Works councils and environmental investment: Theory and evidence from German panel data

Firms may underinvest in local environmental protection even from the viewpoint of owners and employees, but works councils may mitigate this. We show increases in environmental investments when councils are present may be employee led, firm led or jointly led. We test these alternatives using German panel data, finding strong, robust relationships between environmental investments and council activities. This effect is largest when councils are active in environmental matters. We generally do not find effects on investments that reduce environmental impacts remote from the workplace or other investments. We conclude that higher environmental investments in establishments with councils are largely employee led or jointly led.