Understanding the Role of the Corporation in Sustainability Transitions

Controversy Over Voluntary Environmental Standards: A Socioeconomic Analysis of the Marine Stewardship Council (Wijen & Chiroleu-Assouline, 2019)

The adoption of voluntary environmental standards aimed at upgrading a set of corporate practices should increase the likelihood of achieving a sustainability transition. The standards can be set by various actors, including business, nongovernmental organizations (NGOs), or government, working alone or in concert with one another. In their article, Frank Wijen and Mireille Chiroleu-Assouline note that the very notion of “environment” or “sustainability” invites controversy in the standard-setting process. What exactly counts as “sustainable,” and who gets to decide? The authors illustrate controversy in the standard-setting process by examining the establishment of the MSC and its label. While the MSC label appears to have worked in generating a market premium for labeled fish, thereby creating a monetary incentive for the adoption of the label by small and large fisheries, it has not been without controversy. The authors study several challenges. First, because of the need for corporate adoption, the goals of the founding corporate partner, Unilever, were better reflected in the label’s standards than the broader goals of the founding NGO partner, the World Wildlife Fund (WWF). This led to a number of objections from NGOs regarding whether the standards would really achieve sustainability. Additionally, several NGOs objected to the breadth of the standards, not because the WWF lacked bargaining power vis-à-vis Unilever but because neither founding partner shared its specific concerns regarding various factors that could fairly be seen as contributing to the goal of sustainability.

The authors detail these controversies and point out that they led to a proliferation of competing labeling schemes designed to address the concerns of the various NGOs that established them. In particular, the labeling scheme Friends of the Sea, sponsored by the Earth Island Institute, was developed in response to the high certification costs associated with the MSC label. By 2015, MSC and Friends of the Sea, by far the two largest sustainable fisheries labels, had achieved parity, with each having roughly a 10% share of the global supply of seafood. The question naturally arises, given that controversy over sustainability labeling is virtually inevitable, whether the resulting label proliferation is a good or bad thing. The authors suggest that as long as labels maintain signaling value, allowing consumers to make a meaningful purchase decision in favor of a more sustainable product, the proliferation has the potential to be a positive step toward a sustainable transition of an industry.

“Encouraging Investors to Enable Corporate Sustainability Transitions: The Case of Responsible Investment in France” (Crifo, Durand, & Gond, 2019)

Patricia Crifo, Rodolphe Durand, and Jean-Pascal Gond describe how institutional investors can play a major role in corporate transitions toward corporate sustainability through the development of SRI. SRI is an investment strategy that considers both financial returns and social/environmental impact to bring about a positive change. The authors argue that SRI has become mainstream in France, with 63% of French conventional funds in terms of assets integrating at least one SRI criterion. They describe four phases of institutionalization of SRI in France and show that institutional investors did not act alone in any of these phases. Instead, complementary actors, such as the government and unions, helped facilitate the development of the socially responsible investment industry in France. The authors also show that the emergence of a sustainability transition within the finance industry, and in institutional investors’ asset management divisions more precisely, started with the creation of a new market category and the implementation of corresponding practices. The institutionalization of the SRI fund category was facilitated by a governmental disclosure regulation that codified the production of ESG-related information.

“Promoting Sustainable Government Regulation: What We Can Learn From California (Vogel, 2019)”

David Vogel uses the case of California to demonstrate how businesses historically have taken leadership roles in the development of innovative environmental regulations in the “Golden State.” Vogel argues that California was able to consistently adopt more innovative, stringent, and comprehensive environmental regulations than any other American political jurisdiction because business preferences on environmental issues were divided. Industry did not form a united front of opposition to regulation; instead, firms or industries that benefited from environmental regulations battled with opposing firms to promote their enactment. Often, to push the development of environmental regulations, businesses created alliances with citizen and environmental groups. These alliances were made possible by the citizens’ strong interest in maintaining or restoring various features of the state’s natural environmental beauty and natural resources. Such beauty and resources made California a desirable place to live and work in and visit, thus creating business opportunities for many industries, especially those related to tourism. However, California’s resources also made it vulnerable to environmental damage, threatened by economic and population growth. For example, within four years of the discovery of gold in 1848, the state’s population had increased by 2,500 percent, and San Francisco became the largest and most important city west of the Mississippi. The associated mining, much of it done using environmentally destructive methods, severely degraded the natural environment of the Sierra Nevada Mountains and the rivers that flowed out of them. It was in the interests of both citizens and certain business segments to protect it.

Typically, the interests of business have been divided in California, with some firms or industries opposing standards that are more stringent and others supporting them. For example, the farmers of the Sacramento Valley were among the state’s earliest important business supporters of more stringent environmental regulations; they fought against the mining industry to protect the quality of the water flowing out of the Sierras. Likewise, the real estate and tourism industries battled the automotive industry on air quality issues in the Los Angeles Basin. In short, California’s environmental regulations benefited from the support of business interests that had direct concerns in keeping California “green.” According to Vogel, business leadership on sustainability is directly related to commercial interests. Progress depends on some set of commercial interests being disadvantaged by current or proposed industry practices and believing that they would benefit by financially regulating them. Furthermore, such progress can typically only occur when an NGO teams with an industry to impose regulations on another industry. In other words, businesses or industries are not monolithic with respect to sustainability changes: Some benefit, while others lose. In order to win victories for sustainability, it is important for businesses to partner with other organized groups in the broader society to garner broad political support.

Assessing the Impact of CEO Activism (Chatterji & Toffel, 2019)

The role of the CEO is an increasingly political one, and executives like Facebook’s Mark Zuckerberg or Twitter’s Jack Dorsey often find themselves in the public eye. This public attention is frequently negative and reactive—for example, surrounding Facebook’s role in disseminating Russian disinformation or Dorsey’s tweet about eating at Chick-Fil-A during Pride Month. However, some CEOs are trying to use their celebrity status to proactively influence public debate on issues unrelated to the firm’s core business. Aaron Chatterji and Mike Toffel coined the term CEO activism to refer to these efforts, and article offers the first evidence on the effects of CEO activism. The authors conducted a pair of survey experiments to test whether public opinion is influenced when CEOs make public statements. The first study examined attitudes toward a law that might allow discrimination based on sexual orientation. A statement from Apple CEO Tim Cook calling attention to this risk reduced support for the law, but no more than did a similar, totally unattributed statement. However, the statement from Cook (who is openly gay) only influenced supporters of same-sex marriage, while the unattributed statement influenced everyone. In addition, supporters of same-sex marriage expressed higher intent to purchase Apple products after Cook’s statement, but opponents did not change their purchase intent significantly. The second study examined attitudes toward climate change and found that they were impervious to statements from “CEOs from many S&P 500 companies” or any other group of people. Together, the two studies suggest that CEO activism can serve as a positive marketing signal to specific demographic groups, even though CEOs may have no special influence on public opinion.

More broadly, the article suggests that consumers increasingly take political considerations into account when making purchase decisions. This can benefit big firms like Apple, even on issues that are not central to the business, like same-sex rights. It can also pay big dividends for sustainability-oriented companies like Patagonia, whose vocal activism is core to its business and whose revenues and profits have quadrupled over the past decade. The privately held company garnered widespread media coverage recently for its lawsuit against the Trump administration’s move to slash the size of Bears Ears and Grand Staircase Escalante National Monuments. ⁶

Leadership Strategies and Stages of Transition

Our first finding is that several key strategies were often used by companies confronting a sustainability transition. In our cases, four strategies stood out: (1) lobbying government, (2) supporting the creation and diffusion of a new sustainability practice, (3) adopting a new sustainability practice, and (4) speaking out publicly on an issue. We also found that the use of these strategies varied according to the stages of the sustainability transition, and in general, we observed more corporate leadership in the early phases of initiation and adoption than in the later phases of diffusion and standardization. For example, in the case of MSC, Unilever provided crucial leadership at the initiation phase of the issue, presumably motivated to support the long-term sustainability of its 20% share of the global frozen fish market. Similarly, CEO activism can be seen as leadership to raise awareness of a specific issue in its early stages of development.

We also confirm that in the initiation and early adoption phases of a practice, the practice is often contested by other firms within the same sectors or firms from other sectors. For example, while some firms speak publicly for the new practice, it is often the case that other corporations take the opposite view in less public settings, such as through lobbying (Delmas, Lim, & Nairn-Birch, 2016; Lyon et al., 2018). Indeed, our case studies provided examples of companies fighting change, as when the California mining industry fought new regulations to protect downstream water quality. In the case of MSC, we observed that controversy about the definition of sustainable fishing is still present two decades after the creation of the eco-label.

The Value of Business–NGO Coalitions

A key question is what conditions lessen industry resistance to sustainability practices and move a practice from the initiation phase to the diffusion and standardization phases. We find that coalitions between business and NGOs can be productive in this regard. Firms rarely advocate for or even adopt new sustainability practices independently, but rather they cooperate with other organizations through networks. In California, successful change efforts typically involved a coalition of citizen activists with businesses that stood to profit from sustainability, such as realtors selling homes with clear views, hotels and entertainment firms catering to tourists, or farmers dependent on plentiful, clean water supply. In the case of MSC, Unilever worked with WWF to create the label. More broadly, nonprofit organizations have become sophisticated communicators and are perceived as instigators of change in the global marketplace (Delmas, Lyon, & Jackson, 2019). Without the support of nonprofits and citizen coalitions, it is unlikely that innovative sustainable practices have a chance to overcome contestation and competing practices and diffuse more broadly.

The Important Role of Government

Perhaps most important, our cases make it clear that sustainability transitions are unlikely to occur without government support. Indeed, the most successful examples of sustainability transitions include the government as a key player. Of our four cases, those in which firms and government “work together/use government tools” (California and SRI) exhibit more positive outcomes than those without government involvement (MSC and CEOs). The lack of government participation in the case of the MSC eco-label might help explain the controversy surrounding it. Any information strategy needs agreement on what needs to be disclosed and how and where it should be disclosed. Lack of agreement, which could be remedied by government, might be why the MSC label has not reached a tipping point despite 20 years of effort. Conversely, the involvement of government in the description of ESG categories in the case of SRI in France appears to be one of the reasons for the successful diffusion of ESG principles through the French investment world. Not only did the French government require firms to disclose ESG information, but it also helped create agreement on the definition of the ESG categories. Interestingly, this indicates that government support can be quite helpful not only in the later phase of diffusion of a practice but also in the early phases. This confirms what was shown in other research related to the diffusion of environmental management standards, where the role of government participation in the design of a standard was crucial both in the early phases and in the later phase of diffusion of the standard (Delmas & Montes-Sancho, 2011).

More broadly, it seems that sustainable transitions are difficult without the involvement of government. This is probably truer for sustainability transitions than for other industry transitions because sustainability transitions are almost always going to involve market externalities. Governments have powerful tools to control market externalities to which businesses and NGOs simply don’t have access: that is, taxes, subsidies, and standards. Without making use of these tools, it is difficult to ensure a complete transition to a new set of practices. UnfortunatelyGovernment can also provide much needed certainty over standards and incentives (positive or negative) that allow companies to evaluate the types of investments needed to achieve sustainable change. As Mark Gainsborough, Executive Vice President of Shell recently noted “If you don’t have government policies that are enabling the transition to happen it’s probably very hard to deliver on the world-class investment case.” ⁷

Unfortunately, government solutions are difficult to implement when issues are international in scope (e.g., marine overfishing, climate change) or when the relevant government bodies are captured by business interests. Some of the most challenging questions have to do with how to accelerate a sustainability transition when government power is controlled by interests opposed to the transition.

Linking Strategies to Profitability

How are the strategies we observed related to a firm’s bottom line? Lobbying is well understood as a tool for protecting or gaining profits through political influence (Drutman, 2015). With regard to sustainability, Californian miners lobbied against clean water regulations while farmers supported them, and automobile makers fought clean air regulations while California realtors and developers supported them (Vogel, 2019). With regard to creating new practices, the MSC label appears to have been created by Unilever to ensure supply of vanishing fishing stocks, which naturally would be profitable for a firm that controlled 20% of the market for frozen fish (Wijen & Chiroleu-Assouline, 2019). French investment companies adopted SRI principles because doing so would enhance their sales under the new government policies (Crifo et al., 2019). CEO activism might also help a firm’s employees feel more connected with their company, and hence better motivated to perform at a high level (Chatterji & Toffel, 2019).

It is relatively straightforward to identify the ways in which corporate sustainability strategies can have a private benefit component, but it is considerably more difficult to evaluate these empirically. Although it is well established that good environmental performance is generally profitable (Flammer, 2013), more empirical research is needed into the specific mechanisms by which these benefits accrue. Furthermore, it is unclear whether the potential benefits listed above for firms leading the initiatives also apply to all the firms following them. If the benefits gained by first movers do not translate to followers or if followers can gain the benefits without fully implementing the associated practices, greenwashing is more likely to occur (Delmas & Montes-Sancho, 2010).

Linking Private and Public Politics

Perhaps the most fundamental question that requires further research is whether private politics paves the way for public politics or blocks it. Put another way, are private and public politics complements or substitutes? This question is the subject of Anand Giridharadas’s (2019) book Winners Take All: The Elite Charade of Changing the World. He makes a provocative case that the well-meaning programs funded by the wealthy global elite (think Davos, Aspen, Clinton Global Initiative, TED, etc.) provide temporary relief of symptoms but studiously avoid any serious questioning of the underlying fundamentals of the existing “neoliberal” order. Moreover, the funders of these programs often deploy their political clout to block regulations that might limit not only inequality, financial crises, environmental damage, or health problems but also their profits. Giridharadas suggests that substantial, meaningful change will require a renewal of our political institutions, not just volunteerism on the part of wealthy elites.

As mentioned above, the importance of public politics comes through clearly in our case studies. The power of the state remains vast, and its ability to apply coercion can greatly accelerate sustainability transitions. The greenest state in the United States got that way through vigorous regulations that protect the environment (Vogel, 2019). SRI criteria diffused rapidly in France due to government support for them (Crifo et al., 2019). Indeed, government action appears to be virtually a necessary condition for a successful sustainability transition. As we have noted, the MSC label has failed to gain widespread acceptance across fisheries (Wijen & Chiroleu-Assouline, 2019). If voluntary programs serve to deter state action, then they may end up slowing sustainability transitions rather than hastening them (Lyon & Maxwell, 2003).

The importance of the state is not lost on CEOs of large multinational companies. As The Economist put it recently, “These days companies find it impossible to keep out of politics altogether. . . . CEOs will need to be as well-briefed on politics as a presidential candidate preparing for a live debate” (Coggan, 2019). Research has shown that the bottom line can benefit when CEOs speak out on political issues (Chatterji & Toffel, 2019), but how powerful a role they can play in accelerating sustainability transitions remains a question for future research.

As powerful actors in the global economy, large companies play important roles in sustainability transitions. This symposium has attempted to clarify the range of roles companies play and the extent to which they hinder or hasten transitions. In the cases presented, there is little evidence to suggest that companies can lead sustainability transitions alone, but perhaps this is too much to ask. Sustainability requires society to take into account the interests of people who are poor, distant, or not even born yet. Markets tend to serve the interests of those who are willing to pay to participate in them. It should not be surprising that NGOs or governments are needed to represent the interests of those who do not participate but are nonetheless affected by market externalities. Nevertheless, companies can play an important role by adopting a long-term perspective, partnering with NGOs that have aligned interests, or being quick to recognize emerging market segments that are willing to pay for sustainability. Simply refraining from using lobbying power to block progress can be a substantial contribution.