Will firms go green if it pays? The impact of disruption, cost, and external factors on the adoption of environmental initiatives

Abstract

Research summary:Research on the link between financial and environmental performance implicitly assumes that firms will pursue profitable environmental actions. Yet, clearly, factors beyond profitability influence firms' environmental choices. We treat these choices as organizational change decisions and hypothesize that adoption of environmental initiatives is influenced by a combination of profit, level of disruption caused, and external influences. We test our hypotheses by examining firms' choices regarding implementation of energy-savings initiatives. We find that degree of disruption, number of prior local adopters, and strength of environmental norms affect the adoption decisions. In addition, the effect of disruption is amplified by the implementation costs, but is mitigated by the number of prior local adopters.Managerial summary: Often, in trying to improve firms' environmental performance, academics and stakeholders have focused on actions that simultaneously improve environmental and financial performance. This assumes that firms will undertake projects that offer such dual benefits. We consider what might prevent firms from pursuing such 'win-win' initiatives. We focus on how the degree of disruption of an energy-saving initiative affects its probability of adoption. We find that firms are significantly more likely to adopt moderately profitable, but easy initiatives than more profitable but disruptive ones. We also examine internal and external factors that moderate the effect of disruption. Our findings suggest that in order to incentivize firms to improve environmental performance, it might be more beneficial make these activities less disruptive than to make them more profitable.

Corporate Social Responsibility (CSR) Issues in Supply Chain Competition: Should Greenwashing Be Regulated?

“…Corporate Social Responsibility has been studied extensively in the literature of management (McWilliams & Siegel, ; Marquis, Toffel, & Zhou, ; Dowell & Muthulingam, ), operations (Kleindorfer, Singhal, & Wassenhove, ; Liu, Woolley, & Cruz, ; Lee, Nunez, & Cruz, ) and marketing (Sen & Bhattacharya, ; Bhattacharya, ; Eteokleous, Leonidou, & Katsikeas, ). The studies on CSR can be traced back to Altruism and Warm‐glow effect (Andreoni, ; Andreoni, ).…”

“…In line with the spirit of this article, Chen () shows that green product development and stricter environmental standard might not necessarily benefit the environment. Dowell and Muthulingam () find that degree of disruption, the number of prior local adopters and strength of environmental norms are key to the decision to go green.…”

With a little help from a stranger: The impact of external change agents on corporate sustainability investments

“…The literature on path dependencies claims that often firm decisions are strongly influenced by past decisions, which may constrain firms in ways that lead to seemingly irrational decisions (David, ; Sydow et al, ; Vergne & Durand, ). For example, firms may have structures or processes in place that prevent a person from implementing a new technology, as doing so would violate organizational norms or could lead to major disruptions in operations (Dowell & Muthulingam, ; Koch, ). Similarly, organizations might simply lack the necessary financial or human resources to make investments, because resources are committed to other activities (Lepoutre & Heene, ).…”

“…For example, under the umbrella question "does it pay to be green?," a long stream of research has sought to investigate if sustainability investments are linked to increased financial performance (Hart & Ahuja, 1996;King & Lenox, 2001;Lewandowski, 2017;Martínez-Ferrero & Frías-Aceituno, 2015;Stefan & Paul, 2008;Yadav, Han, & Kim, 2017). The assumption underlying much of this research is that if one can show that sustainability pays, this will sooner or later lead to a more widespread adoption of sustainability practices in firms (Dowell & Muthulingam, 2017;Trumpp & Guenther, 2017).…”

“…The literature provides evidence that economic motives are indeed an important driver of sustainability-related initiatives (Bansal & Roth, 2000;McWilliams & Siegel, 2011). More recent work, however, also shows that in many cases sustainability initiatives are not undertaken even if they are profitable (Dowell & Muthulingam, 2017). For example, investments in energy efficiency measures are often connected with negative costs, implying that investments would not only benefit the environment but would also contribute to financial performance (Lyneis & Sterman, 2016).…”