Reduce Risk through Environmental Practices

Reduce Risk through Environmental Practices

Lauren Rakowski August 30, 2010
This study examines how the environmental practices of proactive firms differ from other firms. Answering this question can help managers understand the environmental strategies that will build competitive advantage. Two strategies help proactive firms anticipate and deal with risk: voluntary, preventative measures such as total quality management systems, and corrective approaches such as pollution insurance.


Firms are considered proactive when they respond to challenges by changing policies rather than reacting to isolated events. Proactive environmental responses include: reducing the environmental impact of products, improving the efficiency and costs of processes, involving employees in decisions, and using R&D and marketing to expand sustainable markets. This study builds on past research by looking specifically at how companies use voluntary and preventative practices, or corrective practices that respond to regulation.


Implications for managers

Adopt a proactive environmental strategy to anticipate problems and create solutions.

Implement corrective practices that help your company comply with regulation.

Implications for researchers

Future research could look at the specific role employee and executive environmental training serves. We suggest research could also examine whether the results are consistent for small companies and across countries.


This paper tests the relationship between how proactive companies are and their environmental approach. Data are obtained from 2 questionnaires given to 105 firms in Spain. One questionnaire measures business strategy, while the other measures company environmental practices. The firms with the most responses used are from the automotive industry, banks, retail trade and food, beverages and tobacco.
Aragon-Correa, Juan Alberto. (1998). Strategic Proactivity and Firm Approach to the Natural Environment. Academy of Management Journal, 41(5): 556-567.

additional resources

Reports and Articles

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Research shows how your firm's comprehensive environmental risk management strategy can reduce cost of capital and increase opportunity for debt financing.

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Firms that appear environmentally responsible experience lower stock market risk. This study offers firms a clear motivation for acting responsibly.

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