Does ESG Crowd Out Support For Government Regulation?

Hajin Kim and Joshua C. Macey are Assistant Professors of Law at the University of Chicago Law School, and Kristen Ann Underhill is Professor of Law at Cornell Law School. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto TallaritaFor Whom Corporate Leaders Bargain (discussed on the Forum here) by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita. 

A small but growing line of research has focused on whether voluntary corporate efforts to address social problems alter public support for regulation. These studies focus on public opinion because of the strength of its influence on public policy. Yet existing research on the topic has produced contradictory results. One study found that voluntary efforts undertaken by 100% of an industry can crowd out support for stringent regulations such as a complete ban on neonic insecticides. Another found that individual firm commitments can lead to a moderate increase in support for government regulation, particularly among conservatives.

In a new paper, we build on these prior studies to develop a more comprehensive conceptual framework for why voluntary efforts might sometimes crowd in and other times crowd out support for government regulation. We hypothesize that voluntary efforts could affect public support by changing perceptions of (1) the firm’s credibility, (2) the need for government regulation, (3) the feasibility of government regulation, and/or (4) the scope or seriousness of the underlying problem. Because these factors can move in opposing directions, we posit that, overall, voluntary efforts are unlikely to have a large influence on support for regulation, and that any influence will be heavily context-dependent.

To test our theory, we ran two preregistered, randomized controlled vignette studies with over 2,800 participants designed to be representative of the U.S. population. We used examples of actual company efforts to see how they affect support for the types of regulations currently being debated today.

In Study 1, we tested whether the plastic waste pledges that Coca-Cola publicizes influence public support for plastic bottle redeposit bills. In a two-by-three design, we randomly assigned participants to learn either about Coca-Cola’s voluntary efforts (vs. a no-information control), and about Coca-Cola’s stance on a proposed bottle bill (support, oppose, or no-information control). This second manipulation on Coca-Cola’s stance helped us evaluate a possible pathway by which voluntary efforts can affect support for regulation: namely, whether Coca-Cola’s voluntary efforts gave it greater ability to persuade people for or against regulation. We chose the issue of plastic waste because there is relatively bipartisan agreement that something must be done, suggesting that public opinion might be more elastic to learning about voluntary efforts. Moreover, Coca-Cola has in fact supported and opposed bottle bills in different jurisdictions, allowing us to avoid deception in our manipulation. We found no statistically significant effect of voluntary efforts on support for regulation, nor did we find a meaningful effect on Coca-Cola’s ability to persuade people for or against regulation.

Study 2 tested the limits of this null effect: If we stack the deck in favor of letting opinion be as malleable as possible, how much do voluntary efforts move the needle? To maximize any potential effect of voluntary efforts on support for regulation, we chose to study a lower salience issue (neonicotinoid insecticides, which harm bees), for which opinions may be less fixed, and for which prior work by Malhotra, Monin, and Tomz had elicited the greatest crowding out. We also added the support of a non-profit (Friends of the Earth) to enhance the credibility of the corporate efforts (here, efforts by Walmart), added counterarguments to regulation in all conditions to license participants to oppose regulation, added a manipulation check to test whether people already believe that companies are engaging in voluntary efforts (an important issue with the popularity of ESG in the news), and significantly increased our sample size to capture small effects. Importantly, we also developed and extensively pretested mediating variables to test three additional mechanisms by which voluntary efforts could change support for regulation (i.e., perceived necessity of government regulation, perceived feasibility of government regulation, and perceived scope or seriousness of the problem). As with Study 1, our manipulation drew from actual marketing materials from both Walmart and Friends of the Earth. We tested the effect of these materials on support for three different types of neonicotinoid regulations that have been enacted or proposed: a lawn & garden ban, a full ban, and a labeling requirement.

Study 2’s results provided additional reason to doubt that voluntary efforts necessarily crowd out support for regulation. We found that Walmart’s efforts led to only a small difference in support for regulation, and we found support for regulation overall to increase, not fall. The difference (~3 points out of 100 in the between-subject analysis, about one seventh of a standard deviation in support for regulation, and ~5 points in the within-subject analysis) is statistically but not economically significant. In addition, we conducted mediation analyses that produced results consistent with the hypothesis that two competing mechanisms were at play: participants exposed to voluntary efforts believed that Walmart was less likely to oppose the regulations (which was associated with more support for regulation), but they also believed the neonicotinoid problem was already being fixed (which was associated with less support for regulation). We also conducted a within-participant replication of Malhotra, Monin, and Tomz’s (2018) crowding-out study, which found that full-industry mobilization crowded out support for regulation. We found a null result with the full sample; when we limited the sample to participants who passed a manipulation check, we found a marginally significant but small (less than two points out of 100) crowding out effect.

These results suggest that companies’ voluntary efforts to address social problems are unlikely to have an economically meaningful impact on lay public support for government regulation. Improving upon prior research, we tested realistic scenarios based on actual company pledges and proposed bills. We used large, well-established industry actors (Coca-Cola and Walmart), who are often the targets of civil society campaigns to take on voluntary efforts because their greater economic significance often translates into greater impacts on society (Vogel 2010). Moreover, we carefully designed Study 2 to allow opinion to be as malleable as possible, and we still failed to find a strong crowding-out effect.

Our results also contradict the hypothesis that voluntary efforts will enhance the persuasive ability of firms to campaign for or against regulatory intervention. In Study 1, we found that Coca-Cola’s voluntary efforts enhanced perceptions about the company’s morality and credibility, but the voluntary efforts did not increase Coca-Cola’s capacity to persuade people for or against regulation by taking a public stance on a proposed law.

Finally, we provide an overarching conceptual theory of opposing forces that help explain why voluntary efforts may be unlikely to have large effects on public support for regulation. As Study 2 found, voluntary efforts could crowd in support for formal regulation by increasing its perceived feasibility, but they could also crowd out support by making it seem like the problem is already being fixed. Taken together, voluntary efforts do little to sway overall support. Other pathways are possible, and these may not be the most important forces at work. But they highlight that voluntary efforts trigger opposing mechanisms that influence public support for regulation, and we argue that the influence of voluntary efforts is likely to depend on contextual factors.

Of course, these studies do not resolve the debate about whether voluntary efforts lead to welfare gains. Voluntary efforts may reflect greenwashing (firms exaggerating or lying about their green credentials), they may exacerbate agency problems, or they may help companies profitably market products to conscientious consumers. The studies do not tell us much about whether voluntary efforts increase the credibility of firms that lobby regulators more directly, or whether they can persuade activist campaigns to pursue firm-level instead of regulatory-level changes in activism campaigns. We suggest, however, that there is little substance to the oft-made critique that voluntary efforts necessarily crowd out public support for regulation.

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