2 - Foundations and Background

Summary

The social foundations of the environmental strategy framework lie in Coaisan exchanges between companies and their stakeholders to reduce companies’ environmental impacts. A company’s environmental impacts are negative externalities in that they have consequences borne by those who did not choose to incur them. A Coasian exchange occurs when stakeholders compensate companies to reduce their production of negative externalities, resulting in outcomes that benefits the company and its stakeholders. The obstacles to Coasian exchanges are (1) search and screening costs to identify environmental improvements and stakeholders; (2) bargaining and transfer costs to negotiate terms and exchange resources; and (3) monitoring and enforcement costs to ensure both sides of the exchange uphold their obligations in the exchange. The goal of environmental strategy is to identify and mitigate these obstacles so that companies can implement environmental improvements that create value across the triple bottom line.