Corporate responses to the ecological environment: a process study of firms in the Indian chemical industry

Abstract

Environmental legislation in India has become increasingly stringent since the mid-eighties. Recent legislation provides for strict liability (i.e. fault is not required to be proved) in the event of environmental mishaps. Environmental impact analysis of new projects and environmental audits in ongoing businesses have also been made mandatory. Other subsystems of the government such as financial institutions and the judiciary also proactively discourage industries from using manufacturing processes that pollute and place a load on the environment. Some sectors of the industry have responded to the pressures to be environmentally responsible by changing products as well as manufacturing processes to reduce the externalities generated. In addition the apex industry associations such as CII and FICCI have set up Environment Management Divisions for training, documenting and disseminating information on successful experiments within the industry and for providing technical consultancy to small firms. In India, the response of firms to environmental issues they face have not been researched adequately. Given this research gap, the research question was framed as How have firms responded to environmental issues? Case studies were conducted in three firms in the environmentally high profile and high externality generating sectors of chemicals and agro-inputs. Within these firms, adaptations in the manufacturing processes which reflected environmental considerations were examined. The study identified three ways in which firms respond to environmental issues: coping, containment and consolidation. The firms were seen to move progressively from simple reactive stances to more complex and proactive stances. The study also validates previous research findings in developed country contexts regarding the role of economic pressures, locational factors, frame breaking events and intensity of regulatory enforcement in influencing the approach of business to environmental management. An analysis of the content of change revealed the patterns that emerged in the adaptation processes, with the firm moving through a hierarchy of increasingly complex adaptation patterns as it progresses along the learning curve. The search for technological solutions preceded search for solutions that involved behavioral modifications. There was a gradual move from sporadic individual/departmental efforts to organization wide efforts for improving environment management systems. There were also attempts at inter-organizational networking for evolving a common strategy for dealing with environmental issues. Finally, the sustainability of change was found to be strongly linked to top management support, the existence of core groups that initiated and monitored change, the level and intensity of employee participation, the timing of change, and the initial stimulus for change. Based on the case studies and other existing literature, an attempt is made to develop a process model of how firms respond to the stresses faced as a consequence of the changes in the ecological environment. The model brings out the inter-linkages between ecological environment, environmental exposure faced by the firm, the adaptation processes and corporate performance. This study is useful addition to the literature on business and environment as it explains how firms organize themselves to deal with the changes in the ecological environment. The findings from the study are also relevant in the context of liberalization and globalization of the Indian economy. Successful management of the environment has become critical to the success of this approach of export led economic growth as Indian exporters to Europe are likely to face trade barriers due to the high environmental standards adopted in these countries. It is hoped that this study will help firms to create effective environmental management systems to meet this emerging challenge.