Being Green: The Corporations Responsibility - Research Paper Example

? Research Paper Being Green: The Corporation's Responsibility Henrietta Francis Liberty The concept of being green and its association with favorable corporate image, cost savings as well as high profitability has gained great attention from researchers in the past few decades. The fact that the major motivation behind firms’ decision to go green is not merely altruistic has been widely accepted by almost all scholars. This paper reviews the motivations that are largely argued as the reason behind firms’ willingness to go green including the associated benefits of pursuing this strategy. The limitations of such a strategy have also been identified. Furthermore, green business has been explored in depth with examples of studies conducted across a wide range of industries and countries. The insights offered by this paper could serve as a useful foundation for future research in the field of green innovation and brand management as well as the significance of going green during recessionary times. Keywords: Green business; green innovation; sustainability; environmental management Green business has gained significant attention in recent years. It has been particularly used as a marketing tool in the midst of recession to secure access to new customer markets and gain cost efficiencies. More often than not companies embark on the ‘green’ mission to enhance their reputation and climb up the corporate ladder by gaining knowledge-based green capital. Various motivations underlying the business decision to go green shall be explored across a wide range of industries and countries. Furthermore, the benefits and trade-offs involved in this process shall be explored. Ever since the time of the Industrial Revolution, corporations’ negative impact on the environment has generated a cause of concern for various stakeholders such as environmental protection agencies, the government as well as consumers. Environmental regulations such as Kyoto Protocol, Montreal Convention, RoHS and WEEE have emerged to define the legal standards for businesses as far as environmental protection is concerned (Chen, Shih, Shyur, & Wu, 2012) (Seman, Zakuan, Jusoh, Arif, & Saman, 2012). However, ‘coercive drivers’ are not as effective as ‘normative drivers’ in promoting environmental sustainability (Tseng, Chiu, & Siriban-Manalang, 2013). Furthermore, businesses realize that they must forgo short-term profits if they are to invest in green technologies. Ultimately, going green is a voluntary practice as opposed to being legal and the fact that it is not mandatory makes many firms not to opt for it as it leads them to sacrifice their profits at least in the short run. Although the existence of environmental legitimacy suggests a reactive approach that has been taken to rectify the damage done to the environment in the past few decades, a proactive approach is now being adopted by firms who wish to take advantage of emerging opportunities. At the very least this involves firms asking the question: what do we gain if we are to go green? Why should we go green? The drivers behind green businesses that practice environmental management at all levels are aplenty. Global warming, scarcity of nonrenewable energy sources and the resultant soaring energy prices have put pressure on firms to put ecological issues at the forefront of their strategic agenda (Yozgat & Karata, 2011). Companies have moved from the classical to the neo-classical paradigm of driving profits through growth. However, it would be wrong to suggest that waste management and going green is merely a demonstration of organizations’ altruistic concern for the environment. Accordingly, ‘green is the new lean’ philosophy has emerged. The asynergy between lean and green often results in efficiency gains and higher profits for firms. Since the lean paradigm focuses on the optimization of end-to-end supply chain rather than “islands of improvement”, green practices must also involve both upstream (e.g. product design phase) and downstream (manufacturing and transportation) supply chain activities (Dues, Tan, & Lim, 2013). This is consistent with the lifecycle analysis approach which involves incorporating the green aspect in all aspects of the product’s life cycle from its conception to its disposal (Chen, Shih, Shyur, & Wu, 2012) (Fadhilah & Ramayah, 2012). Keeping in view this line of thinking, green innovation has been split into product and process innovation (Guziana, 2011) (Chen, 2008). Companies often come up with products designs as well as processes that focus on saving energy, preventing pollution, recycling and reducing toxic emissions. Furthermore, the acquisition of ‘green suppliers’ has a positive effect on both green product and green process innovation (Seman, Zakuan, Jusoh, Arif, & Saman, 2012). One area that has gained significant importance in the field of green business is transportation. Green transportation has been defined as one which has little negative effects on human health as well as the ecosystem compared with other transportation used for the same purpose (Bjorklund, 2011). Although certain product designs can limit the use of green transportation, higher priced products allow firms to invest in such transportation. More often than not, external stakeholders such as the government and competitors’ actions determine the willingness to use green transport. Enhanced image by using green transport is a critical factor influencing the decision to use such transport (Bjorklund, 2011). Green transportation can at best be assumed as a part of the larger green logistics which forms the downstream supply chain of a corporation (Karagulle, 2012). However, lack of collaboration between the shippers and suppliers as well as lack of concrete directions on how the transport service providers can become eco-friendly results in failure of such a strategy (Bjorklund, 2011). The benefits of the synergistic lean and green practices are aplenty. Both lean and green practices result in the reduction of lead time; reduce waste, result in tighter and long-term relationships with a handful of reliable suppliers and becoming people-centric (Dues, Tan, & Lim, 2013). At the very least, pioneering in green innovation had led firms to achieve a first-mover advantage which provides them multiple benefits of securing high prices from customers, developing new markets, enhancing their goodwill and securing competitive advantage (Chen, 2008). Hence, green innovation is strongly associated with core competence that helps firms in gaining sustainable competitive advantage (Tseng, Wang, Chiu, Geng, & Lin, 2013). The extent to which companies benefit from developing green core competence or the know-how that develops green business capabilities depends on their size with SMEs deriving far fewer benefits than large corporations in the case of Taiwan (Chen, 2008). Another reason why green management is important is because of the triple bottom line philosophy which captures the concept of ‘sustainability’ as being defined by the three pillars of economic, environmental and societal needs (Ahi & Searcy, 2013) (Cohen, 2010). These pillars which have been defined by the United Nations 2005 World Summit recognize the fact that the natural, societal and environmental resources that humans depend on are limited in quantity and that there is a need to conserve them and use them efficiently. If development is taking place only in the social and environmental sphere it is termed as “bearable” (Chick & Micklethwaite, 2011). If development is limited to the social and economic spheres, it is referred to as “equitable”. Furthermore, if only economic and environmental development is present, the situation is referred to as “viable” (Chick and Micklethwaite). It is only when all three dimensions develop simultaneously that sustainability comes into being. Hence, the term ‘green’ has come to represent social justice, eco-friendly and economic development (Wang, Chen, Lee, & Tsai, 2013). Although originally limited to the national level, sustainability has transformed into a values-based concept that is being increasingly embraced by organisations who realize the finite nature of natural resources. It is not surprising, therefore, that organisations communicate their ‘green’ initiatives in one of the most important piece of communication to stakeholders- the mission and vision statements. In one of the researches, over 66% of companies (particularly food and energy companies) showed sensitivity to environmental responsibility by demonstrating it through their mission and vision statements (Yozgat & Karata, 2011). In some of the cases, however, embedding environmental protection activities in these statements is merely an attempt by corporations to dampen the negative reactions from the society regarding their unethical and polluting activities. Despite various driving forces behind green and sustainable, some businesses often question their feasibility. In other words, the business case for investing in green technologies, processes and products must be strong enough for corporations to go ahead with such investments. Clearly, businesses rely on profits for their existence and anything that reduces this incentive will lead to closure of the business. Marks & Spencer, for instance, launched its “Plan A” CSR incentive based on the “win-win” logic that environmentally friendly way of working would result in cost savings (Goger, 2013). The process, however, becomes complicated in global value chains (GVCs) whereby suppliers bear the disproportionate brunt of heavy investments in upgrading technology and factories to eco-friendly standards. Furthermore, industry consolidation is another danger of lean and green technology as it provides companies with the dual advantage of securing lower prices from suppliers and profiting from the “green” reputation (Goger, 2013). Research also suggests that green image positively affects both store loyalty and shopping value (Yusof, Musa, & Rahman, 2012). Also, building greener manufacturing facilities can be seen as a strategy to mask other unethical practices such as child labor and dilapidated working conditions. Keeping this in view, such eco-friendly factories are deliberately built as aesthetically pleasant and having high standards of workers’ health and safety to combat the traditional image and appearance of “sweatshops” that some major corporations have been accused of possessing (Goger, 2013). Ultimately, environmental up-gradation and compliance with environmental regulation results in organisations adding more value to their business through the production of higher quality products, enhancing productivity and greater adaptability that allows these firms to remain globally competitive and secure higher rents. Based on Schumpeter’s concept of the cycle of innovation (in which the onset of competitors spurs more innovation), green innovation in GVCs can spur national development which ultimately shapes the industrial policy (Goger, 2013). In turn, countries with corporations that exercise green initiatives tend to do better and more business compared to others. For instance, ever since Ireland has been promoted as the hub of green products in Europe, its exports have witnessed significant growth (Chen, 2008). The tourist industry in particular seems to witness a huge boost in countries that are indulged in “green activity”. Countries such as Japan have embarked on a “recycling based society” which incorporates the “reduce, recycle and reuse” philosophy (Dubey, 2008). So far going green has been identified as being a win-win strategy for firms who wish to mask unethical activities, gain first-mover advantage by doing so or please stakeholders such as the government, environmental protection agencies and the media by publicizing their green activities through the mission and vision statements. Also, in most countries it is a necessary requirement to report CSR activities along with financial reports. For instance, a study of Libyan organisations in production, services, banks and mining sector revealed that, according to most workers, the primary reason for reporting socially responsible initiatives was to enhance the corporate image by making stakeholders conscious of the corporations’ community welfare and to ensure transparency which would promote integrity in the corporation’s (Bayoud & Kavanagh, 2012). Realizing the integrated nature of exercising environmental responsibility in business operations, the term “environmental management systems” (EMS) has been used to refer to all internal procedures, rules as well as plan of actions that depict the organization’s relationship with its environment (Darnall, Henriques, & Sadorsky, 2008). Businesses that pursue “islands of improvement” program for environmental up-gradation often suffer from shifting the environmental damage from one subsystem to another (Darnall, Henriques, & Sadorsky, 2008). This has been overcome by the preventive nature of EMS that considers all operations in an integrated fashion. However, economists argue that businesses would give up more than they would gain if they invest more than the optimum level (Darnall, Henriques, & Sadorsky, 2008). This would mean that investing beyond the level required by regulatory practices would be detrimental to the corporation’s performance. Contrary to this argument, however, EMS may result in improved financial performance for the firm. Because of social approval and enhanced legitimacy in the market, firms may experience an increase in sales along with increased pricing which ultimately results in higher incomes. This is particularly true of the hospitality sector. A study reveals that hotel products and services that are “green” help differentiate them from competitors’. Similarly, hotels may secure “green awards” and use them as promotional material to attract motivated employees and environmentally conscious customers (Chan E. S., 2013). On the other hand, the costs of environmental protection are substantially reduced for firms that develop knowledge-based capital and mobilize complementary resources towards green innovation. Green knowledge may be accumulated through environmental training and developing and empowering green teams (Fadhilah & Ramayah, 2012). Considering that restaurants are the largest retail consumers of energy, significant attention has been paid towards the ‘greening’ of restaurants (Wang, Chen, Lee, & Tsai, 2013). Ultimately, the combination of increased revenues and reduced costs results in better financial performance. The idea of green management, particularly supply chain management, and its relationship with corporate performance has been defined by Hart who proposed the natural resource based view. This view suggests that corporations ought to consider the environment holistically while planning for strategic decisions (Guziana, 2011). This is because such a view enables such businesses to overcome any uncertainties arising between the business and its environment. Higher corporate performances ensues from going green because it greatly reduces the legal risks associated with violation of environmental regulations, leads to improved goodwill, opens doors for the company to serve a specific segment of customers who are conscious of environmental conservation as well as provides the company with cost advantages resulting from continuous green innovation. However, the link between corporate performance and investment in environmental up gradation is far from being explicit. According to some researchers, the link between these two is actually negative with such investment reducing the corporation’s overall profitability. Nevertheless, a research conducted on several FIEs in China reveals that the strong relationship between supply chain management and marketing (in terms of product design, packaging, selection of upstream and downstream partners and communication) provides a strong basis for firms to adopt a cross-disciplinary approach towards environmental up gradation which can lead to superior corporate performance (Chan, He, Chan, & Wang, 2012). For instance, Tesco has recently attempted to use labels for carbon footprint on its products (Cohen, 2010). Interestingly, it is necessary for firms to develop a strong internal orientation towards environmental management in order to recover their investments. Therefore, having an external orientation towards environment management is not enough since it results in enhanced performance only through green purchasing and customer cooperation but not through investment recovery. As discussed previously, embedding “green” values in the mission and vision statements and the organizational culture can result in larger impact on environmental up gradation as well as the firm’s performance. Ideally, firms may not be in an either-or situation and are likely to possess both internal and external motivations to go green (Chan, He, Chan, & Wang, 2012). In other words, both internal ethics and external regulatory and competitive pressures can motivate firms to go green. Even though the motivation to go green is strong, the recent recessionary times have led businesses to question the viability of eco-sustainability adopting which requires the business to go through the change management process. This questions how sustainable green business actually is. Paradoxically, the global financial crisis had resulted in the birth of a new type of capitalism, known as creative capitalism that embodies ethical and social concerns. In other words, it attempts to reconcile the shareholder and stakeholder perspectives by claiming that self-interest and altruism can peacefully co-exist. As we have seen earlier this holds true to a large extent particularly because getting the green label provides businesses with sufficient monetary and non-monetary returns. For example, the CEO of General Electric (which has favorable green image) states that the main beneficiaries of the green initiatives in the middle of the “economic storm” are customers and investors (Sekerka & Stimel, 2011). This highlights how companies’ reason for going green is largely based on the shareholder view rather than a deeper, altruistic motive. Furthermore, companies such as Verizon and Home Depot that have gone beyond regulatory compliance in the achievement of green standards believe in the fact that they can save the bureaucratic costs which they would have incurred if they were merely following centralized regulatory programs by governments (Sekerka & Stimel, 2011). Therefore, firms have incentives for going green voluntarily even during recessionary times. Additionally, it is important to understand that going green particularly during recessionary times involves tough choices. Indirect investments, such as such as giving to charities and donating for causes are most likely to be reduced as they often do not result in direct monetary gains for the firm (Sekerka & Stimel, 2011). On the other hand, direct investments such as green innovation and eco-activities in the supply chain may or may not be cut down during recession (Sekerka & Stimel, 2011). Here the tradeoff between financial and competitive risks is apparent and clearly companies with a stakeholder perspective are less likely to cut back on such investments compared to those with shareholder view. Some cases require long-term assessments. For instance, a firm may not opt for getting organic produce from a supplier that is twice as far as its current supplier even if the former offers half the price because the resulting pollution would harm environmental interests in the long run (Sekerka & Stimel, 2011). Considering that firms’ motivation to do green business can widely differ from being altruistic to one where these firms seek certain advantages two terms have been coined. The ‘green’ business refers to companies that go green to exploit the cost, marketing and innovation advantages by going green as opposed to ‘green-green’ firms that seek the wider goals of the “social and ethical transformation” of a particular industry (Guziana, 2011). Whereas green companies possess either environmentally friendly processes or products, green-green businesses possess both making them genuine in nature. For green businesses to flourish a genuine internal orientation is needed for ethical values to be embodied not just on the mission and vision statements but more deeply in the company’s strategy. Upfront expenses must be made in order to secure longer term benefits of enhanced market image, larger customer base and environmental well-being (Kain, 2010). Furthermore, it is recommended that businesses go beyond the simplistic definitions of green management that limit it to recycling, repackaging, redesigning and adopt a broader view of voluntary, internalized line of ‘green’ thinking. It is only when firms voluntarily go beyond the minimum environmental regulations that true green business can be realized (Tran, 2009). 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