Corporate Environmental Strategies and Value Creation: Challenges and Opportunities (SpringerBriefs in Business) 3030672778, 9783030672775

Table of contents :
Contents
Chapter 1: Introduction
References
Chapter 2: The Environmental Dimension: Role and Scope in the Strategic Formula
2.1 The Environmental Dimension in the Studies on Corporate Social Responsibility
2.2 The Analysis of Factors Affecting Environmental Strategy
2.2.1 The Drivers of Environmental Strategy
2.2.2 The Levels of Strategy
2.2.3 The Activity Sector
2.2.4 The Strategic Horizon
2.3 The Environmental Dimension in the Strategic Formula
References
Chapter 3: The Environmental Dimension: Role and Scope in the Strategic Management Process
3.1 The Environmental Dimension in the Studies on Strategic Management Process
3.2 A Multi-dimensional Approach for the Strategic Management of Environmental Dimension
3.3 The Strategic Management Process of Environmental Dimension
3.4 The Strategic Management Process of Environmental Dimension: A Supporting Tool
References
Chapter 4: The Environmental Dimension: Role and Scope in the Performance Measurement and Control System
4.1 The Environmental Dimension in the Studies on Performance Measurement and Control System
4.2 The Global and Italian Practices in the Performance Measurement and Control of Environmental Dimension
4.3 The Environmental Performance Measurement and Control System
4.4 The Environmental Performance Measurement and Control System: Value Drivers and Indicators
References
Chapter 5: Conclusions
References

Citation preview

SPRINGER BRIEFS IN BUSINESS

Rosita Capurro

Corporate Environmental Strategies and Value Creation Challenges and Opportunities 123

SpringerBriefs in Business

SpringerBriefs present concise summaries of cutting-edge research and practical applications across a wide spectrum of fields. Featuring compact volumes of 50 to 125 pages, the series covers a range of content from professional to academic. Typical topics might include: • A timely report of state-of-the art analytical techniques • A bridge between new research results, as published in journal articles, and a contextual literature review • A snapshot of a hot or emerging topic • An in-depth case study or clinical example • A presentation of core concepts that students must understand in order to make independent contributions SpringerBriefs in Business showcase emerging theory, empirical research, and practical application in management, finance, entrepreneurship, marketing, operations research, and related fields, from a global author community. Briefs are characterized by fast, global electronic dissemination, standard publishing contracts, standardized manuscript preparation and formatting guidelines, and expedited production schedules.

More information about this series at http://www.springer.com/series/8860

Rosita Capurro

Corporate Environmental Strategies and Value Creation Challenges and Opportunities

Rosita Capurro Department of Accounting, Management and Economics University of Naples “Parthenope” Naples, Italy

ISSN 2191-5482 ISSN 2191-5490 (electronic) SpringerBriefs in Business ISBN 978-3-030-67277-5 ISBN 978-3-030-67278-2 (eBook) https://doi.org/10.1007/978-3-030-67278-2 © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To my Granny, wherever you are, guide and protect us

Contents

1

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Environmental Dimension: Role and Scope in the Strategic Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Environmental Dimension in the Studies on Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 The Analysis of Factors Affecting Environmental Strategy . . . . . . 2.2.1 The Drivers of Environmental Strategy . . . . . . . . . . . . . . . 2.2.2 The Levels of Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 The Activity Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.4 The Strategic Horizon . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Environmental Dimension in the Strategic Formula . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Environmental Dimension: Role and Scope in the Strategic Management Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Environmental Dimension in the Studies on Strategic Management Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 A Multi-dimensional Approach for the Strategic Management of Environmental Dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 The Strategic Management Process of Environmental Dimension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 The Strategic Management Process of Environmental Dimension: A Supporting Tool . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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The Environmental Dimension: Role and Scope in the Performance Measurement and Control System . . . . . . . . . . . . 55 4.1 The Environmental Dimension in the Studies on Performance Measurement and Control System . . . . . . . . . . . . . . . . . . . . . . . . . 55 vii

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4.2

The Global and Italian Practices in the Performance Measurement and Control of Environmental Dimension . . . . . . . . . . . . . . . . . . . 4.3 The Environmental Performance Measurement and Control System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 The Environmental Performance Measurement and Control System: Value Drivers and Indicators . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

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Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter 1

Introduction

Environmental sustainability and corporate social responsibility are increasingly relevant theme in the current economic context. The uncertainties and variability characterizing the competitive arena, the changes in social dynamics and in sustainable regulations have strengthened the attention towards social and environmental issues. In the past decade, indeed, several firms have decided to “integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis” (CEC 2001, p.2). In this way, firms progressively conformed their strategic, organizational and governance models with the adoption of environmentally sustainable techniques, technologies and production processes to meet the expectations of several stakeholders (Freeman 1984; Adnan et al. 2018; Corazza et al. 2017; Albareda et al. 2008; Freeman and Dmytriyev 2017). The need to pursue a “sustainable attitude” has swept away the traditional views about firms’ competitiveness, survival and profitability (Kao et al. 2014; Nave and Ferreira 2019; Emilsson et al. 2012). The growing awareness of the crucial role of firms in the pursuit of sustainable paths has led to important development in doctrine and practice (Linnenluecke and Griffiths 2010; Kiron et al. 2017; Andersson et al. 2013; Freedman and Jaggi 2010; Schiederig et al. 2012). In this stream of research, the environmental dimension, for a long time considered a sub-dimension of corporate social responsibility (CSR) studies, have moved from a narrow—and often marginalized—notion to a complex concept implying a multi-lens perspective to strategic decision-making process (Cochran 2007; Capurro et al. 2018; Garzella et al. 2020). In this vein, academics developed the environmental social responsibility (ESR) as an autonomous research topic (Hart 1995; McWilliams and Siegel 2001; Banerjee 2001). Specifically, some scholars argue that correct implementation of environmental strategy can be considered a success factor for firms able to trigger new competitive

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Capurro, Corporate Environmental Strategies and Value Creation, SpringerBriefs in Business, https://doi.org/10.1007/978-3-030-67278-2_1

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dynamics (Russo and Fouts 1997; Bowen 2007; Clarkson et al. 2011; Molina Azorin et al. 2009). In particular, recent studies in the field of strategy and sustainability management claim that environmental issues can greatly affect business success, regardless of whether firms share those concerns (Porter and Kramer 2006; Perego and Hartmann 2009; Roy et al. 2013). Some scholars suggest that the recognition of environmental dimension is a critical variable able to strengthen the competitive positioning in the firm-customers and firm-investors relationships increasing the firm value creation process (Jamali 2006; Marshall and Brown 2003; Fiorentino et al. 2016). This led to recognize the key role of environmental dimension not only in social strategies but also for implementing successful competitive and financial strategies (Baumgartner and Rauter 2017; Garzella et al. 2020; Lee and Rhee 2007; Sharma and Enriques 2005). Recognizing the power of environmental issues to face the variability and the volatility characterizing the competitive context, managers need to understand how to adopt and implement proactive environmental practices while meeting the core business objectives of growth and competitive advantage (Margolis and Walsh 2003; Orlitzky et al. 2003; Campbell 2007; Siegel 2009). Consequently, firms require the development of a decision-making process to support the selection of right strategic moves from the available ones, developing advanced environmental practices while simultaneously lowering costs and creating differentiation benefits (Epstein 2010; Dahlmann et al. 2008; Hart and Milstein 2003; De Villiers and Van Staden 2010). Thus, managers’ needs refer to actions, models and tools to support, firstly, the strategic decision on environmental issues, and after, the implementation of environmental aims then, and finally, the control of achieved results (Epstein and Roy 2001; Garzella and Fiorentino 2014; Mustapha et al. 2017; Haden et al. 2009). In this sense, the literature highlights the key role of performance measurement systems to translate strategy into action (Simons et al. 1999, 2000; Shank et al. 1993; Galeotti 2006). The predisposition and effective application of control systems facilitates the attainment of environmental aims, monitoring and evaluating the achieved results (Ilinitch et al. 1998; Epstein 2018; Niemeijer and de Groot 2008; Bennett et al. 2017). Although scholars and practitioners have provided industry standards, value drivers and key indicators, high variability and limited standardization affected the environmental practices of measurement and disclosure (Braam et al. 2016; Bebbington and Gray 2001; Epstein 2010). Although the decision on sustainable issues become more and more important, many firms have erroneously narrow view of environmental strategy making them vulnerable to competitors with broader perspectives (Porter and Van der Linde 1995; Barney 1991; Buysse and Verbeke 2003; Chuang and Huang 2018). Overall, the practices relating to environmental strategy generally have an outward-looking focus and are made up of a set of goals, plans and policies established by the top management without a strictly link with the overall strategic process of firms (Sadiq and Khan 2006; De Villiers and Van Staden 2010; Young and Welford 1998). Moreover, environmental strategy is, sometimes, analysed limited to some of the relevant lenses (Gouvea et al. 2013; Garzella and Fiorentino 2013).

1 Introduction

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Currently, the academic debate on environmental issues is characterized by several approaches not always harmonically related (Bowen 2007; Bowen et al. 2018; Garza-Reyes 2015; Geissdoerfer et al. 2017; Ciccullo et al. 2018); there is a lack of integration across research streams pertaining the study of environmental strategies (Lisi 2015; Lucas 2010; Schaltegger et al. 2017). Specifically, the literature does not provide comprehensive framework aimed at supporting the strategic management process of environmental dimension by a multi-lens perspective. In an attempt to bring the literature gap, we developed a research project based on a strategy-action-performance approach (Epstein and Roy 2001), accordingly with prior studies on the topic (Epstein et al. 2000; Keats and Hitt 1988; Micheli and Manzoni 2010). Drawing on and extending current research and practices on environmental strategies, we built an integrated framework aims to translate strategy into effective environmental ideas and therefore in goals and actions, from a side, and to implement appropriate control systems useful for monitoring the results of environmental performance, on the other. To support this process, some relevant guidelines, tools and models are provided. Specifically, the book is structured as follows. The next chapter introduces the changing role of environmental dimension in the system of firm’s strategies. According to strategic management literature streams, the analysis suggests the recognition of environmental dimension as a critical variable for implementing successful corporate and business strategies. Thus, we advance a new conceptualization and scope of environmental dimension in the corporate and business strategies by identifying sustainable actions, decisions and practices that firms can embrace to improve growth and competitive, financial and social advantages. The third chapter describes the strategic management process of environmental dimension. We first analyse the many critical actions that firms can develop to embrace the environmental strategy; second, we investigate the strategic management process of environmental dimension, supporting the study with tools and models; third we advance a proposal for controlling the environmental results in different stages of the strategic process. The fourth chapter advances a multidimensional model for the assessment of environmental performance. Based on a conceptual analysis, the study highlights some relevant value drivers and key performance indicators which may be combined in appropriate strategic measurement and control systems. We suggest some potential improvements for controlling and monitoring the environmental strategy; environmental benefits, related costs and competitive advantages are effectively identified and measured in the strategic process. In this way, the main steps to embrace successful environmental strategies are examined: the formulation of environmental aims; their role in the strategic management process; the assessment of the achieved results. Finally, the fifth chapter summarises conclusions and results, highlight implication both for scholars and practitioners.

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The work intends to contribute to several literature streams such as strategic management, CSR and green management. Specifically, our contribution is relevant to strategic management studies because it proposes a crossover analysis on environmental dimension and highlights problems and limits related to its integration in the strategic planning process. With reference to CSR studies, our findings push to overcome the traditional concept of environmental dimension as a “part” of social strategy, capturing its strategic relevance at corporate and business levels. Moreover, for the research in the field of green management, the framework provides a conceptual model able to identify sustainable actions, decisions and practices in order to provide a concrete response to corporate issues in implementing and controlling environmental strategy. Finally, we advance practical solutions, maximizing potentiality and reducing risks, in implementing environmental strategy. Our study suggests implications for practitioners highlighting practices and tools to translate strategy into effective environmental ideas and therefore in goals and actions, to implement appropriate control systems useful for monitoring the results of environmental performance and to successfully communicate the results of environmental performance.

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Chapter 2

The Environmental Dimension: Role and Scope in the Strategic Formula

2.1

The Environmental Dimension in the Studies on Corporate Social Responsibility

Environmental sustainability and corporate social responsibility (CSR) are increasingly relevant issues in the current economic context. In the past decade, research on these themes has rapidly expanded (Andersson et al. 2013; Freedman and Jaggi 2010; Schiederig et al. 2012; Taylor et al. 2018). In the field of business studies, the socio-environmental concerns were studied by scholars from a lot of disciplines, such as strategy, accounting and operations (Bowen et al. 2018; Haden et al. 2009; Lucas 2010; Burritt et al. 2019; Hansen and Schaltegger 2016). The academic debate on these themes has determined progressive verticalization and several categorizations on topics (Epstein and Roy 1998; Xie and Hayase 2007; Metcalf et al. 1995; Kurland and Zell 2011). Scholars have extensively underlined different paradigms and interpretations of CSR (Carroll 2008; Dahlsrud 2008; Pisani et al. 2017). The huge amount of academic research and practical studies has not converged into a common and conclusive definition of CSR (Taneja et al. 2011; Matten and Moon 2008; Peloza and Shang 2011; O’Riordan and Fairbrass 2008: Malik 2015). Specifically, the more sceptical perspectives on the topic see the CSR as a distortion of companies’ economic purpose (Friedman 1970; Murray 2005). This stream of research, following the frame of agency theory, advocated that the implementation of social, environmental and ethical actions implies higher costs than benefits with a negative impact on firms’ performance (Jensen and Meckling 1976; Alexander and Buchholz 1978; Tang et al. 2012). In this sense, firms decide to embrace the CSR only to reduce the threat of liabilities and costs of compliance with the regulation (Khanna and Anton 2002) or for moral and social reasons, mitigating reputational and management risks (Marcus and Fremeth 2009).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Capurro, Corporate Environmental Strategies and Value Creation, SpringerBriefs in Business, https://doi.org/10.1007/978-3-030-67278-2_2

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According to Freeman et al. (2010), the CSR can be defined as the “integration of social, ethical, and environmental concerns into the management criteria for corporate strategy” (p. 259). The broader vision of the CSR role has led firms to review their goals and objectives. The profit remains an essential element to pursue, but it must be consistently balanced with equally important social and environmental purpose; there is no clash between the profit of the firms and the well-being of the community and of the ecosystem. This view opens opportunities for more integrated approaches to CSR. Some scholars argued that correct implementation of social strategies can be considered a success factor for firms able to trigger new competitive dynamics (Singh 2016; Bowen 2007; Clarkson et al. 2011). Moreover, studies have suggested that the recognition of environmental dimension is a critical variable for the strategic positioning of firms (Garzella and Fiorentino 2014; Banerjee 2001). In this seam of research, scholars developed the environmental social responsibility (ESR) as an autonomous research topic (Hart 1995; McWilliams and Siegel 2001; Devinney 2009; Taylor et al. 2018; Garzella et al. 2020). These studies highlighted the relevance of environmental dimension not limited to the social strategy “perimeter” (Garzella et al. 2020). Currently, new reflections and critical points on environmental dimension, and the related green management processes, are provided. However, the literature is characterized by several approaches not always harmonically related (Bowen 2007; Garza-Reyes 2015; Geissdoerfer et al. 2017; Berrone et al. 2013; Ciccullo et al. 2018). In particular, some studies have focused on understanding how firms could align their strategies to environmental issues, in order to reduce the external impact of their business activities (Ambec and Lanoie 2008; Berchicchi et al. 2012, Clarkson et al. 2011; Molina Azorin et al. 2009). Other studies have analysed methods and tools to translate environmental ideas into successful management practices and technicaloperational processes (Porter and Van der Linde 1995; Perego and Hartmann 2009). Still others have been dedicated to measuring performance and identifying ways to correlate socio-environmental results with financial and economic aims (Clarkson et al. 2011; Hart 1995; Kurland and Zell 2011). Thus, there is a lack of integration across research streams pertaining the study of environmental strategies (Lisi 2015; Lucas 2010).

2.2

The Analysis of Factors Affecting Environmental Strategy

The environmental strategy can be defined as “the organization-wide recognition of the legitimacy and importance of the biophysical environment in the formulation of organization strategy and the integration of environmental issues into the strategic

2.2 The Analysis of Factors Affecting Environmental Strategy

11

process” (Banerjee 2002, p.181). Based on this definition, environmental strategies reflect the degree of acceptance and rooting of environmental issues and principles in the strategic management with the integration of environmental values in firm’s mission and vision (Aragon-Correa 1998; Lee and Rhee 2007; Sharma and Enriques 2005; Garzella and Fiorentino 2014). According to stakeholder and CSR approaches, an increasing number of firms have decide to recognize the relevance of the environmental dimension in addition to financial and social dimensions (Freeman 1984; Buysse and Verbeke 2003; Campbell 2007; Porter and Van der Linde 1995). The literature showed ample interest in whether and how firms could align their strategies to environmental dimension and their practices to sustainability direction (Porter and Van der Linde 1995; Perego and Hartmann 2009; Roy et al. 2013). Many scholars and researchers have tried to understand and classify reasons and motives that push firms to embrace sustainable paths (Lamond 2009; Primc and Čater 2016); methodological approaches and theoretical orientations are provided to analyse, improve and manage the environmental commitment of firms highlighting the related strategic advantages and benefits (McWilliams and Siegel 2001; Devinney 2009; Taylor et al. 2018). Although the relevance of the environmental strategies, studies often present different, or even conflicting, results (Salimath and Chandna 2018; Lisi 2015; Ambec and Lanoie 2008). The different reasoning arises by several attitudes, motivations and strategic aims that affect firms, even similar by sector and/or size, on the environmental and sustainability themes. Based on previous research on topic (Garzella and Fiorentino 2013; Capurro et al. 2018), the relevant literature on environmental strategy is reviewed and critically assessed according to four main criteria: – – – –

The drivers of environmental strategy The levels of strategy The activity sector The strategic horizon

2.2.1

The Drivers of Environmental Strategy

The study of the drivers of the environmental strategy allows to highlight factors, reasons and motivations that drive firms to adopt behaviour socially, ethically and environmentally correct (Campbell 2006, 2007). In particular, the drivers of environmental strategy may be analysed according to two broad research streams (Dahlmann et al. 2008; Garzella and Fiorentino 2014). The first stream, following the assumption of socio-institutional theory, focuses attention on the institutional mechanisms that can influence firms in the adoption and implementation of sustainable practices (Galaskiewicz and Burt 1991; Doh and Guay 2006; Matten and Moon 2008; Scott 2008). According to this approach,

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

some scholars argued that developing environmental actions imply cost higher than benefits and usually the environmental strategies are developed only for moral, reputational and social reasons or to mitigate possible accidents or sanctions for failure to compliance of environmental regulation (Freedman and Jaggi 1988; Marcus and Fremeth 2009; Agatiello 2009). Other approaches push firms to engage the environmental strategies in response to legitimate demands from stakeholders (Sprengel and Busch 2011; Bowen 2002; Suchman 1995). Differently, the second stream, framed in the resource-based view (RBV), emphasize the link between environmental strategies and competitive advantages (Russo and Fouts 1997); the RBV explains the mechanism of influence of proactive environmental strategies on the formation of competitive advantages supporting the development of corporate resource and distinctive capabilities (Hart 1995; Porter and Kramer 2006; Berchicchi et al. 2012). Indeed, scholars agree that correct implementation of environmental strategies can be considered a critical success factor for firms able to trigger new competitive dynamics (Bowen 2007; Clarkson et al. 2011). These proactive approaches to environmental strategies have been proposed as urgent, profitable and sustainable ways for firms to face the variability and the volatility characterizing current competitive context (Darnall et al. 2010). The implement environmental strategies should not be considered as a “cost” but as an “opportunity”; firms could be pay off in terms of social reputation, corporate image, compliance, sustainability reporting and customer preferences (Lamboglia et al. 2018; Hart and Milstein 2003). In addition, recent studies argue that open innovation paradigm (Chesbrough 2003a) can be considered a promising approach to develop environmental ideas, actions and practices (Boons and Lüdeke-Freund 2013; Peattie and Belz 2010; Dangelico et al. 2017). In this vein, open innovation practices have started to merge with the sustainability concept, giving rise to open sustainability innovation models. (Varadarajan 2017; Dangelico and Pujari 2010; Leach et al. 2012). Open sustainability innovation model uses the open innovation paradigm (Chesbrough 2003b) in order to development products, services, processes and initiatives focused on the social needs of people and on the environmental preservation (Peattie and Belz 2010; Hansen et al. 2009). Thus, this model recognizes the importance of sharing firms’ knowledge to elicit direct or indirect ecological improvements and/or to solve social-environmental problems (Rauter et al. 2017; Behnam et al. 2018); the implementation of hybrid cars, the encouragement of car sharing, the increased use of recycled materials in packaging, the growth in fairly traded products and organic foods and the passively heated houses are just some examples of sustainability innovations carried out in cooperation with target consumers group, non-government organizations, policy makers, suppliers, complementary firms and even competitors. The open sustainability innovation approach supports the development of successful environmental strategies for gaining competitive advantages and for creating differentiation benefits with regard to environmentally sensitive customers (Cappa et al. 2016). Moreover, this approach could increase the firm’s financial

2.2 The Analysis of Factors Affecting Environmental Strategy

13

Table 2.1 The managerial approaches on ESR Principles The ESR is defined as unnecessary and costly for firms

Reactive

Protective

Firms implement only the minimum number of ESR activities

Adaptive

Firms focus on environmental issue or solving sustainability problems after it occurs

Proactive

Firms predicts the expectations of stakeholders, defining goals and implements actions that go beyond the outside requests

Processes No ESR activities are implemented Limited change in business practices Substantial change in business practices Radical innovation in business model

Outcomes Possible dangerous consequences and negative events for firms Standardized activities with no true impact on firms’ performance Small benefits but also future opportunities for firms

New position of competitive advantage with a positive impact on firm’s reputation, compliance and customer preferences The development of new corporate resource and distinctive capabilities

performance, reducing production costs and time to market and improving firms’ process security (Arcese et al. 2015). Each research streams partially explains the drivers of environmental strategies. In this sense, the development of environmental strategies can be considered a complex process that differ along a continuum from a reactive to a proactive approach, according to several studies on the topic (Capurro et al. 2018; Porter and Van der Linde 1995) (Table 2.1).

2.2.2

The Levels of Strategy

The insights from literature review have highlighted the new relevance of environmental dimension not limited to the social strategy “perimeter” (Garzella et al. 2020). The environmental dimension, for a long time considered a sub-dimension of CSR studies, have moved from a narrow—and often marginalized—notion to a complex concept with an independent strategic value also extended to competitive and financial strategies (Cochran 2007; Berry and Rondinelli 1998; Epstein 2010; Sadiq and Khan 2006; Kim et al. 2016; Galbreath 2009). Indeed, the integration of environmental sustainability aspects into the overall firm’s strategies system can contribute to strengthen the competitive positioning in the firm-customers and firminvestors relationships, increasing the firm value creation process (Baumgartner and Rauter 2017; Capurro et al. 2018).

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

Specifically, strategic management scholars captured the relevance of environmental dimension at corporate and business levels (Hens et al. 2018; Primc and Čater 2016; Garzella and Fiorentino 2013). The corporate level concerns the overall objective, scope and processes of firm to accomplish its goals and to fulfil stakeholder’s expectations; the business level, instead, involves the achievement of new positions of competitive advantage on based of firm’s strategic decisions (Collis and Montgomery 1997). Thus, the environmental dimension affects the decision makers; managers should carefully analyse the environmental issues by considering them alongside other traditional strategic variables such as cost, quality, price, and so on (Garzella et al. 2020). In this way, firms can take decision regarding, for example, the exit from pollutant business or the increase of eco-R&D investments in order to develop sustainable products, services, processes and initiatives focused on the social needs of people and on the environmental preservation (Peattie and Belz 2010; Hansen et al. 2009; De Medeiros et al. 2014). Table 2.2 provides some example cases of environmental actions carried out by the world’s most sustainable companies, belonging to different activity sectors, according to the 2020 ranking by Corporate Knights’ Global 100 list. The leaders of the Global 100 report are a perfect example of firms that have identified the way the world is changing, spotted an opportunity to gain a competitive advantage and reshaped its business strategy accordingly. In addition, analysing the ranking, it is no accident that among the top ten sustainable firms, we could observe two financial services companies: investors, insurers and lenders are often ahead of the game when it comes to acknowledging where the risks of failing to deal with sustainability issues lie. Based on these insights, the development of proactive and effective environmental actions while simultaneously lowering costs and creating differentiation benefits and value for internal and external firm’s actors represents today one of the most important challenge for firms. The increasing environmental issues promotes an evolution of business practices considering simultaneously the accountability to a wide range of firm’s actors. The stakeholders’ requests urge firms to re-orient their management processes and to re-interpret their traditional business models in the perspective of sustainability. The traditional views about competitiveness, survival and profitability are being swept away and new strategic tools and processes are required. In this sense, the level of strategy is another crucial aspect to consider for implementing successful environmental strategies.

2.2.3

The Activity Sector

In an attempt to investigate the reasons and practices behind the adoption of environmental strategies, it is important analysing the differences among firms from various sector groups, regarding the environmental impact of their activities,

2.2 The Analysis of Factors Affecting Environmental Strategy

15

Table 2.2 The ten most sustainable companies in the world Rank 2020 1

Rank 2019 4

2

Company ØRSTED

State Denmark

Activity sector Wholesale power

1

CHR. HANSEN

Denmark

Food and other chemical agents

3

3

NESTE OYJ

Finland

Petroleum refineries

4

14

CISCO SYSTEMS

United States

Communications equipment

Green actions Since 2006, the company has transformed its business model took a 360-degree from a fossil fuel-intensive energy utility to one of the largest renewable energy companies in the world. Today, the company has taken significant steps towards decarbonising its operations and reducing emissions in its supply chain. Its next target is to become carbon neutral by 2025 Chr. Hansen develop natural solutions such as cultures, enzymes and probiotics used in a range of industries in a bid to reduce food waste, antibiotic overuse and harmful agricultural practices. Sustainability is also part of its daily business activities through its operational targets for the environment and responsible sourcing The company’s mission focuses on replacing fossil fuel with clean and renewable alternatives. Its renewable jet fuel is refined from waste and sustainable raw materials, while its renewable diesel allows drivers to reduce their greenhouse gas emissions by a whopping 90% Starting with its circular economy practices, the multinational technology company has managed to upcycle over 13,946 tonnes of returned products in 2019. The future (continued)

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

Table 2.2 (continued) Rank 2020

Rank 2019

Company

State

Activity sector

5

48

AUTODESK

United States

Software

6

58

NOVOZYMES

Denmark

Specialty and Performance Chemicals

Green actions aim is to incorporate circular design principles in all its new products in a bid to reduce the overconsumption of natural resources by reusing products and packaging. Its sustainability efforts also extend to its suppliers, requiring full transparency regarding greenhouse gas and carbon emissions from their part Integrating sustainable design features within their products, the company encourages sustainability by allowing its customers to become pioneers of net-zero energy buildings, smart cities and green manufacturing. For its own operations, Autodesk relies on 100% renewable energy to power its buildings, data centres and cloud services, reducing its greenhouse gas emissions by 41% over the last decade Company specialises in biological solutions that can be used to make products more sustainable. An excellent example are its laundry products which allow consumers to wash laundry at lower temperatures and reduce energy consumption. In 2019, consumers were able to save 76 million tonnes of carbon emissions an equivalent to nearly 32 million cars being taken off the road (continued)

2.2 The Analysis of Factors Affecting Environmental Strategy

17

Table 2.2 (continued) Rank 2020 7

Rank 2019 35

8

9

Company ING GROUP

State Netherlands

Activity sector Financial services

–

ENEL SPA

Italy

Wholesale Power

8

BANCO DO BRASIL

Brazil

Financial services

Green actions The multinational banking corporation has invested billions in green energy projects and organisations committed to battling climate change. By following a strict environmental and social risk framework to evaluate all its transactions, policies and clientele, it has also placed great emphasis on the ecological impact on its financial decisions, aiming to ‘finance change’ through its influence The multinational company provides access to affordable, clean energy, innovation and infrastructure, and climate action. It has allocated a grand €16.6 billion budget to invest in the development of renewable energy sources and network digitalisation. The sustainability is also applied to its own supply chain by placing emphasis on the slashing of emissions and consumption. The company’s sustainability plan is focused on five pillars: people, planet, prosperity, peace and partnership. Focused on the green economy sector, the company invested $51.19 billion to fund initiatives that seek to reduce carbon emissions, preserve natural resources and improve environmental management. Banco do Brasil (continued)

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

Table 2.2 (continued) Rank 2020

10

Rank 2019

–

Company

ALGONQUIN POWER & UTILITIES CORP

State

Canada

Activity sector

Electric utilities

Green actions supports the agriculture, transportation and energy sectors, enabling Brazil’s transition to a green economy The company actively invests in green energy and sustainable utility distribution. The company’s decarbonisation strategy involves acquiring high carbon emission assets and transitioning them into clean energy. This further reinforces their ‘think global, act local’ business model, which aims to form mutually beneficial relationships between all the company’s stakeholders

the relevance of environmental issues and the features of regulatory intervention (Banerjee 2001; Brammer and Pavelin 2008; Hackstone and Milne 1996). The current scenario is varied and constantly changing. Many firms in traditional sectors are gradually moving towards sustainable policies, though with different processes, timing and effectiveness; at the same time, several firms continue to operate with social and environmental practices, now old and obsolete, sometimes explicitly in contrast to the sustainability principles. In this sense, scholars suggest that industry classification is a factor that can lead to greater clarity in the selection of environmental issues, guiding strategic decisions and aims of firms (Schmidt et al. 2012). However, to completely understand the differences that characterize the various industrial sectors, it is necessary to have a global vision of environmental concerns and their impact on the entire value chain (Klassen and McLaughlin 1996). While recognising that some sectors generate significantly a greater environmental impact, currently the development of strong interdependencies between firms and their activities makes it difficult to categorize particular sectors as more “green”, or simply more environmentally friendly, than others. In this sense, the traditional distinction of firms into two groups, “green” and “brown” should not be regarded as exhaustive. In fact, the interconnections among different sectors determine that even “coregreen” firms are affected by public pressure relative to environmental concerns. This simplistic and binary vision must be abandoned in favor of more in-depth

2.2 The Analysis of Factors Affecting Environmental Strategy

19

analyses aimed at selecting the value drivers and key factors used by the firms belonging to different sector groups in order to identify the actions and processes able to increase competitive and economic-financial performance. Following criteria from prior studies (Bowen 2000; Morris 1997; Hoffman 1999), firms can be categorized into three sector group, based on the distinct environmental concerns and practices that characterize them: – Sensitive sectors: firms operating in green and/or environmentally sensitive business—such as chemical, petroleum, pharmaceutical, transporting etc. . ., these firms are very conscious of the socio-environmental issues and implement best “green practices” – Manufacturing/services sectors: firms competing without any special involvement in green sectors—such as construction and supply of building materials, industrial and personal goods and services, automotive, food and beverage, telecommunications and technology; etc. . . – Financial sector: firms engaging in financial, insurance and banking services This classification is useful to highlight the link between internal firm’s activities and their external socio-environmental impact: for sensitive firms environmental practices are different from other firms; there are different practices between manufacturing/services and financial firms (Kolk et al. 2001; Maali et al. 2006; Garzella and Fiorentino 2013).

2.2.4

The Strategic Horizon

Implementing successful environmental strategies requires the selection of sustainable actions for achieving concrete and tangible results on the biophysical environment, on one side, and obtain positive impact on revenues, costs and competitive advantage, on the other (Bocken et al. 2014; Clarkson et al. 2011; Siegel 2009; Darnall et al. 2010). However, due to the complexity and variability that characterize socioenvironmental issues, the impact of environmental strategies on firm’s performance is not easy to investigate and often “may not be an immediate one” (Molina Azorin et al. 2009, p. 1094). Indeed, several activities could have a different timing to affect environmental, financial and competitive performance of firms (Nehrt 1996; Yuan et al. 2020). In addition, sometimes a long period is intrinsic for particular environmental activities such as the development of new clear technologies and/or more sustainable products (Richey et al. 2014; López-Gamero et al. 2009). The environmental activities can be analysed on the base of the time frame horizon needed to make firms sustainable. Overall, environmental actions can be listed in short-term and long-term operations (London and Hart 2004). However, some scholars argue that the green investments positively impact on the firm’s performance when they become actually relevant (Barnett 2006). Indeed, the stakeholders acknowledge the environmental commitment of firms when they

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

are perceived as really green engaged; thus, they recognize them as deserving of support (Boutin-Dufresne and Savaria 2004). In this sense, firms should realize short-term environmental performance while also generating potential for future growth (Abell 1993; Tushman and O’Reilly 1996). In the short period, managers should constantly increase the alignment of the firm’s strategy to the environmental issues. In the long period, managers should develop environmentally strategic changes, such as green disruptive innovation, modifying radically their business model. Currently, many firms appear to rely on relatively short-term strategies which prevent them from becoming more proactive on sustainability; so, it may be possible to witness several eco-sustainable actions and practices, but that are isolated, without a real positive on the firm’s value and on the biophysical environment.

2.3

The Environmental Dimension in the Strategic Formula

The increase in competitive pressure, the globalization of markets and technological developments have made the traditional distinction among corporate and business strategies less useful to analyse the new strategic business practices that firms could embrace to create innovative paths and growth (Kortmann et al. 2014; Liu and Liang 2015; Zhang et al. 2018; Capurro et al. 2018). Therefore, in the field of strategic management studies, scholars have proposed a conceptual model known as strategic formula (Coda 2012; Galeotti and Garzella 2013). The preliminary analysis of this theoretical model is important to understand how firms could develop a corporate business model that allow the integration of the environmental dimension into each level of the firm’s strategies. The strategic formula model is useful to define the firms’ strategic profile and to evaluate it over time by considering two different strategic fronts: external front and internal front (De Luca et al. 2016; Galeotti and Garzella 2013). Moreover, the evolution of studies on the topic lets to recognize also an area related to “boundary zone”, occurring activities and processes neither internal nor external because jointly controlled and influenced by many organizations (Garzella 2000; Caputo et al. 2019). The external strategic front refers to the relationships between the firm and the several players, both economic and non-economic, operating in its environment (Galeotti and Garzella 2013; De Luca et al. 2017; Freeman 1984). Specifically, the external strategic front allows to identify firm’s strategies for competing in three main directions: in the real markets, in the financial markets and in the social context (Porter 1980; Drucker 1984; Hamel and Prahalad 1989; Galeotti 2008). The competitiveness of the firm is owed to its capabilities to create value for its players simultaneously (Porter 1987; De Luca et al. 2017). The establishment of a virtuous circle between these three directions depends the firm’s structure (Coda 1984).

2.3 The Environmental Dimension in the Strategic Formula

21

The firm’s structure is represented by the internal strategic front of the strategic formula model. The internal strategic front refers to the basic elements, both tangibles and intangibles, needed for the construction and the achievement of the competitive advantage (Grant 1991; Mintzberg et al. 2003; Barney 1991). Specifically, this front includes four main structural elements: distinctive resources and skills, the operational processes, the organizational model and rules, roles and procedures of corporate governance and the condition of financial and balance assets strength (Amit and Shoemaker 1993; Nelson and Winter 1982). The ways in which these elements are combined, generating the uniqueness of the firms and defining the firms’ specific features, are the main reason why a firm is different from another (Chandler 1992; Mintzberg 1979). The strategic formula model, with regard to its internal and external front, is illustrated in Fig. 2.1. In the strategic formula model, firm develops and implements a plurality of interconnected strategies for each front—internal, external and on boundaries (Hofer and Schendel 1978; Hacklin and Wallnofer 2012). Specifically, in the external front, the firm develops positioning strategies in order to trigger and/or to enhance the firm’s role in real markets, financial markets and social context (Galeotti and Garzella 2013). Positioning strategies include business strategy, financial strategy and social strategy and may be directed to the development of firm’s competitive position in a single strategic unit—strategic business units (SBU), strategic financial units (SFU) and strategic social units (SSU)—or across multiple strategic units; in the latter case firm develops a strategic portfolio approached creating aggregate value (Thompson et al. 2013; Markides 1997; Husted and Allen 2007). On the other hand, internal strategies define the firm’s structure and are distinguished in resources strategy, operations strategy, organizational strategy, governance strategy and internal financial strategy—with reference to the achievement of financial self-sufficiency. As anticipated, the management of resource, knowledge and activities on the “boundary zone” are considered a new paradigm to obtain and sustain competitive advantage (Caputo et al. 2019). By “linking” and “bearing” strategies, firm could identify new integration and coordination opportunities among the value chains of the firm and the value chains of external “partners”, focusing on processes, activities and resources that cannot be considered neither internal nor external (Yang and Lin 2010; Adamides 2015; Foss et al. 2013). In this way, the concept of boundary pushes to redesign the firms’ corporate processes and their strategic positioning (Garzella 2000; Gonzalez-Benito and Lannelongue 2014; Ritter et al. 2004; Swink et al. 2007). The model proposed shows as the firm’s structure represents the junction among business, financial and social strategies fostering the establishment of a virtuous circle between them (Porter 1987; Mintzberg et al. 2003; Coda 2012; De Luca et al. 2017). Specifically, the characteristics of the firm’s structure allow for the definition of a business strategy based upon a product offer in line with the needs and expectations

Fig. 2.1 The strategic formula model. Source Garzella et al. (2020), Towards new conceptualization and scope of environmental dimension in the strategic formula

22 2 The Environmental Dimension: Role and Scope in the Strategic Formula

2.3 The Environmental Dimension in the Strategic Formula

23

of customers and able to face all the competitive player. Thus, firm could establish and consolidate their positions of competitive advantage (Porter 1980, 2008). In financial markets, the firm’s structure also fosters the definition of a financial strategy based upon financial offer, meaning an investment proposal, in line with the need and expectation of financial players—both equity and debt holders (Galeotti and Garzella 2013). This allows the firm to acquire funds needed to finance its investments and activities at favourable conditions These strategic decisions must be taken in order to pursue a model of financial self-sufficiency able to increase the perception of a solid and reliable firm (Galeotti 2008). The firm’s capabilities in creating value in the real and financial markets, allows also to define a social strategy in the social context (Porter and Kramer 2006). The social strategy is based upon an entrepreneur-social proposal in line with the interests and expectations of social players—such as workers, managers, local community, institution and so on. Involving them in the entrepreneurial project, firms could obtain, in return, human resources and general consensus needed for its sustainable development (Baden-Fuller et al. 2000; Clarkson et al. 2011). In addition, this process increases the quality, efficiency and effectiveness of the firm’s internal structure, hence increasing the firm’s competitiveness in the real and financial markets (Barney 1991; Bowman and Ambrosini 2007). Thus, the firm’s internal and external fronts are closely related according to a systemic relationship over the time. In this sense, firms need to evaluate their strategic formula considering the “consonance” of the internal and external fronts in a dynamic perspective in order to create a strategy able to generate value over time (Coda 1984; Galeotti and Garzella 2013). Identified the theoretical model, and analysed its interactions, we move on to underline the cross-value of the environmental dimension in the strategic formula. In this sense, we suggest for each strategic level, sustainable actions, decisions and practices that firms can embrace to improve growth and competitive advantage considering simultaneously the accountability to a wide range of firms’ actors. In particular, for the strategy in real markets (Table 2.3), the environmental dimension affects the achievement of competitive advantage by differentiation or by cost leadership options (Sharma and Enriques 2005; Dangelico et al. 2017). Through the development of product offer environmentally-friendly, firm could reach customers increasingly attentive to socio-environmental issues. For firms that compete through several strategic sub-units, the environmental dimension affects the choices related to business portfolio (Lamond 2009; Barabba et al. 2002; Xin-gang et al. 2018; Elkington 1994). In this sense, firms could decide, for example, to exit from pollutant business or to enter in green business, by exploiting possible synergies and strategic alliances, in order to increase exposure to high-value sustainable market positions and reducing risk exposure. The environmental challenge has implications for the financial strategy in the financial markets (Table 2.4). The firms’ definition of a financial offer based on green investments and environmental, social and governance (ESG) practices could help firms to receive capital needed at favourable conditions. In fact, the financial players are changing the way

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

Table 2.3 Environmental dimension in the real markets Strategy in real markets

Green actions • Environmentally friendly products/services, • Product offer for environmental conscious consumers • Introduction of recyclable packaging • Development of eco-innovations • Programs to educate consumers on environmental issues • Communication of firm’s environmental actions to consumers • Restructuring firm’s portfolios business • Green business entry • Pollutant business exit • Green strategic alliances • Green synergies

Advantages • Competitive advantage by differentiation or by cost leadership options • Increase quality perception • Increase customer perception of environmental performance • Increase corporate image • Increase exposure to high-value sustainable market positions • Reduction of risk exposure • Efficient resource allocation • Increase corporate image

Table 2.4 Environmental dimension in the financial markets Strategy in financial markets

Green actions • Implementation of processes in respect of biophysical environment • Green investments • Adoption of ESG practices

Advantages • Possibility of receiving capital at favourable conditions • Less exposed to operational, legal and reputational risks • More interest by investors and financial stakeholders

they manage their financial investments, giving priority to firms that adopt virtuous practices and processes that respect the biophysical environment (Miles and Covin 2000; Martin and Moser 2016; Zhang et al. 2018). In this way, firms gain more interesting by investors and benefit from lower cost of capital, as well as less exposure to operational, legal and reputational risks. For the social strategy, the definition of an entrepreneurial social proposal must be directed to the creation of environmental benefits in addition to social value (Hart 1997; Lamboglia et al. 2018) (Table 2.5). Firms’ commitment is embodied in defining initiatives and programs to effectively manage environmental impact associated with their business activities—for example reducing the effects of air pollution and climate change, improving waste and water management, developing greener business transports by smoothing traffic flows. These actions determine a return for firms in terms of reputation and corporate image, as well as the opportunity to receive green awards and founds and support, as incentive for future, new green initiatives. Embracing the environmental dimension, firms need to change their operational processes, governance practices, supply chains, and organizational models, with a strong impact in defining the internal strategies.

2.3 The Environmental Dimension in the Strategic Formula

25

Table 2.5 Environmental dimension in the social markets Strategy in social markets

Green actions • Environmental impact reduction • Improve the living conditions of local communities. • Cooperative alliances with environmental organizations • Reduction of air pollution and climate change • Improve waste and water management • Development of greener business transports • Green programs and communication of environmental actions to community • Reduction of environmental incidents

Advantages • Increase firm’s value • Increase social reputation • Increase corporate image • Green initiatives found and supports • Green awards • Social stakeholders’ perception of environmental performance

Table 2.6 Environmental dimension in the resources strategy Resources strategy

Green actions • Environmental standards for suppliers’ selection • Reduction in consumptions of natural resources • Use of sustainable energy sources • Use of replaceable resources, components and raw materials

Advantages • Increase quality perception • Reduction of production costs • Development new competences and capabilities • Positive perception by environmental conscious consumers • Consumptions reduction

With reference to the resources strategy, the environmental dimension effects on the selection of suppliers (Govindan et al. 2015; Geissdoerfer et al. 2017) (Table 2.6). The environmental criteria could lead to prefers the use of replaceable resources rather than natural resources. These choices positively impact on the environmental conscious consumers’ opinion; the product quality is perceived as superior to competitors also obtaining benefits in terms of consumptions and production costs reduction. However, efficient use of resources as a measure on its own is not enough; there needs to be a sustainable attitude to the environment at every stage of business process. In this sense, development, the integration of the environmental dimension in the firm’s strategies system drives decision-making processes transformations (Table 2.7). Indeed, the use of sustainable resources shall be compatible with the implementation of advanced technologies, processes, structures and systems and must be accompanied by decisions on centralization/decentralization of operational activities in order to foster the firm’s eco-efficiency reducing environmental impact for unit of output (Hens et al. 2018; Leach et al. 2012).

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2 The Environmental Dimension: Role and Scope in the Strategic Formula

Table 2.7 Environmental dimension in the operations strategy Operations strategy

Green actions • Designing appropriate environmental structures and systems • Environmental advanced technologies and eco-red investments • Decisions on centralization/ decentralization • Reduction of environmental impact for unit of output

Advantages • Reduction of production costs • Minimize product’s lifecycle impacts • Increase firm’s eco-efficiency

Table 2.8 Environmental dimension in the organizational strategy Organizational strategy

Green actions • Promote incentive systems based on rewards to employees who develop new environmental ideas • Create organizational “green units” projects • Create cross-functional teams to improve environmental performance • Promote programs to raise employee awareness on environmental issues • Improving the internal communication of environmental actions to employees

Advantages • Positive impact on firm’s routine • Positive impact on corporate culture • Positive feedback from employees • Shared and clear business objectives

Including the environment preservation in technical-operational activities, several internal changes are required with a strong impact on employees, routine management activities and corporate culture (Harris and Crane 2002; Margaretha and Saragih 2013; Bertels et al. 2010; Olson 2008) (Table 2.8). The top management must guide this transition process; there is a need of appropriate strategic actions directed to promote incentive systems based on rewards to employees who develop new environmental ideas, organizational “green units” projects or cross-functional teams to improve environmental performance, programs to raise employee awareness on environmental issues improving the internal communication of advantages related to implemented environmental actions by firm. The governance strategy can play active role to addition environmental and ecological issues in the corporate management plan (Table 2.9). Firms could create a corporate governance structure able to support the communication with stakeholders about firm’s strategies and policies regarding the natural environment, to reduce the pressure from environmental activist groups and to transfer internally to all levels of firm’s an orientation to environmental and social sustainability (Comyns 2016; Perrault and Clark 2016; Ben-Amar et al. 2017). In this sense, new rules and standards for corporate accountability and transparency are developed, such as environmental committees and reporting, an environmental

2.3 The Environmental Dimension in the Strategic Formula

27

Table 2.9 Environmental dimension in the governance strategy Governance strategy

Green actions • Independent audits of environmental performance • Environmental standard adoption • Environmental management systems • Change in ownership and board structure • Reduction of green lawsuits and crimes • Increase green compliance • Environmental committees and reporting • Environmental communication with stakeholders • Environmental policies and procedures • Internal transfer of an orientation to environmental and social sustainability

Advantages • Positive effect on internal and external corporate governance mechanisms • Introduction of new rules and standards for corporate accountability and transparency • Creative corporate governance structures reduce the pressure from environmental activist groups

Table 2.10 Environmental dimension in the boundary strategy Boundary strategy

Green actions • Collaborative networks • Green strategic alliances • Green partnerships • Green technological clusters • Smart working Collaboration with Research centers/Universities to solve general environmental problems

Advantages • Increase firm’s value • Improve business performance • Innovative green ideas • Exploitation of new emerging technologies • Reduction of costs during the design and development of products • Minimize the environmental impacts related to the overall supply chain

expert’s inclusion in a firm’s board and independent audits development of environmental performance. (Amran et al. 2014; de Villiers et al. 2011; Brammer and Pavelin 2008). Focusing the attention on the “boundary zone”, firms could develop new perspectives in business processes able to increase the sustainability performance and, thus, to create green paths and competitive advantage (Stenberg 2007; Darnall et al. 2008; Grekova et al. 2014; Sarkis 2012). Through partnerships and strategic alliances among the actors operating on the boundaries, firms could potentially access external green resources, technologies and know-how hardly to develop internally (González-Benito et al. 2016); at the same time, working on boundaries, firms could externalize their knowledge and green ideas in order to achieve the market faster than they could through internal development (Table 2.10).

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In view of the above, our proposed framework offers a broad perspective on environmental dimension capturing its strategic relevance at corporate and business levels. The analysis suggests, for each level, environmental ideas, goals and actions, with related benefits, for firms supporting the strategic management process of environmental dimension. Overall, a new conceptualization and scope of the environmental dimension in the strategic formula are provided. The integration of the environmental dimension into the overall strategic process requires an appropriate decision-making process able to account for all levels of strategies. Indeed, this process affects both internal and external front, including the “boundary zone”. The crossover analysis on environmental dimension in the strategic formula model highlights the key role of this variable to strengthen the competitive positioning in the firms-customers and firms-investors relationships and to increase the firm’s social value. Moreover, the study supports the implementation of coherent firm internal organizational model based on best sustainable practices and process.

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Porter, M.E., Kramer, M.R.: The link between competitive advantage and corporate social responsibility. Harv. Bus. Rev. 84(12), 78–92 (2006) Porter, M.E., Van der Linde, C.: Green and competitive. Harv. Bus. Rev. 73(5), 120–134 (1995) Primc, K., Čater, T.: Environmental strategies in different stages of organisational evolution: theoretical foundations. Australas. J. Environ. Manag. 23(1), 100–117 (2016) Rauter, R., Perl-Vorbach, E., Baumgartner, R.J.: Is open innovation supporting sustainable innovation? Findings based on a systematic, explorative analysis of existing literature. Int. J. Innovat. Sustain. Dev. 11(2–3), 249–270 (2017) Richey Jr., R.G., Musgrove, C.F., Gillison, S.T., Gabler, C.B.: The effects of environmental focus and program timing on green marketing performance and the moderating role of resource commitment. Ind. Market. Manag. 43(7), 1246–1257 (2014) Ritter, T., Wilkinson, I.F., Johnston, W.J.: Managing in complex business networks. Ind. Market. Manag. 33(3), 175–183 (2004) Roy, M., Boiral, O., Paillé, P.: Pursuing quality and environmental performance: initiatives and supporting processes. Bus. Proc. Manag J. 19(1), 30–53 (2013) Russo, M.V., Fouts, P.A.: A resource-based perspective on corporate environmental performance and profitability. Acad. Manag. J. 40(3), 534–559 (1997) Sadiq, R., Khan, F.I.: An integrated approach for risk-based life cycle assessment and multi-criteria decision-making: selection, design and evaluation of cleaner and greener processes. Bus. Process Manag. J. 12(6), 770–792 (2006) Salimath, M.S., Chandna, V.: Sustainable consumption and growth: examining complementary perspectives. Manag. Decis. (2018). https://doi.org/10.1108/MD-12-2016-0934 Sarkis, J.: A boundaries and flows perspective of green supply chain management. Supply Chain Manag. Int. J. 17(2), 202–216 (2012) Schiederig, T., Tietze, F., Herstatt, C.: Green innovation in technology and innovation management—an exploratory literature review. R&D Manag. 42(2), 180–192 (2012) Schmidt, T.S., Schneider, M., Rogge, K.S., Schuetz, M.J., Hoffmann, V.H.: The effects of climate policy on the rate and direction of innovation: a survey of the EU ETS and the electricity sector. Environ. Innovat. Societal Trans. 2, 23–48 (2012) Scott, W.R.: Approaching adulthood: the maturing of institutional theory. Theory Soc. 37(5), 427 (2008) Sharma, S., Enriques, I.: Stakeholder influences on sustainability practices in the Canadian forest products industry. Strat. Manag. Ind. 26(2), 159–180 (2005) Siegel, D.S.: Green management matters only if it yields more green: an economic/strategic perspective. Acad. Manag. Perspect. 3(3), 5–16 (2009) Singh, J.: The influence of CSR and ethical self-identity in consumer evaluation of cobrands. J. Bus. Ethics. 138(2), 311–326 (2016) Sprengel, D.C., Busch, T.: Stakeholder engagement and environmental strategy—the case of climate change. Bus. Strat. Environ. 20(6), 351–364 (2011) Stenberg, A.C.: Green ideas travelling across organizational boundaries. Build. Res. Inf. 35(5), 501–513 (2007) Suchman, M.C.: Managing legitimacy: Strategic and institutional approaches. Acad. Manag. Rev. 20(3), 571–610 (1995) Swink, M., Narasimhan, R., Wang, C.: Managing beyond the factory walls: effects of four types of strategic integration on manufacturing plant performance. J. Operat. Manag. 25(1), 148–164 (2007) Taneja, S.S., Taneja, P.K., Gupta, R.K.: Researches in corporate social responsibility: a review of shifting focus, paradigms, and methodologies. J. Bus. Ethics. 101(3), 343–364 (2011) Tang, Z., Hull, C.E., Rothenberg, S.: How corporate social responsibility engagement strategy moderates the CSR–financial performance relationship. J. Manag. Stud. 49(7), 1274–1303 (2012)

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Chapter 3

The Environmental Dimension: Role and Scope in the Strategic Management Process

3.1

The Environmental Dimension in the Studies on Strategic Management Process

In the current economic context, the decisions in terms of environmental sustainability and social responsibility, such as the management of scarce natural resources, the use of new renewable energy, the reduction of atmospheric pollution, the development of procedures and methodologies for decrease the environmental incidents, the implementation of investments in R&D in order to create eco-sustainable innovations and products, represent for firms a relevant commitment to be constantly carried out. Indeed, these decisions cannot be made only as a mere response to contingent social pressures and/or regulatory impositions (Esty and Winston 2009; Darnall et al. 2010; Campbell 2007). Despite the raising attention paid to these themes, many firms have erroneously narrow view about the adoption of environmental issues in the strategic management (Devinney 2009; Wood 2010; Clarkson et al. 2011). Accordingly, some studies show that managers find frequently difficult to transform strategy into action (Epstein and Roy 2001; Sharma and Vredenburg 1998; Yang et al. 2019). Moreover, even integrating environmental aims and goals in the strategic process, these processes do not necessarily guarantee positive outcomes (Wood 1991; Walls et al. 2011; Wagner and Schaltegger 2004; Zhang et al. 2019). The environmental challenge has implications for many aspects of firm’s strategy (Chen et al. 2015; Fraj-Andrés et al. 2009). Indeed, the development of a successful environmental strategy requires a complete and integral approach that concerns the overall strategic process in both the formulation and the subsequent implementation steps (Sprengel and Busch 2011; Garzella and Fiorentino 2013). Currently, the environmental issues have recently taken a wider meaning so to embrace very different decisions and actions (Marcus and Fremeth 2009; Haden et al. 2009; Lartey et al. 2020). In this sense, environmental strategy could be

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Capurro, Corporate Environmental Strategies and Value Creation, SpringerBriefs in Business, https://doi.org/10.1007/978-3-030-67278-2_3

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considered a complex phenomenon implying a multi-lens perspective to support the related decision-making process (Rötzel et al. 2019; Menguc et al. 2010). In an attempt to identify the factors that facilitate, or inhibit, the selection of environmental aims, firstly, and the implementation of environmental actions, then, it is important to analyse each step affecting the strategic process of environmental dimension. In particular, the strategic process of environmental dimension, following the most appreciated framework on environmental and sustainability issues, is based on a strategy-action-performance approach (Epstein and Roy 2001; Garzella and Fiorentino 2014; Capurro et al. 2018). In this sense, the strategic process can be analysed with regard to three main steps: – The “formulation of the environmental strategy”, with reference to the integration of the legitimacy and importance of the biophysical environment into the strategic process; – The “implementation process”, with reference to transform environmental decisions into strategic actions aimed to achieving concrete and tangible results; – The “analysis of results”, with reference to the impact of strategic actions on the biophysical environment, on one side, and on the firm’s financial and competitive positions, on the other. The strategic process of environmental dimension is summarized in Fig. 3.1; for each step, the table shows different actions, decisions and practices that firms could embrace to improve environmental strategy as well as the related environmental, financial and competitive results. Specifically, the formulation step requires the integration of environmental issues in the firm’s mission and vision (Campbell 2006; Garzella et al. 2020). In this way, environmental dimension becomes an integral element of the managerial and operational procedures of firm (Barney 1991; Hart 1997; Siegel 2009). Programs to educate employees and customers on environmental issues may be required to drive the sustainable changes (Ramus 2001; Blok et al. 2015; Mota et al. 2015). In this step, the strategic decisions could concern, for example, the entry into new environmental sensitive sectors or leaving pollutant business, the creation of ad hoc green organizational units devoted to support and promote the sustainability, the choice to make green investments and/or to increase eco-R&D activities. Sometimes, the formulation of environmental strategy could push firms to completely rethink their business model in a sustainable perspective way. Indeed, in the current competitive contexts where new sharing-knowledge tools and new ways of governing relationships are established, the choice of integrating the environmental dimension into the overall strategy promotes the research of business practices—such as crowdsourcing open network, crowdfunding, collaborative networks, strategic alliances and technological clusters—stimulating creative process and innovation (Kennedy et al. 2017; Capurro 2019; Rauter et al. 2019). The second step, related to the implementation process, must be designed to ensure the alignment between environmental strategy and actions (Ilinitch et al. 1998; Young and Welford 1998). Thus, environmental strategies can be

Environmental certifications Waste reduction actions Consumptions reduction Environmental impact reduction Environmental standards adoption Emissions reduction Green initiatives funds and supports Environmental disclosure

IMPLEMENTATION

Action

Fig. 3.1 The strategic management process of environmental dimension

Integrating “green” in mission/vision Integrating “green” in strategic goals “Green units” projects “Green” strategic alliances Green business entry Pollutant business exit “Green” investments “Green innovations” Environmental risks

FORMULATION

Strategy

Biophysical impact reduction Green awards Green innovations Green compensations Lawsuits and crimes reduction Environmental incidents Environmental certifications

ENVIRONMENTAL RESULTS

Financial benefits Financial costs New products development Quality perception improvement New capabilities and skills

FINANCIAL AND COMPETITIVE RESULTS

Performance

3.1 The Environmental Dimension in the Studies on Strategic Management Process 39

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implemented through the adoption of concrete initiatives oriented to the reduction of waste, consumptions, emissions and more generally to any effective attempt of environmental impact reduction. These initiatives may be also indirectly advanced supporting and funding organizations involved in green initiatives. The study of environmental strategy must be completed by the assessment of achieving results (Epstein 2018; Aragón-Correa et al. 2008; Solovida and Latan 2017). Firstly, the outcomes of environmental strategies should lead to the achievement of environmental results (Parnell et al. 2012; Ryszko 2016; Glasson and Therivel 2013). These results could be measured with reference to the multiple aspects: from the real reduction of waste, consumptions and emissions to the obtained decrease of environmental incidents, crimes, lawsuits and compensations and even to the realization of environmental innovations and the receipt of green awards. Moreover, in a win-win approach, the impact of environmental performance on financial and competitive firm’s positions must be also evaluated (Epstein and Roy 1998; Wagner and Schaltegger 2004; Micheli and Manzoni 2010; Garzella and Fiorentino 2014). The improvement of environmental performance represents an opportunity to lower production costs through the reduction of consumptions, emissions and scarce resources and/or the development of more efficiency technologies and processes. The environmental results often lead to an increase in revenues through the development of new products/services for environmentally sensitive customers. Moreover, differentiation or cost leadership strategies could be developed by improving the quality perception of the products offered (Roy and Vezina 2001; Ko and Liu 2017). Good environmental performance also enhances firm’s capabilities and skills and improve corporate reputation and legitimacy, as well as it could generate strategic options and future opportunities (Sharma and Vredenburg 1998; Dai et al. 2017; Berchicci et al. 2012). Overall, environmental strategies must be formulated by integrating environmental issues in corporate ideas and goals. Each step may be considered in its systemic attitude; the items of environmental strategy must be translated into environmental action and linked to environmental, financial and competitive performance.

3.2

A Multi-dimensional Approach for the Strategic Management of Environmental Dimension

The environmental strategy may be implemented by the translation in effective actions related to several environmental issues. The selection of environmental goals and their integration into the overall strategic process of firms calls for the development of new sustainable-oriented practices to facilitate the implementation of environmental strategies. Scholars in the field of strategic management studies have provided several models to assess the effectiveness of entrepreneurial projects (Dess and Lumpkin

3.2 A Multi-dimensional Approach for the Strategic Management of Environmental. . .

41

DRIVERS OF ENVIRONMENTAL STRATEGY

PROACTIVE

REACTIVE

ACTIVITY SECTOR

HIGH SENSITIVE

LOW SENSITIVE SHORT-TERM

CORPORATE OR BUSINESS

CORPORATE AND BUSINESS

LEVEL OF STRATEGY

LONG-TERM

STRATEGIC HORIZON

Fig. 3.2 An example of diamond framework for environmental strategies

2005; Covin et al. 1994; Taylor 1997). Some studies argue that the failure of a strategic process often lies in the initial selection of aims to pursue (Candido and Santos 2015; Oliver 1997; Sterling 2003; Shenhar and Dvir 2007a). Starting from previously research and in order to support firms in the current environmental challenges, the study encourages the identification of the most appropriate lines of action to implement successful environmental strategies. Specifically, the analysis shows how firms could plan and check the most relevant variables to increase the sustainable paths of growth. By merging the insights from literature streams, the study systematizes the four main criteria of environmental strategies—the drivers of environmental strategy, the levels of strategy, the activity sector, the strategic horizon of environmental actions (see Chap. 2)—in order to improve the assessment of environmental plans. Specifically, the four main criteria of environmental strategies can be analysed using a diamond framework (Shenhar and Dvir 2007b). The diamond framework is structured in a four-axis graph useful both for designing action plan and related control process. Figure 3.2 shows a potential application of diamond framework with reference to the main analysis criteria of environmental strategies. The firm’s environmental positioning is represented by the strategic diamond points. The purpose of the graph is to figure out the actual structure of the environmental project compared with the present firm’s capabilities to execute the project.

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The Environmental Dimension: Role and Scope in the Strategic Management Process Firm observed

DRIVERS OF ENVIRONMENTAL STRATEGY

Competitor 1

35

Competitor 2

30 25 20

15 10 5

ACTIVITY SECTOR

0

LEVEL OF STRATEGY

STRATEGIC HORIZON

Fig. 3.3 An example of radar mapping for environmental strategies

The differences between the two will show the gaps that have to be filled to make the project a true success. Moreover, the firm’s positioning along the axes can be also analysed by a comparative approach with competitors or green market leaders, in order to highlight strategic key variables not adequately exploited to develop most profitable sustainable projects. Strategic management studies also suggest the radar mapping as a valid tool to monitor the robustness of business projects (Sammut-Bonnici and Channon 2015). The radar mapping allows a careful evaluation of the strengths and weaknesses of firm’s performance related to a specific object of observation. The graphic elaboration requires the identification of four or more variables growing out of its core. The length of each axis is proportional to the analysis criteria defined. A line is traced along this figure to create a shape that represents the “firm’s profile” based on the combination of aspects analysed. In order to create shapes that help reach a strategic diagnosis, it is important the selection process of variables relevant to firm’s business project. In this sense, using the main analysis criteria of environmental strategies, we proceed to build a radar mapping for control environmental projects (Fig. 3.3). Like strategic diamonds, a radar mapping permits comparisons over time of firm’s results and comparisons among the firm’s results and those of competitors. Our proposal shows the second option.

3.3 The Strategic Management Process of Environmental Dimension

43

Overall, the need for correct and rapid implementation of environmental strategies highlights the opportunities for firms to have a project-oriented approaches (Lorange and Vancil 1977; Goold and Quinn 1990; Turner and Downey 1993) for control environmental processes which may facilitate the success. The analysis of factors affecting managerial decisions to embrace environmental strategies can reduce risks and limitations related to the setting and the identification of environmental goal and aims. The adoption of project-based approach ensures the effective monitoring of integration of environmental dimension into the overall strategic process, so as to render possible the revision, improvement and innovation, stage by stage, the work required for the achievement of environmental, financial and competitive results.

3.3

The Strategic Management Process of Environmental Dimension

The adoption of environmental strategies implies some essential decisions with regard to the selection of environmental aims and their transformation into strategic actions in order to improve firm’s environmental, financial and competitive performance (Buysse and Verbeke 2003; Lee and Rhee 2007; Sharma and Enriques 2005). Implementing successful environmental strategies requires a complete and integral approach that concern the overall strategic process in both the formulation and the subsequent implementation steps (Garzella and Fiorentino 2013). The several resources—monetary and non-monetary—required for the development of environmental projects, the related risks, the difficulties in evaluating longterm green investments, the critical aspects connected to the transformation of environmental issues into valid strategic actions, etc., led to the development of important research on the topic aimed at understanding the strictly link between the positive development of environmental strategies and the need to implement adequate strategic management and evaluation practices (Epstein 2010; Hart and Milstein 2003; Xie and Hayase 2007; Haden et al. 2009). However, theoretical analysis and practical evidence show that many firms do not pay adequate attention to the relations between environmental strategy, strategy implementation and the achieved results (Simons et al. 1999; Kurland and Zell 2011; Ghisellini et al. 2016). Firstly, it is important highlights that the environmental aims, goals and actions that firms decide to pursue must necessarily blend harmoniously into the corporate culture (Bertels et al. 2010; Hosseini 2007; Islam et al. 2019). Implementing responsible behaviour and ecological choices focused on the sustainability can be significantly guided by a corporate culture based on correct economic, social and environmental values (Harris and Crane 2002; Metcalf et al. 1995; Eccles et al. 2012). In this sense, the development of proper environmental strategies requires the creation and dissemination of “green knowledge” at all organizational levels in order to stimulate joint contributions and interactions on the environmental project

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(Baumgartner and Rauter 2017; Olson 2008; Galpin et al. 2015). Through this process, firms could empower their organizational actors by transforming them into bearers of positive values constantly engaged in dialogue with the external stakeholders, improving their internal and external communication aims (Dutta 2012; Margaretha and Saragih 2013; Schönborn et al. 2019). Overall, the development of environmental strategy drives decision-making processes transformations, including changes in operational process, governance practices, supply chains, and organizational models (Wood 2010; Vachon and Klassen 2008; Al-Sheyadi et al. 2019). With reference to the external context peculiarities, the business sector characteristics and the ethical, social and environmental objectives pursued, each firm must develop appropriate management processes and strategic tools to support their sustainable paths of growth (Marcus and Fremeth 2009; Schiederig et al. 2012; Baumgartner 2014). As previously stated, the environmental strategic process embrace several environmental issues, however, internal and external factors affect managerial decisions related to the selection and implementation process (Stead and Stead 2013; Figge et al. 2002; Engert and Baumgartner 2016). The management of environmental issues needs a contribution in supporting decision makers to select the right strategic moves ones from the available ones. In this sense the green management can be defined a complex decision-making process that has the potential to support a wide range of management decisions that characterize the several perspectives of environmental strategies (Garzella and Fiorentino 2014; Engert et al. 2016; Lloret 2016). The predisposition and effective application of decision-making process facilitates the attainment of strategic aims, driving the results along the overall strategic process (Dwyer et al. 2009; Babiak and Trendafilova 2011; Haden et al. 2009). Specifically, an effective and correct implementation of strategic management process covers, in a comprehensive view, every item of environmental strategies and allows the subsequent control of the environmental results. In this vein, the development of a decision-making process plays key role to translate strategy into profitable action. Following the previous strategy-action-performance approach, the decisionmaking process positively impacts on the formulation of environmental strategy, on the subsequent implementation step and on the assessment of environmental results achieved (Fig. 3.4). Specifically, in the “strategy” step, the decision-making process suggests the most important dimensions to define, pushing the management to be aware of environmental strategy success factors. In the “action” step, the decision-making process provides relevant information on environmental actions developed. In this way, firms could activate, if required, to correctives leading towards the achievement of planned targets or their redefinition. Finally, for the “performance” step, the decision-making process allows an audit action of environmental strategy determining whether the design and implementation actions produced the desired results.

3.4 The Strategic Management Process of Environmental Dimension: A Supporting Tool

45

The strategic management process

The decision-making process

Strategy

Supporting environmental strategy decisions

Action

Supporting the achievement of environmental aims

Performance

Controlling the environmental results

Fig. 3.4 The role of environmental dimension in the decision-making process

Overall, the firms’ ability to strategic management the environmental dimension should be based on multi-dimensional framework that support the three most relevant dimensions of environmental strategies: the first related to factors affecting the formulation of strategy; the second related to the translation of strategic aims in actions; the third related to the results really achieved. Firms should research and develop strategic tools, models and business practices aimed at supporting the decision-making process adoption and the success of environmental strategies by multi-lens perspective.

3.4

The Strategic Management Process of Environmental Dimension: A Supporting Tool

Pursuant to the above theoretical studies and related managerial implications, the study highlights the role of environmental strategies as a critical success factor to improve the competitive and financial positioning of firms (Bowen 2007; Porter and

46

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Van der Linde 1995; Roy et al. 2013). By the strategic management process of environmental dimension, firms should be able to foster the development of sustainable paths that take into account the environment preservation and the expectations of the different stakeholders, with a positive impact on the firm’s value creation process (Siegel 2009; Clarkson et al. 2011). The opportunity to achieve financial and competitive results is closely linked to the implementation of best technical-operational practices and flexible governance mechanisms for monitoring the strategic environmental process (Amran et al. 2014; de Villiers et al. 2011; Brammer and Pavelin 2008). Formulating and implementing environmental strategies requires an integrated approach voluntary, systematic and shared at all organizational levels, structured by the integration of top-down and bottom-up control approaches, which complete and strengthen the decision-making process of environmental dimension (Bowen et al. 2018). The adoption of strategic management practices allows firms to transform environmental constraints into business opportunities, through the support of tools and models for a greater understanding of the external expectations as well as for achieving the environmental objectives set (Epstein 2018; McWilliams and Siegel 2001; Schaltegger et al. 2017). The strategic management process guides through systematic activities of research, selection and implementation, the development of environmental strategies, allowing the successfully manage of the relationship between the firms and the external actors and the carefully assess the internal operational processes (Dwyer et al. 2009; Florida and Davison 2001; Babiak and Trendafilova 2011). However, the lack of systematic approaches, associated with difficulties in dialogue and coordination among the various firm’s business areas, inhibits the development of successful environmental strategies and/or the exploitation of their full potential (Geissdoerfer et al. 2017; Berrone et al. 2013; Ciccullo et al. 2018). Indeed, the implementation of environmental strategy as well as the related monitoring, are often complex and not linear processes; it is not always easy to identify and strengthen the “green weaker” firm’s business areas (Ambec and Lanoie 2008; Miles and Covin 2000; Mustapha et al. 2017). In addition, many firms do not have accurate information and data about their natural resource inputs, costs related to its environmental impacts, and the financial and competitive benefits connected to their environmental performance (Fiorentino et al. 2020); the link between environmental strategies, environmental performance and financial and competitive results is generally underestimated by firms (Epstein and Roy 2001; Simons et al. 1999; Aragón-Correa and Sharma 2003). Thus, in attempt to bridge this gap, according to previously studies on green management (Garzella and Fiorentino 2014), we put forward an evaluation grid that

3.4 The Strategic Management Process of Environmental Dimension: A Supporting Tool

47

permits to capture the variety of environmental success factors in different stages of the strategic process (Table 3.1). In order to support the environmental strategy adoption, the evaluation grid connects the four steps of strategic process, each declined in its items, with the four main analysis criteria on environmental strategies. The model allows a 360-degree view of the firm’s environmental and sustainable efforts by identifying the main areas of environmental practices. In this way, a comprehensive decision-making model is provided, allowing the harmonious integration of environmental issues into the overall firm’s strategic process. Specifically, in the strategic formulation stage, the evaluation grid highlights the success factors of environmental strategy. Managers should analyse each potential environmental action replying to the four analysis criteria, marking the corresponding box; by this way, managers will be able to define strategic plans and actions with cascade reactions on the subsequent implementation phase as well as the expected environmental results and financial and competitive performance. In the implementation stage, the grid could be used as a diagnostic tool by feedforward corrective mechanisms, to the achievement of planned targets or their redefinition. Indeed, managers, marking the boxes relevant to each environmental practice adopted, will understand what is the state of the environmental project and what should be, identifying the gaps between the current firm’s capabilities and what are instead the necessary ones to make this process successful. The next stage highlights the link between the environmental actions implemented and the environmental results achieved by assessing the degree of environmental strategy’s balance. In this case, the evaluation grid will guide the management in the selection of the most useful environmental actions, among the many available, for competing in the current dynamic economic context. Moreover, the grid allows to evaluate by feedback mechanisms whether the environmental actions produced the desired results on the competitive and financial firm’s performance. The empty boxes represent for firms missed opportunities. Once filled the evaluation grid of environmental strategy, firms must constantly update it, according to the internal and external changes. Although the list of items is not intended to be a comprehensive one, the proper understanding of each environmental dimension represents the starting point to rethink the firm in an environmental perspective way, by identifying new opportunities e sustainable paths of growth. If the success of environmental strategy depends on the identified dimensions, these need to be controlled, monitoring and measured.

Financial

Strategic horizon ShortLong term term

Driver of strategy Reactive Proactive strategy strategy Corporate

Business

Level of strategy 3

Strategic process Formulation Integrating “green” in mission/vision Integrating “green” in strategic goals “Green units” projects “Green” strategic alliances Green business entry Pollutant business exit “Green” investments Eco-R&D activities Environmental risks Implementation Environmental certifications Waste reduction actions Consumptions reduction Emission reduction Environmental impact reduction Environmental standards adoption Green initiatives funds and supports Environmental disclosure

Activity sector Manufacturing/ Sensitive services

Table 3.1 The evaluation grid of environmental strategy

48 The Environmental Dimension: Role and Scope in the Strategic Management Process

Environmental performance Biophysical impact reduction Effective emissions reduction Effective consumptions reduction Effective waste reduction Green awards Green innovations Green compensations Lawsuits and crimes reduction Environmental incidents Environmental certifications Financial and competitive performance Financial benefits Reduction product costs New products development Quality perception improvement New capabilities and skills

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Chapter 4

The Environmental Dimension: Role and Scope in the Performance Measurement and Control System

4.1

The Environmental Dimension in the Studies on Performance Measurement and Control System

The disclosure of non-financial information and non-financial performance represents today one of the main challenges for firms. Scholars and practitioners agree that the disclosure of non-financial information can play a key role for firms, generating a virtuous circle for internal and external relations and mutual trust (Amir and Lev 1996; Churet and Eccles 2014; Gao et al. 2016; Huang and Chen 2015). The awareness that the economic growth for firms is linked by a cause-and-effect process with the welfare external environment, has involved manager and practitioners to increase the non-financial disclosure in order to improve the engagement with their stakeholders (Epstein and Roy 1998; Lucas 2010; Porter and Kramer 2006; Stubbs and Higgins 2018). The truthful and correct representation of a firm’s performance and its future prospects needs to account for a variety of sustainability issues (Mio and Venturelli 2013); the eco-green development, the environmental policy, and the stakeholder engagement are exerting an ever greater impact on strategic and operational decisions, risk profiles and balance sheet item valuations (Bhimani and Langfield-Smith 2007; Chen et al. 2018; Omran et al. 2019). The European Union itself recognizes “the importance of businesses divulging information on sustainability such as social and environmental factors, with a view to identifying sustainability risks and increasing investor and consumer trust. Indeed, disclosure of nonfinancial information is vital for managing change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection. In this context, disclosure of non-financial information helps the measuring, monitoring and managing of undertakings’ performance and their impact on society” (Directive 2014/95/EU, art. 3, The European Parliament and of the Council). Due to the rising attention paid to environmental issues in regulatory provisions, prior research has developed several categorization, framework and models with the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Capurro, Corporate Environmental Strategies and Value Creation, SpringerBriefs in Business, https://doi.org/10.1007/978-3-030-67278-2_4

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4 The Environmental Dimension: Role and Scope in the Performance. . .

aim to represent social and environmental factors in the firm’s annual report disclosures (O’Donovan 2002; Hughes et al. 2001; Patten 2002; Reverte 2009). Indeed, since a growing number of firms have chosen to invest in green management, the environmental performance has become an important measure to assess the value of corporate and business strategies. (Epstein and Roy 2001; Boyko and Derun 2016; Carini et al. 2018). The ability to properly manage the strategic process of the environmental dimension is based on the identification of useful environmental actions to support the decision-making process, on their correct implementation into the firm’s overall strategy and on the subsequent assessment of their impact on economic and financial performance (Capurro et al. 2018). Indeed, the predisposition and effective application of measurement and control processes facilitates the attainment of strategic aims, monitoring results along the overall strategy process (Perego and Hartmann 2009; Simons et al. 2000; Parmenter 2015). In this sense, the performance measurement systems were identified as one of the common success factors both in formulation and implementation of firm’s strategies (Bourne et al. 2000; Franco-Santos et al. 2007; Neely et al. 2005; Shank et al. 1993). The elaboration of appropriate performance indicators stimulates the management behaviors with regard to the firm’s economic-financial position, by promoting the organizational trust and acceptance for firm’s aims (Bruggeman and Van der Stede 1993; Eccles 1991; Popova and Sharpanskykh 2010). In this stream of research, scholars have highlighted the effectiveness of environmental measurement systems in supporting the identification of relevant value drivers and key performance indicators that may be integrated in corporate reports for internal and external communication aims (Epstein and Wisner 2001; Kaplan et al. 2001; Hansen and Schaltegger 2016). Firms should constantly revise their strategic planning with the support of value drivers and key performance indicators able to represent the effectiveness of the obtained environmental results (Goyal et al. 2013; Sharma and Vredenburg 1998; Valmohammadi 2014). While the application of performance measurement systems based on financial measures is widely understood and appreciated by both scholars and practitioners (Galeotti 2006; Chan and Chan 2004; Van Looy and Shafagatova 2016; Marr and Schiuma 2003), new theoretical frameworks have emerged in recent years that extend these systems beyond traditional financial measures (Epstein et al. 2000; Kaplan and Norton 2004; Zeghal and Maaloul 2010; Wright and Keegan 1997). Scholars have developed multidimensional systems that, integrating qualitative and quantitative analysis, identify the reasonable cause-effect relations that may exist between several business issues allows to to interpret the dynamics of firm’s results (Ittner and Larcker 1998; Kaplan and Norton 1996; Maltz et al. 2003). Integrating performance measurement system with non-financial measures, firms could engage to seize the value creation, in its various forms and configurations, as well as the action of various factors that compete to determine (Nanni et al. 1990; Capurro et al. 2020). Considering the complexity and variability that characterized the socioenvironmental issues, the analysis of the environmental strategies, and their results,

4.1 The Environmental Dimension in the Studies on Performance Measurement and. . .

57

must necessarily be carried out with control and measurement system not “traditional” (Paulraj 2009; Song et al. 2018). In fact, the multidimensional systems, founded upon a whole balance of indicators of bookkeeping and extra-bookkeeping nature, financial and physical techniques, integration of strategy and operational goals, could satisfy the manifold objectives and the various informative necessities connected to the control of environmental strategy (Garzella and Fiorentino 2013b). Currently, the studies on environmental performance measurement system are conceptualized in a several practical models (Epstein and Wisner 2001; Ilinitch et al. 1998; Schaltegger and Burritt 2017; Mio 2010; Xie and Hayase 2007; Young and Welford 1998). However, these studies, sometimes, analyse environmental strategies limited to some of their several perspectives (De Villiers and Van Staden 2010; Perotto et al. 2008; Morioka and de Carvalho 2016). Moreover, the theoretical analysis shows a relative absence of indicators of competitive advantage, probably evidence of difficulties in interpretation and measurement of environmental strategies on competitive results (Garzella and Fiorentino 2013b; Walsh and Dodds 2017; Walls et al. 2011). Moreover, despite the guidelines and global practices proposed by several international and supranational organizations, (e.g. E.U., ISO, GRI, Global Compact) hight variability and limited standardization characterized the disclosure of environmental performance (Beck et al. 2010; Marwa et al. 2020; Iatridis 2013). The proliferation of environmental standards, indicators and value drivers have made difficult to obtain meaningful environmental information; it is generally difficult for external stakeholders to judge a firm’s environmental performance (Garzella and Fiorentino 2013a). There is a need to achieve a sufficient degree of spatial and temporal comparability of environmental performance in firms’ disclosure (Andersen and Fagerhaug 1999; Bebbington and Gray 2001; Plumlee et al. 2015). Currently, the disclosure of environmental performance is affected to some relevant issues related to, for instance, the selection of environmental elements to measure, the comparison between firms operating in a variety of sectors, or different in size and ownership, or subjected to different national legislation on the topic (Montabon et al. 2007; Holland and Foo 2003; Kolk et al. 2001; Gunardi et al. 2016; Chandok and Singh 2017). The across studies pertaining the volume, quality and potential information for external stakeholders on environmental issues in the disclosure and measurement practices remains an object of limited research (Hughes et al. 2011; Garzella and Fiorentino 2013a; Mishra et al. 2017; Tan et al. 2016); there is no evidence of an effective uniformity in environmental performance control and reporting (Hansen and Schaltegger 2016; Epstein 1996; Tyteca et al. 2002; Brammer and Pavelin 2008). In an attempt to bridge the gap, the chapter analyses the potential impact of environmental strategies on performance measurement and control system, highlighting the changes needed to better assess and monitored the strategic processes. Thus, we put forward a framework that allows firms to identify and select the relevant environmental factors in corporate and business strategy. The study offers implications for practitioners to evaluate the impact of environmental strategies on

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the firms’ economic and financial performance, from a side, to support the effectiveness of environmental information contained in firms’ reports, on the other.

4.2

The Global and Italian Practices in the Performance Measurement and Control of Environmental Dimension

The selection of a specific set of environmental value drivers and performance indicators is considered a critical element to support the strategic management process and to improve the monitoring and control of the environmental strategy (Niemeijer and de Groot 2008; Jasch 2000; Bennett et al. 2017). The correct identification of indicators and drives allows to represent, through specific measures, the condition of the company towards the environment and its evolution over time (Daub 2007; Adams and Frost 2008). In addition, environmental indicators and drivers produce an information flows compared with the limits imposed by the laws, regulations and international conventions in the field of sustainability, with the social context and/or with firm’s competitors (Olsthoorn et al. 2001; Braam et al. 2016; Mio 2010). The globalization of stock markets requires comparability among environmental management systems and metrics, encouraging standardization in environmental performance measurement (Bebbington and Gray 2001; Bennet et al. 1999; Link and Naveh 2006; Boyd and Banzhaf 2007). In this sense, national and international organizations, institutions and associations have provided several categorizations of the environmental issues in order to advance global practices in the environmental performance measurement (e.g. EEA 2003; ISO 14031 2013; GRI 2017; GBS 2013; UNCTAD 2018; EU 2018; WBCSD 2003; GEMI 2006). Documents developed in many business’s areas—e.g. reporting, performance measurement, etc.—examined standards for environmental policy, operations, disclosure and performance. For instance, the UNCTAD, a permanent intergovernmental body established by the United Nations in 1964, has provided an original survey of a core set of environmental, social and governance indicators used by global top 100 listed companies (UNCTAD 2018). The goal of this project is to provide empirical inputs which would form a potential best practices baseline for ESG reporting. The survey results are shown in Table 4.1. In Italy, following the intervention on environmental disclosure introduced by a regulation in 2007 (D.Lgs 32/2007), firms required to provide environmental information for the first time in their 2008 annual report. In order to fulfil the disclosure requirements of the law, the Italian firms could decide to prepare the environmental documents through the utilization of environmental performance indicators suggested by supranational organizations such as GRI or national standard, by national organizations such as GBS (Social report study group), or by professional organizations as CNDCEC (Italian Certified Accountants Association). In this sense,

4.2 The Global and Italian Practices in the Performance Measurement and Control of. . .

59

Table 4.1 Most used ESG indicators by global top 100 listed companies Environmental indicators CO2 emission

Freq. 82

Water consumption Waste

74

Energy

57

Reuse of waste

51

63

Social indicators Number of employees (FTEs) Number of employees divided by gender Number of managers divided by gender Donations (incl. community projects and employees’ voluntary work, etc.)

Freq. 93

62

Governance indicators Number of female board members Existence of audit Committee Compensation – total

89

Compensation per member

86

Attendance rate to board meetings Board duration of service (tenure) Number of board meetings Age diversity of board members Numbers of Audit Committee meetings SOX activities Existence of ESG Board, CSR Committee, Corporate Governance committee, etc.

87

66

Freq. 99 97 95

84 83 77 74 74 50

Source: Our elaboration on UNCTAD (2018) “Reporting on the Sustainable Development Goals: A Survey of Reporting Indicators”

the effects produced by regulatory activity on the mandatory environmental reporting and environmental performance practices remain fragmented and how best to address these issues must be further investigated. Table 4.2 provides an example of a study conducted by GBS with the intent of establishing social reporting standards (GBS 2013). Specifically, with regard to the environmental measurement system, the experts identify some relevant economic and financial information, qualitative information and quantitative data and indicators to take into account for the evaluation. Moreover, the study categorizes the environmental indicators in terms of their directly or indirectly link with the organizational activities. Overall, despite some common results in disclosure and measurement practices from research in different countries, and the production of a series of standards and benchmarks that firms can use as guidelines, there is no evidence of an effective standardization in environmental performance control and reporting (Wagner 2015; Mishra et al. 2017; Tyteca et al. 2002). Indeed, the current scenario is characterized by a heterogeneous, and often partial, environmental indicators’ selection by firms. The result is to have a not unitary

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4 The Environmental Dimension: Role and Scope in the Performance. . .

Table 4.2 The environmental indicators in the GBS standard Aspects Direct environmental aspects 1. Consumption of raw materials and other subsidiary materials (Information about the % of recycled materials) 2. Energy consumption by type of energy source (Information about % of savings due efficient initiatives) 3. Water consumption (The % of re-used water) 4. Dust and greenhouse gas (Initiatives and achieved results of reduce these emissions) 5.

Liquid effluents and waste (Indicators in relation to tolerable thresholds in terms of time period, trend and benchmarking identified by regulatory bodies) 6. Waste (Waste generation is analysed by typology, in relation to the European Waste Catalogue (EWC) (With regard to hazardous waste, data about treatment and eventual export) 7. Noise and olfactory pollution (Indicators in relation to tolerable thresholds in terms of time period, trend and benchmarking that identified by regulatory bodies) 8. Corporate behaviours with regard to landscape and protected areas (fauna, flora, aesthetics), eco-systems and biodiversity (Analysis about the assessment of the industrial plants, recovered areas, species included in the “IUCN Red list”) Indirect environmental aspects 9. Key suppliers of goods and subsidiary services (Communication and assessment of the effects) 10. Transport (Environmental impacts related to the transport of raw materials and products and staff travel) 11. Impacts due to products and services produced (customers and consumers) (Communication and assessment of the effects) 12. Compliance (Number, value and context)

Indicators Consumption indicators by weight and volume of materials used Consumption indicators related to the development and characteristics of “energy efficient” products Consumption indicators by sources used Indicators of the total, direct and indirect emissions by category (CO2, CH4, N2O, and other substances considering laws, regulations and international conventions) Indicators of the total number or total volume of: water, chemicals, spills, oils and fuels

Classification of waste by destination and quantity indicators Indicators of waste generation by category and methodology of disposal Specific indicators

• Location and dimension of the industrial plants managed in or near by protected areas • Programmes for managing and safeguarding eco-system and biodiversity • Water sources and related habitats significantly influenced by waste and spills Specific indicators also analysed by trend in relation to environmental caused by supply relationship Specific indicators also analysed by trend

Specific indicators also analysed by trend with particular reference to packaging Fines paid for not abiding to the existing environmental laws and regulations

Source: Our elaboration on GBS (2013) “Principles and standard for sustainability reporting”

4.3 The Environmental Performance Measurement and Control System

61

measure of the economic, social and environmental value created. In addition, there is a problem resulting from different names of same indicators; the comparison of environmental data across firms, also operating in the same sectors, is not always exhaustive or clearly understandable (Jasch 2000; Brambila and Flombaum 2017; Wilburn and Wilburn 2013). Therefore, while environmental measures are increasingly relevant, methodologies inconsistencies may inhibit the firms’—and stakeholders’—ability to interpret such data and make objective comparisons across time (Bennett et al. 2017; Ojala et al. 2016; Xie and Hayase 2007).

4.3

The Environmental Performance Measurement and Control System

The existing literature on the measurement and control of environmental performance is characterized by wide, diversified and constantly expanding studies. Scholars from many disciplines, such as strategy, finance, operations and accounting, have focused on the different issues and factors affecting the measurement of environmental results (Rodrigue et al. 2013; Peloza 2009; Hassel et al. 2005). The models, analysis and metrics proposed in order to explain the relation between environmental and financial performance, showing sometimes a positive relationship (Klassen and McLaughlin 1996; Porter and Van der Linde 1995; Russo and Fouts 1997) and, other times, divergent results (Al-Tuwaijri et al. 2004; Margolis and Walsh 2003). Overall, the important aspect that emerges from the studies is the need to structure measurement and control system based on a multidimensional approach along the several dimensions of the environmental strategic process (Epstein 2010; Tyteca et al. 2002). In general, however, scholars argue that firms often have effectively failed to implement strategy and control strategic reviews by means of performance measurement systems, because specific strategic items are not included in these systems (Gimbert et al. 2010). In this sense, firms should pass from performance measurement systems to strategic performance measurement systems (SPMSs); the latter are characterized by the integration of strategy and operational goals in the control process and the presence of a sequence of goals-targets-action plans by a causeeffect linkages (Chenhall 2005; Bisbe and Malagueño 2012; Silvi et al. 2015). Indeed, the effective predisposition of measurement and control processes should be structured in order to facilitate the formulation and implementation of environmental strategies and subsequent monitoring and evaluation of achieved results (Fig. 4.1). In this way, the performance measurement can be useful for many aims and information questions, such as to evaluate results of firm’s environmental strategy, to support the decision-making process of environmental dimension, to check the development of processes execution, to communicate to external

Including of cause-effect linkages useful to the management of environmental issues

Production of an internal and external information flow in order to assess the value of a firm’s environmental involvement

Performance

Stressing the need to reflect on the success factors of the new strategy, in order to make more explicit anticipated objectives, actions and achieved results

Action

Fig. 4.1 The role of performance measurement and control system in environmental strategy

The Performance Measurement and Control Systems

Strategy

Environmental strategic process

Green management process

62 4 The Environmental Dimension: Role and Scope in the Performance. . .

4.4 The Environmental Performance Measurement and Control System: Value Drivers. . .

63

stakeholders environmental commitment and financial and competitive status, to appraise and stimulate management behaviors on firm’s sustainable project (Eccles 1991; Micheli and Manzoni 2010; Lundgren and Zhou 2017). Consequently, the introduction of multidimensional performance measurement and control system allows the effective management of environmental strategy by translating the firm’s sustainable aims into specific measurable factors (Ittner and Larcker 1998; Baker 2010; Spence et al. 2010). These processes are based on a combination of measures indicating results of action previously taken and measures that are drivers of future performance (Gimbert et al. 2010; Ilinitch et al. 1998; Epstein 2018). The conditions of effectiveness in the use of these systems are tied up mainly to the selection of the indicators and the predisposition of fit organizational and operational conditions (Kaplan and Norton 1996; De Villiers and Van Staden 2010). The successful multidimensional control system requires the selection of performance measurement based on the causal model approaches (Epstein et al. 2000; Keats and Hitt 1988) in order to lay out the reasonable cause and effect relations that may exist between the drivers of each dimension of environmental strategy and environmental outcomes. The need is to identify and define some relevant value drivers and key performance indicators for each step, by facilitating the implementation of environmental strategies and subsequent monitoring and evaluation of achieved results (Ittner and Larcker 2003). In an attempt to facilitate the selection process around all the measures available, we investigate the main options about the most relevant items for each dimension of the environmental strategy process by integrating theoretical studies and practical guidelines offered by national and international organizations. In this vein, to facilitate the comparability of research results, and to correlate theoretical and operational proposals, we suggest some relevant key value drivers and performance indicators of environmental results which may combined in a scorecard or a tableau de bord, in order to promote a systematic monitoring and evaluation of the achieved environmental results.

4.4

The Environmental Performance Measurement and Control System: Value Drivers and Indicators

The study of the implemented environmental strategies must be completed by examining the impact of environmental performance on the firms’ value creation path (Galeotti 2006; Govindarajan and Gupta 1992; Epstein and Roy 2001). The environmental performance can be analysed with reference to the outcomes of the firm’s actions on the biophysical environment and to the protection of environmental resources and, in a win-win approach (Epstein and Roy 1998; Garzella and Fiorentino 2014), costs and benefits directly associated with environmental strategies must also be evaluated. In this sense, current environmental strategy measurement and control system should be developed by evaluating the

64

4 The Environmental Dimension: Role and Scope in the Performance. . .

Table 4.3 Driver of environmental performance in different sector groups

Waste reduction

Consumption reduction

Emission reduction

Green awards

Green innovation

Green lawsuits, crimes and compensations Environmental incidents Environmental certifications

Drivers of environmental performance Sensitive Manufacturing/services Waste production (with Waste production (with reference to types, level reference to the types of danger, the firm’s and the level of danger) activity and the destina- and waste recycled tion), waste recovery, waste recycled, use of recovered or recycled materials Water consumption Water consumption (with reference to the (with reference to the firm’s activity), gas con- firm’s activity), gas consumption, energy consumption, energy consumption (with sumption (with reference to efficiency, reference to source, sources, firm’s activity, firm’s activity, the disdistinction between tinction between direct direct and indirect), and indirect) and paper paper consumption, consumption consumption of raw materials (with reference to the type) Gas emissions (with ref- Gas emissions (with reference to the type), erence to the type) and fumes emissions, dust dust emissions; emissions National awards, interNational awards, international awards, sector national awards, enviawards, environmental ronmental ratings and ratings and environmen- environmental indexes tal indexes Innovative products Innovative products developments, innovadevelopments, innovative processes developtive processes developments, innovative ments and innovative technologies developtechnologies ments and use developments Pending litigations, con- Pending litigations and demnations, damages sanctions expenses and sanctions expenses Data about oil spills Number and seriousness Energy efficient certificates, labeling certifications and environmental systems certifications

Environmental systems certifications

Financial Waste production (with reference to the level of danger), waste recovery and waste recycled

Water consumption, energy consumption (with reference to sources), paper and toner consumption

Gas emissions (with reference to the type and the activity source) and dust emissions National awards, international awards, sector awards, environmental ratings, environmental indexes Innovative products developments, innovative processes developments and innovative technologies use Sanctions expenses

– Labeling certifications and environmental systems certifications (continued)

4.4 The Environmental Performance Measurement and Control System: Value Drivers. . .

65

Table 4.3 (continued)

Financial benefit Financial costs Competitive advantages

Drivers of environmental performance Sensitive Manufacturing/services Revenues increase, risEnvironmental costs ing costs and risk reduction reduction Environmental expenses – Reputation benefits and Community satisfaction improvements of relations with competitive forces

Financial Energy savings

– Reputation benefits and relations with suppliers

many environmental issues of both the formulation and implementation step of the strategic process, and by highlighting the relationship between environmental performance and financial and competitive advantage results (Epstein and Roy 2001). Although, the relevance of environmental performance indicators in financial terms emerged from the literature review (Horváthová 2012; King and Lenox 2001; Dwyer et al. 2009), the link between environmental performance and competitive effects seems underexplored (Christmann 1999; Finster and Hernke 2014; Lee et al. 2015). The absence or low number of indicators related to competitive advantages confirms that the environmental performance is not generally measured in relation to competitors but in absolute terms; the consequences of environmental strategies on competitiveness are not considered or are deliberately kept confidential by firms. To support the ability of performance measurement system to capture these measures, many researches adjusted the several frameworks of control system to managerial issues of a specific competitive context in the attempt to individualize the most remarkable key performance indicators, checking their effectiveness and putting in evidence their strengths and weaknesses (Azzone et al. 1996; Epstein and Roy 2001; Hermann et al. 2007) In this stream of research, studies were finalized to the construction of multidimensional systems for firms of a specific industry (Tyteca 1996; Capurro 2019; Garzella and Fiorentino 2013a). A comprehensive analysis of environmental performance must be carried out considering the firms’ business types and their related environmental issues. Prior research highlight relevant differences among different industries in the environmental impact, the quality of environmental disclosure, the relevance of environmental issues and the features of regulatory intervention (Brammer and Pavelin 2008; Kolk et al. 2001; Maali et al. 2006). In this sense, the industry classification by adopting the lens of environmental sustainability (see Chap. 2) can be considered a key factor to the selection of indicators and value drivers that can lead to greater comparability of environmental performance. Indeed, the environmental practices of sensitive firms differ from those of industrial and/or financial firms (Garzella and Fiorentino 2013a), and therefore each needs different control requirements. Table 4.3 shows several value drivers and the related differences in perceptions by firms of different sector groups.

Dimension Environmental results

Success factors Consumption reduction

Specific

Paper consumptiona

Value drivers General Energy consumption

Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . .

Result: . . . Target: . . . Past: . . . Benchmark: . . . Kg paper

General measures GWh-GJ direct consumption by source

TEP consumption per geographic areac

TJ consumption from non-renewable sourcesc Result: . . . Target: . . . Past: . . . Benchmark: . . . Number of saved A4 sheet Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . .

% consumption for haulageb

% Energy reduction per productb

Results: . . . Target: . . . Past: . . . Variation: . . .

Number of saved A4 sheet in new agencies

Results: . . . Target: . . . Past: . . .

Firm specific measures KWh consumption from district heatinga

Sector specific measures KWh consumption per m2 a

Table 4.4 An example of a scorecard of environmental strategy performance measurement

Waste costs savings

Raw materials costs savings Energy costs savings

Impact on financial results Energy costs savings

Customer satisfaction

Impact on competitive advantage Local community satisfaction Lower production costsb

66 4 The Environmental Dimension: Role and Scope in the Performance. . .

a

Example for: Financial firms b Manufacturing/service firms c Sensitive firms

...

...

Water reductionc

Hazardous materialsb Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . . % of consumption reduction Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . . ...

Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . . Mc sampled Result: . . . Target: . . . Past: . . . Variation: . . . Benchmark: . . . ...

% reduction of hazardous materials

Tn reduction

...

Results: . . . Target: . . . Past: . . . Variation: . . .

Mc reused internally

Results: . . . Target: . . . Past: . . . Variation: . . .

% reduction of hazardous materials per working hours

...

Production costs

Disposal costs

...

Good reputation

Local community satisfaction

4.4 The Environmental Performance Measurement and Control System: Value Drivers. . . 67

68

4 The Environmental Dimension: Role and Scope in the Performance. . .

Performance measures do not have the same weight for every industry (Dahlmann et al. 2008). Although some indicators of environmental performance—such as “waste reduction”, “energy consumption” and/or “material recycled”—are common in most business activities, it is important to observe that others one are more specific. For example, indicators such as “paper consumption” and “toner consumption” are more relevant for firms in the financial sector. For this reason, the claim to define “lists of indicators and drivers” mostly valid for firms should be overcome; the control system should assign for each dimension relative weights to different measures with reference to different industries. Although the selection of environmental indicators must start from the observance of the typical features as above, it is important to reiterate the need to achieve a level, even minimum, of standardization and spatial-temporal comparability, of environmental performance with regard to both the individual firm and to different sector groups of firms. In the control system, performance indicators could be organized in “general measures”, “sector-specific measures” and “firm specific measures” (Ilinitch et al. 1998). Thus, the key indicators and value drivers to be manned could represented more closely to the firm’s environmental performance, allowing full monitoring of the degree implementation of the deliberate environmental strategy (Kaplan and Norton 2004; Jasch 2000). Likewise, in the corporate reports “core & more” approaches are recommended (Palmrose and Scholz 2004), where “core” is related to the most relevant firm’s information, while “more” information should contain useful and specific details according to stakeholder’s needs. Starting from these premises, we provide an example of a scorecard of environmental strategy performance measurement, with separate indications for sensitive, manufacturing/service and financial firms (Table 4.4). Our proposed model offers a broad perspective on environmental strategies and environmental benefits because costs and competitive advantages are more effectively identified and measured. The adoption of an environmental strategy ‘scorecard’ will lead to the management of environmental issues in an effective way. The need to reflect on the success factors of the environmental strategy could favor a greater management involvement, who is engaged in making more explicit anticipated objectives, actions and achieved results. Moreover, the managers involved in the activity of reporting could be supported in the selection of key performance indicators useful to the management of environmental issues. This will result in the production of a clear and correct information flow implicitly directed by the firm towards external stakeholders, in order to assess the value of a firm’s environmental involvement.

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Chapter 5

Conclusions

The rise of competitive pressures and the most recent economic and social changes made particularly interesting the interplay among strategic management, sustainability and environmental impacts for scholars, public authorities, policy makers and practitioners. Research on the topic have a broad perspective characterized by pluralities in theories, methodologies, approaches and outcomes (Lamond 2009; Primc and Čater 2016; Salimath and Chandna 2018; Taylor et al. 2018). Despite the advances in CSR research, there is a lack of integration across literature streams pertaining the study of environmental strategies (Lisi 2015; Lucas 2010; Schaltegger et al. 2017; Bowen et al. 2018). Firms need a comprehensive framework aimed at supporting the process of strategic management process adoption by a multi-lens perspective. The increasing environmental issues calls for a new paradigms and business practices to re-interpret the traditional business models in a sustainability perspective way. The book advances a comprehensive investigation of environmental dimension to respond to the need for a crossover study of strategic management process. New reflections and critical points are provided enriching the fragmented literature on sustainability and supporting the managers’ commitment to implement successful environmental strategies. Integrating findings from prior research and several disciplines, the study contributes to several literature streams. Specifically, we contribute to the CSR literature by highlighting the “new role” of environmental dimension as a strategic variable, not limited to the social strategy “perimeter”, but extended to the overall firm’s strategies system (Hart 1997; McWilliams and Siegel 2001; Devinney 2009; Banerjee 2002). By developing an in-depth categorization of the main analysis criteria of environmental strategy, our study also makes a distinct contribution to the strategic management literature streams, analysing the relationships between environmental dimension and the strategic formula model (Garzella et al. 2020). Capturing the relevance of environmental dimension both at corporate and business level, we identify sustainable actions, decisions and practices for implementing successful competitive and financial strategies. The research also supports the © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Capurro, Corporate Environmental Strategies and Value Creation, SpringerBriefs in Business, https://doi.org/10.1007/978-3-030-67278-2_5

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decision-making process of environmental dimension by suggesting relevant issues that facilitate the integration the environmental dimension into the overall firm strategic process (Buysse and Verbeke 2003; Lee and Rhee 2007; Sharma and Enriques 2005); our study provides strategic tools and models, adopting a projectoriented approach, to control the attainment of strategic aims and the environmental results. Moreover, by shedding light on the relationship between environmental strategies and environmental results, this contribution is relevant for performance measurement studies (Epstein and Roy 2001; Boyko and Derun 2016; Carini et al. 2018); we identify factors, drivers and performance indicators useful in monitoring the environmental strategy, aimed to improve environmental strategy control practices. By presenting a review of CSR studies, the analysis suggests moving from a narrow notion of the environmental strategy—for a long time considered as a sub-dimension of social strategy—to a complex concept able to strengthen the competitive positioning of firms and to increase their value creation process (Cochran 2007; Capurro et al. 2018; Porter and Kramer 2006). In detail, the literature on environmental sustainability are characterized by several studies with a focus on the underlying motivations that lead firms to embrace sustainable paths of growth, on the effective strategic management practices to support the implementation of the environmental aims, as well as the measurement and assessment of environmental performance and the related financial and competitive benefits (Porter and Van der Linde 1995; Perego and Hartmann 2009; Roy et al. 2013; Epstein 2010; Kim et al. 2016) Specifically, the literature review shows that the studies on environmental strategy can be systematized around four broad criteria: (1) the environmental drivers which allow to identify factors and reasons, along a continuum from a reactive to a proactive approach, affecting the adoption of correct socially, ethically and environmentally behaviours; (2) the levels of firm strategy, which highlight the relevance of environmental dimension in the corporate and business strategies; (3) the activity sector, which analyses the differences among firms from various sector groups, regarding the environmental impact of their activities, the relevance of environmental issues and the features of regulatory intervention; (4) the strategic horizon, which examines the impact of environmental activities and actions in short-term and longterm operations (Garzella and Fiorentino 2014; Capurro et al. 2018). Each analysis criteria provides a relevant contribution to understand the different dynamics that influence the development and implementation of environmental strategies. Based on the insights from literature review, and recognized the autonomous relevance of environmental dimension, we provide a new conceptualization and scope of environmental dimension into the overall firm’s strategies system. The analysis applies the strategic formula model (Galeotti and Garzella 2013; De Luca et al. 2016) suggesting for each level of strategy, both external, internal and on boundaries, sustainable actions, decisions and practices that firms can embrace to improve growth and competitive advantage considering simultaneously the accountability to a wide range of firms’ actors. The crossover analysis on environmental dimension in the strategic formula model highlights the key role of this variable to

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strengthen the competitive positioning in the firms-customers and firms-investors relationships and to increase the firm’s social value. The analysis of theoretical background on the environmental strategies calls for new perspectives in business process management. If the boundaries between sustainability and traditional business become increasingly blurred, the environmental strategy, with the related sustainable practices, implies multi-lens perspective to decision making process that concern the overall strategic process in both the formulation and subsequent implementation steps (Sprengel and Busch 2011; Garzella and Fiorentino 2013a). In this sense, we investigate the environmental strategic process, following a strategy-action-performance approach (Epstein and Roy 2001). The strategic process is articulated in three most relevant steps: the first related to factors affecting the formulation of strategy; the second related to the translation of strategic aims in actions; the third related to the results really achieved. The firms’ ability to strategically manage the environmental dimension should be based on multi-dimensional framework which covers, in a comprehensive view, every item of environmental strategies and allows the subsequent control of the environmental results, including at the financial and competitive level. Since the environmental strategy requires the integration of environmental issues in corporate ideas and goals, the strategic management process may start from the pre-deal steps. For these reasons, the study encourages the use of models and tools, developed in the field of strategic management studies (Dess and Lumpkin 2005; Covin et al. 1994; Taylor 1997), to plan and check the most appropriate lines of action to implement successful environmental strategies. In this sense, the study purposes a potential application of the diamond framework (Shenhar and Dvir 2007) and the radar mapping (Sammut-Bonnici and Channon 2015) to monitor the robustness of environmental business projects. The strategic management of environmental dimension has the potential to support a wide range of management decisions that characterize the several perspectives of environmental strategies, by managing at the same time the relationship between the firms and the external actors and the carefully assess the internal operational processes (Engert et al. 2016; Lloret 2016). However, the implementation of environmental strategy as well as the related monitoring, are complex and not linear processes; managers often have a restricted view of environmental decisionmaking process so as to inhibit the development of successful environmental strategies and/or the exploitation of their full potential (Geissdoerfer et al. 2017; Berrone et al. 2013; Ciccullo et al. 2018). We contribute to the existing literature pertinent to the green management by advancing an evaluation grid of environmental strategies to support and strengthen the managing of environmental issues in the overall firm’s strategic process. Integrating top-down and bottom-up control approaches, the proposed model captures the variety of environmental success factors in different stages of the strategic process; the list of items is not intended to be a comprehensive one, but rather addresses the main areas of environmental practices. Specifically, in the strategic formulation stage, the evaluation grid supports the management to define effective strategic plans and actions in line with the expected environmental results and financial and competitive performance; in the

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implementation stage, the grid could be used as a diagnostic tool by feed-forward corrective mechanisms, to the achievement of planned targets or their redefinition. Finally, the grid allows to evaluate by feedback mechanisms whether the environmental actions produced the desired results on the competitive and financial firm’s performance. The analysis of implemented environmental strategy through the evaluation grid could help manager to rethink the firm in an environmental perspective way, by identifying new opportunities. Despite prior studies, our model enables firms to become better equipped to address then environmental challenge in a comprehensive manner. Since a growing number of firms have chosen to invest in green management, the environmental performance has become an important measure to assess the value of corporate and business strategies (Devinney 2009; Wood 2010; Clarkson et al. 2011). However, theoretical analysis and practical evidence show that many firms do not pay adequate attention to the relations between environmental strategy, strategy implementation and the achieved results (Simons et al. 1999; Kurland and Zell 2011; Ghisellini et al. 2016). In this sense, our study on the environmental strategies is completed by examining the impact of environmental performance on the firms’ value creation path. The increasing environmental issues promotes an evolution in the disclosure of non-financial information in order to better represent social and environmental factors in the firm’s report (O’donovan 2002; Hughes et al. 2001; Patten 2002; Reverte 2009). With this aim, market regulators and supranational organizations provided standards for social-environmental policy, operations, disclosure and performance. At the same time scholars developed several studies to support the identification of relevant drivers and performance indicators that may be integrated in corporate reports for internal and external communication aims (Epstein and Wisner 2001; Kaplan and Norton 2004; Hansen and Schaltegger 2016). However, hight variability and limited standardization characterized the disclosure of environmental performance (Marwa et al. 2020; Iatridis 2013); currently, there is no evidence of an effective uniformity in environmental performance control and reporting (Garzella and Fiorentino 2013b; Tyteca et al. 2002; Brammer and Pavelin 2008). The measurement and disclosure of environmental performance is affected to some relevant issues with implications for both internal and external stakeholders’ view. For the internal stakeholder, it seems that the actual environmental strategy control system needs, first, to develop models and tools with reference to the relationship between environmental performance and financial and competitive effects. For external stakeholders, instead, the actual limits in the reporting of environmental measures pose the need to increase the comparability of environmental performance that is still very low. To overcoming these limitations, our study, firstly, suggests to structure measurement and control system based on a multidimensional approach along the several dimensions of the environmental strategic process in order to translate the firm’s sustainable aims into specific measurable factors. Firms should pass from performance measurement system to strategic performance measurement system based on the integration of strategy and operational goals in the control process and the presence of a sequence of

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goals-targets-action plans by a cause-effect linkages (Galeotti 2006; Chenhall 2005; Bisbe and Malagueño 2012; Silvi et al. 2015). Secondly, our findings encourage the standardization in environmental performance measurement, identifying the most relevant value drivers and key performance indicators which may be combined in strategic performance measurement system, to evaluate the environmental, financial and competitive advantages achieved. The study analysed the theoretical trends on sustainability field to allow a deeper understanding about the evolution of sustainable regulations, both nationally and internationally, and their different impact on firm activity sectors. Our results highlight that for firms of different sector groups, drivers and performance indicators have a different relevance. Arguing that the selection of environmental indicators must start from the observance of the typical firms’ features, we suggest to categorize the performance indicators used in the control system, in “general measures”, “sector-specific measures” and “firm specific measures”. Defined several value driver and key performance indicators of environmental performance and explicated their relevance in different sector groups, we also propose an example of a scorecard to support the environmental strategy performance measurement. The use of the suggested model could facilitate the systematic monitoring and evaluation of the achieved environmental results as well as identify and measure the related financial benefits, costs and competitive advantages. Overall, our study offers a broad perspective on environmental strategies highlighting the multiple dimensions of strategic management process to support the integration of the environmental dimension into the overall firm’s strategies system; it suggest practices and tools to translate strategy into effective environmental ideas and therefore in goals and actions, from a side, and to implement appropriate control system useful for monitoring the results of environmental performance, on the other. Therefore, the book contributes to the field of CSR, accounting and strategic management studies and provide guidance for both academic and managers offering a concrete response to corporate issues in terms of social and environmental responsibility.

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