Environmental Strategy

Abstract

The connection between business activity and environmental issues has often been considered a matter of relevance to a company’s social responsibility. Market evidence and literature are now increasingly suggesting that environmental considerations should be explored as variables that widely impact on many strategic functions of a company. Environmental strategy is a firm’s long-term orientation about how to manage the environmental practices to gain a good fit with its stakeholders’ expectations. Proactive environmental strategies are those that involve anticipation of future regulations to voluntarily prevent negative environmental impacts. Different theoretical perspectives have analysed the connection between firms and the natural environment. Authors who adopt a natural resource-based view of the firm have focused on proving that a proactive environmental strategy can generate competitive capabilities.

Full text

ESM0240 environmental strategy
Definition
Environmental strategy is a firm’s long-term orientation
about how to manage the environmental practices and
develop environmental resources and capabilities to gain a
good fit with its stakeholders’ expectations.
Abstract
The connection between business activity and
environmental issues has often been considered a matter of
relevance to a company’s social responsibility. Market
evidence and literature are now increasingly suggesting that
environmental considerations should be explored as
variables that widely impact on many strategic functions of
a company. Environmental strategy is a firm’s long-term
orientation about how to manage the environmental
practices to gain a good fit with its stakeholders’
expectations, and proactive environmental strategies are
those that involve anticipation of future regulations to
voluntarily prevent negative environmental impacts.
Different theoretical perspectives have analysed the
connection between firms and the natural environment.
Authors who adopt a natural RESOURCE-BASED VIEW of the
firm have focused on proving that a proactive
environmental strategy can generate competitive
capabilities.
Environmental strategy typologies
Literature has defined different types of environ-
mental strategies as a function of the different prac-
tices that firms adopt for the protection of the natural
environment. These tend to be represented along a
continuum that represents a progression according to
the level of proactivity. Thus, beside the continuum,
proactive environmental strategies have been defined
as those that involve anticipation of future regula-
tions and social trends and the design of alternative
operations, processes and products to voluntarily
prevent negative environmental impact (Arago
´n-
Correa and Sharma, 2003). This type of strategy
contrasts with the definition of reactive environ-
mental strategy that is based on the repair (typically
required by law) of damages and impact already
caused (Arago
´n-Correa, 1998;Russo and Fouts, 1997;
Sharma and Vredenburg, 1998).
Focusing on proactive strategies, Hart (1995) also
distinguishes three possible levels of proactivity: the
prevention of contamination, product guarantees and
sustainable development. The author also points out
that these strategies are interconnected in the logical
pathway (dependence on the pathway) that covers
each of the different strategies until the most proac-
tive one is reached. Hart also highlights the impor-
tance of accumulating resources associated with these
three strategies in parallel, to reach the greatest level
of proactivity.
Environmental strategy theories
With the objective of reaching a greater under-
standing of the firms’ possible environmental strate-
gies, researchers have mainly followed two different
theories: the RESOURCE-BASED VIEW (RBV) and insti-
tutional theory. The first looks at the inside of the
organization, and the second emphasizes the social
context in which the firm operates (Bansal, 2005).
Other works merge traits of one and the other,
combining, for example, the resource-based view
with a contingent focus (Arago
´n-Correa and Sharma,
2003). The STAKEHOLDER theory has also been incre-
mentally configured as one of the main approaches
that the environmental literature has used. Although
with much less intensity, there are also works that use
the framework of agency theory (Berrone and
Go
´mez-Mejı
´a, 2009) or resource dependence theory
(Kassinis and Vafeas, 2006) or focus more on psy-
chological and behavioural theories (Cordano and
Frieze, 2000;Flannery and May, 2000).
Institutional theory maintains the primacy of the
outside forces in the configuration of the environ-
mental strategies of the firms (Hoffman, 1999;Jen-
nings and Zandbergen, 1995). Thus, among the
topics that have been studied, we find the possible
influence on the corporate environmental strategy of
the environmental regulations (Bansal, 2005;
Majumdar and Marcus, 2001;Rugman and Verbeke,
1998), the attention of communication media (Ban-
sal, 2005), the existence of and membership in
associations (King and Lenox, 2000), the level of
competitiveness in the industry (Bansal and Roth,
2000), or the cohesion in the sector (Bansal and Roth,
2000).
The resource-based view highlights that, in iden-
tical environment, businesses differ both in their
strategic approaches and in their results. It seeks to
explain the sources of a sustainable COMPETITIVE
ADVANTAGE while keeping in mind that the strategic
resources are heterogeneously distributed between
the businesses and that the differences between the
businesses can persist over time. The internal
resources and capabilities must have a series of
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attributes to supply a sustainable competitive
advantage – be valuable, rare, imperfectly imitable
and have no substitute (Barney, 1991;Grant, 1991).
Since Hart (1995) addressed the environmental
strategies based on the resource-based view, many
authors have addressed this topic supported by this
focus (Arago
´n-Correa and Sharma, 2003;Christ-
mann, 2000;Marcus and Geffen, 1998;Russo and
Fouts, 1997;Sharma, 2000;Sharma and Vredenburg,
1998), shedding light on the possible implications the
different resources and capabilities that businesses
own can have on their environmental development.
Therefore, for example, Marcus and Geffen (1998)
examine how environmental compliance is acquired;
Sharma and Vredenburg (1998) state that environ-
mental proactivity can lead businesses to develop
unique and valuable capabilities, such as the ability to
integrate stakeholders or engage in high learning and
continuous improvement, in turn leading to the
business enjoying a competitive advantage denied to
other businesses. Arago
´n-Correa and Sharma (2003)
propose that proactive environmental management
can act as a valuable dynamic capacity for the orga-
nization that sets it in motion.
The stakeholder theory has also been one of the
lines of research with greatest relevance in the ana-
lysis of the relationship between the business and the
environment. Freeman (1984: 46) defines a stake-
holder as ‘any person or group of people that can
affect the performance of the business or that can be
affected by the organization meeting its objectives’.
Clarkson (1995) classified them as primary, when
they maintain a direct relationship with the business
and therefore have the capacity to influence it (e.g.,
shareholders, workers, providers, regulators and
customers) and secondary, when they do not have a
direct relationship with the business and, therefore,
are not main role players in its survival (e.g., non-
governmental organizations and communication
media). Several relationships have been analysed
using these approaches.
For example, there has been a study of the effects
of the development of the integration capacity of
stakeholders on the environmental behaviour of
businesses (Hart, 1995;Sharma and Vredenburg,
1998). The literature has also shown that different
stakeholders drive different environmental practices
(Buysse and Verbeke, 2003;Sharma and Henriques,
2005) and that the perceived pressure of each stake-
holder is not the same for all businesses. In this sense,
Frooman (1999) proposed four scenarios of inter-
dependence of resources between the different sta-
keholders and the business as a function of which
ones determined the type of influence that these
could have on use or restriction, direct or indirect.
Sharma and Henriques (2005) brought to the envir-
onmental field these approaches for identifying dif-
ferent environmental practices, more or less
proactively, as a function of the type of influence
exerted by the stakeholders.
In addition to the stakeholder theory, which can be
considered as a focus with its own entity, the theory
of resource dependence has also been used to analyse
the influence of the stakeholders on the business. In
this sense, Kassinis and Vafeas (2006) proposed that
the answer to a greater or lesser ability of the stake-
holders to influence the decisions made by businesses
is found in resource dependence theory. This theory
suggests that organizations that depend on external
entities for the procurement of critical resources are
more susceptible than others to the control and
influence of these external entities (Pfeffer and Sal-
ancik, 1978). Therefore, the greater dependence of an
organization on a particular stakeholder implies the
greater power and increased ability of the stakeholder
to influence the environmental activities of the
organization (Kassinis and Vafeas, 2006).
Because decisions are made by individuals, it has
also been pointed out that, to understand the rela-
tionship between the business and the environment,
it is necessary to study the decision-making process
of the participants in the business (Cordano and
Frieze, 2000). The variables that have been analysed
with respect to the managers are related to both
economic-type incentives (Berrone and Go
´mez-
Mejı
´a, 2009;Russo and Harrison, 2005) and others
derived from interpretations of behavioural theories
and ethical considerations (Cordano and Frieze,
2000;Flannery and May, 2000).
Berrone and Go
´mez-Mejı
´a (2009) utilized agency
theory to explain, through the analysis of economic
incentives, the position of managers with regard to
the environment. The authors state that managers
can be tempted to avoid environmental strategies and
to assign resources to more conservative investments.
This attitude is derived from the agent’s aversion to
effort and risk. That is, even when managers can
recognize the importance of good environmental
functioning to businesses and interest groups, they
can be reticent to set the environmental strategies in
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motion, since these can lead to a greater complexity
in their management function at the same time that
they ambiguously relate to the financial performance
of the business. Therefore, if the growing risk and
effort associated with environmental investments are
not compensated, managers are likely to assign the
capital to less uncertain alternatives, maintaining (or
worsening) the current pollution level of the business
and consequently reducing its legitimacy.
Finally, attention has also been given to the pre-
ferences and values of managers on the basis of
behavioural theories. In this sense, Flannery and May
(2000), using approaches from Ajzen’s (1985) plan-
ned behaviour theory, analyse the influence of atti-
tudes towards environmental behaviour, the sense of
moral responsibility, the perception of behavioural
control and the influence of subjective rules about
environmental behaviour. Cordano and Frieze
(2000), proposed an application of Azjen’s theory of
planned behaviour to analyse the behavioural pre-
ferences of environmental managers.
Antecedents of a proactive environmental strategy
A proactive environmental strategy requires pur-
chasing and installing new technology (Russo and
Fouts, 1997) and developing new organizational
capabilities. Different organizational capabilities have
been highlighted as relevant for developing a proac-
tive environmental strategy, among others, such as
continuous innovation, stakeholders’ management
and shared vision (Hart, 1995). The specific features
of the CEOs, directors, and managers have also
received a very relevant attention to understand the
company’s environmental strategy. Analysed vari-
ables include managers’ personal characteristics (e.g.,
Cordano and Frieze, 2000;Flannery and May, 2000;
Ramus and Steger, 2000), whether managers perceive
environmental issues as opportunities or threats (e.g.,
Sharma, 2000), the connection between the directors’
pay and their environmental decisions (e.g., Berrone
and Go
´mez-Mejı
´a, 2009;Russo and Harrison, 2005),
the way that they exercise their leadership regarding
the environment (e.g., Andersson and Bateman,
2000;Egri and Herman, 2000) or how they perceive
stakeholder pressure in respect of environmental
decisions (e.g., Buysse and Verbeke, 2003;Henriques
and Sadorsky, 1999;Kassinis and Vafeas, 2006;
Sharma and Henriques, 2005).
Environmental strategies and competitive
advantage
The connection between business activity and
environmental issues has often been considered a
matter of relevance only to a company’s social
responsibility and to its ethical ideals (Johnson and
Greening, 1999). However, some authors are
increasingly suggesting that environmental con-
siderations should be explored as variables that
widely impact on the strategic functions of a com-
pany (Arago
´n-Correa, 1998;Buysse and Verbeke,
2003;Henriques and Sadorsky, 1999;Sharma and
Henriques, 2005;Sharma and Vredenburg, 1998).
Authors who adopt a natural RBV of the firm have
focused on proving that a proactive environmental
strategy can generate competitive capabilities leading
to improved financial results (Judge and Douglas,
1998;Klassen and McLaughlin, 1996;Klassen and
Whybark, 1999;Marcus, 2005;Marcus and Fremeth,
2009;Russo and Fouts, 1997;Sharma and Vreden-
burg, 1998).
A proactive environmental strategy requires pur-
chasing and installing new technology (Russo and
Fouts, 1997) and developing new organizational
capacities that will allow its implementation and the
realization of associated competitive advantage
(Russo and Fouts, 1997;Sharma and Vredenburg,
1998). It has been reported that learning (e.g., Nehrt,
1996;Sharma and Vredenburg, 1998), stakeholders’
integration capacity (e.g., Buysse and Verbeke, 2003;
Sharma and Vredenburg, 1998), and continuous
improvement (e.g., Darnall and Edwards, 2006;
Sharma and Vredenburg, 1998) all play an essential
role in this regard. Research suggests that companies
with a high capacity for product innovation and
process implementation are better positioned to
benefit from the adoption of good environmental
practices (Christmann, 2000).
JUAN ALBERTO ARAGO
´N-CORREA AND NATALIA ORTIZ-DE-
MANDOJANA
See also
COMPETITIVE ADVANTAGES;RESOURCE-BASED VIEW;STAKEHOLDER
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Non-Print Items
Classifications: competitive advantage
Keywords
competitive advantage; corporate social responsibility; green strategies; natural environment; natural resource-
based view; proactive environmental strategies; strategy; sustainability

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