Reconsidering the relevance of social license pressure and government regulation for environmental performance of European SMEs

Whereas social license pressure is held as a strong motive for the corporate social performance (CSP) of large enterprises, it is argued in literature that it will not sufficiently motivate small and medium-sized enterprises (SMEs). In this view, government regulation is the most effective way to improve the environmental performance of SMEs. Other studies argue that social license pressure is also important for SMEs, because of the strong embeddedness of SMEs in their local communities. A large scale empirical study into the effects of social license pressures and government regulation on the environmental performance of SMEs that could help solve this debate is, however, still lacking. This paper contributes to the scientific literature by using structural equation modeling on a sample of 4929 SMEs from twelve European countries to test both views for micro, small, and medium-sized enterprises. Another contribution to scientific literature is that our model includes direct as well as indirect effects from social license pressures on environmental performance. The indirect effects are mediated by perceived market benefits of CSR. The estimation results show that social license pressures, as perceived by SMEs, significantly affect the environmental performance of micro, small, and medium-sized enterprises, directly as well as indirectly through mediation by perceived market benefits of CSP. In all cases, the perceived social license pressure provides a stronger stimulus to improving environmental performance than the motive to comply with government regulation. The policy implication is that governments should not rely on direct regulation of environmental performance only, but also aim to improve the transparency of environmental performance by soft regulations that induce SMEs to publish key performance indicators on environmental issues.