies respond defensively: lobbying against requirements or investing in end of pipe technologies. Others act more proactively, looking toward pollution prevention.
You can also think about these considerations as stakeholder “materiality.” Materiality relates to a company’s most significant economic, social, and environmental impacts.
This article was originally published in 2012 and updated in 2020 by NBS staff and the researchers. “The findings are still valid today,” commented lead researcher George Kassinis.
Read the article: Kassinis, George, & Vafeas, Nikos. (2006). Stakeholder Pressures and Environmental Performance. Academy of Management Journal, 49(1): 145-159.