Evaluating the environmental performance of corporations.

One rapidly evolving change in corporate management and strategy in the early 1990s has been the recognition of and response to environmental concerns by corporations. Often called "greening," this response is "a process by which human activity is made compatible with biospheric capacity. . ." (Gladwin, 1993: 38). Corporations have begun to develop and implement policies, programs, and tools to meet their environmental opportunities and constraints (Brewer, 1992; Cairncross, 1991; Gilbreath, 1984; Epstein, 1996; Kleiner, 1991; Post, 1990; Schmidheiney, 1992; Smart, 1992; Sullivan, 1992). This process has occurred partly in response to a desire to reduce potential liabilities. However, it has also been fueled by opportunity in new markets. It has been spurred on by competitors. Finally, it has been demanded by diverse constituents including the public, shareholders, customers, and employees.

Society has become increasingly concerned with the health of the natural environment and the role of corporations in impacting ecosystems and human health. This has led to asking the question, "Which company is greener?" Though no clear or agreed upon definition of "greenness" exists, judgments are frequently made as to which companies are green and which are not. Companies such as Ben & Jerry's, the Body Shop, and Smith & Hawken are commonly pointed to as "green" companies. Other companies such as Exxon and American Cyanamid are considered to be the opposite, or "environmentally unfriendly" companies. These characterizations have implicit within them some evaluation criteria. For example, causing a large oil spill and then responding slowly to public concerns might result in a negative assessment of a company's environmental performance. Buying products grown sustainably in the rainforest, such as cashew nuts, and then using these in one's own product, ice cream, might be considered evidence of a more benign or even positive relationship between a corporation and the environment.

There are a number of shortcomings with this evaluation approach in terms of determining an overall rating of corporate greenness. One is that a company might have both elements of "greenness" and "non-greenness." For example, 3M has had a proactive pollution prevention program since the early 1970s and yet appeared on a list of the top ten polluting corporations in the U.S. in 1989. Dow Chemical has been characterized as having "three faces" (Kleiner, 1992). One is the traditional Dow, based on science. The second is the antagonistic Dow which produced napalm and Agent Orange and fought efforts to tie these chemicals to cancer. The third Dow is the learning Dow which is trying to develop more environmentally friendly ways. Another difficulty of this type of evaluation is that simple estimations of a company's environmental performance, particularly when based on information supplied solely by the company, might differ considerably from actual performance. The Body Shop, for example, was commonly perceived as an environmental leader, but was recently the subject of a more critical assessment of many of its environmental programs (Entine, 1994).

This paper seeks to go beyond the simple characterizations of corporate greenness to ask more broadly, "what criteria might be used to define and measure a company's environmental performance and how might these criteria be organized?" First, several organizational effectiveness models - organizational goals, system resources, internal processes and operations, and strategic constituencies - are presented to evaluate the effectiveness of corporations. Next, a broad range of environmental evaluation performance criteria are identified. These criteria are then organized conceptually by examining them within the context of the models of organizational effectiveness. Finally, a corporate green index is proposed as an alternative method to evaluate a corporation's overall performance.

EVALUATING CORPORATE ENVIRONMENTAL PERFORMANCE

Evaluating and measuring overall corporate performance is a difficult undertaking due to the lack of "consensus regarding the best, or sufficient, set of indicators" (Cameron, 1986: 541). Though some organizational evaluation methods have been developed, they tend to focus on evaluating financial performance as this information had been considered most indicative of a company's overall performance and long-term corporate survival (Chakravarthy, 1986). More recently, performance measurement has begun to shift from using only financial indicators to viewing these as only part of a broader set of measures which also include quality of products, market share, customer satisfaction, and human resources (Eccles, 1991). Other measurement criteria include the company's ability to attract and retain employees and its relationships with the local community (Brown and Laverick, 1994). Given the increasing importance given to the relationship between corporations and the environment, it is important to consider environmental measurement criteria as well. Most studies in this area include few environmental measures (Cornier et al., 1993), leaving a need to both include more environmental measures and to organize these.

Models of organizational effectiveness provide some basis for choosing the relevant subset of criteria to evaluate corporate environmental performance. Cameron (1980) reviewed four models which are commonly used to evaluate the overall effectiveness of organizations. One model is how well organizations achieve their goals, an approach which emphasizes the outputs of a firm. A second approach is the system resource approach, where an organization captures resources to gain a competitive advantage. A third approach emphasizes internal programs and processes. Effective organizations under this model are said to have a good flow of information and employees who work well together. The fourth approach is the strategic constituencies or participant satisfaction model. This model requires that the needs of the organization's stakeholders, such as shareholders, are met. The environmental criteria below are selected so as to be appropriate to one of the organizational effectiveness models.

CORPORATE ENVIRONMENTAL EVALUATION CRITERIA

There are a wide variety of criteria which can be used to evaluate a corporation's environmental performance. These, along with some representative measures, are presented in Table 1. The criteria are a mix of environmental programs, concepts and tools, management structures, liabilities, relationships with internal and external groups, and ecosystem-specific relationships. They are developed based on a search of all the corporate environmental management literature as well as from interviews with companies as to what constitutes leading environmental practice. As outlined in Figure I, these criteria are presented beginning with criteria specific to a company and moving towards those which are more related to interactions and relationships outside the firm.

Environmental Policies, Structures, and Programs

Developing an environmental policy is one of the most important components of environmental management as it is necessary to guide many corporate environmental actions (Shimell, 1991). A good policy should be characterized by having the vision, scope, and content necessary to adequately deal with the unique characteristics of the company, the business environment in which the company operates, and the natural environment it impacts. The policy should be realistic and consistent with corporate strategy. The policy should set goals, some of which are measurable. For example, Merck has a goal of achieving a 90 percent reduction of known or suspected carcinogens in air emissions worldwide. The policy should include goals both to minimize risks and to guide the organization to operate in a sustainable manner. The policy should be applied to international operations. Amoco Corporation, for example, developed the International Standard of Care (ISOC) in response to its perceiving a need for international standards. Efforts are underway by several organizations to develop international standards, such as ISO 14000, which can be used by all companies.

An important indicator of an organization's commitment to the environment is its public support for a code of environmental ethics or standards of practice (Buchholz, 1991; Goodpaster, 1990). A code of conduct, practice or ethics can be used to define "a commitment to lawful and ethical business practice and to guide employees in appropriate business behavior" (Powell, 1990: 163). One of the best known environmental codes is the CERES Principles (Coalition for Environmentally Responsible Economies, 1993). Originally titled the Valdez Principles, this code was developed by a nonprofit organization, the Coalition for Environmentally Responsible Economies, which consists of social investors, environmental groups and pension funds, among others, and represents $150 billion in invested assets. The goal of the principles is to help transform individual companies and economies to sustainable and environmentally sound practices. These principles not only promote an environmental code of conduct but require the reporting of environmental performance data. Sun Oil Company became the first Fortune 500 company to sign the principles in February 1993, followed by the H.B. Fuller Company, a specialty chemicals manufacturer, and General Motors in early 1994. Another multi-industry code of conduct is the Business Charter for Sustainable Development, put forth by the International Chamber of Commerce (Schmidheiny, 1992).

There are also industry-specific codes of ethics (Powell, 1990). The best known of these in the U.S. is the chemical industry's code of practice, Responsible Care. This code was developed in response to Union Carbide's 1984 Bhopal accident. The goals of this program are "improved chemical processes; enhanced practices and procedures; reduction of every kind of waste, accident, incident and emission; reliable communication and dialogue; and heightened public scrutiny and input" (Chemical Manufacturers Association, 1990: 2). Industry codes of practice can improve environmental behavior and ethics, achieve cost savings or limit liability, and improve public interaction with business. They can also set industry-wide standards of best practice. One disadvantage is that if a better set of principles is developed by a group outside the industry, they might be rejected with the claim made that the industry already has standards.

Commitment of top management is crucial for the success of environmental management efforts (Royal, 1993). There are several mechanisms for high level management involvement with environmental issues (Kennedy, 1992). One is simply that the top level management recognize environmental issues as a priority and be willing to support these activities. This includes appointing the right person at the right level to deal with environmental affairs (Hutchison, 1992; Royal, 1993). A chief environmental officer can be in a position to have the necessary authority and information to deal with environmental issues on a corporate level (Munson, 1994). Another mechanism for top management involvement is to have an environmental representative on the board of directors (Stegemeier, 1993). Board members might be particularly valuable in bringing in outside ideas or reviewing a company's response to an environmental crisis. High level management commitment to the environment can also be demonstrated by the signature of the chairman or president of the company on the environmental policy presented in the environmental annual report.

A formal environment department, analogous to marketing and finance departments, is important for the organization to respond to environmental issues. For an effective environmental program, there must be company-wide leadership and individuals with a direct interest in the program's success, both of which can be found in an environmental department. This department would provide several valuable functions. It can provide a structure which can be used to develop and implement environmental policy. It would also be a focal point to collect and disseminate information regarding the company's environmental performance.

An important environmental criterion is whether a company has specific environmental programs. One simple measure of this is whether the program has a name. Examples include 3M's 3P program (Pollution Prevention Pays), Dow Chemical's WRAP (Waste Reduction Always Pays), Chevron's SMART (Save Money and Reduce Toxics) and Texaco's WOW (Wipe out Waste) (Nelson and Lindsly, 1991; Buzzelli, 1991). Of course the name is only the first step and must represent developed and implemented programs which have sufficient financial and personnel support. Furthermore, they must be linked to international management standards such as ISO 14000 (Tiber and Feldman, 1996).

Employee involvement in a company's environmental program is a critical part of success (Buzzelli, 1991). Martin Marietta has worked to "green its corporate culture" and found that a change in employee attitudes was most critical in implementing pollution prevention rather than new technologies and careful research. Dow Chemical, Du Pont, and 3M are companies which have provided incentives for employees to become involved in waste reduction (Holland and McCartney, 1988). Incentives can include financial gain and other forms of recognition. In addition, environmental education of employees is important and can be accomplished through newsletters and conferences.

Processes and Products

The company's processes and products are the primary means by which it impacts its natural environment. The environmental impacts of these can be managed through a variety of approaches including life-cycle assessment, product stewardship, sustainable manufacturing, and total quality environmental management. As examined here, these approaches are arranged starting with product, then process, and finally methods which integrate the two.

Life cycle assessment is a tool to: 1) evaluate the environmental effects associated with a product or process including energy and material usage and environmental releases, 2) assess the impact of these releases on the environment, and 3) evaluate and implement ways to improve or lessen the impacts (Keoleian et al., 1993; Society of Environmental Toxicology and Chemistry, 1991). Life cycle assessment is used over the entire life-cycle of the product from the collection and processing of raw materials to the sale of the product and disposal of waste. Church and Dwight Inc., for example, has done a life cycle assessment of its product Arm & Hammer baking soda to determine its environmental impacts over its entire life from the initial mining of the soda ash ore to disposal of baking soda down sinks, in the air and through solid waste such as cat litter (Walley et al., 1992/93).

Sustainable manufacturing is an effort to improve the production process by examining the phases of industrial operations from design and materials selection to production, market use and after-market disposal (Kennedy, 1993). Using cleaner technologies is an important part of this approach.

Product stewardship, which targets the product, but combines it with the process, is "a comprehensive effort to assess health and environmental information at every stage of development, manufacture, and distribution of a product and to take appropriate steps to protect employee and public health, as well as the environment as a whole" (Buchholz et al., 1985). Product stewardship makes health and environmental concerns part of both day-to-day and long-term planning. Dow Chemical's program, for example, includes guidelines for each part of the company to evaluate its products throughout production, sale, distribution, use and disposal.

Finally, the concept of total quality environmental management is an approach to improve environmental management of products and processes (Global Environmental Management Initiative, 1992/1993). It was developed based on the total quality management strategy used by businesses to improve their performance. One aspect of total quality environmental management is to respond to the customers whether they be external ones such as regulators, consumers and the local community or internal ones such as other departments and management. A second component is to aim for continuous improvement in performance with no endpoint. A third element is to complete the task correctly the first time. Similar to the notion of pollution prevention, preventing environmental problems instead of responding to them can be the least costly and most powerful approach.

Releases, Pollution Prevention and Waste Reduction

One indicator of the environmental performance of a company is the amount of hazardous and waste material it releases into the environment, as well as how this amount compares to the company's production levels, its competitors, and its past releases. Companies must report the release of over 300 chemicals to air, water and land. This data is used to produce the Toxic Release Inventory (TRI). Over 4.2 billion pounds of TRI chemicals were released in 1992 (US EPA, 1994). Other significant environmental releases include emissions of greenhouse gases such as carbon dioxide and emissions of ozone-depleting substances.

Pollution prevention results in the fewest environmental impacts and uses the least amount of natural resources. A useful measure of a company's effort to reduce these releases is corporate participation in the 33/50 program, an initiative begun by the EPA (US EPA, 1994). The goals of this voluntary program are to reduce the releases and off-site transfers of 17 targeted chemicals of great toxicity by 33 percent by 1992 and 50 percent by 1995, using 1988 as a base year. TRI data from 1992 indicated that releases of the 17 chemicals had declined 40 percent, surpassing the 1992 goal of 33 percent. As of May 1994, 1,216 companies out of the 7,500 invited have elected to participate.

Another environmental output which lends itself to reduction is solid waste generation. Packaging, which contributes almost 30 percent of the municipal waste stream, and paper, which makes up 40 percent, are two of the chief targets of corporate waste reduction efforts (Selke, 1990). There are a number of voluntary programs aimed at waste reduction and recycling. In late 1993, the EPA Administrator invited CEOs of Fortune 1000 companies to join the WASTEWI$E program which is intended to reduce the amount of waste produced by these companies through prevention, recycling, or buying recycling products. Other waste management programs include the National Recycling Coalition's Buy Recycled Business Alliance, the Conference of Mayors' Office Paper Recycling Challenge, and the Coalition of Northeastern Governors' Challenge. The Buy Recycled Alliance, for example, bought more than three billion dollars of recycled content products and materials in one year (Biddle, 1993). A corporation's recycling and source reduction rates as well as the amount of recycled material it has purchased can be used to measure the degree and quality of its recycling activity.

An energy conservation program is indicative not only of a corporation's saving of resources but of its pollution prevention as well. By using less electricity, there is less demand for polluting power plants which emit such gases as sulfur dioxide and carbon dioxide. Twenty to twenty-five percent of all electricity demand in the U.S. is for lighting and eighty to ninety percent of this is used by business and industry (U.S. EPA, 1993a). The Green Lights program is an effort by the EPA to have corporations voluntarily reduce their electricity consumption by means of using energy-efficient lighting. As of 1993, there were 480 corporations, called "partners," plus 420 companies from the power generation or lighting supply/management industries, called "allies," who were involved.

There are other energy conservation programs as well. Computer systems consume 5 percent of all commercial energy and are expected to consume 10 percent by the year 2000. The EPA's Energy Star Computers program, involving IBM, DEC, Apple, Compaq and other companies, is an effort to reduce this use by making more energy efficient computers which require less energy when not in use. The EPA's Golden Carrot Refrigerator program is an effort to help develop super-efficient refrigeration products. Companies can also develop energy saving technologies, such as battery-operated cars.

Performance Measurement Criteria

An important component of an environmental management program is whether there is accounting for environmental costs. The EPA's program Design for the Environment includes a component intended to aid businesses to recognize and include the full range of environmental costs into their decision making through improving cost accounting and capital budgeting (U.S. EPA, 1993b). The costs are both direct, such as raw materials, labor and waste disposal, as well as indirect, such as insurance and administrative and regulatory compliance costs. One benefit of this activity is to capture the full range of costs and savings associated with pollution prevention (White et al., 1993).

Measuring how well a corporation achieves its environmental goals and those of other interest groups is crucial to determining the success of an environmental program. One way to do this is through a process called environmental auditing. This involves examining a company's procedures and practices to see if they meet legal and internal requirements as well as being good environmental practice. Audits need to be done in a timely and regular manner to be most effective. They can be organized along functional, compliance, geographical, locational and organizational contexts.

Benchmarking is a way of measuring progress by comparing oneself to the "best-in-class" either within or outside the company. By identifying gaps between the company's performance and benchmarks, strategies can be developed for improvement. Weyerhaeuser, for example, developed a 33-stage process to do environmental benchmarking, worked with 6 benchmarking partners, identified thirty-four key findings and identified seven short-term items to address (Karch, 1992/1993).

Measurement should carefully examine the economic impacts of the environmental program as well as environmental effects, a process called environmental accounting (Ditz et al., 1995). If the greening effort results in cost savings, it can gain a greater level of support both within the company and among other companies. For example, 3M's Pollution Prevention Pays program has saved over $500 million since its inception in the 1970s, resulting in a wider group of interests supporting the program (Zosel, 1990-91).

Environmental Liabilities and Accidents

One reactive indicator of environmental performance is the number of environmental liabilities, such as number of Superfund sites, for which the company is or may be a potentially responsible party. Another type of reactive indicator of environmental performance is a company's compliance record. For example, companies can be examined for noncompliance regarding air, water, and waste handling permits. In addition, the amount of fines paid or years of prison sentences served by employees and owners can be determined.

A third liability-oriented indicator of environmental performance is the number of environmental accidents the company has had, the size of these accidents, and the company's response to the accidents. Two environmental disasters noted for their impacts on humans and the environment were the Bhopal chemical release in India in 1984 where several thousand people died from the accidental release of methyl isocyanate, and the 1989 Exxon Valdez oil spill in Prince William Sound Alaska which spilled 11 million gallons of oil. As most large accidents occur rarely, using them as a criterion is somewhat misleading. However, it seems likely that those companies with better levels of environmental control have a lower probability of experiencing accidents. Certainly the company's response to such accidents gives an important indication of its view of and behavior towards the environment.

Relationships With External Groups: Communities, Suppliers, Shareholders, Consumers

Another environmental performance criterion is the nature of the corporation's interaction with the variety of stakeholders who are affected by its environmental performance. These interested groups include: the general public; the communities who live around the manufacturing or other facilities of the company; suppliers; shareholders; and public officials.

One way that the company interacts with the general public is through the products it sells. Not only should these products be less harmful to the environment, claims about this environmental performance, called green marketing, must be accurate. Green marketing is a rapidly growing corporate marketing strategy which claims that "a product provides some benefit to the environment or is less harmful to the environment than other competing products" (Rathe, 1992: 420). This practice has been initiated in response to a desire by the public to make their consumptive patterns more consistent with their concern for the environment. The result has been claims by businesses that a large number of products are environmentally friendly, degradable, recycled, recyclable and ozone friendly (Coddington, 1993; Ottman, 1993; Rathe, 1992). The meaning of these labels may be unclear or unsubstantiated. For example, the label might refer to the product or the package. It also might refer to the product at only one point in its life cycle. To assess the truthfulness of a company's green marketing, the number of violations of the Federal Trade Commission laws or state laws as well as the size of penalties incurred, or the number of times a claim was removed from a product can be determined.

Local community participation can be an important part of a corporation's environmental program for substantive and instrumental reasons. The public can contribute information which can make environmental decisions better structured to the environment. A second reason to involve the public is that their involvement might contribute to subsequent support of corporate decision making. Dow Chemical found that its purchasing policies at a Louisiana plant were of highest priority to the local community and thus structured its environmental plan to take this into account. Eastman Kodak's community advisory panel has resulted in greater community support for the corporation.

Examining the environmental activities of suppliers is an important part of a corporate environmental management program. Home Depot, the largest company in the home building and improvement industry, requires that any of its 5,000 suppliers making an environmental claim be certified by an independent company, Scientific Certification Systems, as to the accuracy of this claim (Lober and Eisen, 1995). Smith & Hawken, the mail order catalogue company, had included in its product line furniture which was made of tropical hardwoods such as teak. In fact, this product accounted for 20 percent of revenues and profits. The company decided to audit its suppliers to see if they were involved in causing deforestation. When it was discovered that the teak was coming from poor forestry practices in Burma, a new supplier in Java was found.

Another important constituency to which an organization must respond is its shareholders. In recent years, the growth of "green" funds has indicated that some investors are concerned with environmental performance. One indication of shareholder concern towards the environment is the number of environmental resolutions which have appeared on a company's proxy statements as well as the votes these resolutions receive. One such resolution which asked Union Carbide to allow the public to participate in judging the safety of its petrochemical plants received 22% of the proxy votes (Van Buren, 1994).

Companies also interact with politicians through lobbying efforts. One measure of lobbying is the amount of contributions to political action committees or political candidates. The greenness of this action may be determined based on the candidates' voting record, a rating assessed by such organizations as the League of Conservation Voters (League of Conservation Voters, 1994).

Relationships with these external groups rest on communication. A measure of the ability to communicate is the corporate environmental report which is analogous to the corporate annual report but for the companies environmental activities (Lober et al., 1996). Over 100 companies of the Fortune 500 and S&P 500 companies now publish environmental reports. These reports offer the company the opportunity to communicate their environmental goals, policies, and performance to a wide group of stakeholders. Another measure of the corporation's ability to communicate with stakeholders is the presence of an environmental relations person. This is the environmental analog to the investment relations or public relations function, serving as the focal point for collecting and disseminating environmental information to interested parties.

A company's presence on multiparty councils or task forces also demonstrates its environmental commitment. There are a large number of multi-party councils which have been established to deal with a diverse set of environmental problems from wildlife and land conservation to recycling and source reduction (Hemphill, 1994; Long and Arnold, 1995). These councils may be specific to one industry or one environmental issue, they may be limited primarily to businesses, or may consist of various combinations of environmental groups, governments, and businesses. The Wildlife Habitat Enhancement Council is a partnership of 100 corporations and 15 conservation groups with a goal to increase the amount of land available for conservation (Huffman and Lober, 1995). The Global Environmental Management Initiative is a group of companies who are trying to systematically integrate environmental management into the production processes. The President's Council on Sustainable Development is a multi-party effort to develop strategies for the United States to achieve sustainable development goals. An agreement between the corporate and not-for-profit sectors is the Paper Task Force which includes the Environmental Defense Fund, Duke University, and five corporations - McDonald's, Nations Bank, Prudential, Time, and Johnson and Johnson. This group is trying to expand the task force member's use of environmentally preferable paper products as well as to create a model for others to follow.

Membership in these committees can serve many purposes. From a corporate perspective, it can serve to make companies aware of environmental issues and adopt environmental approaches as well as lead to cost savings. In 1989, the Amoco Corporation, the Commonwealth of Virginia, and the EPA undertook a voluntary project to reduce pollution at Amoco's Yorktown refinery in Virginia (Schmitt et al., 1993). The result of this effort was a determination by the group that if the best control methods were chosen rather than the current regulations, an annual savings of $40 million could be realized.

Of course, membership in all organizations cannot be viewed equally in terms of the implications for the environment. The International Network for Environmental Management and the International Council on Metals and the Environment are driven mostly by advocating business interests rather than solving environmental problems (Savage and Majot, 1992). Furthermore, membership on a task force might be considered of greater value than committee membership as it may result in a greater impact.

Sustainable Relationships to Ecosystems

The relationship of corporations to natural ecosystems is at the core of measuring environmental performance. Consistent with corporations' notions of long-term survival, the corporate-environmental relationship has increasingly come to be viewed as something that must be sustainable. One definition of sustainability is, "Running our economies, corporations, and individual lives in ways that leave future generations as many options for development and resource use as possible" (Gladwin, 1992: 3). This definition can be used to develop some normative principles. These include, for example, that waste emissions should not exceed natural assimilative capacity and that harvest rates should not exceed natural regeneration or replanting rates.

The company's relationship to certain sensitive ecosystems such as tropical environments is of particular importance. A large number of companies impact the tropical ecosystems of the world. Corporations may be involved in activities such as petroleum exploration and development, mining, logging, and agriculture, all of which can have negative effects on these environments, depending on how they are practiced (Investor Research Responsibility Center, 1993). Measuring a corporation's impact on these ecosystems is extremely difficult. However, one can examine the total area impacted by company programs, the extent of the damage caused including the number and rarity of species threatened and degree of pollution of ecosystems, the frequency of damaging activities, the use of sustainable agriculture methods, and the restoration efforts taken by the company to recover damaged lands.

There are also corporate activities which can help to preserve the rainforest (Investor Research Responsibility Center, 1993). For example, Merck has recently launched an effort with the National Biodiversity Institute (INBio) of Costa Rica (Blum, 1993; Joyce, 1991). Merck will help fund INBio's effort to catalog its biodiversity in exchange for plant specimens which Merck will screen for medicinal properties. Shaman Pharmaceuticals is a company which is prospecting for medicinal plants in the rainforests in a manner intended to not be harmful to the environment and local people. Another corporate activity which can help preserve tropical forests is using only sustainably grown tropical timber. An effort to categorize and standardize whether the timber is grown in a sustainable manner is being done under the auspices of such groups as the Rainforest Alliances' Smart Wood Project and the Forestry Stewardship Council. Another protective corporate activity is to help expand markets for nontimber products (Carr et al., 1993). For example, the tauga nut, harvested from tropical palms, is used to make buttons, jewelry and other crafts. Some companies have planted trees in tropical ecosystems. The AES Corporation, an independent power producer, has been involved in planting trees in Guatemala to offset their carbon dioxide emissions in the U.S. Finally, such banks as Fleet/Norstar and Bank of America have been involved in writing off debt in exchange for preserving rainforest.

One environmental management approach which both incorporates the relationship of the company to the natural environment and to other companies is called industrial ecology (Graedel and Allenby, 1995; Lowe, 1992; Tibbs, 1992; National Academy of Sciences, 1994). Key components of this approach include the cooperation of companies to use less materials, making industrial systems closed by reusing materials and minimizing waste and energy use, making processing and manufacturing more efficient, and balancing industrial input/output and the capacity of the ecosystem to manage this. An example of an industrial ecology activity is National Gypsum's agreement to purchase gypsum from the Southern Indiana Gas and Electric Company. The gypsum is produced as a waste product of the utility company's fuel gas desulfurization. Through this transaction, one company lowers its disposal costs and the other obtains a cheap source of material, while the net effect is to reduce overall environmental impacts.

EVALUATION CRITERIA AND MODELS OF ORGANIZATIONAL EFFECTIVENESS

Table 2 shows how the evaluation criteria are organized according to the models of organizational effectiveness. The organizational goals model focuses on the policies and goals which are set and the environmental releases which occur. This model tends to give less importance to products and processes as well as the external groups affected by the corporation. Of course, these criteria can be incorporated into this model if they are included in the original organizational goals. The systems resource model, when applied to environmental considerations, requires a unique twist from its traditional conceptualization. Rather than using only the corporation's ability to capture resources, such as information, as a measure of its performance, an environmental view of this model also requires the minimization of inputs of certain resources such as energy and materials. The internal programs model focuses on process and employee involvement as well as the measuring of the corporation's performance. Finally the strategic constituencies model emphasizes the external relationships of the company such as the public, suppliers, environmental groups, and local communities.

These four organizational models likely provide four answers to the question, "which company is greener?" This is because the evaluation criteria associated with each model are frequently mutually exclusive. It would be a valuable next step to empirically characterize how companies might be evaluated by each of the four models to ascertain whether companies which appear greener in one model would also be so in another model.

A few environmental evaluation criteria, the industrial ecology and total quality environmental management approaches, are components of several of the models. Both of these views include an emphasis on inputs, processes, outputs, and external relationships. The wider applicability of these evaluation criteria across all models suggests they might provide a useful linkage among the evaluation models and an opportunity to get to a better understanding of "greener" than any of the models would provide by themselves.

EVALUATION CRITERIA AND A CORPORATE GREEN INDEX

An alternative way to use multiple criteria to measure the greenness of a company is to create a corporate green index. An index is based on the notion, also advanced by Blackburn et al. (1994), that multiple criteria should be used to achieve better evaluations. A model for a corporate green index is the green index which is used to evaluate the environmental performance of U.S. states. This index uses 256 measures of a state's environment including various measures of the quality of the environment, the quality of the health in the state, and the state's leadership (Hall and Kerr, 1991). The green index identifies a ranking order of states in terms of their environmental policy. Oregon, Maine, and Vermont ranked as the best environmental states and Alabama, Louisiana, Arkansas and Mississippi as the worst in 1991 using this index.

Corporate environmental indices already exist but are extremely limited. One is the Citizens Fund's list of the "top ten toxic polluters" among the nation's manufacturing companies (Citizens Fund, 1991). This index uses only total releases of toxics as the measure of environmental performance. It fails to account for the differences between industries, the relative change in pollution, differences in size between companies, and the broad list of environmental practices which a company may follow. Another index was made by the Council on Economic Priorities which established the Campaign for Cleaner Corporations, using judges to select those companies with the worst environmental records (Business and Society Review, 1993). Fortune has also developed an index to evaluate corporate performance which includes ratings on environmental performance criteria made by others (Rice, 1993). This type of study can be subject to considerable measurement error (Fryxell and Wang, 1994).

This paper proposes that a corporate environmental index be created based on the criteria identified above. The index should be developed by adding the measure of each criterion to produce a total environmental score. This requires a more extensive assessment of how to measure the environmental evaluation criteria so that they can be added to form a meaningful index. For example, a scale must be used which allows the addition of a liability criterion, such as the number of Superfund sites that a company has, to a criterion such as environmental toxic releases. There also needs to be an adjustment for the size of the company. For example, the amount of chemicals released needs to be compared to total sales or unit of product produced.

This type of index makes a weighting implicit for each general category of the environmental evaluation criteria. For example, the code of ethics or corporate conduct will have a weight in the index in a proportion to the number of other criteria included. As long as the relative weights of each general category are made explicit, this approach is valuable as a measure of environmental performance. Weights can be changed to see how sensitive the findings are. Furthermore, groups of experts can be convened to develop consensus on the relative weights which should be given various categories.

One appropriate and consistent use of the index is to measure how a company's environmental performance has changed over time. A second use is to compare it to other companies in its industry. For example, Dow Chemical can be more easily compared to Du Pont rather than to General Motors. The index also allows the opportunity to indicate the relative performance of one industry versus another to allow the targeting and prioritization of policy as well as benchmarking by companies to improve their overall performance.

DISCUSSION

Evaluating a corporation's environmental performance, just as evaluating its social responsibility performance, is difficult due to the lack of an agreed-upon definition as to exactly what constitutes "greenness" as well as there being no consensus as to what measures to use. This paper has developed environmental evaluation criteria and several approaches to combine these criteria to evaluate the environmental performance of companies. These evaluation approaches are useful for several reasons. One, they allow the evaluation of a corporation's response to the environment, a determination of how this response changes over time, and a comparison to other companies. Two, the process of identifying and organizing evaluation criteria is useful for identifying which environmental indicators need further refinement or development. Three, as many of these criteria are longer term in nature, their use might allow the corporation to justify using a longer-term time horizon which may actually enhance competitiveness. Finally, development and organization of the evaluation criteria requires the structuring and integration of a variety of ideas and concepts, such as industrial ecology, design for the environment, sustainable manufacturing, life cycle assessment, and total quality environmental management. These ideas are commonly used in the corporate environmental literature but rarely are synthesized.

There are some clear limitations to using the evaluation approaches presented. None of the models carefully examines the relationship between releases and their impact on environmental systems and yet this relationship seems to be the core of greenness. This shortcoming is difficult to resolve, particularly as the scientific knowledge required is still developing in many areas. Second, evaluating private companies will be limited as they often provide little environmental information relative to public companies. Third, the data used in the evaluations will need to be accurate, precise, reliable, objective, and independently verifiable. A fourth limitation is that the focus on environmental criteria may overemphasize these criteria relative to other criteria. To consider environmental criteria outside the context of other considerations ignores such choices facing a manager as potential conflicts between some economic and environmental criteria (Harvard Business Review, 1994; Porter, 1991; Porter and van der Linde, 1996; Walley and Whitehead, 1993). A final limitation is that the evaluation of the greenness of a company does not allow the determination as to which levels of greenness are necessary to achieve sustainability. Some have suggested that the present economic system is not sustainable and that "if every company on the planet were to adopt the best environmental practices of the leading companies - say the Body Shop, Patagonia, or 3M - the world would still be moving toward sure degradation and collapse" (Hawken, 1993: iii). Furthermore, the individual corporation may not be the appropriate level at which to examine sustainability, since corporations' effects on ecosystems may be cumulative and interactive.

CONCLUSION

Greening or responding to the natural environment is becoming an important part of the industrial organization. Yet it remains an elusive concept, not easily defined or measured. This article has identified environmental evaluation criteria and then organized these criteria through organizational effectiveness models and by a corporate green index in order to determine the "greenness" of a corporation. These approaches are intended to facilitate and guide future empirical research. Data from companies need to be collected and analyzed both to classify the companies using the environmental criteria and to allow an assessment and improvement of the usefulness, robustness, and strengths and weaknesses of the evaluation approaches.

These evaluation methods presented may also provide a method to improve corporate environmental performance. Some have argued that corporations really have little commitment to the environment and that much of what is considered an environmental management program is really a public relations effort (Savage and Majot, 1992). One author suggests that the nature of business response to the environment has been at best "inconsistent and at worst shallow and narrow" (Davidson, 1990: 64). The environmental criteria identified and the index and models presented as organizing approaches are a response to this criticism. Whether or not corporations are making a real effort to respond positively to the environment, if they improve their environmental performance on the criteria established above, it seems inevitable that they will move in this direction. The cumulative effects of all these programs, policies, memberships, codes of ethics, ecosystem approaches, and relationships appear too great to not do so.

Table 1 Criteria for Evaluating a Corporation's Greenness

A. Environmental Policy

1. Clear, consistent, and comprehensive 2. Ties environmental performance to corporate mission 3. Sustainable 4. Minimizes risk 5. Includes all relevant stakeholders 6. Applied to international operations

B. Code of Environmental Ethics and Standards of Practice

1. Signatory to external, multi-industry principles 2. Signatory to industry-specific code of practice 3. Corporate ethic

C. Corporate Structure

1. Existence of environmental department 2. Position of chief environmental officer 3. Environmental representative on board of directors or env. policy committee 4. Mechanisms to interact across business units.

D. Employee Involvement

1. Employee rewards and incentives 2. Employee education and training

E. Environmental Management Systems

1. Quantifiable goals 2. Implementation plans 3. Performance measurement system 4. Meets ISO 14000 5. Sufficient financial resources 6. Sufficient human resources

F. Total Quality Environmental Management

G. Materials, Energy, Water Usage

1. Materials policy 2. Energy minimization efforts 3. Water use minimization efforts

H. Pollution Prevention, Waste Minimization, and Recycling Activity

I. Product and Process Stewardship

1. Use sustainable manufacturing 2. Utilize product stewardship/design for the environment 3. Use life cycle assessment 4. Use risk analysis

J. Environmental Accounting of Benefits/Costs

K. Environmental Auditing

1. Internal audits 2. External audits

L. Environmental Releases

1. All TRI chemicals released 2. Waste produced 3. Greenhouse gases released 4. Stratospheric ozone depleting gases 5. Non-TRI chemicals released 6. Odor, noise

M. Sustainable Relationship with Natural Ecosystems

1. Releases of wastes relative to assimilative capacity 2. Remediation and restoration 3. Biodiversity protection

N. Environmental Liabilities, Compliance and Penalties

1. Number of Superfund sites 2. Compliance record for air, water, and waste permits 3. Amount of penalties paid

O. Environmental Accidents

1. Number and size of accidents 2. Type of response

P. Relationships with the Public/Media

1. Public education 2. Public disclosure and truthfulness

Q. Relationships with the Local Community

1. Local community advisory panel 2. Surveys of the local community 3. Fairness of siting of facilities in communities 4. Fairness of activities on different socioeconomic and demographic groups 5. Fairness of activities between present and future generations

R. Relationships with Shareholders

1. Environmental resolutions on proxy

S. Relationships with Suppliers

1. Examine suppliers' environmental performance

T. Relationships with Environmental Groups

1. Donations 2. Joint problem-solving

U. Relationships with Political/Regulatory System

1. Support of candidates with pro-environmental records 2. Cooperative relationship with government

V. Participation in Cooperative Environmental Councils and Partnerships

W. Communication of Environmental Activity

1. Annual environmental report 2. Environmental issues in annual report 3. Environmental relations person

X. Industrial Ecology

Table 2:

Corporate Environmental Evaluation Criteria Arranged by Organizational Effectiveness Models

Organizational Goals Model

Environmental Policy Environmental Management Systems Total Quality Environmental Management Pollution Prevention, Waste Minimization and Recycling Environmental Auditing Environmental Releases Sustainable Relationships with Natural Ecosystems Environmental Liabilities, Compliance and Penalties Environmental Accidents Industrial Ecology

System Resources Model

Employee Involvement Environmental Management Systems Total Quality Environmental Management Materials, Energy, and Water Usage Pollution Prevention, Waste Minimization, and Recycling Participation in Cooperative Environmental Councils and Partnerships Industrial Ecology

Internal Programs Model

Code of Environmental Ethics/Standards of Practice Corporate Structure Employee Involvement Environmental Management Systems Total Quality Environmental Management Pollution Prevention, Waste Minimization, and Recycling Activity Product and Process Stewardship Environmental Accounting Environmental Auditing Industrial Ecology

Strategic Constituencies Model

Employee Involvement Total Quality Environmental Management Relationships with the Public/Media Relationships with Local Communities Relationships with Shareholders Relationships with Suppliers Relationships with Environmental Groups Relationships with the Regulatory/Political System Participation in Cooperative Environmental Partnerships and Councils Communication of Environmental Activity Industrial Ecology

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