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Firm's Environmental Compliance and Capacity Development: Empirical Findings from the Environmental Performance Rating P

Nurul JANNAH, Katsuya TANAKA and Shunji MATSUOKA （Hiroshima University）

Abstract:
This paper investigates firm's environmental compliance and capacity development under the environmental performance rating program (PROPER) in Indonesia. PROPER is a nationwide public environmental reporting initiative that is annually disclosed to the public. It rates the compliance level of a firm with regard to water and air pollution, solid and hazardous waste management, environmental impact assessment, and community development. We use the ordered probit model and firm-specific data to evaluate the role of capacity development on environmental compliance of firms. Our results indicate that capacities of firm, government, and civil society have positive influences on the environmental compliance of firms in Indonesia. Our results also identify other significant factors such as the firm's location and production type that affect the compliance and environmental performance of firms. Based on these findings, we recommend further development of the social capacity for environmental management (SCEM) as one of the effective ways of improving firm's environmental compliance under the PROPER program in Indonesia. Another important way of achieving this is through empowerment of the civil society.

Key Word:
capacity development, environmental compliance, ordered probit, PROPER

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