Dian Ekowati

Paper to be presented in Selangor, Malaysia, 3-4 December 2007

In last decade, business organizations are more aware about the importance of environmental issue and its impacts on all levels of organizational operations than ever before (Greeno, 1994; Porter and Van der Linde, 1994; Aragon-Correa, 1998). Many factors such as pressures from customers and government regulation, neighborhood groups, mass media, as well as trade associations were stated as factors contributing to firms approach toward their natural environment. Each of those parties brought about potential environmental risks that have to be faced by the organizations (Henriques & Sadorsky, 1996). These could be opportunities as well as threats for companies, especially if these pressures were not well managed. Along with the study of Henriques and Sadorsky (1996), Lawrence and Morell (1995) also stated that there were five factors motivating organizations to conduct proactive natural environmental management practices, which are regulations, competitive advantages, stakeholders pressures, critical event, and top management pressures.

At this point, the classification of firm approach to the natural environment and factors that drive companies to conduct more responsible environmental management practice were becoming interesting issue in Indonesia. This was especially because there were controversial cases related to environmental violations in Indonesia, which showed that there was relatively low awareness on green management practices in Indonesia. This study was aimed to analyze Indonesian companies’ awareness on natural environmental management practices. The focus of analysis was on the firm approach to the natural environment and factors determining the implementation of such approach.

By employing factor analysis, this study was able to reveal that in the case of Indonesia, firm approach to the natural environment could be categorized into three different approaches, which are “traditional environmental operation, “modern/voluntary prevention”, and “image building/information.”. In general, the results of this study were aligned with those of Aragon-Correa (1998). Related to the profile of commitment toward natural environment that was adopted from Henriques and Sadorsky (1999) and categorized by employing Roome’s (1994) category, the results showed that leading edge cluster were comprised of 55 companies, environmental excellence cluster with 4 companies, compliance plus cluster also with 4 companies, compliance cluster was comprised of 18 companies, and noncompliance cluster with 13 companies.

Moreover, this study also tried to explore factors or source of pressures that determine the implementation of firm approach to the natural environment. The result showed that the highest pressure came from public society/community, followed by government regulation, customers, employees, considerations for efficiency profitability, controlling cost, shareholders, environmental organizations, media, and other lobbying groups, trade association, competitors, and suppliers, that was perceived as the lowest source of pressure. This finding was different from the result of Henriques and Sadorsky (1999) which showed that the first and second highest pressure came from government regulations and controlling cost.

written by: Isnaini, Nurul & Ekowati, Dian