From a legal standpoint, firms face little to no risk of liability for the climate and environmental harm caused by their suppliers. Yet many of largest companies in the U.S. and the world still impose environmental, climate, or ESG-related requirements on their corporate suppliers or customers.
Explanations for these “moral boundaries,” as Vanderbilt researchers from the Law School and College of Arts & Science describe them in a new article in the Iowa Law Review, range from the economic to political. Some firms may be responding to financial incentives arising from the long-term risks of climate change or potential for future government regulation. Others argue that such actions constitute little more than greenwashing, or the preferences of liberal managers unconstrained by costs or potential liability.
In their paper “The Moral Boundary of the Firm,” Michael Vandenbergh, Jane Miller, Margaret Blair, and Jonathan Gilligan explore the possibility that it’s the public – as employees, customers, community members, or other stakeholders – that influences this behavior.
Drawing on three surveys with 2,400 respondents, the authors find that these stakeholders assign moral blame to corporate buyers for the greenhouse gas and other air pollution emissions of the company’s first- and second-tier suppliers.
Their findings come with some nuance. The blame has a limited effect on a consumer’s intention to buy a product. It also increases with the level of control that the buyer exercises over the supplier and decreases from tier one to tier two suppliers. Nevertheless, the paper identifies an important consideration for firms trying to protect their image.
“Given the risks of reputation or brand damage arising from the assignment of moral responsibility by potential retail customers, employees, and others, it is not surprising that firm managers take steps to reduce risks arising from third parties that are outside the legal boundary,” the authors write.
Through its analysis of the survey results, the authors reveal a complex interaction between legal pressure and public sentiment that changes over time, as court opinions, government regulations, and shifting public sentiment affect the legal and moral boundaries, respectively. Corporate and regulatory lawyers who understand the difference and interaction between these boundaries may be able to offer more practical advice.
“The optimal balance between the legal and moral boundaries is difficult to assess,” the authors conclude, “but an understanding of firm behavior and the optimal legal boundary is not complete without a more thorough understanding of the moral boundary.”
“The Moral Boundary of the Firm” is in the most recent issue of the Iowa Law Review. Michael Vandenbergh is the David Daniels Allen Distinguished Chair in Law; Director of the Climate Change Research Network; and Co-Director of the Energy, Environment and Land Use Program (EELU) at Vanderbilt Law. Jane E. Miller is a Post-Doctoral Fellow at the Climate Change Research Network and EELU. Margaret Blair is Professor of Law Emeritus at Vanderbilt Law. Jonathan Gilligan is Professor of Earth & Environmental Science and Civil & Environmental Engineering Law and Associate Director of the Climate Change Research Network at Vanderbilt University.
