Green Business and the Importance of Reflexive Law: What Michael Porter Didn't Say
65 Pages Posted: 11 Feb 2011
Date Written: February 8, 2011
In recent years, companies have begun to pursue “green business” by taking actions that enhance both the firm’s environmental performance and its competitiveness. This Article describes the green business phenomenon and offers a new theory as to how environmental law and policy can promote it.
In the 1990’s, Harvard Business School Professor Michael Porter developed the leading view on how regulation can foster green business. Professor Porter argued that traditional regulatory standards, which push companies to adopt specific pollution control technologies, deter green innovation and so are “bad.” In contrast, outcome-based standards, which specify the environmental result but let companies figure out how to get there, encourage such innovation and are “good.” To promote green business, we should substitute outcome-based rules for technology-based standards, good regulation for bad. This original and insightful thesis represented a major leap forward in the theory of how regulation can promote green business and has become the accepted wisdom in the field.
Yet Porter’s thesis is seriously incomplete. As this Article shows, outcome-based regulations are not a good tool for promoting many important green business activities. This is due to the high transaction costs involved in setting an appropriate outcome-based target, and in measuring and monitoring the environmental results. Professor Porter's theory makes a valuable contribution but ultimately is insufficient.
Reflexive law can fill this gap in regulatory theory. As propounded by German social theorist Gunther Teubner, reflexive law consists of those laws and policies that promote business self-regulation. For example, a law that required firms to disclose publicly their toxic emissions, and so encouraged them to reduce this pollution, would qualify as a reflexive law. It would neither push firms to adopt particular control technologies (as traditional, technology-based regulation would) nor mandate specific environmental results (as outcome-based regulation would). Instead, it would use information disclosure to get firms to self-regulate in order to improve their environmental performance. This Article argues that information disclosure rules and other reflexive laws can foster the very types of green business activities that outcome-based regulations cannot. Reflexive law rounds out Professor Porter’s theory.
The Article begins by describing what firms do when they “go green” and what motivates them to undertake these efforts. The Article then evaluates the extent to which the market, technology-based standards, and outcome-based regulations can promote green business. It shows that while each of these has an important role to play, each is insufficient. It maintains that reflexive law is an essential addition to these other mechanisms, and that the best strategy is one that combines all four approaches while remaining sensitive to the strengths and weaknesses of each.
Keywords: green business, corporate greening, corporate social responsibility, environmental law, environmental policy, environmental regulation, reflexive law, management-based regulation, outcome-based regulation, performance-based regulation, self-regulation, Michael Porter
JEL Classification: D20, D21, D23, D24, D62, G30, G38, K20, K23, K32, L21, L51, M10, M14, O31, O38, Q20, Q28
Suggested Citation: Suggested Citation