INTRODUCTION

Our analysis in this part of the book has treated various stages of the policy life cycle. We began in chapter 3 with an analysis of how corporate environmentalism can preempt the emergence of legislation. Preemption does not always occur, of course, so chapter 4 explored how corporate environmental strategy can influence legislative and regulatory requirements. Even after regulations are finalized, corporate environmentalism can still have important effects. All regulations must be enforced, through monitoring of corporate behavior and the imposition of penalties in the event that non-compliance is detected. In this chapter, we examine how voluntary environmental investments can alter the monitoring and enforcement activities of regulators.

In examining firm motivations for the adoption of environmental plans, which are natural precursors to environmental investments, Henriques and Sadorsky (1996) found that the overwhelming motivation was compliance with existing and future regulations. Some government programs, such as the EPA's StarTrack, provide incentives for firms to voluntarily increase compliance activities with respect to existing environmental regulations. Under the StarTrack program, participating firms are required to establish a self-auditing compliance program, conduct periodic audits, and institute plans for correcting any discovered violations. Initial findings and progress reports are to be submitted to the EPA and made available to the public. In addition to public recognition, participating firms benefit from being considered a “lower inspection priority” by the regulatory agency. We shall refer to this shift in inspection behavior as “regulatory responsiveness.”

The StarTrack program is very much in the spirit of the EPA's changes in its audit practices contained in the publication Audit Policy: Incentives for Self-Policing (US EPA 1998b). The policy encourages regulated entities to voluntarily discover, disclose, and correct violations of existing environmental statutes.