Big chemical companies hide pollution behind subsidiaries

Chemical companies and their subsidiaries are at the heart of a recent investigation that uncovers a strategic ploy to evade environmental accountability, positioning the chemical manufacturing sector as one of the United States’ top three polluters.

Alongside metal mining and electric utilities, this sector is responsible for two-thirds of the nation’s toxic emissions, as reported by the Environmental Protection Agency’s Toxics Release Inventory (TRI).

A study featured in the Strategic Management Journal reveals that major chemical corporations use a complex network of subsidiaries.

This network helps them hide the environmental impacts of their operations. Consequently, this practice poses a significant challenge to the enforcement of environmental regulations.

Corporate camouflage in action

The study, led by Juyoung Lee of the Hong Kong Polytechnic University and Pratima Bansal of Ivey Business School in Canada, delves into the practices of 7,400 U.S.-based entities under the umbrella of 67 of America’s largest chemical manufacturing groups.

The researchers used comprehensive data from Dun and Bradstreet’s Corporate Family Tree and the EPA’s TRI program. They demonstrated that highly polluting sites are often strategically placed deep within corporate hierarchies. This positioning distances them from their parent companies.

Moreover, this deliberate separation serves a specific function. “The multi-layered structure permits parent companies to buffer themselves from the negative legal, reputational, and punitive outcomes related to risky activities, thereby shifting the costs to society as a whole,” Lee articulates.

Corporations dodge repercussions by hiding polluting operations in subsidiary mazes, shifting costs to society.

Evading environmental responsibility

Bansal elucidates the strategic benefits of this setup: “The lower pollution-intensive activities are in the corporate hierarchy, the more effectively the parent company can protect itself from government-related risks.”

The study shows proving a parent company’s role in pollution is hard due to complex structures distancing them from polluting subsidiaries.

Moreover, the research explored how a company’s home state’s environmental laws affect the placement of polluting sites in its structure.

The findings suggest several points. First, firms in states with strict environmental laws place their most polluting subsidiaries further down the corporate chain. This strategy complicates regulatory oversight and accountability.

A call for transparency

Lee’s analysis shows: In states with lax environmental laws, companies often run or delegate pollution close to the parent level. In stricter states, they increasingly distance such activities down the hierarchy.

The evidence, though not definitive, strongly hints at strategic buffering by using subsidiaries to avoid pollution penalties as a key corporate tactic.

This tactic weakens environmental law enforcement and shows regulation limits that miss corporate complexities.

The study urges reevaluating regulations to tackle challenges posed by corporate veils, aiming to reveal rather than hide environmental harm.

The full study was published in the journal Strategic Management Journal.

—–

Like what you read? Subscribe to our newsletter for engaging articles, exclusive content, and the latest updates. 

Check us out on EarthSnap, a free app brought to you by Eric Ralls and Earth.com.

—–