Strategic Sustainability: Leading Corporate Change for Greenhouse Gas (GHG) Emissions Reductions through Reputation, Dynamic Capabilities and Interorganizational Relationships.

Abstract

A primary concern of business scholars is to understand and discuss how companies manage risk in this new paradigm of sustainability where the risk of not addressing climate change outweighs the risk of addressing climate change. Climate change presents many challenges for companies. Companies will have to work with others to understand expectations. Scientists maintain that greenhouse gas (GHG) must be addressed by industry and industry must report their emissions, and reduce GHG emissions below 2 degrees Celsius above preindustrial levels. In order for companies to address GHG reduction throughout their global operations, the risk of climate change needed to be understood financially. Substantive and material understanding of the impacts that climate change strategies have on all business operations is a long term change that involves innovation, culture, supply chain operations, human resources, capital investment and more. My dissertation tells this story of how multinational corporations (MNCs) have learned strategic sustainability. Chapter one focuses on the comparison between company statements about sustainability and their environmental performance. Most large companies have a climate change strategy. Having a climate change strategy could be a signal meant to increase a company’s reputation but one that does not necessarily translate into reductions in greenhouse gas (GHG) emissions. Exploring symbolic versus substantive communication, I use longitudinal data for 163 companies from 13 industries over the years 2008-2013, from the list of Fortune 1000 companies. The results show that decreases in greenhouse gas emissions are correlated with return on invested capital (ROIC) and two of the ten subcategories tested of corporate social responsibility (CSR). However, the CSR subcategories environmental policy and reporting, and diversity and labor rights, along with the variable climate change strategy correlate with increased levels of GHG emissions. Furthermore, reporting ISO 14001 has a positive correlation with GHG emissions which implies that even ISO 14001 claims are symbolic and not substantive. The focus of chapter two is to understand the relationship between sustainability reporting and company reported environmental performance (measured as greenhouse gas (GHG) per unit of revenue) through the lens of building dynamic capabilities. Dynamic capabilities are developed through absorbing the capacity to learn what is material. Materiality is defined as “likely to affect the financial condition or operating performance of companies” (SASB, 2020). As material environmental reporting is learned, companies absorb this capacity and use it for strategic advantage. The four stages of building environmental reporting capacity are acquisition, assimilation, transformation, and exploitation stages which have parallel stages in the evolutionary theory which are variation, selection, retention, and struggle. Together, these stages help to explain the dynamic change within companies that allows them to build a capacity for environmental reporting. The first two stages are defined as intended which means the company has newly discovered the capability and has not yet purposefully applied the material capability. The second two stages are defined as realized meaning the company has developed the material capability consciously and used this learning purposefully in advance of sustainability reporting. Based on this theoretical foundation I examine 163 companies, from 13 industries, listed in the 2014 Fortune 1000 list using data for the years 2008-2013. In the first two stages I find that R&D is related in a statistically significant manner to higher GHG emissions per unit of revenue; and that Sustainability Accounting Standards Board (SASB) is related in a statistically significant manner to lower GHG emissions per unit of revenue. In the second two stages I find that greenhouse gas (GHG) Assurance (verification by a third party) and Return on Invested Capital (ROIC) are related in a statistically significant manner to lower GHG emissions per unit of revenue, and that Climate Change Strategy is related in a statistically significant manner to higher GHG emissions per unit of revenue. My contribution in this chapter is to map out the stages needed to build capacity for environmental performance through learning about what is material for sustainability reporting. Lastly, chapter three discusses how companies are organized to address climate change challenges understood through the Paris Agreement. In the Paris Climate Agreements, governments around the world agreed to reduce greenhouse gas (GHG) emissions to avoid dangerous levels of anthropogenic climate change by keeping the increase in global mean temperature to remain below 2 degrees Celsius above preindustrial levels. To meet this goal, companies will need to play a major role. Companies need to understand how to lower greenhouse gas (GHG) emissions. To do this, companies may need to work with others to gain the needed knowledge to lower emissions while maintaining profitability. Companies can partner with NGOs and other companies to form a type of strategic alliance called an interorganizational relationship (IOR) that can assist in learning about ways to lower GHG per unit of revenue (also referred to as environmental performance), apply sustainability frameworks, and report environmental performance metrics. In this paper, I empirically test whether engagement in sustainability focused IORs is related to lower GHG emissions per unit of revenue, and whether this relationship is influenced by corporate social responsibility (CSR) governance metrics, and company financials. I find some evidence that companies who participate in sustainability IORs have lower GHG emissions per unit of revenue. With no governance interactions, membership in five out of the six IORs show lower GHG emissions per unit of revenue. Participation in the World Economic Forum (WEF), the Sustainability Accounting Standards Board (SASB), and the United Nations Global Compact (UNGC) are correlated with lower GHG emissions per unit of revenue but not statistically significant. Participation with the Coalition for Environmentally Responsible Economies (CERES) is correlated with lower GHG emissions per unit of revenue and is statistically significant. However, participation in the World Business Council for Sustainable Development (WBCSD) is correlated with higher GHG emissions per unit of revenue and is statistically significant. Only two of the fifteen IOR interactions with governance variables are correlated with lower GHG emissions per unit of revenue and statistically significant, and one interaction is statistically significant and is correlated with higher emissions. Additionally, ROIC, and time, are statistically significant and correlated with lower GHG emissions per unit of revenue. Results may indicate that there is a difference between socially constructing sustainability expectations and making sense of the information gained internal to the company. Together, my three chapters explore the real-life phenomenon that I saw as I worked in a sustainability program at the University of Minnesota. My work was centered on building a sustainability program for and with stakeholders that included MNCs, non-profits, non-governmental organizations (NGOs), and individuals. Reflecting on my experience, I wondered if what I saw and learned could be tested empirically and supported. Each chapter, therefore, is representative of a specific and important activity, that when taken together, become an approach to building sustainable corporate strategy considering the natural environment.