Environmental Engineering Reference
In-Depth Information
rights' with the right of redress is generally limited to governments and to cross-border
environmental harms. New forms of liability, including
nancial institutions that make
loans to MNCs and home-country governments, are still at an early stage.
5
Second, reputation costs are negligible for MNCs without high-visibility consumer
products and brands. Even for those MNCs vulnerable to loss of consumer con
fi
fi
dence,
the probability of su
ering reputation costs due to poor environmental practice may be
low because of poor monitoring, reporting and information mechanisms. Put simply, they
have a low risk of getting caught or being held to account if they engage in 'bad practice',
not least because of the limited resources of advocacy groups, who are the information
bridge to consumers.
ff
Examining the evidence
The analytical arguments presented above both support and challenge the idea that FDI
generates spillovers for sustainable industrial development in developing countries. In this
section, we examine the empirical evidence.
Are foreign firms cleaner than domestic firms?
A detailed case study of FDI in Chile's
mining sector in the 1970s and 1980s found that the two foreign-owned companies per-
formed (far) better than domestic companies. Following their corporate parents, Exxon
Minerals Chile and Fluor Corporation, the two companies put in place an environmen-
tal policy framework requiring 'responsible practices' at a time when there was as yet no
coherent government regulation of the mining industry (Lagos and Velasco, 1999). Ten
years later, domestic mining companies followed suit.
Using survey methodology, a study of MNCs in India's manufacturing sector likewise
found that foreign
rms (Ruud,
2002). MNCs transferred state-of-the-art production (though not necessarily pollution
control) technologies to their a
fi
rms, that is, MNC a
liates, were cleaner than domestic
fi
liates. In addition, MNC a
liates were strongly
in
uenced by corporate parents to improve environmental management.
Other case studies, however, suggest that MNCs follow poor local practice or, in cases
where domestic companies do not exist, engage in 'bad practice'. In explorations for oil
and natural gas o
fl
aunted new Russian laws
requiring environmental review and zero water discharge. Only the pressure of environ-
mental jurists and activists, as well as the European Bank for Reconstruction and
Development, forced Exxon to comply with the law (Rosenthal, 2002). Case studies of FDI
in the petroleum industry, including in Nigeria, Ecuador, Azerbaijan and Kazahkstan,
likewise
ff
Sakhalin Island, for example, Exxon openly
fl
nd that MNCs operate in developing countries with 'double standards' - envi-
ronmental and human rights practices that would be
fi
fi
ned or prosecuted in their home
countries (Leighton et al., 2002).
Statistical studies are likewise mixed. Using energy use per unit of output as a proxy for
energy emissions, one World Bank study found that foreign ownership was associated
with cleaner and lower levels of energy use in Mexico, Venezuela, and Côte d'Ivoire
(Eskeland and Harrison, 1997). In China, foreign investment in electricity generation was
linked to improvements in energy e
ciency and emission reduction (Blackman and Wu,
1998). Besides transferring advanced generating technologies and better management,
FDI stimulated competition among Chinese companies in the electricity generation
sector.
