Stimulating environmental management capability

Wageningen Academic P u b l i s h e r s

Journal on Chain and Network Science 2009; 9(2): 119-131

Stimulating environmental management capability deployment: the case of

http://www.wageningenacademic.com/doi/pdf/10.3920/JCNS2009.x169 - Tuesday, October 20, 2015 5:40:23 PM - IP Address:178.18.19.222

the Dutch food and drink industry Derk-Jan Haverkamp1, Harry Bremmers2 and Onno Omta2 1ENVIRON Netherlands, Keizersgracht 62-64, 1015 CS, Amsterdam, the Netherlands, [email protected] 2Wageningen University, Department of Social Sciences, Business Administration Group, Hollandseweg 1, 6706 KN Wageningen, the Netherlands, [email protected]; [email protected]

Abstract This paper investigates the influence of the institutional and network context on the adoption of environmental management capabilities. The aim is to gain insight into the managerial drivers for environmental pro-activeness and learn lessons for environmental policy renewal. A longitudinal empirical study in the Dutch food and drink industry was performed focusing on the years 2002 and 2005. The effectiveness of ecological modernization, as a foundation for environmental policy, is questioned. Ecological Modernization Theory (EMT) proclaims that voluntary, market- and innovation-driven ambitions improve environmental sustainability. Surprisingly, public-private cooperation and business network influences appear to have limited success in pro-actively stimulating ecologically sustainable, long-term environmental initiatives. Especially in medium-sized companies the quality of the natural environment is not a strategic issue in most cases. This is in striking contrast to the expectations of EMT proponents. We propose a differentiation of environmental policy by aligning policy instruments to observed behavioural patterns of companies. Keywords: ecological modernization, stakeholders, networks, environmental management, environmental policy

1. Introduction When in the late sixties of the last century environmental pressures in the Netherlands led to unacceptable effects on human health and the environment, an extensive system of legal impediments was created. It aimed at restricting and controlling business activities. Environmental policy was immediate (instead of long-term oriented), coercive (by setting emission levels, threatening with fines and checkups) and focused on single companies or business units (instead of the supply chain). Over time, it shifted gradually towards persuasion through voluntary environmental care system implementation. Public-private cooperation and network involvement in environmental issues were stimulated (for instance: Buttel, 2000). This policy change, which is similar to developments that have taken place in most other Western European countries, as well as in the USA, Canada and Australia, can be categorized as a ‘reformist approach of environmental policy’ (Welford, 2003). Under this system serious environmental deterioration still occurs like deforestation, global warming, and plastic ‘soup’ in our oceans. It is not clear whether compliance-oriented or market-driven instruments should be deployed to stimulate companies to ‘green’ their business activities. In fact, we question whether free-market and propertyrights approaches will lead to sustainable production and consumption (cf. Gunningham et al., 1998: 9). Such

approaches are dominant in Ecological Modernization Theory. We therefore put forward the question: ‘What environmental capabilities are deployed as a result of institutional and network drivers and are these sufficient to promote environmental performance?’ In our research we focus on the food and drink (F&D) industry, because these companies already have taken internal and external (supply-chain) measures to preserve food hygiene and safety. The resulting capabilities are very similar to those needed for environmental capability deployment. The remainder of the paper is structured as follows. First, the theoretical foundation for the article is provided, as well as a conceptual model. Next, data-gathering procedures and statistical methods are explained. Finally, we present the results, conclusions and a discussion, including management and policy implications.

2. Theoretical foundation The present paper rests on three theoretical pillars: • Ecological modernization addresses the policy orientation of governmental intervention to reduce the ecological impacts of companies. • Supply chain and network reasoning refer to coordination and communication in the business network, as well as

ISSN 1569-1829 print, ISSN 1875-0931 online, DOI 10.3920/JCNS2009.x169

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cooperative business efforts to reduce environmental impacts. • The dynamic capabilities viewpoint looks at the assetbased impediments of company environmental policy. Environmental performance and its evolution in time is the dependent variable in this article. These pillars will be discussed below. Ecological modernization: theory and action Ecological Modernization Theory (EMT) provides a political basis for reformism, rather than radical change. It tries to understand, interpret and conceptualize ecology-inspired and environment-induced processes of transformation (Choy, 2007; Mol, 2000; 2002: 93). EMT expects that technological progress (eco-innovation; Jänicke, 2008) and changing social and institutional relationships will have a positive effect on the reduction of environmental impacts (Choy, 2007). EMT takes an optimistic view of companies’ ability to improve the environment (cf. Bulkeley and Mol, 2003; Revell, 2007; Van Tatenhove and Leroy, 2003). It focuses on knowledge-based, systematic, comprehensive and irrevocable product and process change. Necessary ecoinnovations require governmental and business network support because of, among other things, market failure (Jänicke, 2008). The Dutch government was among the first to rely on private environmental initiatives and cooperation instead of restrictive regulation only (Arts and Van Tatenhove, 2004; Glasbergen, 2002; Vermeulen, 2002). Under the EMT premises, government acts in cooperation with industry to stimulate innovations which make ‘pollution prevention pay’ (Arts and Van Tatenhove, 2004; Buttel, 2000; Murphy, 2001; Van Tatenhove and Leroy, 2003). Examples are various voluntary environmental public-private agreements (or covenants; see Bulkeley and Mol, 2003; Hilson, 2000; Mol et al., 2000), for instance on energy and waste reduction. However, often not recognized is the fact that contextual differences require different approaches (French and Geldermann, 2005). The business network has been involved in ecological initiatives in the last decennia (Bulkeley and Mol, 2003; Hajer, 1995). Examples are the establishment of the WBCSD (1991), CERES which initiated the Global Reporting Initiative – GRI (1997), and the introduction of voluntary ISO14001 guidelines (1990; see Netherwood, 2004). Supply chain and network reasoning Supply chain and network reasoning explains companies’ response to the causal texture of the business environment. A supply chain is a network of organizations involved in

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value-creating activities (Christopher, 1998; Lambert and Cooper, 2000). Supply chain management responds to stakeholder concerns with respect to the quality and safety of food. It also fosters the sustainability of production (cf. Canning and Hanmer-Lloyd, 2001; Hamprecht and Corsten, 2005; Shrivastava, 1995; Simpson and Power, 2005). Sustainability is enhanced by means of life-cycle assessment, environmentally friendly product-redesign and effective supply chain cooperation (Beamon, 1999; Green et al., 1998; Hagelaar and Van der Vorst, 2001). Network reasoning suggests that not only the direct exchange partners but also other stakeholders and their wishes should be included in the analysis (cf. Carroll, 1979; Clarkson, 1995). Supply chain and network influences will have a different effect depending on – among other factors – the size of companies. The behaviour of large companies is more transparent to network actors than the behaviour of SMEs. Therefore they are extra vulnerable with respect to loss of image and reputation. However, they have more resources to address environmental issues (Buysse and Verbeke, 2003; Del Brio and Junquera, 2003). For SMEs, resource constraints are vested in finance, management and marketing, skilled labour and information availability (Freel, 2000). Organizational learning within supply chains and networks is therefore an important source for filling up knowledge gaps (McGovern, 2006). Because of lack of resources and expertise, in many cases SME-managers will copy behaviour from companies in the same branch (cf. DiMaggio and Powell, 1983; Granovetter, 1973). SMEs have limited size and are therefore strongly oriented toward process control rather than product innovation. Yet, in numbers and in environmental impact they dominate the F&D industry. This makes it doubtful whether voluntary, innovation-based policies are able to turn around the environmental impact of F&D supply chains (Haverkamp, 2007: 8-45). Despite this fact, ecological-modernizationbased public policies display an optimistic, uniform and quasi-self-governing picture of environmental management progress in the private sector. Capabilities Capabilities are the available resources, in a broad sense such as routines, knowledge and information systems, that contribute to the attainment of company goals (cf. Amit and Schoemaker, 1993; Christman, 2000; Sharma and Vredenburg, 1998). The capabilities which are necessary to link companies to their business environment do not only foster process control, but may also aim at product (re) design. Product (re)design can reduce or eliminate negative environmental impacts, from the stage of raw materials till final consumption (McDonough and Braungart, 2002;

Journal on Chain and Network Science 9 (2009)

Stimulating environmental management capability deployment: the case of the Dutch food and drink industry

Welford, 2004). Environmental capabilities are therefore important for enhancing environmental performance.

3. Study design


Research model The conceptual model that underlies this research is structured as follows (Figure 1). The model includes three stimuli for EM capability adoption: coercive influences (‘pressure’); support and mediation; and vertical and horizontal cooperation. As indicated, EM capability adoption is regarded as of key importance for enhancing environmental performance. In this article, environmental performance is interpreted as managerial performance. Managerial performance refers to the governance of environmental impact at different activity levels: company (strategic and operational) and supply chain. Environmental performance is the dependent variable in the research model. With respect to coercive influences a distinction is made between public pressures and pressures from private parties such as suppliers, buyers and societal groups (environmental organizations and inhabitants). Legal enforcement is the classical instrument of governmental interference with business organization (Mol, 2000; Jordan and Liefferink, 2004). Taking account of the environmental wishes of societal groups, such as environmental organizations and local inhabitants, is necessary to safeguard a social license-to-produce (Kagan et al., 2003; Lippman, 1999). EMT would require that public and private stakeholders are committed to joint environmental targets, like the reduction of energy consumption or waste (Glasbergen, 1999). From an EMT viewpoint the involvement of companies in environmental policymaking processes – directly or via their organized fields – contributes positively to their environmental innovation performance. Intermediaries (like branch organizations)

External influences: • coercive (legal requirements, permits, etc.) • cooperative (covenants and/or supply chain) • mediating (branche organizations)

Company characteristics: • size • available resources • product characteristics • pollution level

occupy a mediating and supporting role in this respect. Traditionally they help to translate external pressures in company systems and structures, which is called ‘transition management’ (Jänicke, 2008). Cooperation with suppliers and/or buyers in the supply chain can aim at the use of environmentally friendly raw materials and/or reduction of packaging material (Lippman, 1999). Competitors will provide benchmarks for environmentally sound behaviour. In line with the EMT and supply chain and network reasoning, embeddedness in the supply chain is expected to be an important stimulus for the deployment of EM capabilities. We expect that the external influences – when confronted with company characteristics – will direct managerial intentions towards EM deployment. Company size, pollution level and sub-sector play an especially crucial role. Large companies have a potentially high level of pollution and attract, in general, more attention from stakeholders than small companies (Bansal and Bogner, 2002). Similar to the Dutch industry as a whole (Driessen and Glasbergen, 2002; Mol et al., 2000), the Dutch F&D industry is wellknown for public-private environmental cooperation to guarantee food quality and safety. Environmental concerns of the F&D industry are water usage for cleaning raw materials, energy for heating and cooling, and packaging material (Dutilh and Blijswijk, 2004). The impact is different for different sectors, depending on product characteristics. The F&D industry will therefore be split up into companies making perishable products like meat, fish, vegetables and fruit and those with less– or non-perishable products like animal concentrate and beverages. Operationalization of research variables To assess the external influences on EM performance, we followed the structure of similar studies which measured business network pressures from government, chain and

Managerial intentions (strategy)

EM-performance

Figure 1. Research model.


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network actors and societal groups (Buysse and Verbeke, 2003; Henriques and Sadorsky, 1996; Madsen and Ulhøi, 2001; Sharma and Henriques, 2005). Governmental pressure to achieve environmental goals is not necessarily negative for business performance. On the contrary, it may even be welcomed if it conjoins with business strategy, organization and processes (cf. Porter and Van der Linde, 1995; Prakash, 2001). Being a saturated industry with scarce available resources, companies in the F&D industry will only select projects which not only ‘pay’, but are perceived to ‘pay more’ than alternatives. Possibly they will view environmental measures as costly and burdensome (Ramus, 2002). If so, they will comply with a minimal level when they are forced to do so. Such behaviour can be classified as reactive (Miles et al., 1978). However, environmental management could also be viewed by management as a strategic opportunity (Clemens, 2006; Prakash, 2001; Rugman and Verbeke, 1998). We therefore measured the extent to which government environmental policies contribute to business goals. We measured this contribution with a Likert scale (1=‘Not at all’ to 5=‘Very much’). Network influences were also investigated with 5-point Likert scales (1=‘No cooperation at all’ to 5=‘Very strong cooperation’). The adoption of EM was measured as the implementation of a wide range of environmental management activities (Table 2). These activities reflect underlying capabilities which are necessary to come up to the process control requirements of ISO14001 (see Martin, 1998; Netherwood, 2004) and the product-oriented requirements of GRI (www. globalreporting.org). They also reflect a set of environmental policy principles which were adopted by the Dutch government as a response to disturbing soil pollution and chemical waste scandals at the end of the 1970s and the beginning of the 1980s (Braakhuis et al., 1995; RMK, 1997). We added variables which cover supply chain cooperation and strategically oriented skills. These aim at long-term rather than short-term benefits. Together they express the level to which companies have developed capabilities to act in line with EMT. Size was measured as the total number of firm personnel. For distributional reasons, log-values were taken of the number of personnel. It was difficult to find data on the physical pollution level of individual companies. Therefore we used – in line with earlier studies (Christmann, 2000; Madsen et al., 1997) – the perceived significance of the following environmental issues as a proxy: soil pollution, noise, water pollution, smell, air pollution, hazardous substances and waste. The F&D companies were categorized into those that produce perishable products, such as vegetables and fruit, dairy and meat, and those that produce less or non-perishable products like beverages, grain mill products, coffee, tea, etc. ISO14001-certified companies may

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have developed system control measures more abundantly and profoundly than non-certified companies. Data on ISO14001 certification of the participating companies were gathered from the Netherlands Certification Institute and included in the analysis. The unit of analysis in this research was the plant site, not the company as a whole. This is because previous studies have shown that local circumstances, such as the distance to a local community or nature reserve, have an effect on perceived stakeholder impacts (Klassen and Whybark, 1999; Sharma and Henriques, 2005). An overview of key questions in the survey questionnaire is provided in the Appendix. Material and methods Data were gathered in the Dutch F&D industry in 2002 as well as in 2005 from companies with 50 employees or more. A multi-item Likert/type questionnaire was constructed. Semi-structured interviews with 20 environmental managers of different food processors were carried out to validate the questionnaire design. It was sent to the managers with EM in their portfolio. Significant differences in mean values of measured size between 2002 and 2005 were examined by means of the Mann-Whitney test used for non-parametric data. Differences in percentages of adopted EM capabilities were analysed by comparing sample proportions (cf. Churchill, 1999). The exclusion of the companies from the analysis which participated in both years did not influence the results significantly. Therefore all respondents were included in the analyses. Correlations among the research variables (Table 4) are expressed in Spearman rank correlations for non-parametric data.

4. Results Sample characteristics In 2002 a written questionnaire was sent to 365 food and beverage companies with 50 or more employees. In total 106 returned questionnaires could be used for the analysis. This equals an effective response rate of 29%. Data from the Dutch Chambers of Commerce show that the number of medium-sized and large companies in the Dutch F&D industry increased in the period 2002-2005. In 2005, a written questionnaire was sent to 426 companies. 100 completed forms were received back. This equals an effective response rate of 24%. The respondents were environmental coordinators (13% in 2002 and 18% in 2005), quality managers (12% and 24%), board members (1% and 12%), managers with more than one of these functions (51% and 20%) and managers with other functions (23% and 26%).



Stimulating environmental management capability deployment: the case of the Dutch food and drink industry

The distribution of companies over the different sectors in the total population and the study sample is shown in Table 1. A Chi-square test indicated no significant differences in the distribution over the sectors between the total population and the study samples in 2002 and 2005 (χ2>0.10). The 2002 sample contained 76% medium-sized and 24% large companies, whereas the 2005 sample included 79% medium-sized and 21% large companies. Hence, the two samples are highly comparable with respect to company size. Baseline statistics Figure 2 shows the perceived importance of different pollution issues. In line with the environmental impact of

the Dutch F&D industry as a whole, water pollution and waste production appear to be the most important issues. Figure 2 also shows that the perceived importance of soil pollution (P