Green Product Portfolio and Environmental Lobbying

Abstract

Nowadays, a growing number of firms utilize corporate lobbying to advocate for more environmentally friendly policies and regulations, deviating from the traditional lobbying mainly used to minimize regulatory burdens. In this study, we investigate what motivates firms to engage in such an unusual type of lobbying—environmental lobbying. Focusing on the product strategy of firms, we suggest that firms with greater green product intensity are more likely to engage in environmental lobbying. When environmental lobbying raises environmental hurdles in the market, firms with an intensive focus on green products can bear adjustment costs with little effort, leaving other “less green” firms relatively disadvantaged under the newly regulated market conditions. Moreover, those firms can address demand-side issues more easily by lobbying the government to provide greater incentives for purchasing green products or to request subsidies that can be used to improve their cost structure. Our analyses based on the US light vehicle market indicate that, indeed, the more electric vehicles automakers sell relative to their total sale volumes, the more they will engage in environmental lobbying. We also find that this relationship becomes more salient when a firm has greater market share or originally comes from a foreign country with more stringent environmental regulations than the United States.

Introduction

Over the past few decades, scholars and practitioners have commented on an interesting pattern of corporate lobbying in the environmental sector. A growing number of firms have begun lobbying for environmentally friendly policies and regulations.¹ For instance, DuPont, which had been a major producer of chlorofluorocarbons (CFCs) until the 1980s, changed its lobbying strategy to support the regulation of CFC production.² Xcel, an energy provider in the United States, also intensified its political efforts to promote stricter environmental standards on energy production and usage.³ Moreover, major oil and gas firms have recently lobbied to support the promotion of carbon capture technologies and research, in opposition to their traditional stance.⁴

Such corporate lobbying in support of pro-environmental public policies (henceforth “environmental lobbying”) is unusual in the sense that it deviates from firms’ traditional interest in deregulation.⁵ Environmental lobbying, which calls for stricter standards, rules, or regulations to protect the natural environment or to promote business operations or practices that can have positive effects on the natural environment, is distinct from traditional lobbying.

What motivates firms to engage in this unconventional type of corporate lobbying? Why do some firms pursue higher environmental standards and more regulatory initiatives through lobbying? Why do they lobby for more environmentally friendly practices? Studies have found that many firms that engage in environmental lobbying are motivated by strategic competitive incentives. For instance, Grey⁶ and Kennard⁷ suggest that firms that adopt environmental practices may utilize environmental lobbying to place less green competitors at a disadvantage and to gain market share in newly established regulatory settings. Rugman and Verbeke⁸ theorize that firms are likely to use environmental lobbying to erect entry barriers, especially when they have already made significant and irreversible resource commitments to environmental practices. Weigelt and Shittu⁹ likewise find that competitors’ investments in renewable resources are likely to trigger a focal firm's subsequent investment in renewable resources, as competitors may resort to environmental lobbying to raise the cost of using nonrenewable resources.

Despite such insights and research streams, there are unanswered questions about the motivation behind environmental lobbying. For instance, lobbying is issue specific.¹⁰ Thus, it is important to understand the market context in which corporate lobbying takes place. In general, corporate lobbying activities and market conditions together create the context in which a firm operates; such a political strategy is designed to coordinate with the firm's competitive stance in the given product market. In other words, without understanding a firm's product market strategy, it is almost impossible to see the big picture of the motivation behind lobbying. However, little is known about how a firm's environmental lobbying is motivated by its product market strategy.

In addition, environmental lobbying has unique attributes that distinguish it from traditional lobbying. However, less attention has been paid to how those attributes can be incorporated into an overarching theoretical framework to understand the motivation behind environmental lobbying. On the one hand, environmental lobbying has an element of strategic accommodation, which is essentially an upgraded form of regulatory capture that attempts to induce government intervention to create competitive benefits over competitors.¹¹ In this sense, environmental lobbying is partly driven by a firm's interest in better economic performance, as suggested in the literature. At the same time, environmental lobbying also has a ground-setting quality. It goes one step past strategic accommodation and often sets new environmental norms by requesting government support for environmentally friendly operations or practices. By setting norms that are favorable to greener operations or practices through government support, firms that engage in environmental lobbying not only achieve the intergenerational persistence of firm growth,¹² but also ensure approval from their stakeholders.¹³ In this sense, environmental lobbying partly stems from a firm's search for long-term legitimacy. Thus, it is important to understand both aspects of environmental lobbying. However, we lack such an inclusive conceptualization of or theoretical framework on environmental lobbying.

This study therefore explores the motivation of environmental lobbying based on a firm's green product strategy. We focus on green product intensity, a proportion of unit sales of green products to a firm's total unit sales, and propose that firms with greater green product intensity are more likely to engage in environmental lobbying. We define green products as “eco-friendly products”¹⁴ that are designed to minimize negative environmental impact.¹⁵ Successful management of green products requires firms to meet two criteria: (1) shaping market conditions that value eco-friendly products by facilitating higher environmental standards; and (2) providing attractive incentives to customers to encourage the purchase of green products over conventional ones. We believe that environmental lobbying helps firms meet both criteria at the same time; therefore, firms are more likely to engage in environmental lobbying when they focus on green product lines.

In addition, we explore how this motivation mechanism depends on a firm's market leadership and country of origin, as these market- and firm-level factors are likely to affect the firm's competence in utilizing environmental lobbying. We find that the positive relationship between green product intensity and environmental lobbying becomes stronger when a firm's market share increases or when that firm is from a country with more stringent environmental protection than the United States.

Theory and hypotheses

Literature review and new conceptualization: Environmental lobbying

Corporate lobbying basically aims to win the support of policymakers by offering evidence or data to enact rules and regulations that can be more favorable to the firms.¹⁶ For decades, firms have relied on corporate lobbying to lighten their regulatory burden.¹⁷ This understanding of lobbying was especially solid in the environmental sector. Many firms were understood as inevitably utilizing “their lobbying power to slow down, water down, or entirely block measures to protect the environment.”¹⁸ In other words, one of the key roles of corporate lobbying in the natural environment sector was to lower the “green hurdles” that firms must overcome to comply with government requirements.

However, as we observe greater public attention to environmental issues, a growing number of firms present a new lobbying pattern—supporting pro-environmental public policies.¹⁹ For instance, even traditionally polluting firms tend to spend more on lobbying in favor of controlling greenhouse gas (GHG) emissions, reducing toxic chemicals, or resolving climate change issues.²⁰ Such environmental lobbying is thus an unusual corporate political activity that cannot be explained from the traditional perspective, which defines lobbying as a means of creating a buffer between a firm and regulatory initiatives introduced by the government.²¹

Environmental lobbying is indeed distinguished from traditional lobbying in that it supports greater corporate environmental responsibility through political means. On the one hand, environmental lobbying has a strategic accommodation aspect. Firms that engage in environmental lobbying tend to do more than meet the minimum legal requirement. They accommodate new public policies that raise environmental standards.²² In particular, those participating in environmental lobbying focus on introducing “green regulations,” which can be uniformly forced upon everyone in the market. For this reason, studies have proposed that the underlying motive of environmental lobbying comes not only from a sense of business ethics or stakeholder pressure, but also from a strategic incentive to gain competitive advantages in the market.²³ According to this view, firms that are ready to implement higher environmental standards may resort to environmental lobbying to introduce stronger regulatory policies, thus raising costs for competitors that are less prepared to become green. From this perspective, environmental lobbying is driven by a firm's quest for better economic performance, as its strategic goal is to induce government intervention to gain competitive benefits in the market.²⁴

In this sense, we may understand environmental lobbying as a newer version of regulatory capture. Every form of lobbying assumes regulatory capture, which is an attempt to use government intervention to protect or improve corporate performance. When it comes to traditional lobbying, regulatory capture generally aims to mitigate the negative impact of regulations on performance. Thus, it intrinsically represents a conflict between a firm's economic interest and the goal of government regulations.²⁵ In contrast, environmental lobbying aims to align with the government's pro-environmental policies to bring the negative impact of regulations selectively on competitors’ performance. Thus, regulatory capture in this case depicts the economic interest of the lobbying firm as coupled with (instead of conflicting with) the goal of regulations. This aspect helps us understand how environmental lobbying is an extended or enhanced form of traditional lobbying.

On the other hand, we believe that environmental lobbying also has a ground-setting aspect, even though the literature has paid less attention to it. Firms engaged in environmental lobbying may channel their efforts to create the market conditions that are favorable to eco-friendly operations or practices by requesting the government's support. Such government support may take the form of tax credits, incentives, subsidies, grants, or loans. In practice, this aspect of environmental lobbying is partly driven by a firm's search for better economic performance, as tax credits or government subsidies may help the firm increase its revenue or reduce its operational costs. However, we believe that this ground-setting aspect of environmental lobbying also stems from the firm's quest for long-term legitimacy. Firms that are requesting tax credits or government subsidies for eco-friendly operations through environmental lobbying ultimately aim to institutionalize new environmental norms. By setting norms that are favorable to such business operations through government support, they not only attempt to achieve the intergenerational persistence of firm growth,²⁶ but also ensure approval from their stakeholders.²⁷

For instance, firms that invest in eco-friendly technologies may seek government subsidies for such technologies to improve their short-term cost structure; however, through such lobbying, they also have a long-term goal to establish a societal consensus on environmentally sustainable consumption so that their technologies will eventually become standard. In this sense, we believe that ground setting is what really distinguishes environmental from traditional lobbying, given that environmental lobbying is also based on the long-term sustainability premise of changing what people believe about the market. This aspect helps us realize that the motivation of environmental lobbying cannot be explained in terms of regulatory capture alone.

Therefore, to understand what motivates firms to engage in environmental lobbying, we need to consider its elements of strategic accommodation and ground setting simultaneously. However, we lack such an inclusive conceptualization of or overarching theoretical framework on environmental lobbying. Thus, this study aims to develop an inclusive theoretical viewpoint on environmental lobbying and explore what drives firms to engage in it. We propose that environmental lobbying in particular offers greater incentives for firms that are increasing their emphasis on green product sales. This is because a firm's implementation of green product strategy will depend simultaneously on rule setting through higher environmental standards and government support.

Green product, environmental lobbying, competitive advantages, and ground setting in the market

Management and marketing scholars have followed the decades-long academic debates on green product management, thanks to increasing public interest in environmental protection and environmental issues.²⁸ We believe that green products share three key features. First, they are “eco-friendly products”²⁹ that aim to minimize their negative impact on the natural environment.³⁰ Second, green products minimize the damage they cause to the environment by stopping pollution, conserving energy, and/or recycling or reducing waste.³¹ Third, green products differentiate themselves from conventional products by being environmentally friendly in any of their life-cycle stages through design, development, production processes, packaging, actual usage, or disposal and recycling.³²

From the corporate perspective, producing and selling green products sends a signal to stakeholders about a firm's commitment to the natural environment. However, this kind of “product stewardship”³³ requires more organizational resources than does a traditional compliance-based approach (i.e., end-of-pipe or pollution prevention).³⁴ To begin selling green products, firms often need to make a significant up-front capital investment, for instance, to improve production processes, make systems more eco-friendly, or redesign their manufacturing facilities.³⁵ This kind of intensive resource commitment inevitably becomes a hurdle that firms must clear before they can commit to green products.

However, once such investments have been successfully made, firms that commit to green products will likely have first-mover advantages in the market, especially when the market encourages more environmentally friendly consumption.³⁶ For instance, in the United States, Xcel Energy has made significant investments to base its product lines on more “carbon-free” energy since 2005.³⁷ Those investments went beyond simple compliance with the legal requirements. As a result, Xcel is now expected to enjoy some competitive advantages as US cities begin to take climate change more seriously.³⁸ Thus, for green product management to be successful, it is necessary to shape market conditions that value greener products over conventional ones.

In addition, successful green product management requires firms to handle demand-side issues. Even though more consumers now tend to care about the environmental effects of their consumption, firms selling green products often confront a disparity between consumers’ “green attitudes” and their “actual purchase behaviour”.³⁹ Consumers often perceive green products as “a suboptimal choice with higher price and lower performance, in comparison with what conventional products can offer.”⁴⁰ Thus, consumers’ green attitudes do not necessarily culminate in the purchase of green products.⁴¹ For this reason, one of the main challenges for firms producing and selling green products is to secure “enough green consumers”⁴²—those willing to select suboptimal choices over conventional products.⁴³ In other words, for green product management to be successful, consumers need to receive incentives or benefits from purchasing green products. At the same time, consumers must change their perception of green products as inferior to conventional ones.

Given the challenges of green product management, we believe that firms that shift their focus from conventional to green products are more likely to have greater incentives to engage in environmental lobbying. We focus here on a firm's unit sales from green products relative to the firm's total unit sales, which we define as green product intensity. Green product intensity basically represents the internal importance that a firm places on eco-friendly products as a component of its overall product portfolio strategy. We believe that firms with greater green product intensity have two reasons to engage in environmental lobbying.

First, when a firm is increasing its production and sale of green products, its resource commitment is high, especially compared with firms that adopt a compliance-based approach.⁴⁴ Investments already made in green products are generally irrevocable. Thus, one of the best ways for a firm to maximize return on such investments is to promote stronger environmental regulations through environmental lobbying so that it can shape competitive conditions that likely raise the costs for other “less green” firms.⁴⁵ In other words, the strategic accommodation aspect of environmental lobbying can help the firm reap the competitive benefits of such a resource commitment. When environmental lobbying creates environmental hurdles, firms with the most intensive focus on green products can easily absorb the adjustment costs, in contrast to other firms.⁴⁶ Thus, by engaging in environmental lobbying, firms that focus on green products can place other firms at a competitive disadvantage.

Second, a firm that is increasing the production and sale of green products can use environmental lobbying to address demand-side issues. It may promote green products by lobbying the government to provide greater incentives for their purchase. In other words, the ground-setting aspect of environmental lobbying can help firms reconcile consumers’ “green attitudes” with their “actual purchase behaviour”.⁴⁷ One excellent example is to ask for the extension of tax credits to purchasers of green products. To promote its greener product lines, for instance, Toyota has lobbied for tax credits for electric/fuel cell vehicles since the late 2010s.⁴⁸ Many manufacturers of electric vehicles (EVs) believe that federal tax credits give consumers an incentive to purchase electric or hybrid vehicles.⁴⁹ Moreover, firms can also use environmental lobbying to request government subsidies to improve their cost structure, particularly in terms of development and production of green products or technologies. This enables firms to marketize their green products affordably over time, thereby attracting more consumers.

In addition to handling demand-side issues by providing actual incentives to or lowering price barriers for consumers, the ground-setting aspect of environmental lobbying is also likely to lead to the long-term growth of the green product market. Environmental lobbying may help firms with greater green product intensity change stakeholders’ perceptions of green products. By requesting government support for green products in terms of tax credits, incentives, subsidies, and the like, firms may institutionalize societal norms that value greener products. Such forms of government support likely signal to stakeholders in the market that (1) consumption of green products is more desirable and (2) the market will be shifting from brown- to green-based consumption. As a result, through environmental lobbying, firms that are increasing their sales of green products may educate stakeholders to accept this new consumption trend, legitimizing the green product market over the conventional product market.

Thus, based on these strategic and ground-setting incentives, we argue the following:

H1: The greater a firm's green product intensity, the more it will invest in environmental lobbying.

Moderating effect: Leading position of a firm in the market

We propose that firms with greater green product intensity are likely to engage in environmental lobbying to maximize their competitive advantages and deal with demand-side issues simultaneously. However, we also believe that such a motivation mechanism may vary depending on the market- and firm-level conditions, given the distinct attributes of environmental lobbying. Of those conditions, this study particularly focuses on two conditions: a firm's leading position in the market and its country of origin.

It is well known that market leaders tend to rely on corporate political strategies more actively, compared with follower firms.⁵⁰ From a strategic point of view, this is because market leaders generally have confidence that they can maximize benefits from government policies by leveraging their market share, once they become able to formulate favorable policies. At the same time, market leaders also have greater motivation to utilize not only market-based activities but also non-market-based activities to secure their leading positions. This generally leads leaders to actively consider political activities a useful strategic tool for achieving competitive advantages.

Based on this, we believe that when a firm with greater focus on green products also occupies a leader position in the market, then that firm is likely to rely more on environmental lobbying more intensively. On the one hand, when the strategic accommodation aspect of environmental lobbying is utilized (i.e., to request higher environmental standards to achieve competitive advantages over others), leader firms that produce green products likely have stronger motivation to pursue such a mechanism. If they raise environmental hurdles through lobbying, which would place competitors at a relative disadvantage under newly regulated market conditions, that would help them lengthen their leader position. Moreover, leader firms producing green products have a greater advantage in terms of adjustment costs. As discussed in the previous section, when stronger environmental regulations are introduced to the market, firms with greater focus on green products can bear the adjustment costs more easily compared with firms that are not yet ready to become green.⁵¹ This advantage becomes more salient when those firms also occupy leading positions in the market. In general, leading firms have better resources than follower firms. At the same time, they also have better capabilities to control production and development costs. As a result, leader firms that produce green products can adjust to newly regulated markets more easily and with much lower costs compared with follower firms that produce green products.

On the other hand, when the ground-setting aspect of environmental lobbying is employed (i.e., to ask policymakers for greater support in terms of tax credits or subsidies), leader firms that produce green products also likely have greater incentives to institutionalize new norms for green products from a long-term perspective. In particular, they face fewer concerns regarding spillover of their lobbying benefits. In certain cases, a firm's individual lobbying may also benefit other firms in the same industry, as lobbying firms rarely achieve perfect exclusivity.⁵² Benefits created by corporate lobbying have characteristics similar to public goods, which means that, depending on the lobbying's purpose (e.g., incentives, tariffs, or industry protection), other firms can free ride on a firm's lobbying efforts, thus enjoying the benefits without bearing the actual costs.⁵³ This may be the case when a firm utilizes the ground-setting element of environmental lobbying to ask for tax credits or government subsidies for green products. In such a situation, that firm's lobbying efforts for green products may benefit other firms that are producing green products in the same market but did not engage in lobbying activities. This possible spillover effect may mitigate a firm's motivation to engage in environmental lobbying, up to certain degree. However, leader firms with greater focus on green products may engage in environmental lobbying regardless, as they are confident that by leveraging their market share, they can gain more from the potential government subsidies or tax credits compared with follower firms. Even though spillover effects exist, for leader firms that produce and sell green products, the benefits of environmental lobbying still outweigh the costs. Therefore,

H2: The market share of a firm will strengthen the positive relationship between green product intensity and environmental lobbying.

Moderating effect: From a country of more stringent environmental protection

The conventional wisdom in the literature is that foreign firms are more likely than domestic firms to engage in corporate political activities to reduce their liability of foreignness and adapt to the institutional environment of the host country.⁵⁴ However, there is no consensus on the effectiveness of corporate lobbying. For instance, Hansen and Mitchell⁵⁵ posit that lobbying is not as effective for foreign firms as more visible political action committees. In contrast, Kline and Brown⁵⁶ contend that lobbying eliminates the information asymmetry that foreign firms encounter in host countries’ economic and political institutions.

We argue that foreign firms with a greater emphasis on green products are more inclined to depend on environmental lobbying when those firms are from foreign countries with more stringent environmental protections. On the one hand, when lobbying for higher environmental standards is leveraged to achieve competitive advantages against rivals, foreign producers of green products are more likely to undertake environmental lobbying when they are already accustomed to higher environmental standards in their home countries. For instance, many developed countries, including the European Union (EU) and Japan, began a detailed implementation plan for GHG reduction since the Kyoto Protocol of 1997.⁵⁷ Manufacturers from those countries were more likely to be required to develop green products that are not associated with GHG emissions.⁵⁸ In contrast, manufacturers and consumers in the United States were not under such pressure to reduce GHG emissions until very recently.⁵⁹ Those differences in adaptation to GHG reduction between the United States and other countries may lead producers from the EU or Japan to adopt green technologies sooner; this would give a competitive advantage to the US market, which lags behind in its production and consumption of green products.

To establish their competitive advantage in the US market, firms from countries that have higher environmental protection standards and a stronger emphasis on green products would be more likely than US firms to engage in environmental lobbying. From their experience at home, such firms are also likely to have a better understanding of the ground-setting role of government in enacting stronger environmental regulations. For this reason, through environmental lobbying, foreign firms would attempt to convince the US government to keep up with the global trend of raising environmental standards.

At the same time, in convincing the US government to lay the groundwork for higher environmental standards, foreign producers of green products would be less concerned about a possible spillover of benefits such as tax credits or subsidies. Foreign firms from countries that have higher enviornmental protection standards have been domestically producing green products with more advanced green technologies than US firms. Green products are usually more expensive to produce because of their higher manufacturing costs and engineering-intensive production systems.⁶⁰ For this reason, the producers of green products go to great lengths to protect their technology from competing firms,⁶¹ and green product development may encounter higher entry barriers.

This technological advantage held by foreign firms in regard to green products gives them the confidence to attract more consumers and benefit more from potential government subsidies or tax credits than their US competitors that were not compelled to develop green technologies. Thus, although government support derived from ground setting for higher environmental regulations has a potential risk of a spillover effect that is favorable to domestic US firms, such spillover would not be critically detrimental to foreign firms selling technologically advanced green products. As a result, foreign firms with a higher concentration in green products may engage in further environmental lobbying. This leads to the following hypothesis:

H3: The fact that a firm originally comes from a foreign country with more stringent environmental protections will strengthen the positive relationship between green product intensity and environmental lobbying.

Methods

Sample and data sources

For hypothesis testing, this study relies on panel data from the US automotive industry, focusing on the light vehicle (passenger cars and light trucks) market. We believe that the US automotive industry provides us a particularly appropriate context in which to test our research questions, for two reasons. First, nowadays, an increasing number of automakers are paying attention to the selling of greener products, particularly electric/fuel cell vehicles. This industrial trend indeed makes more automakers confront the issue of how to successfully manage their green product portfolios. In practice, automakers that are increasing their production and selling of EVs need to not only shape market conditions that value greener vehicles but also handle demand-side issues to achieve better performance. Second, the US automotive industry is traditionally well known for its lobbying intensity because of various regulations in the market and a relatively unionized workforce. Thus, we believe that, based on these characteristics, the auto industry enables us to explore the motivation mechanism of environmental lobbying in greater depth.

We drew our data from various sources. First, we identified all automakers operating in the US light vehicle market from 2008 to 2018 based on the list provided by the WardsAuto database, which includes information on how many vehicle units were sold by automakers for each year. The database also provides additional information about the (1) power type (e.g., gas, diesel, electric, hybrid, plug-in hybrid, fuel cell) and (2) segment (e.g., lower small, middle small, upper small, small van, middle luxury, etc.) of the vehicles sold. Thus, we identified twenty-four automakers in the light vehicle market and collected their vehicle sales, power type, and segment data for the given time period.

Second, based on the list of automakers identified, we then collected lobbying data on those automakers from the Center for Responsive Politics. As this study focuses on environmental lobbying, we reviewed all LD-2 disclosure forms reported by each automaker for each year and collected data on lobbying amounts relevant to environmental issues. In particular, we followed this procedure:

As a first step, we checked all the details on each bill mentioned in the “Specific Lobbying Issues” section of the LD-2 form by visiting www.congress.gov/bill or by relying on a Google search/news search. Through this process, we determined whether a certain bill should be regarded as relevant to “environmental issues.”

The next step was to set a general rule for data collection on environmental lobbying. In this study, we conceptually define environmental lobbying as lobbying activities that (1) agree with or support environmental regulations or even ask for stronger rules, or (2) request government support for business operations or practices that could have positive effects on the natural environment (government support may take the form of tax credits, for instance, incentives, subsidies, grants, loans, and so forth). Therefore, following this conceptualization, during our data-collection process, we counted a lobbying activity as “environmental lobbying” if it satisfied the these conditions. In particular, after checking the details of each bill, we then checked to see whether a focal firm had lobbied to support the given environmental bill, regulation, or legislation. In some cases, we could easily check this, as some firms or lobbyists clearly described in the LD-2 forms whether they supported or opposed the given bill, regulation, or legislation. However, in many cases, firms or lobbyists did not provide enough information about their position on the given bill, regulation, or legislation; in many cases, we found simply a “neutral description,” stating that the firm had lobbied for the given bill, regulation, or legislation.

To handle this issue, as a third step, we additionally set two strict rules and counted environmental lobbying more rigorously. In particular, for strict rule 1, we counted a lobbying activity on an environmental bill/regulation/legislation as “environmental lobbying” only when the LD-2 form contained a description or statement that a focal firm agreed with or supported the given environmental bill/regulation/legislation; any neutral descriptions/statements were excluded and not counted as environmental lobbying. According to strict rule 2, we also counted a lobbying activity that requested government support for pro-environmental practices/products/technologies (e.g., EVs, hybrid vehicles, biofuel, and so forth, in the light vehicle market) as environmental lobbying. Government support may vary in its form, including incentives, tax credits, subsidies, grants, loan programs, and so forth. However, in this case, when we could not determine from the LD-2 form any clear description or statement that the focal firm had requested such government support (but when we could find only a description or statement that the focal firm had simply lobbied for such government support), we counted it as environmental lobbying only when the focal firm had pro-environmental vehicle technologies or was producing/selling greener vehicles as of the given year.

As all firms are required to report their lobbying activities every quarter in accordance with the Lobbying Disclosure Act of 1995, our review of LD-2 disclosure forms covers all corporate lobbying that took place in the US light vehicle market during the given time period. During this review, we make sure to avoid double-counting, following Delmas, Lim, and Nairn-Birch.⁶²

Finally, we collected the automakers’ financial data from Compustat and Global Compustat. We also drew ownership data on each automaker from those databases as well as annual reports (form 10-K from the Edgar database).

Measures

Dependent variable

We calculate corporate investment in environmental lobbying as the natural logarithm of environmental lobbying amounts. In particular, to count the amounts of environmental lobbying, we manually reviewed all LD-2 disclosure forms reported by each automaker for each quarter and follow the general rule and two strict rules that we set, as mentioned earlier. As firms generally list multiple issues together on their LD-2 form and disclose the total lobbying amount for a given quarter, we count the entire amount reported on a given LD-2 disclosure form as environmental lobbying if the “Specific Lobbying Issues” section includes any one lobbying activity that satisfies our general and two strict rules on counting environmental lobbying.

Independent variable

To measure green product intensity, we employ a ratio of the number of EVs sold by a focal automaker in a focal year to its total number of vehicles sold in the US light vehicle market in the given year. EVs include vehicles that adopt one of four power sources: electric, hybrid, plug-in hybrid, or fuel cell.

Moderating variables

This study uses two moderating variables: a firm's market share and its country of origin. First, to calculate each automaker's market share, we rely on segment data provided by the WardsAuto database. When it comes to the automotive industry, not all vehicles directly compete with one another; rather, direct competition occurs only when vehicles are in the same product segment, which means that understanding an automaker's leadership and market power primarily depends on how the product segment is defined. Thus, we calculate the market share of each automaker based on the two primary industry segments: luxury and economy. First, we count how many units of luxury vehicles a focal firm sold in a focal year, compared with its total units of all vehicles sold in the given year. Then, if luxury vehicle sales account for greater than 50 percent of its total sales in the given year, then the automaker's product segment is coded as luxury in that year. Otherwise, it is coded as economy.⁶³ Finally, we calculate the automaker's market share as its total unit sales divided by the total unit sales of all automakers in the same product segment (luxury or economy).

For the second moderating variable, the firm's country of origin, we use a dummy variable that is coded as 1 if a focal automaker is originally from outside the United States and 0 otherwise. We rely on the dummy variable in this case because all of the foreign automakers in our data originally came from countries that had more stringent environmental protections than the United States. In particular, the foreign firms in our data set were originally from countries such as Germany, Japan, South Korea, and Sweden.⁶⁴

Control variables

We control for several firm- and industry-level variables because of their influence on corporate lobbying. First, we control for firm size ⁶⁵ by employing the natural logarithm of a firm's total assets. Second, we control for firm performance by using the return on sales (ROS) because a firm's profitability provides greater resources for corporate lobbying.⁶⁶ Third, we consider the effect of slack on a firm's environmental lobbying motivation. In particular, we include financial slack, defined as the ratio of a firm's cash to the book value of its total assets. Fourth, we consider a firm's product segment. It is coded as 1 if the firm is a luxury vehicle provider (i.e., more than 50 percent of its total unit sales are from luxury models); otherwise, it is coded as 0. Fifth, we control for a firm's product diversification using the segment information provided by the WardsAuto database. In particular, WardsAuto divides vehicle models into twenty-nine segments. Based on these segments, we calculate each automaker's product diversification as an entropy measure. The formula used to calculate the measure is as follows:

$$Diversification_t = \mathop \sum \limits_{i = 1}^N P_{it}{\rm \;\ast\; }ln{\rm \;}\left({{\displaystyle{1 \over P}}_{it}} \right), {\rm \;} \;$$

where N represents the number of vehicle segments that a focal automaker has in year t, and P_it represents the unit sales in vehicle segment i in year t divided by the total unit sales of that automaker in year t. Sixth, we control for a firm's two most popular types of market-based activities—R&D intensity and advertising intensity—as corporate investment in lobbying (non-market-based activities) may be affected by the intensity of investments in market-based activities, given limited organizational resources. Seventh, we include an industry-level factor by taking into consideration the industry average of lobbying. We measure this as the average of all firms’ lobbying expenditures in a given year. Finally, we include dummy controls for fiscal years.

Analyses

For the analyses, we rely on feasible generalized least squares (FGLS) models because of potential autocorrelation issues in our panel data.⁶⁷ In particular, the Wooldridge test reveals that the p-value is .0847, which suggests that our dataset is likely to present autocorrelation problems. At the same time, we also find a statistical concern for heteroscedasticity, as the p-value for the heteroscedasticity likelihood-ratio test is .0000. To address these autocorrelation and heteroscedasticity issues simultaneously, in this study, we conduct hypothesis testing based on the FGLS models. Given that we employ Stata to test our FGLS models, we handle this first-order autocorrelation (AR1) by using the corr(psar1) force command and heteroscedasticity using the p(h) command, following previous literature.⁶⁸

In all models, we lag the independent and control variables by one year. We also include year dummies.

Results

Table 1 presents descriptive statistics and pairwise correlations for the variables used in our FGLS models.

Table 1. Descriptive statistics and pairwise correlations.

N = 225, * p < .05.

Overall, correlations among variables are in the acceptable ranges. We note that, among them, product diversification is positively and strongly correlated with environmental lobbying and firm size. The high correlation between product diversification and environmental lobbying may suggest that the more product lines a firm has, the more incentives it has to participate in environmental lobbying. This is mainly because different product lineups likely result in demands from stakeholders, including those related to the environment and sustainability. In addition, the strong correlation between firm size and product diversification clearly makes sense, as product diversity and an increase in organizational size practically move together; firms tend to add more product lines when they get larger.

Table 2 presents the results of the FGLS regression with five models. Again, in all models, we lag the independent and control variables by one year.

Table 2. FGLS Regression.

*** p < .001; ** p < .01; * p < .05; + p < .1.

Model 1 includes only the control variables. In Models 2–5, we test our hypotheses one by one. Model 2 tests H1 by including green product intensity as our independent variable. H1 proposes that firms are likely to be motivated to invest more in environmental lobbying when they have greater green product intensity in their product portfolios. Model 2 shows that the estimated coefficient of green product intensity has a positive value at the significance level of .001 (p < .001).⁶⁹ Moreover, green product intensity constantly shows significant and positive coefficient statistics across all models. Therefore, H1 is supported.

Models 3 and 4 test our moderating hypotheses by including interaction terms. In particular, H2 suggests that a firm's market share likely strengthens the positive relationship between green product intensity and environmental lobbying. Model 3 reveals that the estimated coefficient of the interaction term between green product intensity and market share is significantly positive (p < .05). It also shows statistical significance in Model 5, which is a full model, including all independent and moderating variables. Thus, H2 is supported.

H3 proposes that a firm's foreignness (i.e., from a country with stringent environmental protection) will strengthen the positive relationship between green product intensity and environmental lobbying. Model 4 indicates that the estimated coefficient of the interaction term between green product intensity and foreignness is significantly positive (p < .05). It also presents statistical significance in Model 5, including all independent and moderating variables. Thus, H3 is supported.

Robustness checks

To test the robustness of our analyses, we conduct additional tests using different measures. First, we change the measurements of variables such as firm size (natural logarithm of total sales instead of total assets), firm performance (return on assets instead of return on sales), slack (slack solvency instead of financial slack), and association lobbying amounts (instead of industry average lobbying). Table 3 summarizes our robustness checks, revealing very similar results even when these variables are measured in different ways.

Table 3. Robustness check: FGLS regression with different measurements.

Notes: Firm size: ln(total sales + 1), instead of ln(total assets + 1);

firm performance: return on assets (ROA), instead of ROS;

Slack: slack solvency (cash/long-term debt) instead of financial slack;

Association lobbying: (ln(association lobbying + 1)) instead of industry average lobbying.

*** p < .001; ** p < .01; * p < .05; + p < 0.1.

Second, paying attention to the nascent stage of the US EV market, we conduct the analyses without automakers that may hold a substantial part of the EV-related outcomes. We select Ford, GM, Toyota, and Tesla and conduct individual analyses without each of those four automakers,⁷⁰ finding that at least the main effect of our analysis is statistically supported. Table 4 presents these findings.

Table 4. Robustness check: FGLS regression without certain automakers.

*** p < .001; ** p < .01; * p < .05; + p < .1.

Finally, the relationship between firm performance (i.e., green product sales) and firm lobbying may be exposed to potential reverse causality. Our argument is that a firm's greater intensity of green products will lead to the outcome of greater environmental lobbying for green regulations. However, some research finds that corporate lobbying may affect firm performance.⁷¹ These divergent streams necessitate analysis of the reverse causality issue in our research setting. Therefore, we conduct an additional analysis by relocating green product intensity as a dependent variable and environmental lobbying as an independent variable, while other moderating and control variables remain the same. We find no statistical support for the reversed main and moderating effects, and thus we conclude that reverse causality is not a critical statistical issue in our methodology.

Discussion

This study probes the motivation mechanism of firms’ environmental lobbying based on their green product strategies. We examine this mechanism, which shows that firms that place more importance on the green products in their product portfolios are more likely to engage in environmental lobbying. We also analyze how this mechanism is moderated by firms’ market leadership and by the stringency of environmental regulations in firms’ home countries. Based on those findings, this study makes at least three contributions to the literature.

First, we shed new light on the motivation for environmental lobbying. Because climate change has emerged as a global issue, going green has gained more attention than ever. However, when it comes to political lobbying for going green, organizations that engage in environmental lobbying are frequently social activist groups or nonprofit organizations.⁷² This is because environmental lobbying promotes stricter regulations to protect the environment, which might be contrary to the conventional corporate lobbying that favors deregulation.⁷³ Indeed, environmental protection often runs counter to the generation of corporate profits; thus, firms would either not lobby at all, or lobby for the relaxation or lifting of environmental protections.⁷⁴

For this reason, it would be notable to see an increasing number of firms lobbying for going green⁷⁵—that is, lobbying to curb corporate operations—which might be to support social and ethical values. However, firms would join in such lobbying when their competitive advantages are coupled with such values.⁷⁶ We therefore contend that firms will leverage lobbying to secure the strategic value of committed assets to green products and outcompete their rivals that fail to launch comparable products. Firms that make green products may have a preemptive status in the market and may want to enhance the advantage created by those products.

We find two facets of this advantage. On the one hand, we examine the strategic accommodation element of environmental lobbying as a firm's effort not only to accommodate political reality through pro-environmental lobbying activities but also to secure competitive advantages by requesting stronger environmental standards or regulations to the disadvantage of its “less green” competitors. Like conventional lobbying, environmental lobbying is motivated by a firm's search for better economic performance.

On the other hand, to extend our theoretical contribution, we explore the ground-setting aspect of environmental lobbying. A firm will endeavor to set market conditions that are favorable to green products or technologies by requesting government support for such products or technologies in various forms, such as tax credits, incentives, subsidies, grants, or loan programs. This aspect of environmental lobbying is partly derived from a firm's search for better economic performance, as tax credits or government subsidies would indeed help the firm increase its revenue or reduce its costs. However, this ground-setting aspect of environmental lobbying also partly stems from the firm's legitimacy seeking. Firms that engage in environmental lobbying to request tax credits or government subsidies for green products and technologies hope to institutionalize new environmental norms from a long-term perspective. For instance, firms manufacturing green products may seek tax credits for such products (1) to attract more customers by lowering the price and (2) to establish a societal consensus on environmentally sustainable consumption. In this sense, we believe that this kind of ground setting distinguishes environmental from traditional lobbying, given that the former is motivated by a long-term sustainability perspective.

We also shed light on the motivation behind environmental lobbying by exploring how lobbying firms’ market strategies affect their political activities. Research on nonmarket strategy has examined the relationship between a firm's nonmarket and market strategies.⁷⁷ In line with such efforts of nonmarket strategy researchers, we find that firms’ environmental lobbying is influenced by firms’ external status in the industry. Firms intensify their environmental lobbying to maximize their competitive advantages when those firms are market leaders or are already accustomed to stricter environmental regulations in their home countries.

These findings reveal that firms prefer to align their environmental lobbying with their status (e.g., market leader) and capabilities (e.g., experience in environmental stringency) in a product market. Moreover, this strategic alignment has a strategic implication: firms’ environmental lobbying may enhance their strategic value because environmental lobbying is coupled with a specific social value (e.g., environmental protection) promoted by social consensus. However, the strategic value pursued by the nonmarket strategy would be maximized when that strategy is aligned with the lobbying firms’ status and capabilities in a product market.

Thus, our contribution presents an overarching theoretical framework that encompasses both the strategic accommodation and ground-setting aspects of environmental lobbying. This framework captures the underlying motivation mechanism of environmental lobbying when coupled with the lobbying firms’ status and capabilities in a product market.

Limitations and Directions for Future Research

The limitations identified in this study could lead to future research. First, although we reveal the dynamics of lobbying and green products in the auto industry, the findings may not be generalized beyond that industry. In addition, industry-specific characteristics become more salient in lobbying activities. For example, automakers are more likely than companies in the information technology industry to engage in lobbying. Reflecting on a firm's lobbying activities varies as well; depending on the firm's territory, selecting one sector may hinder findings in others. Thus, future studies should include related industries to ensure the generalizability of the mechanism between a firm's green product portfolio and its lobbying behavior.

Second, this study provides less sufficient analysis of the typical costs of lobbying than expected—spillover effects. Unlike other corporate activities, lobbying generally does not provide perfect exclusivity.⁷⁸ Sometimes the benefits created by a firm's lobbying may spill over to other firms in the same industry, possibly giving those firms a free ride on a focal firm's lobbying efforts.⁷⁹ This is especially the case when lobbying is done to secure incentives, tax credits, tariffs, or industry protections. Accordingly, this spillover may mitigate a firm's motivation to engage in environmental lobbying.

We control firms’ spending on strategic activities that pursue exclusive benefits (e.g., R&D and advertising) and thus may be vulnerable to spillover effects, noting that the main and moderating effects of this study are relatively free from spillover effects. However, because of data limitations, we could not analyze such strategic activities as an additional main or moderating effect of our study. For example, most firms in our dataset show that green products are not the sole products in their product lineups. Further, some firms remain market leaders in other types of conventional nongreen products. Therefore, combining different target products of R&D may reveal something about the mixed motives behind R&D. To compensate for these limitations, future studies may want to examine firms’ allocation of resources by separating and classifying their use of resources. For example, putting more R&D resources into conventional products requires less motivation than engaging in green lobbying. By exploring the intentions of R&D investments, future research would yield additional insightful findings.

Conclusions

This study explores environmental lobbying that endorses stricter enforcement of regulations, which diverges from traditional lobbying, which frequently attempts to lighten their regulatory burden with little or no consideration of green product market strategy. This hallmark of environmental lobbying is associated with lobbying firms’ need to enhance the competitive advantage gained from using green products and, eventually, to set the ground for their sustainable growth. Our dataset indicates that Tesla is the kind of firm that engages in environmental lobbying in search of government support, such as tax credits for the purchase of EVs. Tesla now sells most of the EVs in the United States, but it seems that the firm starts to downplay the need for government support, even though many other manufacturers of EVs welcome the incentives under consideration by the Joe Biden administration.⁸⁰ The scope of this study does not address whether Tesla is trying to kick away the ladder it climbed to reach the top of the EV market. However, Tesla's shift may allude to the point of this study: that environmental lobbying seeks strategic accommodation and ground setting, and lobbying firms’ motivation for environmental lobbying may diminish as they gain competitive advantages in the green product market and, going forward, as they institutionalize new eco-friendly norms from a long-term sustainability perspective.