The critical review on the article: do corporations invest enough in environmental responsibility?

Introduction The article of Do corporations invest enough in environmental responsibility? was published on 7 July 2011, written by Yongtae Kim and Meir Statman. Summary There are argument between the proponents of corporate environmental responsibility and the opponent of corporate social responsibility. The proponents of corporate environmental responsibility claim that increase their investment in environmental responsibility would improve the financial performance while the opponents argue that corporations can improve their financial performance by reducing the investment in environmental responsibility. There were also other claims that corporate serve their shareholders well by investing just enough in social responsibility, not too little and not too much. The corporations increase their investment in environmental responsibility when an increase improve financial performance and reduce their investment in environmental responsibility when a decrease improves financial performance. The corporate managers are divided into two distinctions: impact first and financial first. Impact first managers seek investments which maximize the environmental impact although the returns lower than normal returns. While the financial first seek invest only in projects with financial returns. The authors came out with three hypotheses before conducting their studies. Hypothesis 1: the corporate managers are neither impact first nor financial first. Corporate environmental responsibility (CER) increases followed by increases in the return on asset (ROA) and decreases in CER followed by decreases in ROA. Hypothesis 2: the corporate managers are impact first. Increases in CER followed by decreases in ROA and decreases in CER followed by increases in ROA. Hypothesis 3: the corporate managers are financial first. Increases in CER are followed by increases in ROA and decreases in CER are followed by increases in ROA. The studies were carrying out from 1992 to 2000 to study the relationship between CER and ROA. The evidence later on is more consistent with the last claim. The data are from KLD

database. There are about 5,879 companies in the KLD database.KLD rates each company on five indicators of environmental strength and six indicators of environmental concerns. KLDs list of environmental strengths includes: beneficial products and services, pollution prevention, recycling, alternative fuels, and communications. KLDs list for environmental concerns includes: hazardous waste, regulatory problems, ozone depleting chemicals, substantial emissions, agricultural chemicals and climate change. From the result, they found that companies with improved ROA are more likely to increase CER than companies with deteriorated ROA. Critique The title of the article is appropriate and clear. It easy to understand the issues to be discusses. The abstract is also specific, representative of the article and in correct form. The purpose or objectives of the article were made clear in the introduction. The text are easy to understand and the writer explain every term he used. The literature and the discussion were relevant. The study were significant as they help to solve the argument by conducting a research in a proper manner by setting up the hypothesis, variables, large number of samples and monitoring the performance of samples in long period. The writers does not biased toward other writers. Conclusion The purpose of the article was to study the relationship between the changes in CER and ROA. They find evidence consistent with the hypothesis that corporate managers act in the interest of shareholders adjusting CER up or down to enhance the financial performance. The finding suggests that enhancement in corporate financial, reflected in increased ROA, facilitate enhancements of CER.

SFES1335: ENVIRONMENTAL PHILOSOPHY AND ETHICS CRITICAL REVIEW: DO CORPORATIONS INVEST ENOUGH IN ENVIRONMENTAL RESPONSIBILITY?

NUSAIBAH BINTI ROSLAN

SES100104 LECTURER: DR MOHD ZUHDI B. MARSUKI