Signaling Environmental Stewardship in the Shadow of Weak Governance: The Global Diffusion of ISO 14001

Abstract

This article examines how the quality of domestic regulatory institutions shapes the role of global economic networks in the cross-national diffusion of private or voluntary programs embodying environmental norms and practices. We focus on ISO (International Organization for Standardization) 14001, the most widely adopted voluntary environmental program in the world, which encourages participating firms to adopt environmental stewardship policies beyond the requirement of extant laws. We hypothesize that firms are motivated to signal environmental stewardship via ISO 14001 certification to foreign customers and investors that have embraced this voluntary program, but only when these firms operate in countries with poor regulatory governance. Using a panel of 129 countries from 1997 to 2009, we find that bilateral export and bilateral investment pressures motivate firms to join ISO 14001 only when firms are located in countries with poor regulatory governance, as reflected in corruption levels. Thus, our article highlights how voluntary programs or private law operates in the shadow of public regulation, because the quality of public regulation shapes firms' incentives to join such programs.

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