Can Public Shaming Stem Corporate Pollution? Puritanism and three recent papers say yes
If you attended high school in the United States, you likely read The Scarlet Letter. In that famed tale of Puritan New England, Hester Prynne is sentenced for life to wear a red “A” on her clothing because she committed adultery.
????????????A trio of recent papers, in effect, endorses the Puritans’ approach. Their authors find that public shaming works: companies forced to reveal their pollution clean up their operations, even if they don’t face other penalties. Put differently, firms can be made to wear scarlet letters, too, and that can lead them to reform their practices.?
????????????The first paper, published last year in the Review of Accounting Studies, examines the reporting of greenhouse gas emissions in the United Kingdom. The authors—Benedikt Downar, Jürgen Ernstberger, Stefan Reichelstein, Sebastian Schwenen and Aleksandar Zaklan—find that a reporting requirement led to an 8 percent decrease in emissions by U.K. firms, compared to a group of firms unaffected by the regulation. And those companies managed to cut emissions without meaningfully increasing costs.
????????????The mandate required U.K. public companies to begin reporting their total emissions in their annual reports in 2013. Before the rule, U.K. firms had to report emissions at the plant level but not in a user-friendly way.
A quirk of the rule enabled the researchers to assess its effectiveness: it applied to U.K.-owned operations at home and in the rest of Europe but not to continental European companies that operated in the U.K. or on the continent. Emissions information was available for the continental outfits but not in the same easy-to-access way.
So the U.K. rule didn’t change the information available. Instead, it “increased transparency, as interested parties no longer had to trace emission figures at the installation level back to the parent companies owning the installation,” the authors said.
The mandate, if you will, required posting emissions reports in the public square but meted out no other punishment. It pilloried the polluters.
????????????The pillory—a device that secured someone’s head and heads, forcing that person to stand in a public square—was another form of public shaming once used in the U.S. and Europe. Its legacy lives on as a verb—“to pillory” or, as Merriam-Webster says, “to expose to public contempt, ridicule, or scorn.”
????????????“A disclosure mandate may create a ‘pillory’ with regard to a firm’s carbon footprint,” the authors conclude.
????????????A second paper, still in working form, shows that pillorying can work with more than just greenhouse gas emissions. These researchers—Pietro Bonetti, Christian Leuz and Giovanna Michelon—examined the form of oil drilling known as fracking, which is short for hydraulic fracturing. They found that making frackers disclose the impacts of their activities also led to less pollution.
????????????Fracking has tapped into major new oil-and-gas reserves in the United States but has sparked controversy because of its environmental impacts, especially on water quality in communities near drilling sites.
????????????Since 2010, many U.S. states have started to require drillers to report their impact on nearby water sources. The authors find that water pollution related to fracking fell in states with disclosure rules. Once again, there was no other penalty (beyond shame)—companies just had to report.
????????????The authors speculate the disclosure requirements led frackers to “exercise more care in their practices.” Since the drillers knew people were watching, they behaved better. “Consistent with this idea, we detect a significant decline in the number of [hydraulic fracturing]-related incidents (e.g., spills, leaks, and accidents), especially related to the handling of wastewater and fracking pits.”
领英推荐
????????????The authors also found that public attention and educated consumers made a critical difference. Pollution fell more in places with more local news media and better educated and wealthier households.
“These results are in line with prior work on disclosure regulation showing its effectiveness depends on the ability of users to understand the disclosed information and exert pressure,” they write.
The Puritans would be proud: The greater the potential for embarrassment, the greater the effect.
????????????The third paper, also still in working form, examines whether U.S. power plants reduced their emissions when subjected to greater disclosure. The authors found they did.
????????????For these plants, a rule required disclosure of greenhouse gas emissions to the U.S. Environmental Protection Agency, which, starting in 2011, published the information in “a comprehensive and accessible manner,” the authors write.
????????????The researchers—Lavender Yang, Nicholas Muller and Pierre Liang—hypothesized that the disclosure would prompt plants to reduce emissions because it “enhanced the accessibility and timeliness of previously hidden information.” And that’s what they found: at plants subject to the disclosure, called the Greenhouse Gas Reporting Program, emissions fell by 7 percent.
????????????The reporting program covered big emitters besides power plants, but, thanks to prior regulations, power plants had also reported their emissions before the program took effect. But those prior reports were not as accessible and easy-to-use as the new ones.
????????????Greater visibility led to an even greater effect. Emissions fell 10 percent at plants owned by publicly traded companies and 14 percent at those owned by members of the S&P 500.
????????????Not all the news was good. The researchers also found that some companies appeared to game their reporting by rejiggering their operations and polluting more where they weren’t being watched. They could do this because some of them owned both plants covered by the new reporting program and ones not covered because their emissions fell below its reporting threshold.
????????????At these companies, emissions at the noncovered sites shot up. “This effect is large: emission rates increase at nondisclosure plants by between 25 percent and 56 percent,” the researchers write.
????????????That’s not a surprise. Cutting pollution imposes costs, and if you let companies sidestep those costs, some will. Shame only works when someone’s watching.?