What motivates private firms to invest in green technologies and environmentally friendly operations? Scholars have recommended two forms of outside pressure: regulatory pressure (through government regulation and enforcement) or societal pressure (through NGO and civil society activism, such as media campaigns and coordinated boycotts). In this study, researchers focused on Vietnam, where the leadership has issued a number of new policies promoting sustainable development in the country.
To examine the impact of different types of pressure on firms, researchers used survey data from the Vietnam Provincial Competitiveness Index (PCI) and the PCI Foreign Direct Investment survey, gathering responses from 8,633 domestic and 1,561 foreign firms from 42 different countries that are currently invested in Vietnam. Respondents were randomly assigned different versions of the surveys, one version with a short text announcing stricter environmental laws, the other a non-state organization’s publication of a green list that ranks individual firms on the size of their environmental impact and classifying them as either “green champions” or “dirty polluters.” While both types of pressure increased the willingness of firms to invest in new environmental equipment and processes, firms backed by foreign investors were more responsive to intensive regulatory pressure, whereas domestic firms were not responsive to either pressure—with one exception: domestic firms with an interest in exports, and therefore dependent on external market demands, were more responsive to domestic pressure.
The clear policy conclusion for Vietnamese decision-makers is that enhanced regulatory pressure can motivate substantial green spending among foreign firms but will have an overall neutral effect on domestic firms. Bottom line: there is no one-size-fits-all approach to encourage environmental upgrading.
Methods and results
The survey was conducted between August and October 2020 as part of the ongoing Provincial Competitiveness Index (PCI) survey and the PCI foreign investors survey (PCI-FDI) in Vietnam. After reading the regulatory pressure treatment or the societal pressure treatment, respondents were asked (a) whether they would be willing to invest and, if so, (b) how much money they would be willing to invest (as a share of their company’s operating costs) in upgrading their firm’s environmental performance.
Seventy-four percent of foreign businesses that received the regulatory treatment expressed a willingness to expend greater resources on environmental upgrading, compared to 67% of firms that received the societal pressure treatment (a 7-percentage point average treatment effect (ATE) that is significant at the p < 0.05 level). Using the PCI’s nationally representative data to extrapolate to the population of foreign investors in Vietnam, this finding implies increased green investments by about 1,700 firms with $20.6 billion in invested capital, or roughly $1,600 per firm per month. By contrast, the researchers found no difference for domestic investors: 68% expressed a willingness to invest in new environmental equipment and processes regardless of treatment.
When subgrouping firms more specifically, researchers discovered that domestic-oriented foreign firms, because of their visibility and size, are more likely to respond to the regulatory pressure treatment (ATE=8.2 percentage points). By contrast, export-oriented domestic firms (rather than domestic firms focused on the Vietnamese market) are more likely to be influenced by the societal pressure treatment (ATE=3.21 percentage points) because they are concerned about selling to consumers with Western values. This data aligns with the researchers’ conclusion that different pressures should be used to target different firms according to which method may be most effective in encouraging environmental protection.
- Edmund Malesky (Duke University), Quynh Nguyen (University of Bern)
Economic Governance, Climate & Sustainability, Global Value Chains, Environment, Governance, Corporate Environmentalism, Stakeholder Pressure, Southeast Asia, Vietnam