Private Action for the Public Good

PrivateAction82010

Sustainability: Environmental Entrepreneurship

Scholars: Jeffrey York, Michael Lenox

Not that long ago, environmentally friendly buildings occupied the category that electric cars do today: intriguing experiments, certainly, but not quite ready for widespread use, given questions about their performance and their funky appearance. In the past decade, green buildings have gone up across the United States in increasing numbers, backed not by fringe organizations but by mainstream companies intent on reducing their environmental impact.

The spike in green building has coincided with the increasing popularity of the Leadership in Energy and Environmental Design (LEED) rating systems, introduced to the public in 2000 by the nonprofit U.S. Green Building Council to encourage the design and construction of buildings that promote energy efficiency, incorporate green building materials, and protect occupants' health. According to the USGBC, fewer than 1,000 projects registered for LEED certification in 2000; in 2009, over 8,000 projects registered, and there were more than 49,000 projects in the LEED program.

Batten researcher Jeffrey York and Batten Executive Director Michael Lenox want to understand what drives the adoption of voluntary certification standards, such as LEED, that encourage companies, or entire industries, to act in socially beneficial ways. In a recent study, the two researchers looked at state-level data on LEED registration, public policy measures intended to support adoption of the standard, and the activity of private players related to green building, such as materials suppliers. Whereas some research has focused on either the public or the private influences on the adoption of voluntary standards, York and Lenox explored the interaction of those influences and discovered that they can be mutually reinforcing.

The various state policies that encourage the adoption of LEED have in effect served as an endorsement of the standard, undoubtedly contributing to its growth. These policies include requirements that state-funded and state-occupied buildings pursue the certification; economic incentives, such as tax credits and rebates, for green building; and assistance with the process of applying for certification. This kind of public support, York and Lenox note, can be essential for a new standard that may not yet be widely understood or recognized as important.

Private actors also legitimate and support a standard in various ways. Trade associations such as the USGBC, simply by virtue of their presence, can promote a cause and recruit others to it as they increase their membership. In addition, private actors can generate and disseminate knowledge necessary for the adoption of the standard. For example, the USGBC has a program for accrediting green building experts, who advise those pursuing LEED certification. And private institutions contribute to the adoption of a standard by developing the necessary products and services. Green builders, which are not generally vertically integrated, rely on other players to develop and market the materials they require to meet LEED standards.

In their study of state-level data on LEED registration from 2000 through 2007 and data on public and private activity related to green building, York and Lenox found that state measures might help to promote the standard, but they are not enough. The researchers found no correlation between the number of LEED projects in a state and the existence of state policies to encourage green building. What did correlate with the number of LEED projects was the presence of private actors: USGBC members, LEED consultants, and entrepreneurial firms that have sprung up to serve the green building industry. Indeed, they found that for every green supplier active in a state, LEED registration increases by 2%. York and Lenox also found that state policies were more effective in states with significant private activity; for every green supplier active in a state with policies in place, LEED adoption increased by an additional 5%. "Even the most efficacious government policy will have a reduced impact without entrepreneurs setting in motion a new variety of firms and services to exploit it," York and Lenox argue. Private players, they suggest, may create an environment in which public policy can be effective.

This project, which was recognized as a Best PhD Paper at the 2009 meeting of the Strategic Management Society, builds on the previous work of both researchers. York, who earned his PhD from Darden in 2009, explored in his dissertation the conditions under which entrepreneurs can contribute to the public good. His work was recognized by the Society for Business Ethics with its Best Dissertation award in 2009. His 2010 paper "The Impact of Social Norms on Entrepreneurial Action: Evidence from the Entrepreneurship Context" was listed on a Social Science Research Network's Top Ten download list and is forthcoming in the Journal of Business Venturing. Michael Lenox has long studied the intersection of business strategy and public policy relating to the environment. In addition to his role as director of the Batten Institute, Lenox is the faculty director for the Alliance for Research on Corporate Sustainability, a community of academic institutions that promotes research on issues related to corporate sustainability. Lenox was recognized in 2009 by both the Strategic Management Society and The Aspen Institute for his research investigating the environmental implications of firms' strategic choices.

York and Lenox's current research continues the exploration of the role of new business creation in promoting the public good. They have ongoing projects looking at the evolution of the fields of renewable energy and green building. In particular, they have been studying the various drivers of green building entrepreneurship. Early analysis may show that, again, tax policy does not correlate with an increase in entry into the market. Nor does a simple increase in green building projects indicate a corresponding spike in the number of entrepreneurs in the field. What does seem to have an influence is the measure of a state's "greenness," as reflected in the scorecards published by the League of Conservation Voters, which tracks U.S. representatives' votes on environmental issues. This suggests that a broader cultural environment may be more important than economic factors in encouraging the new ventures on which green builders depend.

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