Does environmental proactivity impact firm profitability and performance? See this weeks’ research tidbits.
How corporate climate change targets affect environmental performance
Addressing climate change is among the most challenging ethical issues facing contemporary business and society. Unsustainable business activities are causing significant distributional and procedural injustices in areas such as public health and vulnerability to extreme weather events, primarily because of a distinction between primary emitters and those already experiencing the impacts of climate change.
Business, as a significant contributor to climate change and beneficiary of externalising environmental costs, has an obligation to address its environmental impacts. In this paper, the authors explore the role of firms’ climate change targets in shaping their emissions trends in the context of a large multi-country sample of companies.
The authors contrast two intentions for setting emissions reductions targets: symbolic attempts to manage external stakeholder perceptions via “greenwashing” and substantive commitments to reducing environmental impacts. The authors argue that the attributes of firms’ climate change targets (their extent, form, and time horizon) are diagnostic of firms’ underlying intentions.
Consistent with our hypotheses, while the authors find no overall effect of setting climate change targets on emissions, the authors show that targets characterised by a commitment to more ambitious emissions reductions, a longer target time frame, and absolute reductions in emissions are associated with significant reductions in firms’ emissions. Our evidence suggests the need for vigilance among policy-makers and environmental campaigners regarding the underlying intentions that accompany environmental management practices and shows that these can to some extent be diagnosed analytically.
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Frederik Dahlmann, Layla Branicki & Stephen Brammer. 2019. Managing Carbon Aspirations: The Influence of Corporate Climate Change Targets on Environmental Performance.
Journal of Business Ethics, 158(1), 1–24.
Do stakeholder orientation and environmental proactivity impact firm profitability?
The impact of socially responsible corporate behaviour on economic performance is a major preoccupation of managers today. This article explores the links between narrowly defined constructs: stakeholder orientation, environmental proactivity and profitability, from the perspectives of stakeholder theory and resource-based theory.
The authors collected data on the food and beverage, and household and personal products industries. Using structural equation modelling, this paper makes two contributions. The authors found a negative link between companies simply having a higher stakeholder orientation and profitability.
Importantly, however, environmental proactivity not only had a positive impact on profitability, but also appeared to mediate the relationship between stakeholder orientation and profitability. In other words, if a company is more environmentally proactive, it will be more attentive to a broad array of stakeholders, and this will in turn contribute positively to profitability.
Franck Brulhart, Sandrine Gherra & Bertrand V. Quelin. 2019. Do Stakeholder Orientation and Environmental Proactivity Impact Firm Profitability?
Journal of Business Ethics, 158(1), 25–46.
Do banks consider carbon risk in their lending decisions?
Banks face a dilemma in choosing between maximising profits and facilitating the sustainable use of resources within a carbon-constrained future. This study provides empirical evidence on this dilemma, investigating whether a bank loan announcement for a firm with high carbon risk conveys information to investors about the firm’s carbon risk exposure collected through a bank’s pre-loan screening and ongoing monitoring.
The authors use a sample of 120 bank loan announcements for ASX-listed firms over the period 2009–2015. The authors measure high (low) carbon risk exposure based on whether firms meet (do not meet) the reporting threshold of the NGER scheme. The authors document positive and significant excess loan announcement returns for loan renewals for high carbon risk firms, but not for loan initiations. Further, the authors document a more significant loan announcement return for renewals with favourable term revisions. Finally, the authors find no evidence that the market differentiates between domestic and foreign lenders.
Taken together, our results suggest that investors perceive that banks incorporate carbon risk considerations into their lending decisions. Our results highlight the value of banks as financial intermediaries given the information asymmetry surrounding firms’ carbon risk exposure, and more generally the need to extend modern banking theory to consider issues such as the impact of banks’ CSR reputation on lending decisions.
Kathleen Herbohn, Ru Gao & Peter Clarkson. 2019. Evidence on Whether Banks Consider Carbon Risk in Their Lending Decisions.
Journal of Business Ethics, 158(1), 155–175.
Investing in intangibles for sustainable growth
This paper presents a case study of the South African operation of a logistics company, operating in a context of short-termism and under-performance. Frustration with managing in this context, and concern that this environment might erode the customer value proposition, prompted an exploration of the question: “How can the business prioritise its investment in intangibles to support sustainable growth in an environment of short-termism and sub-par business performance?”
The study followed an inductive grounded theory approach and began with an exploration of the system of short-termism as it was being experienced by the management team. This evolved in an iterative process to include an exploration of the customer value proposition, the organisation’s capabilities and the system of investment in intangibles.
Data were collected over a period of 6 months, across a series of four stages as the management team grappled with the short-term financial objectives imposed on them. The data categories were used to develop 214 propositions across all stages. Through the four stages, four artefacts were developed from the propositions (1) a causal loop diagram of the system of short-termism; (2) a documented value proposition; (3) an assessment of the health of the business’ capitals; and (4) a multi-year intangibles investment programme.
The findings indicate that a focus on investment in intangible assets can play a vital role in stimulating sustainable value creation in an environment of historically poor returns on investment and pressure for short-term financial results. It is suggested that investment in intangibles can be introduced as a multi-year capabilities investment plan. The study succeeded in getting investment in intangibles approved and the implication is that long-term decision-making can co-exist in an environment of short-termism and low growth.
Kosheek Sewchurran, Johan Dekker and Jennifer McDonogh. 2019. Experiences of Embedding Long-Term Thinking in an Environment of Short-Termism and Sub-par Business Performance: Investing in Intangibles for Sustainable Growth.
Journal of Business Ethics, 157(4), 997–1041.
Board expertise and environmental performance
The authors examine the resource provision role of the board of directors in ensuring substantive corporate sustainability practices. Specifically, the authors examine two channels of resource provision (i.e., the presence of non-executive directors with previous experience in environmental issues—EEDs—and network connections of EEDs) that can affect a firm’s ethical and environmental behaviour.
Using greenhouse gas (GHG) emissions data from FTSE 350 firms, as a measure of environmental performance, the authors show that the presence of EEDs on the board is associated with lower GHG emissions. Further, firms with better-networked EEDs have better environmental performance. A possible mechanism is that firms with EEDs invest more in environmental technology.
These results suggest that, in addition to the traditional role of shareholder value maximisation, the board of directors also caters to the interests of wider stakeholders of the firm by facilitating substantive ethical practices.
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Swarnodeep Homroy & Aurelie Slechten. 2019. Do Board Expertise and Networked Boards Affect Environmental Performance?
Journal of Business Ethics, 158(1), 269-292.
Influences of corporate sustainability and NGO engagement on adopting sustainable products in China
To make a business case for corporate sustainability, firms must be able to sell their sustainable products. The influence that firm engagement with non-governmental organisations (NGOs) may have on consumer adoption of sustainable products has been neglected in previous research.
The authors address this by embedding corporate sustainability in a cosmopolitan framework that connects firms, consumers, and civil society organisations based on the understanding of responsibility for global humanity that underlies both the sustainability and cosmopolitanism concepts.
The authors hypothesise that firms’ sustainability engagement and their NGO engagement influence consumer adoption of sustainable products. Empirically, the authors investigate the adoption of sustainable Eco-circle products made from recycled fibres marketed by Li Ning, a China-based global sportswear brand. The authors apply a stepwise regression approach to test our hypotheses with paper-and-pencil survey data from 217 Chinese consumers.
The authors find adoption to be positively associated with consumers’ sustainability attitude but not with firms’ sustainability engagement. For firm–NGO engagement, these relationships are reversed: Adoption is positively associated with firm–NGO engagement, but not with consumers’ related attitude. Our results present a picture of the Chinese context in which there is a business case for corporate sustainability if firms’ words about sustainable product strategies are supported by signals from civil society about firm deeds. The results imply that in a Chinese context, firms need to be particularly aware of the role of NGOs when hoping to be rewarded for sustainability.
Dirk C. Moosmayer, Yanyan Chen & Susannah M. Davis. 2019. Deeds Not Words: A Cosmopolitan Perspective on the Influences of Corporate Sustainability and NGO Engagement on the Adoption of Sustainable Products in China.
Journal of Business Ethics, 158(1), 135–154.