Report from the Research Frontier
Every month, researchers publish dozens of articles on business sustainability. NBS highlights insights at the frontier of knowledge.
Social and Environmental Actions Help Companies Bounce Back
Long-term firm survival requires resilience. Resilience lets firms keep a core stability while adapting to change. New research shows that corporate social and environmental action increases resilience.
Researcher Mark DesJardine
and colleagues studied
companies’ resilience after the 2008 financial crisis. It’s not possible to measure resilience directly, so researchers look at indicators such as stock recovery from shock. DesJardine’s team examined stock prices of 963 US-based firms after the financial crisis. They found less decline in stock value and/or faster recovery among firms with social and environmental practices that go beyond legal requirements.
“Strategic” social and environmental practices build resilience more than “tactical” practices. Strategic practices are longer-term and require significant financial investment and organizational adaptation. Examples include employee diversity and supply chain standards. These actions make firms more interdependent with the larger system, increasing knowledge and resource sharing and so contributing to resilience. Tactical activities are short-term social and environmental actions, such as philanthropy.
Desjardine told NBS: “Managers can build more resilient, long-lasting companies by making substantial investments in social and environmental practices. Investors, likewise, can invest in these companies, knowing their investment will be safer during economic downturns.”
Corporate Contributions Should Be Transparent
Across the globe, companies face different requirements related to reporting their charitable and political contributions.
The United States is one of the countries that does not require full disclosure of these contributions. Even shareholders and investors don’t know how companies are allocating money to politicians or nonprofits, and whether those contributions align with the company mission. Statements by companies “fail in their decision usefulness,” write
researchers Doug Beets
and Mary Beets.
“Many stockholders would want to know the charitable and political contributions of the corporation that they own,” Doug Beets told NBS. “With such information, their stockholder loyalty to the corporation may change.”
Beets and Beets identify a few ways the picture in the US could change. The Securities and Exchange Commission or Internal Revenue Service could issue rules promoting disclosure. Stakeholders have also petitioned individual corporate boards to release this information.
Other countries provide models of systematic requirements. For example, in the United Kingdom, the 1967 Companies Act requires disclosure of corporate charitable and political contributions above a small amount.
Educated CEOs Increase Energy Efficiency
More educated CEOs lead more energy-efficient firms, according to a study
of privately-held Danish firms from 1996 to 2012. CEO education in business-related fields had the greatest impact on energy efficiency, compared to education in engineering, natural sciences, or humanities. Researchers Mario Daniele Amore
, Morten Bennedsen
, Birthe Larsen
and Philip Rosenbaum
find that an additional year of CEO education is associated with 7 per cent lower electricity use and 17 per cent less gas use.
The researchers suggest that CEOs with business training are more efficient managers, better able to identify and pursue energy-saving approaches.
The researchers also found that more CEO education generally is positively associated with greener personal lifestyles and greater awareness of climate issues, perhaps because education increases civic engagement.
Female Leadership Is Linked to Fewer Lawsuits and Better CSR
Firms with women in the top management team face fewer lawsuits over firm operations, report researcher Binay Adhikari
and colleagues. Such lawsuits happen when managers are “willing to push the limits of the law to create value for shareholders,” the researchers write. Firms with female leaders seem to be more concerned about stakeholders, including the larger community.
The researchers studied lawsuit frequency by examining newly-filed lawsuits against S&P 1500 firms each year during 2002 to 2011. They found that firms faced fewer operations-related lawsuits when they had two or more women in the top executive team and/or a female independent director.
Operations-related lawsuits relate to many issues. Among other topics, the researchers looked at firms’ corporate social responsibility (CSR) performance, as poor CSR can lead to litigation. The researchers used the MSCI database
, which identifies “Concerns,” or red flags, related to corporate action on environmental and social issues. Firms with even one woman on the management team have fewer MSCI “Concerns” — and the effect is even greater for companies with multiple female executives.
Online C2C Platforms Reduce Landfill Waste
Consumers can sell goods directly to each other through online platforms known as Consumer to Consumer, or C2C. Examples include OLX
, and Craigslist
. Researcher Suvrat Dhanorkar
has found that the sites reduce consumer-generated or municipal solid waste (MSW). Studying Craigslist in the United States, he found that Craigslist’s entry into a geographic market resulted in a 2%–6% annual reduction in MSW generated per capita.
MSW includes durable consumer goods (e.g., furniture, packaging, appliances, equipment), nondurable goods (e.g., newspapers, plastic plates/cups), and other wastes (e.g., yard waste, food). Some items in MSW are waste, but others are reusable goods. Until recently, consumers didn’t have many channels for product reuse. Garage sales and donation drives were smaller in scope. Online platforms allow better matching.
So far, other aspects of the circular economy
have gotten more attention, writes Dhanorkar. Many Closed Loop Supply Chains (CLSCs) remanufacture products such as cell phones and computers – reconditioning them or even disassembling them. However, these CLSCs are expensive to set up and require a steady supply of material. Dhanorkar explains that “the most ideal form of reuse is when the used consumer goods can be reused ‘as is’—i.e., they are not required to undergo any deconstruction, processing, or refurbishing.”
There’s an opportunity here for companies and policymakers, Dhanorkar told NBS. The varied reuse marketplaces — including ThredUp.com (fashion), Offerup.com (consumer products), Gone.com (electronics) and AbeBooks.com (books) — provide opportunities to positively shape consumer behaviors. For companies, industrial reuse markets (e.g., GreenDemolitions.com (construction materials), ReuseWood.org (wood), MaterialsMarketplace.org (industrial surplus)) might provide cost-effective channels to buy and sell byproducts and waste.
Educating Consumers Isn’t Enough
Businesses and other organizations often provide information on sustainability as a way of improving consumer behavior. The theory is that if people know about eco labels, or carbon footprints, they can change their shopping and other actions.
But information can also have negative impacts – and it’s ultimately not enough to address sustainability. Researcher Cristina Longo
and colleagues studied members of an environmental community group — Transition Town — in England. Group members were very knowledgeable about sustainable consumption. But the researchers found that the knowledge could also be a source of “dilemmas, tensions and paralysis.”
The Transition Town members experienced the complexity of trying to live a more sustainable lifestyle and struggled with tradeoffs. “We might want Fairtrade wine or we might want to buy wine from as nearby as we could,” one explained. Product cost and availability limited their choices. They were very aware of failing to live their sustainability values. “Leading a sustainable lifestyle is quite an emotional rollercoaster,” said one.
The researchers say that business and government must take a larger role in addressing sustainability challenges. “Market structures influence the gap between consumer willingness to act sustainably and actual capacity to do so,” they write. Instead of launching broad educational campaigns, companies should work with consumers to develop initiatives, including regulation. "Different stakeholders should increasingly collaborate to better face the multiple challenges of sustainability," Dr. Longo told NBS.
People also need help managing tension and guilt around sustainability issues, the authors write. “Inner transition” could let people share experiences and realize that others are facing the same challenges.
Longo, C., Shankar, A., & Nuttall, P. 2019. “It’s not easy living a sustainable lifestyle”: How greater knowledge leads to dilemmas, tensions and paralysis. Journal of Business Ethics,
154(3), 759-779. https://doi.org/10.1007/s10551-016-3422-1
The Way to Sustainability Is through Tension
Leaders can adopt a sustainability strategy. But for real progress, employees then need to integrate sustainability into their daily work practices.
Researcher Iris-Ariane Hengst and colleagues find that this implementation requires employees to work through tensions between the sustainability strategy and the mainstream or competitive strategy. They studied this process at a consumer goods company over three years, from the launch of the company’s sustainability strategy in 2012.
Building sustainability into products and processes often led to conflict with competitiveness goals. More energy efficient products had fewer features, for example. But as employees worked through those tensions, in each individual task, sustainability gradually became a real, legitimate part of the company.
Here are some ways employees dealt with tensions between sustainability and competitiveness:
- Split goals across products or processes. If a single product couldn’t be sustainable and a market leader, developers might produce different product portfolios.
- Find synergies. For example, employees found that data collected for sustainability Key Performance Indicators generated process efficiencies in their broader operations.
- See sustainability as a source of pride. When managers did have to sacrifice competitiveness for sustainability, they saw themselves as taking the moral high ground.
Sustainability is a slow and incremental process. But these gritty, individual steps ultimately embed new ideas into the organization.
To discuss the findings, contact co-author Paula Jarzabkowski
Article: Hengst, I.A., Jarzabkowski, P., Hoegl, M., & and Muethel, M. In press. Toward a process theory of making sustainability strategies legitimate in action. Academy of Management Journal. https://doi.org/10.5465/amj.2016.0960
Involve Women for Better Group Decisions
Humans tend to be overconfident in our decisions — too certain that our beliefs, judgments, and predictions are accurate. This kind of bias negatively impacts organizations. For example, overconfident investors take too many risks and earn lower average returns.
Researchers Steffen Keck
and Wenjie Tang
have a solution: involve women in decision making. In laboratory experiments, Keck and Tang found that groups including at least one woman are better “calibrated”: knowing whether they are uncertain or sure of a fact.
This finding has clear application to sustainability, the researchers told NBS. They pointed to forecasts concerning the consequences of climate change or the impact of green energy policies. “Such forecasts typically involve high levels of uncertainty and are expressed as confidence intervals or probabilities,” they said. “Forecasts in these situations are frequently overly ‘precise’ (underestimate the amount of uncertainty) and our findings suggests a way to reduce this problem.”
Having women present also makes discussions more effective. Keck and Tang found that when women are in a group, time spent sharing information and ideas improves confidence calibration. But Keck and Tang found that discussion actually harms confidence calibration for all-male groups. A likely explanation: in all-male groups, discussions ended more quickly and were more likely to be dominated by a single member.
Move CSR into the Data Industry
Responsible business practices by the data industry are “very much in infancy,” write researcher Mikkel Flyverbom
and colleagues. These companies – such as Facebook and Spotify – collect and use vast amounts of data on individuals. The novelty of their business model means that, until recently, they escaped close scrutiny.
Corporate social responsibility (CSR) issues occur at each stage of their operation:
- Data gathering: CSR issues relate to violation and intrusion of privacy, the consent of the data provider, and the transparency with which big data companies collect the information.
- Data processing and aggregation: Even if data are gathered with consent and transparency, combining them might provide new information which no longer meets those criteria. Worker treatment is also a concern, with data companies driving an unstable “gig economy.”
- Data usage: Applications such as advertising can infringe on individuals’ personal space. Data services can also change the way humans interact, socialize, and take responsibility – an example would be Snapchat’s disappearing messages.
The industry is failing to grapple with these issues, the authors write. The Global Network Initiative
represents a “lukewarm and arms-length approach,” and companies have undertaken little voluntary action or standardized reporting.
What should companies working with the data industry do? Speaking with NBS, Flyverbom recommended "treating big tech companies more like normal companies, for instance by asking for clearer terms and specifications when we work/partner with them." Another option is to "build our own solutions and tools rather than rely on the so-called free services they provide."
Change Languages to Increase Future Focus
Sustainability advocates often say that firms need to think more long-term. Researchers Hao Liang
and colleagues find that such a long-term perspective is associated with specific languages.
Languages differ in how sharply they distinguish between the present and future. In German, for instance, saying “Tomorrow is cold” is grammatically the same as “Today is cold” (“morgen ist es kalt”), while English and French require speakers to add “will” or a future tense. Research shows that different tenses actually make the future seem farther away — and less important.
Liang and colleagues found that companies with working languages that separate future and present deemphasize future-oriented behaviours, such as corporate social responsibility (CSR) and research (R&D). On average, they engage 7% less in CSR and 40.6% less in R&D. The results are based on a large global sample of firms from 39 countries.
What can a company do if its primary language is one that separates present and future? Find ways to incorporate other languages, say the authors. International sales, subsidiaries, investors and employees can all bring different languages — and perspectives.
Life Cycle Analysis Can Address Emerging Technologies
What if developers of a technology could foresee the impact their product will have – and change it for the better? “Prospective” Life Cycle Analysis (LCA) is a way to understand likely impacts when a technology is still in an early phase of development. These insights allow developers to alter the technology before design parameters are fully set.
Traditional, or “retrospective,” LCA, looks backward at an existing technology. For prospective LCA, the emerging technology is modeled at a future, more‐developed phase (e.g., large‐scale production). Researchers Rickard Arvidsson
and colleagues provide recommendations for dealing with the uncertainty involved in such modeling. They suggest:
- Comparing the technology under study to a wide range of alternatives, as it’s difficult to know which ones will be most relevant in the future
- Using scenarios to model production of the technology and its alternatives, and to consider changes in the broader system (e.g. regulations)
- Drawing on different kinds of data to build scenarios: for example, expert interviews and patents instead of the lifecycle databases used in traditional LCAs
Cooperatives Are a Powerful Economic Model
Existing economic models are showing strain. Cooperatives — an old idea — may be becoming new again.
Cooperatives are “jointly owned, democratically controlled enterprises that advance the economic, social, and cultural interests of their members,” explains researcher Nathan Schneider
. Cooperatives exist as credit unions, grocery stores, healthcare, utilities, and more.
“Since the financial crash of 2008, the cooperative movement has been coming back with renewed vigor,” says Schneider. His book provides multiple examples, from “taxi cooperatives that are keeping Uber and Lyft at bay,… to a fugitive building a fairer version of Bitcoin, to the rural electric co-op members who are propelling an aging system into the future.”
Schneider sees cooperatives as increasing accountability and equity
, because users are also owners. He comments: "Shared ownership and governance are poised to set higher standards for how businesses demonstrate their commitment and accountability to their customers, employees. Any kind of company can learn from the cooperative tradition. It is a uniquely time-tested strategy for building businesses that live by their values."
Vehicle 2 Grid Makes Its Case
Electric cars have been called “batteries with wheels
.” They draw electricity from the energy grid
but, when parked, can also supply electricity to that grid. Grid managers can use such “Vehicle 2 Grid,” or “V2G” connections to smooth out peaks in energy demand. V2G generally lowers the energy system’s carbon emissions by replacing non-renewable energy sources.
The case for V2G is growing stronger, according to researcher Micha Kahlen
and colleagues. They used modeling based on real-life data to identify the benefits of V2G. They found that V2G reduced the average electricity price for consumers up to 3.4 per cent, and increased profits for electric car fleet owners by 4.3 per cent. (So far, V2G efforts focus on fleets owned by large businesses or car sharing companies.)
"This is a strategy which is both profitable for electric vehicle fleet owners and sustainable for society and planet," the authors write. V2G is already operational in locations including the Los Angeles Air Force Base and University of Delaware. Article
(free access): Kahlen, M., Ketter, W., & Gupta, A. 2018. Electric vehicle virtual power plant dilemma: Grid balancing versus customer mobility
. Production and Operations Management
, 27(11), 2054-2070.
Big Data Poses Challenges for Sustainability
Big data can be used to make operations more sustainable. Charles Corbett
(UCLA Anderson School of Management) focuses on ways that big data can pose challenges to sustainability. His review identifies challenges related to:
- Social and ethical issues. Examples are many. Algorithms can discriminate against groups of people. Hacks regularly compromise personal data. Control over data has become a kind of power. And, companies often use data to make technology increasingly addictive.
- Use of the wrong data. Available data can — inappropriately — drive priorities. Instead, people should define objectives and only then identify appropriate indicators. Data may also mislead if they are inaccurate, or analyzed in ways that misrepresent reality.
- People’s ability to process information. Big data won’t automatically lead to better decisions, unless data are presented in ways that people can readily understand and use. More information could even lead to cognitive overload and worse decisions.
- Energy use. Managing and storing data are resource intensive.
Government and other elements of society should address these challenges through governance mechanisms, ownership structures, and other approaches — before big data grow even larger. Article
: Corbett, C. 2018. How Sustainable Is Big Data
? Production and Operations Management
, 27(9), 1685 -1695.
Sharing Economy Firms Need Different Strategies to Succeed in Different Places
“Sharing economy” firms such as Uber and Airbnb are trying to gain market share internationally. Bilgehan Uzunca
(Utrecht University) and colleagues report that Uber’s strategy for entering new countries is disruptive and defiant; the company makes little effort to accommodate local rules and expectations. AirbnB, by contrast, takes a relational and gradual approach, cooperating with governments to set rules.
The effectiveness of these different strategies depends on whether the country has strong institutions (e.g. effective government and NGOs). In countries with strong institutions, AirBnB’s approach has been more effective than Uber’s. For example, in the Netherlands, Uber experienced so much government opposition that it had to abandon its disruptive strategy.
But in developing countries, with weaker institutions, Uber’s independent approach can work better. In Egypt, for example, Uber has filled voids left by the government, specifically around transportation safety. By contrast, AirBnB’s more passive approach hasn’t led to strong market share in Egypt.
Corporate Political Involvement is Part of Sustainability Impact
Many companies have taken meaningful steps to improve their own environmental performance. But while corporate political actions such as lobbying can have a greater impact on environmental quality, they are ignored in most current sustainability metrics. Tom Lyon
(University of Michigan) and his co-authors argue that sustainability metrics should be expanded to critically assess firms based on the sustainability impacts of their public policy positions.
To enable such assessments, firms must become “as transparent about their corporate political responsibility (CPR) as their corporate social responsibility (CSR),” the authors write. In turn, rating systems should demand such information from firms and include evaluations of corporate political activity in their assessments of corporate environmental responsibility.
Lyon, T.P, Delmas, M.A., Maxwell, J.W., Bansal, P., Chiroleu-Assouline, M., Crifo., P., Durand, R., Gond, J-P., King, A.A., Lenox, M., Toffel, M.W., Vogel, D.J., & Wijen, F. 2018. CSR Needs CPR: Corporate Sustainability and Politics
. California Management Review
, 60(4), 5-24
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