CHAPTER 1: INTRODUCTION
Sustainable development requires attaining a balance between maintaining environmental quality and controlling the impact of environmental controls on economic growth. Environmental issues have become a major hindrance in steady economic growth due to multifaceted factors. From the list of the biggest dilemmas our future generations would be facing, Environmental issues would undoubtedly make it to the top three. Environmental pollution is contamination of air, water and land from man-made waste. Pollution leads to depletion of the ozone layer, global warming and climate change. Air pollution is the release of chemicals and particles into the atmosphere. Water pollution includes surface runoff, leakage into groundwater, liquid spills, wastewater discharge and littering. Toxic waste is waste material, often in chemical form, which pollutes the natural environment and contaminates groundwater.
However, Environmental issues don’t just stop here; there are many of them that includes, global warming, environmental impact of dams, urban sprawl, exploitation of natural resources, etc. (McCormick, John 2001:21) In order to address these issues, a term was coined Environmentalism. “It is a broad philosophy and social movement centred on a concern for the conservation and improvement of the environment. Environmentalism is associated with the colour green.” (www.wikipedia.com
) it finds its roots from the Industrial Revolution that gave rise to modern environmental pollution as it is generally understood today.
The various industries in UK have all been contributing towards these issues. Industries such as manufacturing release toxins in the air and water, hence contributing considerably towards pollution.
My concern for this topic originates from the fact that we are currently facing these issues at a large scale. “Businesses are increasingly recognising the need to tackle climate change, and many are making voluntary commitments to cut emissions. Measures addressing business’ greenhouse gas emissions are also developing rapidly. This is a constantly evolving space, with new regulations proposed and considered on an ongoing basis.” (www.businesslink.gov.uk)
According to www.businesslink.gov.uk
“An environmental policy is a written statement outlining the company’s aims and principles in relation to managing the environmental effects and aspects of its operations. It is essential to have such a policy if the company wants to implement an environmental management standard.”
In order to effectively manage business sustainability, however, both corporations and policy-makers need to have a clear view of the sustainability process. What is sustainability? How do the major components of sustainability work together as a system? Where do we stand in the evolutionary process of business sustainability, and where are we going in terms of the pattern of sustainability? The purpose of this dissertation is to answer these questions in the context of British Airways policies and strategies. Such an overview of sustainability will permit specific policy arrangements and business programs that will be more effective in advancing corporate progress toward a sustainable future. It will also allow scholars to develop a more holistic and historical view of this important phenomenon.
There are various conceptions of sustainability or sustainable development, but primarily, “sustainability” has been expressed as a hopeful vision that society seeks to achieve (Lee, 1993). For example, Hawken (1993) defined sustainability as an economic state where the needs of commerce do not reduce environmental capacity for future generations. Costanza, Daly and Bartholomew (1991) viewed sustainability as a conditional relationship between human economic systems and larger ecological systems. Offering an integrative definition of sustainable development, Gladwin, Kennelly and Krause conceptualized sustainable development as “a process of achieving human development in an inclusive, connected, prudent, equitable, and secure manner” (1995: 878).
Statement of the problem
Within the world of strategic responses to environmental issues, there are several terms and many methodologies. Environmental management (Berry & Rondinelli, 1998; Lawrence & Morell, 1995) and strategic environmental management (SEM) (Marcus, 2004) are well known and closely related; both are synonymous with Marcus’ definition of SEM, which is environmental management that builds competitive advantage at the same time that it improves the environment. Jennings and Zandbergen (1995) point out that in many instances the programs that have become institutionalized as environmental best practices started out as proprietary initiatives in a single firm or industry. For instance, 3M originated “Total Quality Environmental Management,” the environmental correlate of TQM, while environmental codes of conduct were first instituted in the petroleum and mining industry.
Pioneering firms such as 3M in this case exemplify a strong version of environmental management called proactive environmental strategy, or eco-strategy. Not only are environmental improvement and firm performance equated in this approach (Hart, 1995; Marcus, 2004; Russo & Fouts, 1997; Schot & Fischer, 1993), but the firm also strives to be a leading innovator in this area. As the following literature review shows, this type of approach involves a commitment to develop environmentally sound practices in every area of operations. Even more important, a proactive eco-strategy is one which “…aims first of all at increasing the firm’s capability to develop environmentally sound product/market combinations” (Schot & Fischer, 1993: 12, original italics). In other words, current environmental performance is one level of proactive strategy, but the capacity to continually develop improvements in environmental practices is the underlying, more sought-after capability.
The core research questions that shall play the role of forming the backbone of my Dissertation are as follows:
- What are the important Environmental Issues and sustainability in the aviation industry?
- What Polices have been put in place to address all these issues by BA?
- Do the environmental drivers as reported by BA reflect the important issues as debated in the environmental research literature?
- Does research into environmental issues reflect the policies set by BA?
- Does BA engage with NGOs or other civil society groups to address environmental issues?
- Do they engage with other companies in the sector to what extend?
- How does government regulation effect on BA’s environmental policies?
- And the final questions are BA’s environmental policies sufficient and effective? How can they be made more effective?
Aim of the study
“Being more sustainable or “going green” is a big issue for businesses today. It can help the companies in many ways – cutting their bills, improving their reputation and helping them to be sure that they are following government regulations – not to mention helping the environment.” (www.businesslink.gov.uk
Hence, my focus will be to deliver on the effectiveness and success of corporate responses to environmental issues/challenges, how it has shaped up in the recent times and what the industries have been doing in order to address the various Environmental issues. (Bührs, Ton; Bartlett, Robert V 1991: 16)
Using different resources, my objective is to first define the various environmental issues in depth, than to work my way on the various policies (government or companies) that have been incorporated in the past recent years. Then I would like to focus mainly on British Airways in the aviation industry and analyse
their approach towards dealing with the environmental issues, examine its engagement with NGOs, I would like to analyse to what extend is BA engaged with other companies (Virgin, Easyjet) in the sector, the government regulation and laws for instance international and national agreements.
Objectives of the study
As discussed in previous sections, the focus of this study is on environmental issues in general and the examination of British Airways environmental policies and strategies in particular. So, this will be a case study analysis of the British Airways policies related to environmental issues. In this context, the specific objectives of this study will be:
- To examine the sustainability and environmental issues in aviation industry
- To investigate the policies and strategies of corporate with regard to the sustainable environment
- To explore the corporate social responsibility towards environmental issues
Significance of the study
Conventional business and society research often does not discriminate between social issues and environmental issues. For example, early conceptions of corporate social responsibility (CSR) have often assumed that social issues subsume environmental issues.
From the CSR perspective, corporations are assumed to have obligations to society (Boal & Peery, 1986; Keim, 1978), and business policy should, therefore, incorporate corporate social impact as one additional dimension of organizational decision-making (Jones, 1980). Further, the conceptual development of corporate social performance (CSP), a construct closely related to CSR, has focused on corporate responsiveness to a variety of “social issues,” of which environmental issues are a component (Carroll, 1979; Wartick & Cochran, 1985). Such an approach has been widely accepted in empirical studies, where CSP often covers a range of specific issues such as women and minorities, work safety, and community support, as well as environmental protection (Griffin & Mahon, 1997; Turban & Greening, 1997). That is, environmental issues are treated as merely one type of social issue.
More recently, a group of scholars have begun to focus their attention specifically on environmental issues in an attempt to understand corporate environmental performance (CEP) in relation to other important variables. The motivation to do so was primarily driven by the increasingly serious impact of business operations on the environment and by the public’s growing expectations for sustainable development.
The distinction between CSP and CEP is further highlighted in both governmental policy frameworks and organizational structures. On the policy side, in contrast to the relatively dispersive expressions of concern for social issues, many countries, developing or developed, have established independent regulatory agencies to manage environmental issues. Environmental policy has become an important factor in political agendas and election campaigns, and in the business world, where many companies have established independent departments for dealing with environmental issues. As well, the manner in which corporations publicize their concern for social and environmental issues, either in print or on their websites, very often reflects a clear distinction between these two aspects.
Researchers therefore must acknowledge this new reality and must, in turn, generate knowledge that is able to constructively guide practice. In addition, sustainability scholars have suggested the notion of a triple bottom line, in which CSP, CEP and corporate financial performance (CFP) are the three pillars of sustainable human development (Elkington, 1998; WCED, 1987). That is, CSP, CEP and CFP contribute to the social system, the ecological system and the economic system, respectively, and these systems collectively form the foundation of human society.
This dissertation will contribute significantly to the academic knowledge by highlighting all these interrelated issues surrounding environmentalism and environmental issues. Particularly, this study will provide insight for the aviation industry which has recently attracted the attention of the scholars due to increasing air pollution.
History has been the testimony of addressing the Environmental concerns. The Industrial Revolution, a concern for environmental protection has recurred in diverse forms, in different parts of the world, throughout history. There were concerns about the air contamination, water contamination, soil contamination, solid waste mishandling, and environmental assessments of certain localities. “King Edward I of England banned the burning of sea-coal by proclamation in London in 1272, after its smoke had become a problem. But the fuel was so common in England that this earliest of names for it was acquired because it could be carted away from some shores by the wheelbarrow. Air pollution would continue to be a problem there, especially later during the industrial revolution, and extending into the recent past with the Great Smog of 1952.” (L. Gari, 2002)
“The environmental movement is a diverse scientific, social, and political movement. In general terms, environmentalists advocate the sustainable management of resources, and the protection (and restoration, when necessary) of the natural environment through changes in public policy and individual behaviour. In its recognition of humanity as a participant in ecosystems, the movement is centred on ecology, health, and human rights.” (www.managementparadise.com)
This topic is of great concern because it is “THE TOPIC OF CONCERN”; the very survival of us and our future generations’ is very much based on this. We don’t want to be living in an environment that is endangered to floods, extreme weather conditions, lacks of natural resources, toxic contaminations and nuclear radiations. We want to be in a place where we don’t have to fight for land, water or air. (Rushefsky, Mark E. 2002:253)
.The human activities in the past have sky rocketed in bringing adverse affects to our Environment. It is for us to understand and realize that we need to gain knowledge and understand these issues so that we can address them properly and not just let them leave in the hands of our scientists.
My Dissertation will focus on addressing the Environmental issues greatly. Of course, my first focus will be on the origins of all these issues (focusing on the aviation industry) and what are they really about. Than I would identify the various Environmental policies that have been put in place since the past many years and how they have shaped up in all these years. My next task would be than to focus on an individual local company and see how British Airways addresses to these issues. The choice of this company would be based on the fact that it is known to contribute to the Environmental issues, with all their aircrafts and mass CO2 emissions, how do they address the concerns and how do they operate differently from previous years and from competitor companies (like Virgin). Hence, my findings will determine how successfully all these companies are adhering to the Environmental Policies.
I believe, this Dissertation, would not just be something graded and put in the back of the shelf, but it could be used as an important part in bringing about awareness about the Environmental issues and how well are we addressing them. It is probably as they say, “It’s never too late to mend”. Maybe my bids towards addressing a Global issue work towards in bring about awareness at mass levels.
Structure of the study
This dissertation will be divided into five chapters. The present chapter has offered a detailed overview of the research background, problem statement and the aims and objectives. The next chapter (Review of the literature) will discuss the current and classical theories related to corporate social responsibility (CSR), corporate environmental performance (CEP) and corporate financial performance (CFP). This chapter will also discuss in detail the environmental issues related to the aviation industry.
The third chapter will discuss the research design, method and approaches taken for collecting the primary data for this study. The fourth chapter will discuss the results of the study while the fifth chapter will discuss these results for offering conclusions and recommendations.
CHAPTER II: REVIEW OF THE LITERATURE
Conventional business and society research often does not discriminate between social issues and environmental issues. For example, early conceptions of corporate social responsibility (CSR) have often assumed that social issues subsume environmental issues. From the CSR perspective, corporations are assumed to have obligations to society (Boal & Peery, 1986; Keim, 1978), and business policy should, therefore, incorporate corporate social impact as one additional dimension of organizational decision-making (Jones, 1980). Further, the conceptual development of corporate social performance (CSP), a construct closely related to CSR, has focused on corporate responsiveness to a variety of “social issues,” of which environmental issues are a component (Carroll, 1979; Wartick & Cochran, 1985). Such an approach has been widely accepted in empirical studies, where CSP often covers a range of specific issues such as women and minorities, work safety, and community support, as well as environmental protection (Griffin & Mahon, 1997; Turban & Greening, 1997). That is, environmental issues are treated as merely one type of social issue.
More recently, a group of scholars have begun to focus their attention specifically on environmental issues in an attempt to understand corporate environmental performance (CEP) in relation to other important variables. The motivation to do so was primarily driven by the increasingly serious impact of business operations on the environment and by the public’s growing expectations for sustainable development. Probably owing to the wide implications and unique focus of environmental issues, research on CEP has become a field independent to CSP. This trend has been further demonstrated through the creation of two separate divisions in the Academy of Management, the largest scholarly management organization in the world. The Social Issues in Management (SIM) division corresponds to CSP, while the Organization and Natural Environment (ONE) division corresponds to CEP.
The distinction between CSP and CEP is further highlighted in both governmental policy frameworks and organizational structures. On the policy side, in contrast to the relatively dispersive expressions of concern for social issues, many countries, developing or developed, have established independent regulatory agencies to manage environmental issues. Environmental policy has become an important factor in political agendas and election campaigns, and in the business world, where many companies have established independent departments for dealing with environmental issues. As well, the manner in which corporations publicize their concern for social and environmental issues, either in print or on their websites, very often reflects a clear distinction between these two aspects. Researchers therefore must acknowledge this new reality and must, in turn, generate knowledge that is able to constructively guide practice.
In addition, sustainability scholars have suggested the notion of a triple bottom line, in which CSP, CEP and corporate financial performance (CFP) are the three pillars of sustainable human development (Elkington, 1998; WCED, 1987). That is, CSP, CEP and CFP contribute to the social system, the ecological system and the economic system, respectively, and these systems collectively form the foundation of human society. Although the distinction and mutual consistency among the three systems are widely accepted at the societal level, we are not clear as to whether it makes sense to make a distinction between CSP and CEP at the firm level.
Despite the parallel developments in the two seemingly related fields, researchers do not appear to have analyzed the conceptual relationship between CSP and CEP. Does CEP represent a set of issues that can be subsumed into social issues, like community support, and included in the bigger bucket of CSP? Or are CSP and CEP two separate constructs with significantly distinctive foci, elements and dynamics?
If the former is the case, it would suggest that scholars are unnecessarily, and possibly inaccurately, decomposing a larger construct into its various dimensions and treating them as different constructs. If the latter is the case, however, we will need to discover the structural relationships between the two, such as how one may be nested into the other and how they may stand at the same level of conceptualization. More importantly, we will need to reconsider the conclusions of past studies with regard to CSP, as the practice of blurring CEP into CSP might have led to misleading observations of relevant relationships, in particular, the relationship between CSP and CEP and their financial impact.
In the present study, we aim to find out whether CSP and CEP are distinct constructs, with a suspicion that there are sufficient commonalities among CSP dimensions that would make CEP an outsider. After explaining how CSP and CEP have been blurred in current research practices, we first demonstrate the differences between CSP and CEP using descriptive statistics based on large-sample firm-level data. Based on our interviews with senior managers, we then derive a series of attributes that contrast CSP and CEP. The insights obtained from the interviews allow us to identify a number of conceptual attributes that theoretically differentiate CEP from CSP, which in turn helps us to develop definitions of CSP and CEP that clarify the conceptual confusion in the extant literature. We conclude the study by discussing the importance of our clarification to future research and policy-making.
Prior Conceptualization of CSP And CEP
Since early attempts toward understanding CSR (Ackerman & Bauer, 1976; Bowen, 1953; Preston, 1978; Sethi, 1979), the theoretical framework of CSP has emerged and evolved significantly. Carroll’s (1979) three-dimensional CSP model provided a conceptual foundation; the three dimensions include the philosophy of social responsibility, the social responsibility categories, and the social issues involved. Building on the conceptual work by Wartick and Cochran (1985), Wood developed a widely accepted CSP model (Wood, 1991).
Integrating a firm’s social initiative motive, managerial process of commitment, and social outcome, Wood defines CSP as “a business organization’s configuration of principle of social responsibility, process of social responsiveness, and policies, programs, and observable outcomes as they relate to the firm’s societal relationships”'(1991: 693). In this definition, the principles include institutional legitimacy, public responsibility of organizations, and managerial discretion. The responsiveness process goes from environmental assessment, to stakeholder management, to issues management; the outcomes cover social impacts, social programs, and social policies. Swanson further refines Wood’s model to incorporate managerial decisionmaking and to extend the principle of social responsibility (Swanson, 1995). It is clear from these conceptions of CSP that CEP is included as a constituent social issue.
The stakeholder approach to conceptualizing CSP (e.g., Clarkson, 1995; Donaldson & Preston, 1995a; Waddock & Graves, 1997b) also does not differentiate between social and environmental issues. From the stakeholder perspective, CSP is a measure of corporate performance in managing the relationship between a firm and its stakeholders (Evan & Freeman, 1988), where the stakeholders are concerned with both social and environmental issues. For example, Hillman and Keim (2001) developed a construct of stakeholder management that covered environmental issues as well as four other primary types of social issues such as employees relations, community support, diversity, and product issues.
The fact that CSP and CEP have been blurred may be seen more clearly in empirical measurement. For example, Johnson & Greening (1999) chose five primary social dimensions that were employed in the KLD database and classified them into two groups: people-oriented CSP, which is composed of employee relations, community relations, and women and minority issues; and product-oriented CSP, which consists of environmental performance and product liability. In this classification scheme, CEP is treated as nothing more than a social issue domain that can be easily grouped with other issues. In an attempt to discover a taxonomy among KLD social rating indicators that cover a range of social and environmental issues, Mattingly and Berman (2006) identified a conceptual scheme through factor analysis, including institutional strengths and weaknesses and technical strengths and weaknesses. None of these approaches of classification, however, treated CSP and CEP as two distinctive constructs. In other words, researchers have assumed that CEP is no more discriminant from other social issues than are any two particular social issues included in the conceptualization of CSP.
The conceptual confusion between CSP and CEP is also reflected in the types of data that researchers use to measure these constructs. In previous research, CSP researchers often base their measurement of social performance on certain social reputation ratings, such as Fortune reputation ranking (Brown, 1997), and KLD (Kinder, Lydenberg, Domini) index (Berman, Wicks, Kotha, & Jones, 1999; Waddock & Graves, 1997a), as well as surveys on CSR principles (Aupperle, Carroll, & Hatfield, 1985; Berman et al., 1999). Such reputation-based data often risk blending a firm’s environment-related reputation and its reputation on other issues.
In contrast, CEP researchers often measure environmental performance using self-reported survey and data collected by governmental agencies. The focus of the measurement is “how successful a firm is in reducing and minimizing its impact on the environment, often relative to some industry average or peer group” (1996: 1199). The measurement items reflect firms’ environmental practices (King & Lenox, 2000; Lounsbury, 2001), environmental events announcement (Hamilton, 1995; Klassen et al., 1996), pollution reduction records (Fogler & Nutt, 1975; Jaggi & Freedman, 1992), as well as record in toxic release (e.g., Cormier & Magnan, 1997; Hamilton, 1995; Jaggi et al., 1992).
We have provided a list of measurement approaches to both CSP and CEP in Table 1. Given traditional CSP measurement that combines CEP, the conclusions drawn on CSP in relation to other variables in prior research may need to be reconsidered if CSP and CEP have different dynamics, especially if they interact.
Table 1: Measurement of CSP and CEP
||Operationalization of CSP
||Operationalization of CEP
|Third party Ratings
||KLD: seven major categories including Community Relations, Employee Relations, Women and Minority Diversity, Environmental Issues, Product Liability, Human Rights, and Corporate Governance; e.g., Waddock & Graves, 1997;
Investor Research Responsibility; Center (IRRC) corporate profile (e.g., Hart &Ahuja, 1994);
Franklin Research and Development Center (FRDC) ratings (e.g., Russo & Fours, 1997);
Council of Economic Priorities (CEP) environmental reputation ratings (White, 1995)
||Fortune Reputation Survey (Brown, 1997);
Questionnaire focused on CSR orientation (Aupperle, Carroll & Hatfield, 1985); Survey to CEOs concerning stakeholder attributes, salience, CEO values and CSP (Agle, Mitchell & Sonnenfeld, 1999)
||Survey to U.S. chemical companies focused on pollution prevention and cost management (Christmann, 2000);
Survey about environmental technology sent to manufacturing plants in the U.S. furniture industry (Klassen and Whybark, 1999)
|Interviews & Observations
||Interviews and observations on corporate illegal actions (Elsbach, K. D., & Sutton, R. I. 1992)
||Interviews about motivations with managers from U.K. and Japan (Bansal, 2000)
||Annual reports, e.g., discourse about social equity in Bansal, 2005; Annual report of sustainability and CSR
||Toxic Release Inventory (TRI) (Griffin &Mahon, 1997); Annual reports, e.g., discourse about environmental integrity in Bansal, 2005; Annual report of sustainability and CSR
||Environmental awards and crises (Klassen & McLaughlin, 1996)
|Specific practices /programs /events /operations
||Product recall announcement (Davidson & Worrell, 1992) Corporate philanthropy and crime (Wokutch, & Spencer, 1987)
||Oil spills/chemical leaks, announcement of environmental initiatives (e.g., Gilley, Worrell, Davidson III & El-Jelly, 2000); Operational standards (Dowell, Hart & Yeung, 2000); Regulatory enforcement actions (Kassinis & Vafeas, 2002)
CSP and CEP are Different Constructs
In spite of the dominant anthropocentric paradigm on human development in society, a call for organizations to move from technocentrism (e.g., Beckerman, 1994, 2003; Taylor, 1994) to an ecologically sustainable model has long been made (Gladwin et al., 1995; Hirsch, Friedman, & Mitchell, 1990; Purser & Montuori, 1996; Shrivastava, 1995a). Such a call and the accompanying social movement has highlighted the unique nature of environmental issues, issues that deeply relate to the way we live in our world and the way business seeks growth in particular (Hawken, 2007). As a result, research on CEP has developed its own paradigm, language and nomological models.
Researchers in this field acknowledge the fact that natural resources serve as the ultimate sources of humane value, and they share concerns about the ignorance of nature that exists in organizational theories. However, they fall into two main paradigmatic camps: sustainacentrism (Gladwin et al., 1995), and ecocentrism (Prasad & Elmes, 2005; Purser, Park, & Montuori, 1995; Shrivastava, 1995a, c). The former emphasizes the interaction between organizations and the natural environment and promotes integration of the two in business operations. The latter emphasizes the reliance of the human system on the ecological system and tries to position environmental conservation as the top of priority in human development. In both cases, CEP is treated as a domain that is distinctly different from other social issues, such as product liability and human rights.
The Growth Trajectory of Business Sustainability
Sustainable competitive advantage has been a core concept in the strategic management literature, as it gives directions for strategy formulation and implies superior corporate financial performance (Barney, 2002). The social and environmental issues around business have, however, become increasingly important and have started to drive a shift in the model of strategic management: from a conventional, unidimensional model that focuses on task environment to a multifaceted model that incorporates the stakeholder and institutional environments (Freeman, 1984; Oliver, 1997). Reflecting that shift, the concept of business sustainability has emerged; it refers to sustained business development in an inclusive and connected manner (Bansal, 2005; Gladwin et al., 1995).
Business sustainability represents a new model of business development that balances stakeholder interests, distributes social and organizational value among various stakeholders, and integrates business needs with societal expectations. Specifically, the achievement of business sustainability is based on the simultaneous consideration of three major performance measures – corporate financial performance (CFP), corporate social performance (CSP) and corporate environmental performance (CEP) – during the course of firm growth (Elkington, 1998). Although the volume of research explicitly focused on business sustainability is not remarkable, there is already a considerable amount of research that contributes to this line of enquiry. Past research in this area has primarily examined the binary relationship between CSP and CFP (Margolis & Walsh, 2003; McGuire, Sundgren, & Schneeweis, 1988; Waddock et al., 1997a), and between CEP and CFP (Hart & Ahuja, 1996; Russo & Fouts, 1997). What has been overlooked is the simultaneous interrelationship among the three performance measures as a dynamic system.
Further, conventional research on business sustainability and broad social issues focuses on the level of performance at certain points in time. One typical premise is that the level of CSP will be positively correlated with the level of CFP in a particular period. Such an approach, however, ignores potential mediators and moderators that could eliminate the direct relationship (Barnett, 2007; Barnett & Salomon, 2006). Furthermore, by its very nature, sustainability is a long-term phenomenon and significant relationship patterns may take years to surface. It might, therefore, be difficult to identify an immediate impact on the level of performance. Even if the time lag is modeled, deciding on a proper lag structure is virtually impossible, especially given the possibility that such an impact might essentially be a gradual process rather than a clear-cut, stimuli-response relationship. It is on the basis of these considerations that we choose to focus on the trajectory of sustainability variables, which allows us to identify the underlying pattern of relationships; a conceptualization that challenges conventional theory and methodology.
Ironically, cross-sectional studies have been primarily used in prior research despite the long-term nature of business sustainability phenomena, with a few exceptions (Bansal, 2005; Barnett et al., 2006; David, Bloom, & Hillman, 2007; Shropshire & Hillman, 2007). Because period effects may adduce different pictures of the same relationships at different points in time, we have limited confidence in the conclusions that have been drawn from prior studies based on a one- or two-year time-frame. In fact, researchers have already reported inconsistent results when examining CSP-CFP and CEP-CFP relationships (Margolis et al., 2001; Orlitzky, Schmidt, & Rynes, 2003). More seriously, we fall short of understanding the dynamic processes and evolutionary patterns as firms seek to sustain continued growth and above-average financial performance; such knowledge offers direct guidance to strategic management in a new age.
In this study, the researcher systematically reviewed the literature examining the growth trajectory of business sustainability based on a sample of large public firms over 13 years. Previous studies have looked at how the three performance measures, CSP, CEP and CFP, evolve as they relate to one another. Such a growth-focused approach speaks directly to the heart of business sustainability, while shedding further light on the relevant conclusions reached in previous research. Of particular interest is the fact that the growth approach allows us to understand how the trajectory of one pillar of sustainability is influenced by those of other pillars, which offers insights into the process of achieving business sustainability. In addition, this approach will allow us to investigate the potential of social and environmental investments in building long-term sustainable value. Such an argument has long been put forward, yet it has never been fully tested. Examining business sustainability from a growth perspective therefore has the potential to contribute to this field considerably, in terms of both theory and methodology.
It is argued that the behaviour of firms evolves in such a way that their performance growth in three major domains – CSP, CEP and CFP – will increasingly coalesce over time. The reason for this is that two types of processes interact at the firm level: institutional processes, with respect to the expectation of sustainability; and firm decision-making processes, in terms of competitive strategy-building. The former is based on institutional theory, while the latter is grounded on a resource-based view (RBV). Such interaction eventually finds common ground for both logics through integrative resources and capabilities. That is, some resources and capabilities emerge that integrate both business demands and social considerations. This relationship between firm resources and the institutional environment has been little explored at the firm level, yet it explains not only how the three pillars are mutually consistent, but also how they will become increasingly aligned over time.
This study may also advance institutional theory by generating insights into institutional processes that occur in parallel with strategy formulation and that have been comparatively overlooked. The area of business sustainability presents an ongoing process of active institutionalization, involving contested meanings and values and organizational responses to emerging values. There is a remarkable presence of “institutional contradictions” in the field, such as efficiency-legitimacy contradiction, and misalignment between existing institutional arrangements and less powerful actors whose interests are not well accommodated (Seo & Creed, 2002). Such contradictions permit rich description of the underlying interplay process.
In the following section, we develop a framework that explains the process by which institutional logics and business strategic logics interact and enable changes on the part of both firms and the institutional environment. We present a hypothesis on the coevolution of CSP, CEP and CFP based on the framework. We then describe the methods we use, and we provide the results. In the subsequent section, we discuss the findings and implications, including those specific to the research on business sustainability and those more broadly related to enriching institutional theory. We then conclude our study.
Institutional theory has been widely applied to the understanding of business sustainability. The key questions addressed include the institutional pressures that influence organizational adoption of sustainability practices (Bansal et al., 2000; Sharma & Henriques, 2005) and the diffusion and institutionalization of such practices within organizational fields (Hoffman, 1999; Jennings & Zandbergen, 1995). The resource-based view (RBV) has also garnered considerable attention, as researchers investigate the resources and capabilities associated with business sustainability (Hart, 1995; Russo et al., 1997). Few studies, however, integrate institutional theory and the resource-based view (Bansal, 2005; Oliver, 1997 being exceptions). It is, however, their integration that probably reveals some of the deepest insights into the trends in the three pillars of sustainability.
In this section, we integrate institutional theory and the RBV through the processes that occur over time. The process follows four stages, with no clear start or end: (1) changes to the institutional context; (2) the opportunity to acquire rent-earning resources and capabilities; (3) the acquisition of unique resources and capabilities (R&C) that integrate organizational resources and institutional demands; (4) the shaping of the institutional environment through these new R&C. The process that we describe is illustrated in Figure
Changes to the Institutional Context Concerning Business Sustainability
Institutional forces, often attached to specific stakeholders or actors, add to the purely economic and technological elements that characterize the traditional task environment of business (Freeman, 1984; Scott, 1987, 1991). With their rule-like status in relation to organizations, these institutions determine and change the structure of inter-organizational resource dependence, operational uncertainty, issue awareness and acceptance by the public, as well as legitimacy pressure; thus they set up a context to which organizations must strategically adapt (Scott, 2001; Zucker, 1987).
There is evidence of institutional adaptation in the field of business sustainability (e.g., Bansal et al, 2000; McKay, 2001). For instance, institutional forces are found to influence corporate strategy (Rugman & Verbeke, 1998), corporate social policy (Strike et al., 2006), and corporate environmental strategy (Child & Tsai, 2005; Christmann, 2004; Sharfman, Shaft, & Tihanyi, 2004). Further, such contextual constraints have become increasingly important to business, as reflected by greater perceived public concern and regulatory pressure (Banerjee, 2001; Banerjee, Iyer, & Kashyap, 2003) and the change in stakeholder management commitment (Shropshire et al., 2007). Meanwhile, more and more business research models and business plans have started to incorporate institutional considerations, which is an indication of how seriously the business community treats such an environment (Guler, Guillen, & Macpherson, 2002; Lounsbury, 1999; Oliver, 1997).
There seems to be extensive influence of this increasing institutional pressure on organizations with respect to business sustainability. On the social side, corporate charitable donations have increased with improved economic prosperity (Adams & Hardwick, 1998; Brammer & Millington, 2004), and better occupational safety has been realized, even in relatively dangerous industries (Smith & Tombs, 1995). More importantly, as Brammer and Millington have shown (2004), the prerequisite role of profits for donations has weakened in the last decade, and corporate visibility and societal impacts have become major drivers behind such social commitment. In addition, concerns with labor ethics and other social dimensions of operations in the process of internationalization have gained increased attention (Doh, 2005; Strike et al., 2006), and various institutional arrangements have been suggested to address these problems (Amba-Rao, 1993; Doh, 2005; Frederick, 1991; Windsor & Getz, 1999).
On the environmental side, the sweeping changes in the institutional climate have been experienced by all members of society, especially profit-seeking corporations. Some of the most salient signals of this change include the establishment of regulatory agencies such as the EPA (Environmental Protection Agency) in the United States, the increased power of environmental NGOs (Non-governmental Organizations), and extremely sensitive public attention, among others. Hoffman (1999) has clearly illustrated how corporate environmentalism had undergone four major stages of evolution at the organizational field level, from challenging to existing beliefs, to regulation and enforcement, then to normative recognition, until finally, corporate environmentalism became a cognitive assumption that was almost unquestioned. During this process, organizational fields around environmental issues have constantly changed their own content and form, representing the change in power and relationships in the fields.
Hoffman’s study also demonstrates that sustainability-related institutions do not come about naturally, but rather emerge as a result of “institutional war” (White, 1992). With respect to both the content and the form of “desirable institutions,” there are always competing notions and suggestions that reside both outside and within an organizational field. A dominant message of expectation will, however, be delivered to relevant parties to guide their behaviors, once various institutional actors, such as government, media and companies, reach an overall consensus through compromise and accommodation. The present climate of acceptance around sustainability is the result of a societal paradigmatic shift from technocentrism to econocentrism and then to sustainable development (Gladwin et al., 1995). In the past, many believed that the social and environmental aspects of investment represented resource malfunction and misappropriation (Frederick, 1994; Friedman, 1970), bringing extra burdens to firms (Friedman, 2002; Walley et al., 1994). In line with the three pillars of sustainability, firms now devote much greater effort to reducing the negative environmental impacts of their operations (resulting in better CEP), to enhancing the wellbeing of stakeholders (toward greater CSP) and to promoting shareholder value (improved CFP).
A web of institutions on sustainable development has also come into being that enhances the diffusion of this norm. In addition to governmental regulation and organizational social issues management, we have seen the development in society of fields and networks of sustainable organizations (Jennings et al., 1995), the illustrative practice of “institutional entrepreneurs” (DiMaggio, 1988; Zucker, 1987), the interplay of multilevel and cross-sector social systems (Selsky & Parker, 2005; Starik & Rands, 1995), as well as a greater supply of clean technologies (Shrivastava, 1995c). These institutions not only provide a contextual structure in which firms are led towards sustainability, but they also enhance the acceptability – and thus the power – of such a norm, both within and outside organizations through improved cultural and political support (Oliver, 1997). Consequently, as a “legitimatized element” (Zucker, 1987: 443), business sustainability has begun to promote and even demand the creation and flow of resources and capabilities towards such initiatives.
An important tenet in RBV is that the value of resources changes with a changing environment (Barney, 1986; Collis, 1994). Some business objectives may be more or less desirable as the institutional environment evolves, and hence, the resources and capabilities associated with those objectives become more or less valuable. This implies that firm resources and capabilities will become differentiated in light of their value potential for sustainable competitive advantage, based on what the institutional environment dictates is valuable. This differentiating role of the institutional environment is achieved through the four major institutional mechanisms delineated below.
Signaling and publicizing
. Institutions are able to deliver an explicit signal of preference regarding business activities, thereby generating normative pressure. The accompanying policies and regulations, campaigns and discussions will increase public awareness and create concern for issues that may have been previously ignored. For instance, the propaganda campaigns and legal cases associated with the Clean Air Act, Affirmative Action, and other regulations on labor rights and human rights have made society sufficiently sensitive to these issues.
When people become aware of their rights, they fight, and the physical and intellectual firm resources associated with the issues at hand are, consequently, differentiated. This can be observed in the product market where, for example, ever-increasing concern over global warming, high levels of waste and other environmental deterioration phenomena has resulted in environmental issues emerging as an important criterion against which customers make purchases (Rosewicz, 1990). The same can be seen with social issues. Customers may even protest against certain products owing to concerns about the company. This has led to the idea that green products provide a new opportunity for market growth through product differentiation (Murray & Montanari, 1986; Porter, 1980).
Further, the increased public attention on social responsibility has made social reputation, which is a valuable resource for companies, even more important for competition (Fombrun & Shanley, 1990; McGuire et al., 1988). For example, multinational corporations often face scrutiny by the public, local governments and worldwide customers concerning how they deal with issues of labor exploitation, cross-national differences in product quality standards, environmental impact of operations, cultural hegemony and local autonomy. A company may be rewarded in various ways when it meets the expectations of those stakeholders and thus builds a good social reputation. A variety of reputational advantages for firms, other than customer loyalty, have been offered and tested, such as better ability to obtain and keep high-caliber employees (Backhaus, Stone, & Heiner, 2002; Dechant & Altman, 1994), to attract investors (Paul, Brammer, & Millington, 2004) and to set premium product prices (Klassen et al., 1996; Milgrom & Roberts, 1986). It is clear then that the signaled preference of institutions and the resulting increased public awareness regarding social and environmental issues have offered opportunities for firms to exploit and build some unique resources and capabilities.
. Supplementing the role of the institutional environment for signaling and publicizing, there are established institutions that require or guide information disclosure on the part of corporations. The consequent information transparency will facilitate the differentiation in value among the firm resources and capabilities that are associated with sustainability. Such institutions typically involve mandatory self-reporting, along with penalties and investigations when necessary. These arrangements allow the public to have access to transparent and precise information on business activities, i.e., information on which they base their reactions. Some examples of such institutions include public reporting by governments like the U.S. EPA’s Toxic Releases Inventory, sustainability or CSR reports released by a growing number of companies, contaminated land registries, as well as self-regulation such as ISO 14000 certification. Certain norms and standards for reporting – for example, the Global Reporting Initiative – have also been established. In addition to disclosing important information and creating pressure on firms, these types of institutions have also made it convenient for firms to contribute to sustainability. By associating themselves with some of these signals, firms can demonstrate their ecological commitment through procedural and structural improvements in a more visible way (Suchman, 1995).
Through participating in certain forms of information disclosure, firms create greater transparency around social and environmental issues. Along with this transparency, opportunities for building stakeholder loyalty and legitimacy also emerge, and this may have a considerable impact on firms in the form of “long-term sustainability, survival, license to operate, avoiding fines and penalties, lessening risks, and employee satisfaction” (Bansal et al., 2000: 727). Researchers have long emphasized the importance of legitimacy as a strategically operational resource (Ashforth & Gibbs, 1990; Pfeffer, 1981; Suchman, 1995). In line with this view, not just resources and capabilities but also firms themselves are classified according to institutional preference.
Not only do regulations and rules clearly state what is defined as acceptable and desirable, but they also make sure that relevant parties behave as expected through the use of strong tools and instruments for enforcement. This type of institution is, therefore, arguably the most effective and powerful kind. Consequently, resources and capabilities can be clearly differentiated in terms of their ability to help firms meet and go beyond regulations. These resources may flow towards some firms rather than towards others, as guided by a particular institutional set-up – in this case, business sustainability. If a firm honors these regulations, it obtains social legitimacy; otherwise, stakeholders will revoke their investment, be it physical, political or psychological. The threat of loss of investment and support provides a deterrent effect that motivates firms to be legally, if not ethically, responsible.
Responsible firms do receive pay-back. For example, despite infrequent inspections and negligible penalties, as measured by fines for violations (Russell, 1990), researchers have pointed out a fairly high rate of compliance with statutory regulations among constrained firms (Decker, 2003; Harrington, 1988; Magat & Viscusi, 1990). Addressing this “Harrington paradox,” Decker (2003) found that a solid record of compliance helped firms to obtain permits for new plant construction more quickly; delays in permission have been associated with tremendous costs such as expected revenue and loss of critical strategic opportunity (Robinson, 1999).
Factor market valuation
. Either through government or self-regulated association, certain factor markets have been created within the current institutional environment. Some examples of factor markets include fair-trade coffee and carbon-emission trade. When carbon emissions are taxed or traded because of markets, firms have incentives to reduce carbon emissions because they gain direct financial benefits or offset credits. The resources and capabilities that may contribute to the firms’ factor market performance thus become more valuable than others.
It is in these four ways that the institutional environment makes its hand visible, differentiating resources and capabilities in value according to their fit with the institutional prescription. Opportunities are thus created for firms to exploit – or to build, if they do not already possess them – some valuable resources and capabilities. For the purpose of seeking sustainable competitive advantage, these resources and capabilities will be the ones that firms seek. Oliver (1997) has analyzed the importance of institutional capital in this respect. 3.
Integrative Resources and Capabilities
The already-explained institutional mechanisms create an institutional market that values and prices firm resources and capabilities, indicating what kinds of activities are more desirable within the institutional environment. Such external expectations, however, have to be translated into firm-level strategies, and in turn, into the associated practices and programs so that these institutional preferences are consolidated through routines, i.e., institutionalized. Otherwise, they are nothing more than societal voices that suggest alternative institutional arrangements.
It should be pointed out that organizations never conform to institutional prescriptions automatically and easily. Instead, there is natural resistance on the part of existing powerful actors to emerging institutions (Hannan & Freeman, 1984; Powell, 1991). The reason for this resistance is not only the path dependency, organizational inertia and institutional lock-in, but also that it is very challenging to integrate institutional logics and strategic logics, two fundamentally different logics. The former centers on socially defined legitimacy, a collective notion of social appropriateness and desirability, while the latter focuses on functional efficiency and applies strongly to competitive strategy formulation and implementation. Technical efficiency is often undermined when organizations seek institutional legitimacy (Meyer & Rowan, 1977; Zucker, 1987).
Seo and Creed (2002) have identified such an efficiency gap as one of the four sources of institutional contradictions. The institutional rigidity mentioned above is analogous to what they label as “the nonadaptability problem.” The other two sources of institutional contradictions include: interinstitutional incompatibilities across different levels and societal sectors; and unsatisfied actors, often less powerful, with respect to existing institutional arrangements (Seo et al., 2002). Until these institutional contradictions are resolved, the pressure for institutional change, and thus organizational adaptation, will intensify. Consequently, organizational survival is at stake.
In order for the institutional preferences to be imprinted into firm-level strategies and operations, some accommodating mechanisms must be created that permit integration between institutional logics and strategic logics, be they symbolic or substantial. One mechanism is the decoupling, or loose coupling, between ritualized formal structure and operational technical activities (Meyer et al., 1977). For example, Elsbach & Sutton (1992) demonstrated how social movement organizations can shift public attention away from their controversial and even unlawful actions by decoupling legitimate structure from illegitimate activities, eventually obtaining social endorsement and support. Scholars have pointed out, however, that such loose coupling or decoupling may not, in the long run, be effective in protecting organizations from the penetrating external pressure unless continuous efforts are made to pursue optimal solutions (Seo et al., 2002).
The other approach to accommodate both efficiency and legitimacy is to truly integrate institutional logics and strategic logics. By using the adaptive approach of bridging institutional processes and firm decision-making processes, firms can address both the efficiency gap and the misaligned interests between powerful and less powerful actors in the field. Depending on management commitment, both the decoupling approach and the integrative approach can be adopted in organizations (Weaver, Trevino, & Cochran, 1999).
The challenge for deep integration is to identify and develop special resources and capabilities (R&C) inside organizations that allow firms to exploit both the institutional value and efficiency value. We define such R&C as integrative R&C, which are valuable in the sense that they have the best capacity to reflect both institutional demands and competitive considerations. When applied in strategies, these R&C will serve to translate institutional expectations into firm-level routines. Note that the institutional valuation process has put price labels on the R&C, based on their potential to achieve institutional goals; the integrative R&C we define here, therefore, will be among those highly valued by the institutional market. In other words, the process of institutional differentiation has pointed out the types of R&C that firms should pursue as they strive to develop competitive advantages.
Prior researchers in the area of sustainability have already identified some R&C of high integrative value, such as stakeholder integration, continuous innovation and higher-order learning (Chan, 2005; Sharma & Vredenburg, 1998). Attempting to build a natural RBV, Hart (1995) has presented the distinctive capabilities required to implement different environmental strategies, such as total quality management, cross-functional management and establishing shared vision. Building on Hart’s work, Buysse and Verbeke (2003) classified five resource domains with respect to three types of environmental approaches, from reactive posture to environmental leadership. In addition, Christmann (2000) emphasized the importance of process innovation and implementation capabilities as complementary assets in the process of realizing the cost advantages of best environmental practices. These identified resources and capabilities contribute to improved performance across financial, social and environmental aspects of operations, driving the integration of the three types of performance.
Furthermore, Russo and Fouts (1997) delineated some capabilities that would certainly be part of a proactive environmental policy, including the acquisition of new technology, creative ways of using physical assets, advanced employee skills, intense cross-functional coordination, company-wide commitment and participation and sophisticated internal management. These organizational and technological capabilities, once developed or enhanced during firms’ implementation of sustainability programs, are sources of sustained competitive advantage in the modern competitive environment (Barney, 1991; Dierickx & Cool, 1989; Reed & DeFillippi, 1990). In the meantime, during the process of executing an active environmental initiative that is usually complicated, organizational learning abilities are promoted as well (Bonifant, Arnold, & Long, 1995).
Apart from these studies focusing on CEP, some scholars emphasize important resources for CSP. For example, Strike, Gao and Bansal (2006) explained how learning and knowledge transfer capabilities are needed in order for multinational companies to manage CSP better. Waddock & Graves (1997b) found that, in terms of stakeholder relations, CSP influences the quality of management. In both cases, the associated resources and capabilities are not only instrumental in implementing sustainable practices, but are effective in generating competitive advantages for some over others, according to RBV. Hence, these integrative R&C allow institutional values and expectations to be well reflected in firm level strategies and operational activities.
Resources and Capabilities
Organizational level activities that exploit and develop integrative R&C are initially an adaptation process. When, however, the scope and depth of such activities increase, a focal sector or field may present changes in practices that are increasingly incompatible with institutions in other sectors or fields at different levels. This poses the contradiction of “interinstitutional incompatibility” (Seo et al., 2002). In other words, locally initiated changes may conflict with the values and practices in other institutional sectors or levels that are interconnected with the focal sector or level in a larger societal system. Over time, either the newly initiated changes are deracinated or are further diffused. In either case, the initial institutional environment will be reshaped, resulting in changes to the relative power of its actors, and thus the content and structure of organizational constituencies. Given that sustainability commitment represents an institutional call of growing influence, we expect that the broader institutional environmental will be reshaped in such a way that integrative R&C are actively pursued and applied.
It should be noted that such institutional change with regard to business sustainability is primarily driven by endogenous sources of institutional contradictions rather than by exogenous jolts such as technological revolutions or regulatory changes (Rowan, 1982; Tushman & Anderson, 1986). It is true that, as we described in the first section about an increasingly demanding institutional environment, new regulations are being enacted that push firms to develop a more sustainable model of business. Such regulations, however, have never been so strong that they become the dominant driver behind the sustainability movement. Rather, the major driver has been one type of institutional contradiction, the misaligned interests between shareholders and other corporate stakeholders. The interests of the latter group have not been adequately accommodated, yet the existing institutional arrangements do not have enough space for corporations to adapt to societal expectations in this regard. Institutional changes are therefore required to resolve the contradiction.
The implication of such a structure in driving forces is that institutional entrepreneurship will play an important role in determining how and where corporations evolve toward sustainability. In other words, there will be diversified and innovative ways of doing sustainable business, and the dominant pattern will be customization rather than direct conformity (Westphal, Gulati, & Shortell, 1997). This also means that CSP, CEP and CFP, although largely co-evolving as we expect, will converge and diverge at different points in time. That is, we will not expect a simple, perfect, virtuous circle. This is even truer when one considers the compounding effects of disruptive events that may occasionally occur.
A typical mechanism of the institutionalization on sustainability will be isomorphism through competitive imitation and normative compliance. Those firms that possess integrative R&C often play the role of “institutional entrepreneurs,” serving as agents of institutional change and reproduction (DiMaggio, 1988; Zucker, 1987). The professionalization and structuration among organizations that arrive subsequently (DiMaggio & Powell, 1983) provide extra normative pressure for isomorphic processes. Accordingly, firms that do not embark on CSP and CEP at the outset often find themselves following proactive firms later on, either because they attribute the competitive advantage of leading firms to such a strategy, or because the same norm is shared by an increasing number of peers.
The positive interplay between firm resources and the institutional environment that we have developed so far suggests that CSP, CEP and CFP will generally co-evolve over time. Specifically, we expect that, when the institutional environment values firms’ R&C based on its preferences, firms will be motivated to develop and apply integrative R&C that allow the integration of institutional logics and efficiency logics. The broader institutional environment will evolve to reflect such integration. As the interaction between firms’ R&C and the institutional environment deepens over time, it is likely that the three pillars of sustainability will coalesce, in the sense that those pillars are closely tied to one another. During this process, corporations maximize long-term firm value and eventually realize business sustainability.
CHAPTER III: METHODOLOGY
Case study approach which sources will you consult.
My methodology would be first to gain maximum understanding towards the Environmental Problems in the aviation industry, go in depth and identify them all from their very root of origin. Next step would be to go through the policies that in place and those which preceded them, plus develop an understanding of those which would be coming in place, those caused by the State of the art technology. I would like to focus on a local company British airways that is disposed to contributing to the pollution. My reason to choose this methodology is because I believe one can only deliver understanding towards something when they have developed in-depth knowledge about it, and I believe this methodology would help me achieve that knowledge.