Raising awareness of the benefits of certification and assurance services
The research published in ‘Green clubs and voluntary governance: ISO 14001 and firms’ regulatory compliance’ (Potoski, M., Prakash, A., 2005), looks at the role of certification as a type of voluntary program, increasingly used as policy tools. Referred to as a ‘club’, these clubs ‘promulgate standards of conduct targeted to produce public benefits by changing members’ behaviors’. In particular, the research sought to understand if certification to ISO 14001 reduces time spent complying with government regulation, in this case the Clean Air Act in the US. To do this, an empirical analysis of 3700 US facilities compared the regulatory records of certified and non-certified facilities.
The conclusion of the research ‘indicates that joining ISO 14001, an important nongovernmental voluntary program, improves facilities’ compliance with government regulations. We conjecture that ISO 14001 is effective because its broad positive standing with external audiences provides a reputational benefit that helps induce facilities to take costly progressive environmental action they would not take unilaterally’.
The report goes on to say , ‘The results imply that as a group ISO 14001 certified facilities have better compliance records than if they had not joined the program’. At the heart of this is the behaviour that membership of the ‘club’, in this case being certified, promotes. For example the report states, ‘We conjecture that ISO 14001’s mandated third-party auditing mitigates wilful noncompliance by compelling members to measure up to club standards while ISO 14001’s EMS standards address noncompliance stemming from ignorance by directing members’ attention to root causes of regulatory noncompliance’.
Furthermore, ‘A key policy question is whether joining the program improves members’ performance beyond what members would otherwise achieve. We look to show that not only do ISO 14001 members have superior compliance with governmental regulations (a public good), but also that the cost of satisfying club requirements is nontrivial and that ISO 14001 provides excludable benefits (such as the brand identity of ISO 14001) that induce members to incur these costs. Consequently, club members adopt an EMS, subject themselves to third-party audits, and take actions beyond their pre-membership levels’.
The research produces some very clear quantitative outcomes: ‘Results from our empirical analysis imply that joining ISO 14001 reduces facilities’ time spent out compliance by about 7%, or about 25 days out of a year. We also found that some government policies such as the frequency with which facilities receive inspections and the stringency of regulations compel facilities to join ISO 14001’.
The report concludes strongly about certification and its role in improvement, ‘A repeated theme in our interviews with regulators and managers is that ISO 14001’s external audit helped safeguard against willful shirking. This mitigates free-riding issues, leads to better adherence to club standards, and therefore to better compliance with governmental regulations. Preventing shirking through external audits may spur a virtuous cycle of trust begetting more trust, as members are more likely to contribute to the maintaining the club’s reputation because they believe other members will do so as well’.
University of Washington (Potoski), Iowa State University (Aseem)