Markets and Firms

In addition to the state, the other macro-institutional form that dominates contemporary society is the market. In advanced capitalist economies, the firm tends to dominate discussion of markets, although firms themselves are seldom internally organized along market lines. The organization and orientation of firms would seem to have huge potential for shaping the extraction, movement, and use of materials. This is one of the motivations behind recent efforts to develop accounting and reporting mechanisms that enable firms to incorporate environmental impacts and resource use measures into their self-evaluation and planning. A variety of approaches can be found in both the scholarly literature and attempts to translate these ideas into practice. These range from approaches that are highly aggregative to those which retain more disaggregated information about quantities of material, energy, and water use alongside other sustainability indicators for use in reporting and planning. Such tools include:

• Full-cost accounting, such as the sustainability assessment model, in which a range of environmental and resource impacts are incorporated into the operating budgets and bottom lines of firms as monetary signals on either side of the balance sheet (Baxter et al. 2004).

• Environmental footprinting (Wackernagel and Rees 1996) uses land rather than money as a numeraire to convey the environmental and resource use impacts of firms as well as countries.

• The "triple bottom line" was introduced by John Elkington (1994) to alert firms to the need to factor nonmarket social and environmental values into their business models.

• Tableaux de bord or "dashboards" have been common practice in French firms since 1932 to provide managers with a range of performance indicators and have been expanded to include environmental factors (Bourgignon et al. 2004; Gehrke and Horvath 2002).

• Balanced scorecards were introduced by Kaplan and Norton (2001) as part of a reaction against the strict reliance of business on financial data for measuring success. A modification of this approach is the sustainability balanced scorecard approach developed by Moller and Schaltegger (2005).

Advocates of dashboard and scorecard approaches resist aggregation of indicators in monetary terms as they believe that this practice can conceal as much as it reveals about the firm's environmental performance and resource use (Baxter et al. 2004). Gray and Bebbington (2000) found that the incidence of environmental disclosure by firms is increasing, but mainly among larger firms and with considerable variation across countries. Of course, the utility of any system of reporting and disclosure lies in its effect on environmental performance. Nearly thirty years ago, Ingram and Frazier (1980) found only a weak association between quantitative measures of disclosure and independent measures of performance. Notwithstanding the numerous innovations in reporting mechanisms since their study, this still seems to be the case.

Environmental and resource accounting is often associated with a firm's desire to demonstrate Corporate Social Responsibility (CSR). Both concepts are frequently associated with claims that firms practicing them also perform better economically. Some, although by no means all, studies seem to confirm this view. However, there is considerable dispute among scholars as to cause and effect. For example, Hart and Ahua (1996) suggest that corporate efforts to prevent pollution and reduce emissions "drop to the bottom line" within one to two years of initiation, but also that this is most likely to be the case with firms that start out with relatively high emissions levels and are able to harvest low hanging fruit. On the other hand, McWilliams and Siegel (1999) claim that findings which confirm positive impacts of CSR on financial performance result from a failure to specify properly the role of R&D investment of the firm, regardless of CSR stance. The literature remains divided about whether corporate environmental and social responsibility is actually responsible for better management, or better managers simply tend to manage better across the board, including resource and environment?

Firms interact with each other and with consumers principally through the market. Cantor et al. (1992:12) identify 14 functions that "must be performed by the market itself or by the institutions that regulate or engage in economic exchange" (Table 4.1) In the contemporary world, these regulatory functions ultimately fall upon the state, reinforcing the fact (illustrated very plainly by the recent credit banking crisis) that states and markets are inextricably intertwined. Together eight primary functions form the exchange activity, while the remaining six are not essential to exchange at its inception but emerge as instruments of efficiency.

All of these factors would seem to be obviously important in considering the scale, rate, and sustainability of natural resource identification, extraction, utilization, and disposition. It is not possible to explore all of them here, but it may be indicative to explore some examples of the first function: the definition of property rights.

Table 4.1 Requisite functions to be performed by the market or regulatory institutions (after Cantor et al. 1992)

Primary exchange functions Secondary exchange functions

Primary exchange functions Secondary exchange functions

Table 4.1 Requisite functions to be performed by the market or regulatory institutions (after Cantor et al. 1992)

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