The legitimate truth about

sustainable developmentOlivia AronsonPhD Student

March 15th, 2013

"We are living on this planet as if we had another one to go to" -Terri Swearingen

Introduction

I explore the past and current literature in order to clarify the existing logic behind business sustainability; primarily, what motivates organizations to participate in sustainable development

Business affects, and is affected by, limits of the natural environment

• Business is so influential in society that a lack of understanding could further market failures (Dean & McMullen, 2007) and increase environmental repercussions

Many scholars have attempted to examine the rationale for participation in sustainable development but with little consensus (Bansal & Roth, 2000 Dillon & Fischer, 1992; Winn, 1995)

Presentation Outline

Define sustainable development Examine the literature to date

• Outline the historical background

• Explore the drivers thought to motivate businesses to participate in sustainable development and their expected outcomes

• List and examine the proposed benefits of participating in sustainable development

• The ways that organizations pursue sustainable development and some challenges to the practice of sustainability

Future Directions

Contributions

First, it provides a review of the sustainability literature Second, provides examination of Bansal & Roth’s

(2000) findings of the motivations for ecological responsiveness

• Must discern motivations in order to create operational models

Third, can promote discussion among scholars towards new theories, models, & paradigms

Lastly, practitioner utility

The Sustainable Development Construct

How did we get here?

When the industrial revolution began in the early 1700’s it spurred massive industrial development that brought about: technological innovations an increase in production of goods and services economic power & a rising human population (Ashton, 1998)

Over the last 300 years this development has resulted in environmental degradation (Brown, L. and the staff at the WWI, 1991)

A dramatically increasing human population will enhance the need for a larger food supply, more space, energy, and an increase in the production of goods/services (Ehrlich & Ehrlich, 1991), potentially further amplifying environmental degradation (Meadows et. al., 1972)

Mile markers in the evolution of sustainability

1972 - UN conference 1983 - WCED 1987 - Brundtland Commission released a report that highlighted

economic and social problems.

• Defined and discussed the term “ecologically sustainable development” (ESD)(WCED, 1987)

1992 - Rio de Janeiro Earth Summit called for increasing attention, awareness, and action towards sustainability issues

1996 - World Scientist’s Warning to Humanity 1997 - Constanza et al. assessed the financial value of the World’s

ecosystems UN Global Compact – encourage human rights and sustainability

initiatives

Increase in Literature

Over the past two decades there has been an increase in sustainability literature (Etzion, 2007)Organization and Environment journal was founded in 1997

• “demonstrate connections between the natural environment and systems of organizing human production and consumption”(Foster, Jermier, & Shrivastava, 1997)

Additional theories and models have been proposed to explain: how corporations manage environmental problems, what motivates them to become sustainable, and incentives for organizations to participate in sustainability (Hart, 1995; Shrivastava, 1995; Bansal & Roth, 2000).

• Etzion (2007) provides a review of literature and evaluated environmental issues and organizations using a multilevel approach

– Industry, organization, and firm levels

Sustainable Development definition

Sustainable development is “development that meets the needs of the present without compromising the

ability of future generations to meet their own needs” (WCED, 1987)

Sustainable Development mission

Sustainable development seeks to integrate social and environmental concerns into a company’s goals and mission without foregoing financial vitality (Etzion, 2007)

• CSR, ESD, SD, & sustainability share similar focus and are often entangled terms in the research and practice literature

Business has a great deal of influence in society, making them a primary instigator of social change (Shrivastava, 1995)

• What can they do?

• Incentives for corporations

Logics to Sustainable Development

Bansal and Roth (2000)

Paul Shrivastava (1995) - proposes a framework in which businesses can approach and manage environmental problems

Hart (1995) – NRBV Bansal and Roth (2000) created an advanced model of

corporate ecological responsiveness in order to explain why businesses become ecologically responsive and how motivation and context influence their actions

• Corporate ecological responsiveness: “a set of corporate initiatives aimed at mitigating a firm's impact on the natural environment” (2000: 717)

Bansal & Roth (2000)

Identified three primary motivators:

Competitiveness (with anticipated higher profits)• “the potential for ecological responsiveness to improve long-term

profitability” (2000: 724)

Legitimation• the desire of a firm to improve the appropriateness of its actions

within an established set of regulations, norms, values, or beliefs (Suchman, 1995)

Environmental responsibility• stems from the concern that a firm has for its social obligations

and values (2000: 728)

Why organizations engage in Sustainable Development

Research on sustainability motivators

Bansal and Roth (2000) - Primary model

• Firm motivations influences ecologically responsive initiatives (Bansal & Roth, 2000)

Bansal (2004) identified drivers for why businesses choose to implement sustainable policies and practices

• Two different perspectives- Resource based view (RBV) and the institutional view

Sharma and Henriquez (2005) researched stakeholder influences upon managers in the decisions made about which corporate sustainability initiatives to adopt and the financial and timing aspects that influenced firms to alter their strategies

Financial Performance

Majority of articles use RBV to best explain and utilize the concept of dynamic capabilities in an effort to establish a competitive advantage

Environmental initiatives financial performance

When looked at through the lens of the RBV of the firm, proactive environmental strategies have been shown in some cases to have a positive correlation with financial performance

Evidence also when mediated by dynamic capabilities

• (Galbreath & Shum, 2012; Hart, 1995; Sharma & Vredenburg, 1998; Wagner, 2005)

Financial Performance Research

Positive between CSR and financial performance (Moskowitz, 1972)

Negative (Bragdon & Martin, 1972; Vance 1975)

No relationship/Neutral findings (Aupperle, Carroll & Hatfield, 1985; McWilliams & Siegel, 2001)

When they flipped the arrows (McGuire, Sundgren, Schneeweis, 1988) found financial performance to be a neutral predictor CSR

• CBA

Positively related half the time, rarely negatively related (Margolis and Walsh, 2003)

Klassen and McLaughlin (1996) found a correlation in over time

periods

• Authors suggest that a competitive advantage may be obtained by capabilities other than just greater efficiencies

Financial Performance conclusions

While these previous studies found mixed results, more recent meta-analytic studies determine a clear positive link between environmental performance and financial performance (Orlitzky, Schmidt, & Rynes, 2003)

Some scholars (Aguilera, Rupp, Williams, & Ganapathi, 2007) take this to signify the end of long-standing debates about sustainability and corporate financial performance (Margolis & Walsh, 2003; McWilliams & Siegel, 2000, 2001; Ullmann,1985)

However, literature still lacks clarity and many scholars have persisted (Hart & Dowell, 2010; Hart & Milstein, 2003)

Intrinsic motivators

Because it is the right thing to do, it is their desire to contribute to society, it is their responsibilityGhoshal (2005)

• Bad management theories spur bad management practices

• Leaves little room for few positive intrinsic motivators for engaging in sustainable development practices

Some firms are driven by concern for the social good• Individuals and leadership (Andersson & Bateman, 2000;

Buchholz, 1993; Lampe et al., 1975; Winn; 1995; Wood, 1991)

• Ex. Tom’s shoes & Whole Foods

Legitimacy

Utilize institutional theory (DiMaggio & Powell, 1983) and stakeholder perspective (Freeman, 1984) to analyze an organization’s quest to meet norms and satisfice expectations

“Public perceptions of environmental problems along with increased environmental legislation are two key reasons why the environment became an important issue for corporations” (Banerjee, 2008: 66)

Theoretical relationship: perceived firm legitimacy long-term firm survival (Zucker, 1987)

• A competitive advantage (Westley & Vredenburg, 1991)

• An unsystematic risk decreasing mechanism (Bansal & Clelland, 2004)

• Organizations are motivated to display interest in environmental initiatives, but only if their stakeholders are exhibiting scrutiny/pressure upon them (Chiu & Sharfman, 2011)

Conclusion & Discussion

Conclusion

Discussion (cont.)

Institutional theory posits that organizations attain social legitimacy as a much needed resource

• Given the lack of consensus in the financial performance realm and the rarity of intrinsic motivation –

• Perhaps sustainable development is nothing more than a legitimacy seeking process

If the dominant rationale for engaging in sustainability is the pursuit of legitimacy via institutional pressure then sustainability risks existence as a myth-infused fad, one that can be delegitimized as easily as it has gained legitimacy over the past two decades.

Or perhaps the future is not so bleakIf sustainable development in organizations is indeed a reflection of broader social values, then perhaps we as society have a more active role in the future of organizational sustainability

Challenges

The complexity of the interdisciplinary issue has made agreement difficult and challenges still exist (Etzion, 2007)

• Broad definitions of sustainability constructs (Banerjee, 2008)

• Limitations in theory building (Etzion, 2007)

– Short supply of good data

– Difficulty in which environmental issues have the ability to influence research

• Operationalization and measurement issues (Banerjee, 2008)

• Narrow research focus on the private, industrial sector (Starik & Marcus, 2000)

• Little international research, what about developing countries? (Etzion, 2007)

Future Directions

Financial performance sustainable development and intrinsic motivations sustainable development

Coercive and normative pressures Create a conceptualization of performance that includes

sustainability• The problem is not whether sustainability improves performance; the

real problem is that our conceptualizations of performance ignore sustainability

New sustainability paradigms Collaborative efforts between social and physical/natural

scientists (Foster, Jermier, & Shrivastava, 1997)

Progress Since Submission

Progress Since Submission

Propose a classification model of sustainability that reviews and critiques research approaches and corporate motivations to engage in sustainability

2x2 matrixOrganize the field using the dimensions of corporate motivations and by contrasting the assumptions of the business versus the green narrativeIntroduce the ‘environmental restoration’ approach, which consists of discourses such as ‘natural assets’ as opposed to natural resources.

Environmental Restoration approach: Performance measurements Paradigm

• Requires a new mindset and subsequent new actions

• Moves towards normative theory and away from instrumentality

Questions?