Environmental tire tracks : an analysis of automotive corporate strategies towards the Global Fuel Economy Initiative

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Environmental Tire Tracks

An analysis of automotive corporate strategies towards the Global Fuel

Economy Initiative

Name: Oscar Dijkstra, 10802088 Supervisor: Dr. Philip Schleifer Second Reader: Dr. Jasper Blom Course: Master thesis Political Science, Specialisation Public Policy and Governance Word count: 23.274 Date: 20 August 2019

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List of abbreviations

ACEA: European Automobile Manufacturers Association COP21: Paris 2015 United Nations Climate Change Conference CSR: Corporate Social Responsibility

ECSR: Environmental Corporate Social Responsibility FIA: Fédération Internationale de l'Automobile

GFEI: Global Fuel Economy Initiative GM: General Motors

HDV: Heavy-duty Vehicle

ICCT: International Council on Clean Transportation IEA: International Energy Agency

ISO: International Organization for Standardization ITF: International Transport Forum

LDV: Light-duty Vehicle

MEF: Major Economies Forum on Energy and Climate MLG: Multi-level Governance

NGO: Non-governmental Organization SUV: Sports Utility Vehicle

TNC: Transnational Corporation

UC Davis: University of California at Davis UN: United Nations

UNEP: United Nations Environment Programme

UNFCCC: United Nations Framework Convention on Climate Change UNSDG: United Nations Sustainable Development Goals

VAG: Volkswagen Group

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1. Introduction

1.1 The empirical puzzle

The second half of the twentieth century saw automobility become the main means of transport in the developed world. Automobility refers to the continued, self-perpetuating dominance of privately owned, gasoline-powered cars as mode of transport (Kemp, Geels & Dudley 2012: 4; Sovacool & Axsen 2018: 730). The expansion of car-based transport over the last half-century has brought a wide range of ecological and social impacts, such as noise, congestion, accidents, air and water pollution, climate change and resource depletion (Jasinski et al. 2016: 1034). Environmental impact is one of the most evident effects of the automotive industry. This impact is twofold. First, there is the construction and destruction of cars, because the production requires a lot of energy and resources before a car ever makes it to the open road in the first place. Many materials need to be specifically created, like rubber, glass and paints and only about three-quarters of an average modern day car can be recycled. Second, there is the air pollution caused by the emission of CO2 and other greenhouse gasses due to fossil fuel consumption. Air pollution increases the automotive environmental footprint significantly as it accounts for 80 to 90 per cent of the total environmental impact. The high production costs and lack of recyclability are thus relatively minor compared to the amount of air pollution that contributes to the automotive footprint. Additionally, the emission of air pollution fosters climate change and thus poses a serious threat to both the environment and human health (National Geographic 2019).

Since air pollution is the most adverse effect of the automotive industry, the Global Fuel Economy Initiative was set up in 2009. This initiative aims to reduce the emission of CO2 by cars by creating more fuel efficiency in automotive transport, with the ultimate goal to establish a full fuel transition. According to the GFEI the number of cars used worldwide is expected to triple between 2010 and 2050, mainly in developing countries. Therefore, action is needed to counter the negative implications of this automotive growth, especially since the GFEI is the only global initiative that supports CO2 reduction through more sustainable moblity (GFEI 2019-A). After a promising start, results have recently started to falter. Especially after 2015 progress slowed down dramatically. This is especially the case in advanced economies, where improvements in fuel consumption dropped to an average of 0,2 per cent per year. A total of 27 countries, including Sweden, Canada and the United Kingdom, saw the fuel economy of their fleets stagnate or even worsen from 2015 to 2017. In contrast, the improvement of fuel efficiency in emerging economies accelerated to 2.3%, with China, India and Indonesia as

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concerning, especially in the context of climate change. To achieve the type of CO2 emissions reductions currently needed to decrease rising global temperatures, and realize the aims of the Paris Agreement, annual improvements to the global car fleet would have to be around an average of 3.7%, which is more than triple the improvement rate between 2016 and 2017 (GFEI 2019-B). Increasing fuel efficiency must receive a high priority for all who are involved with the GFEI. A quick look at the GFEI and its partners reveals one remarkable fact: the automotive industry is not represented as a partner at all. Their absence is very surprising considering the fact they seem just the right actors to develop more efficient engines. It seems puzzling why, contrary to many NGOs, the industry is not involved in such an important global project, while the need for climate change seems higher than ever.

1.2 Research question and sub-questions

The empirical puzzle described above leads to the following core research question of this thesis:

‘What explains the lack of involvement from automotive corporations in the Global Fuel Economy Initiative?’

In addition to the main research question, three sub-questions are formulated: 1. How is the Global Fuel Economy Initiative organized?

2. What are the main corporate strategies employed by the automotive corporations

regarding the Global Fuel Economy Initiative?

3. How can the observed behaviour of the automotive corporations be explained and improved?

The objective of this thesis is to examine the strategies that automotive corporations employ towards the GFEI and to use these analyses to explain why the automotive industry is not involved in the GFEI. Furthermore, Furthermore, this thesis is based on two main underlying assumptions. The first is that the automotive industry is willing, within profit margins, to reduce the emission of CO2 to stop climate change by developing more sustainable engines for automobiles. The second assumption is that automotive corporations are needed to make the global fuel transition into a success, as they are the main actors that have enough expertise to develop new modes of automotive propulsion.

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1.3 Social and academic relevance

Answering this question has societal relevance for several reasons. First, it will point out what influence both public and private actors actually have on shaping the sustainability of the automotive industry. This will show how the actors are tackling the issue and, more importantly, where they can improve. Second, it will show how environmental initiatives like the GFEI function in society, and, more specifically, in a distinctive business sector. Third, assessing the strategies employed by large corporations towards public environmental initiatives will help designing future initiatives, as the instigators can better predict corporate behaviour. Fourth, this research will shed light on the functioning of private environmental governance arrangements in practice. These arrangements appear more frequent, but it is necessary to assess these in all business sectors. This study provides a starting point by examining the automotive sector. Fifth, answering the core question may have positive policy effects on the GFEI. Considering the current increase of air pollution caused by cars, it is obvious that initiatives like the GFEI are very much needed to reverse this harmful development.

There is great academic relevance to this question as well. This study engages with the wider scientific debate on the functioning of private environmental governance arrangements. Answering the question will make a theoretical contribution to this field, as it will show clearly which strategies transnational corporations can employ when participating in private environmental governance arrangements. Recognising the limitations of a state-centred approach to understanding global environmental politics, a growing number of scholars in the field have begun to point toward the relative lack of empirical studies on the role of non-state actors in global environmental negotiations and outcomes (Clapp 2003: 3-4). This thesis thus contributes to the general understanding of the corporate scope of influence within the issue area of environmental policy and climate change and will be particularly helpful in research on the automotive industry. As the literature review shows, some has been written on the corporate environmental social responsibility activities automotive corporations employ, but less so on the corporate strategies they employ when engaging in a public environmental initiative.

Meckling (2015), the main theorist on corporate strategies, states that reputational concerns are the main driver in corporations’ consideration between accepting regulatory pressure and distributional effects, which in turn determines the strategy a TNC decides to employ. These reputational concerns may explain much, but not all of the corporate behaviour we will empirically observe. Moreover, reputational concerns are customer oriented. Despite his very elaborate work on strategies, Meckling misses underlying institutional power dynamics that shape these strategies. By introducing and using the new analytical concept of corporate

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power preservation in the analytical framework (chapter 3), this thesis will provide a new way

of analysing and understanding corporate strategies in corporate environmental governance arrangements.

In addition, analyses of the role of transnational automotive corporate motives and interests in these specific cases have only just begun to be undertaken. Moreover, little is currently known on how firms in practice engage in non-state market-based politics as well as on the relationship between private environmental governance and their efforts to cooperate or even influence public policies (Vogel 2008: 276). This study will not only test existing theories, but will also introduce the new concept of corporate power preservation as underlying factor in choice of strategy. Also, answering the main research question will clearly show what differences exist between the strategies of NGOs and corporations in the automotive sector. In addition, this research will fill the existing knowledge gap in the academic literature, as it will contribute to the scholarly debates by incorporating an analysis of automotive corporate environmental strategies vis-à-vis the GFEI.

1.4 Thesis roadmap

To answer the main research question adequately, this thesis will adhere to a clear structure. In chapter 2 I will present an elaborate literature review, which will discuss existing literature on the relevant topics. There will be an emphasis on environmental transitions and the automotive industry in relation to climate change. Chapter 3 presents the analytical framework used to analyse corporate behaviour and strategies related to the GFEI. This framework will comprise of several scholarly articles and explain corporate power preservation as new analytical concept. In chapter 4 there will be an extensive discussion on the methods used to conduct the research presented in this thesis. I will discuss the research question and design, as well as the data collection and case selection. In addition, I will also focus on both the strengths and limitations of my research. Chapter 5 will be the first empirical question, dedicated to the first sub-question. This question focuses on how the GFEI and its partners, are organized, and has a descriptive nature. Chapter 6, the second empirical chapter, will be analytical and examines the behaviour and strategies of four automotive corporations regarding the GFEI. This chapter will be central in answering the main research question. Chapter 7 contains the third empirical chapter, which will have an explanatory nature, as it will present several alternative explanations for the behaviour and strategies of the automotive corporations analysed. Moreover, chapter 7 will also use these explanations to provide suggestions for altering the empirically observed behaviour. In chapter 8 a conclusion will follow in which the results will

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be discussed and the main research question answered. In addition to this, several propositions for further research will be made.

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2. Literature review

This chapter will present the key debates in the literature concerning the automotive industry and environmental transition and introduce relevant academic insights into these topics. First, there will be an elaborate discussion on the emergence of transnational corporations in transnational governance and the implications of this. Second, the details on the functioning of corporate social responsibility will be made clear. Third, the existing relevant literature on the automotive industry and environmental transitions will be mapped. The findings discussed here will form the foundation for the analytical framework, which is presented subsequently.

2.1 The emergence of private environmental governance

The past decades were characterized by trend of significant growth of corporations. The former nationally oriented business became transnational corporations (TNCs), by forming transnational networks through global outsourcing (Bartley 2018: 146-148). In these transnational networks TNCs acquired an increasing amount of power and influence. In terms of economic power, many TNCs have become larger than most countries in generating revenue. Of the top 100 revenue generators worldwide, 71 are corporations and only 29 are countries. Due to their large size, TNCs can exercise tremendous influence on both governments and societies. In addition, TNCs control social and economic life in a myriad ways, through for example marketing, (social) media and franchise operations (Bedic et al. 2018). Thus, by engaging in ‘global governance’, which is a ‘set of relatively formalized rules, standards,

agreements, and/or administrative bodies that seek to establish order and solve problems across numerous national jurisdictions’, TNCs have become powerful and influential actors

(Bartley 2018 147-148).

Private governance arrangements emerged simultaneously with the power TNCs and gained real prominence in the 1990s. Private governance can be defined as interactions at the global level among private actors, or between private actors on the one hand and civil society actors and states on the other, which give rise to institutional arrangements that structure and direct actor’s behaviour in an issue-specific area (Falkner 2003: 72-73). The current architecture of global governance is characterized by a complex combination of international and transnational actors and institutions operating at different levels in various discursive frameworks. Private governance arrangements reflect a fundamental transformation of world politics, in which states are no longer the exclusive source of global regulatory authority. Instead, authority is now dispersed across different actors in different settings (Pattberg &

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Isailovic 2017: 281). In private governance arrangements authority and regulatory power are exercised through global market forces rather than by political delegation. The legitimacy, management and implementation of private governance is no longer solely rooted public support, but is instead granted through a supply chain and customer preferences (Hall & Biersteker 2002; Cashore 2002). Private governance arrangements operate alongside formal regulatory systems by interacting in rule-making and implementation processes. Usually private governance arrangements take two forms. First, there is inter-firm cooperation, in which firms cooperate to regulate their behaviour by voluntary developing an accepting new norms and practices. Second, TNCs can work together with governmental organs, NGOs or other civil society actors to develop new forms of regulation to address a certain issue. This second form is called public-private partnerships (Pattberg & Isailovic 2017: 282-283).

A dominant explanation for this rise of TNCs and the emergence of private governance arrangements can be found in the academic literature on globalization. It is often argued that due to economic globalization, there has been a corresponding process of restructuring state functions. Traditional government-oriented governance systems now often lack the capacity to tackle transnational problems adequately, due to the emergence of a so-called ‘institutional void’. Increasing transnationalisation and complexity have caused an absence or weakness of international regulation in a context of rapid economic globalisation (Hajer 2009). This is closely associated with what Susan Strange refers to as ‘the retreat of the state’. She argues that ‘the power of most states has declined still further, so that their authority over the people and

their activities inside their territorial boundaries has weakened’ (Strange 1996: 11). This

allowed for the emergence of private governance arrangements that address societal problems (Falkner 2003). Moreover, this implies that the significance of private governance lies in closing the gap that has come into existence due to a growing governance deficit. Private governance is thus needed to overcome negative social and political impacts caused by this regulatory failure (Pattberg & Isailovic 2017: 283-284). State power, however, did not disappear, but transformed, as governments now interact with corporations for (political) power (Bedic et al. 2018).

With this new important role as a civil society actor, TNCs acquired a certain responsibility as well. Together with the rise of TNCs in the second half of the twentieth century, the concept social responsibility for the businessman arose. An academic perspective that stems from the globalization literature emphasizes transnationalism and the subsequent public scrutiny of corporate affairs by civil society as the main drivers for the further development of private environmental governance (Pattberg & Isailovic 2017: 284-285).

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According to this perspective, private environmental governance is the direct result of pressure exerted by both NGO’s and civil society actors on corporations (Wapner 1997). These actors play an important role in shaping private governance by targeting firms to address environmental concerns. Corporations used to be seen as an actor that was mainly opposing the governance of global environmental issues by attempts to halt or postpone environmental regulation through lobbying activities. This role has thus dramatically changed, as TNCs have moved towards a more proactive mode by taking up a public role that used to be the exclusive domain of governments (Kolk & Pinkse 2007). TNCs bring their newly acquired role into practice through (environmental) corporate social responsibility strategies.

2.2 Environmental corporate social responsibility

The works of eminent CSR scholar Archie Carroll lie at the foundation of CSR theory. In 1979 he developed the so-called ‘pyramid of CSR’. This pyramid, which was adapted over the years, graphically depicts the components of contemporary CSR.1_{At the bottom of the pyramid one}

can find the traditional CSR approach, which is making profit. Indeed, making profit is also part of the contemporary form of CSR, but this goes much further as we can see in the pyramid. Legal boundaries form the second lowest level, as every TNC is bound to the law or at least should abide to the law. The top two levels are ethical and philanthropic responsibilities, which depict what is expected and desired from a TNC respectively. The pyramid has been developed into a more accurate three-domain model, consisting of the economical, legal and ethical domain.2_{In this model philanthropic and ethical responsibilities are put together due their close}

resemblance. Moreover, the model now allows for overlap, which makes it more accurate and related to real-world CSR practices. The economic and legal domains are still pretty straightforward and focus on economic impact and legal compliance respectively. The ethical domain focuses on what the relevant community members and stakeholders think the TNC could and should do to improve its positive impact on society and environment (Schwartz & Carroll 2003: 105-116 and 121-127).

In the academic literature on CSR four main theories can be distinguished. The first is instrumentalist theory, which is closely related to the basic thoughts of early traditional CSR. The use of CSR strategies here is rather limited, because making profit is still top priority. Here CSR strategies mainly function as a marketing tool to improve the corporations competitive position. Second, there is political theory, which emphasizes the power of civil society on

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TNCs. Political theorists claim that corporations are obliged to behave responsibly, because they are part of the local community in which they operate. CSR is also used in this regard to create legitimacy for the TNC. This idea often leads to the TNC accepting certain environmental duties or participating in a certain social cooperation (Melé & Garriga 2004: 51-53). CSR political theory is closely affiliated with the contemporary form of CSR, as TNCs are proactive in taking (environmental) responsibility. Environmental and societal value creation has the same priority as making a profit. This feature clearly distinguishes it from traditional CSR (Crane et al. 2014: 66-67).

Integrative theory can be distinguished as a third approach. This set of theories claims that TNCs need to integrate societal demands in their practices to become successful, because these corporations depend on society for its continuity, growth and even existence. Here, the CSR agenda is driven by societal demands, however this also means that CSR strategies can vary overtime. Lastly, the fourth set of theories is ethical theory. Ethical values play a central role in this CSR approach. TNCs ought to accept social responsibilities as an ethical consideration above anything else, because the relationship between corporations and society is embedded in ethical values. The main assumption is that TNCs have a moral obligation to contribute to a better society and environment. Examples of this are contributions to human rights and sustainable development norms (Melé & Garriga 2004: 51-53).

This short overview of dominant theories shows that the traditional form of CSR can only be applied to the instrumental theories, because both regard profitability as their main objective. The other three sets of theory closely resemble the ideas embedded in contemporary CSR, in which TNCs actively are keen on improving their positive impact on society and environment. When we look closer at the underlying political theory, the concept of corporate citizenship is very important. It has become increasingly important that TNCs need to take into account the communities and environment in which they operate and entails a strong responsibility towards this same community and environment. In the literature this responsibility is often characterized as a CSR strategy. Thus, TNCs aiming at reducing their carbon footprint and developing sustainable practices pursue an environmental CSR strategy (Melé & Garriga 2004: 56-57).

Central to environmental CSR strategies is the practice of issue management, which has been defined as: ‘the processes by which the corporation can identify, evaluate and respond to

those social and political issues which may impact significantly upon it’ (Wartick & Rude 1986:

124). Issue management allows TNCs to identify and analyse potential societal or environmental issues early on and makes sure TNCs can adapt and act in time. TNCs act here

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on the basis of a corporate social responsibility. Corporations are responsible when they operate in a certain community or environment and via issue management, TNCs try to find appropriate solutions to issues in their community. The ethical theory assumes TNCs undertake CSR activities they deem necessary to create a good society and environment (Melé & Garriga 2004: 58-64).

As an integral part of CSR, environmental CSR (ECSR) plays a crucial role in firms in regard to their interactions with the natural environment. Still, making profit remains central to every ECSR campaign. The most common forms of environmental CSR are energy conservation and emission reduction (Kim, Park, & Ryu, 2017). There are two main motivations, which explain why corporations proactively pursue environmental strategies. The first theory is stakeholder-oriented and claims that firms are likely to adopt environmentally responsible strategies to meet the interests of stakeholders, including customers, shareholders, governments and the local community, who provide resources for sustainable businesses (Barnett & Salomon, 2012; Buysse & Verbeke, 2003; Chen, Zeng, Lin, & Ma, 2017). The second body of theory argues that international institutions regulate and motivate firms’ environmentally responsible practices. According to this school of thought, corporations attempt to exhibit a high level of environmental corporate social responsibility to legitimize their practices and avoid some regulatory risks such as fines (Bansal & Roth, 2000; Kassinis & Vafeas, 2002). Pursuing environmental CSR strategies can be very beneficial for TNCs. Xu and Zeng (2017: 946-947) find that firms with better performance in energy conservation and emission reduction are more likely to obtain international certification to pursue international expansion. TNCs environmental investment as a result of their environmental CSR strategy can help firms to build competitiveness to expand their markets and build the regulated barriers necessary.

Environmental CSR strategies have a positive effect on shareholders and the stock market as well. Shareholders react positively to the announcement of eco-friendly initiatives, and negatively to the announcement of eco-harmful behaviour. The external pressure to become environmentally friendly is setting the institutional norms of environmental CSR. Eco-harmful behaviour has a negative effect on perceptions of a firm, because firms are punished for not following the norm. Simultaneously, however, the more that companies enact the institutional norm of going green, the less that shareholders reward firms for eco-friendly initiatives. Over time, positive reactions to the announcement of eco-friendly initiatives have significantly decreased, while the negative reaction to the announcement of eco-harmful behaviour has significantly increased (Flammer 2013: 758, 771-772). This also implies that firms’

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environmentally responsible behaviour is motivated mainly by the economics between the costs and benefits of their engagement in environmental CSR (Xu & Zeng 2017: 955-956).

However, a statistical analysis by Lioui and Sharma (2012) reveals more mixed results and shows the need for nuance when it comes to labelling environmental CSR as inherently positive for a TNC. The authors claim that the positive effects of environmental CSR are rather indirect. Because environmental CSR strategies usually include costly activities and investments the return on assets decreases, in essence meaning that a TNC is becoming less profitable. Overtime, however, these investments are returned, because environmental CSR practices lead to large investments in the corporation’s research and development (R&D). Consistent with what the other literature shows, this interaction between environmental CSR and R&D has a positive effect on the financial performance of TNCs, making the strategies profitable in the end and still enhancing corporate competiveness. In short, CSR endeavours thus need to be profitable for the TNC, but also improving its sustainable practices (Lioui & Zenu 2012: 100-101, 110; Chuang & Huang 2016: 991-992). Since environmental CSR strategies tend to be beneficial for both TNCs and the environment, let us now examine the current state of affairs in the automotive industry.

2.3 The automotive industry in environmental transition

Automobility faces a need for change to address persistent problems such as increasing traffic congestion and, more importantly, atmospheric pollution that causes climate change. At the same time, however, the automotive industry is deeply embedded in western lifestyles and stabilized through sunken investments, interests vested in its continuation and beliefs and practices that are taken for granted. For the past two decades many attempts have been made to introduce innovations that create more sustainable, environmental-friendly practices. Nevertheless, the automobility regime remains remarkably stable and one can only speak of small incremental changes. It was not until the 1990s that automotive corporations took product stewardship upon them and felt responsible to develop more environmental-friendly practices. Although some progress has been made since then, it still falls far short of having achieved genuine sustainability. For the vast majority of auto companies, pollution reduction and product stewardship still are the end of the road (Hart 1997: 73-76).

There seems to be no agreement in the automotive industry on how this environmental transition should come about. Some actors advocate for a large emphasis on reversing climate change by investing in sustainable technological advances. However, how these technological developments should be realized is contested. For example, some propose fuel cell technology

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(hydrogen powered engines) as the future, while others devote their attention to the electrification of cars. Additionally, some actors are unhappy with the environmental emphasis altogether, as it focuses too much on just one aspect of the automobility problem. Critics note for example that by solely trying to improve sustainability, the congestion problem is left unattended. This fragmentation of the different views on transition has resulted in a lock-in of the automotive environmental transition and despite several two decades of work on alternatives, the internal combustion engine still reigns supreme (Kemp, Geels & Dudley 2012: 3-12).

There are several factors that contribute to this transitional stalemate. First, there are the relatively low costs for automotive manufacturers to maintain the use of existing technologies, due to refinement in an economy of scale. Second, there are large amounts of sunken investments in infrastructure, machinery, personnel and development. A sudden transition would mean the loss of these investments. Third, current automotive use is deeply embedded in people’s lifestyles and behavioural patterns. A sharp transition would thus also require a large-scale behavioural change of customers. Fourth, there are currently many legislation, institutions, and subsidy schemes in place that favour existing technologies and hinder new ones, due to their rigidness. Fifth, there are mental maps and cognitive schemes that blind incumbent actors to alternatives that fall out of their scope of attention. In other words, many actors show rigid behaviour and are not open to rapid change. Lastly, powerful actors such as large automotive corporations and oil companies resist change because they are keen on protecting their vested interests (Kemp, Geels & Dudley 2012: 13-15).

Moreover, Sheller further elaborates on the socio-political factors prohibiting the automotive transition. She claims that the use of cars is deeply embedded in lifestyles, supported by cultural discourses and stabilized by positive feelings and emotions. Cars will therefore not easily be given up just because they are dangerous to people’s health and life, environmentally destructive, based on unsustainable energy consumption and damaging to public life and civic space. Too many actors find the current state of automobility too enjoyable, profitable and comfortable (Sheller 2004: 236). Despite an increasing societal interest in a automotive transition to more sustainable transportation technologies, there has been little consideration of how such innovations might challenge, maintain or support different aspects of automobility, and what that means for technology deployment, transport policy, and user practices. This means that ideas of automobility are also rooted in complex societal frames3_,

which must be taken into account when establishing an environmental transition. Automobiles

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have become much more than just a functional technology. Cars have become means of identification and have come to embody concepts such as freedom (Sovacool & Axsen 2018: 730-731; Sheller 2004: 236-237; Kent 2014: 107-109).

Despite this complex set of restraining factors, however, many policymakers and other stakeholders have explored and supported efforts to transition towards more sustainable forms of automobility, such as more efficient vehicles or vehicles powered by low-carbon fuels. Therefore, some progress in greening the automotive industry has been made (Kemp, Geels & Dudley 2012: 335-338; Golinska and Kosacka 2014: 3-6). Golinska and Kosacka further identify three main strategies by which car manufacturers attempt to decrease the environmental impact made by cars. These are reducing, reusing and recycling strategy, which all differ from each other, but all of them are taking into account the environment protection. With the reduce strategy, solutions are developed to reduce the waste that comes into existence during the manufacturing process. Second, the reuse strategy aims at continuing the use an item after it has been relinquished by its previous user, rather than destroying, or recycling it. Third, the recycle strategy looks out to creating new consumer goods or new car parts from materials obtained during dismantling process of an old car. The authors also identify a positive feedback loop between the environment and the greening developments in the automotive industry.4

They state that the negative impact of the automotive industry on the environment leads to an increasing positive influence on greening initiatives, as automotive manufacturers seek to counter the environmental damage (Golinska and Kosacka 2014: 3-10).

As we have seen, automotive corporations gained prominence in global private environmental governance arrangements as the overall regulatory power of transnational corporations increased due to rapid economic globalization. TNCs seek to fill the regulatory gap caused by the governance deficit. This is especially the case when it comes to transnational environmental problems. Pursuing environmental CSR strategies proves to be financially beneficial for TNCs, either direct or indirect. It enhances both the firm’s financial performance as well as the overall competiveness. The development of environmental CSR strategies in the automotive industry has turned out to be an incremental yet very tardy process. This is mainly due to very rigid structures in both the automotive industry and society as a whole. In the industry these rigid structures exist because of low costs of using existing technologies and large amount of investments made. Still, it must be noted that progress in greening the automotive industry is being made. The next chapter will develop an analytical framework by

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investigating corporate strategies regarding private environmental governance arrangements, such as the GFEI.

So to give a brief synthesis, the literature review has made clear that TNCs have become very influential actors in transnational sustainability governance. As a result of their increased impact, they have been developing several campaigns to both socially and environmentally revise their practices. The main aim here is to do something good for the communities and the environment in which they operate, but also for the profitability of the firm itself. The automotive industry seems very rigid and reluctant to engage in a sustainable transition. This thesis will contribute to the theory about car industry, as it will show what ECSR campaigns automotive actually undertake when it comes to reducing CO2 emission through improved fuel economy.

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3. Analytical framework

This chapter will elaborate on the different strategies corporations can employ in private environmental governance arrangements. First, several strategies will be operationalized and extensively discussed. Second, the chapter will shed light on the underlying dynamics that drive corporate strategies in such private governance arrangements. As noted in the introduction, this thesis aims to explain the lack of involvement of the automotive industry in the GFEI. Meckling (2015), the main theorist on corporate strategies states that reputational concerns are the main drivers behind corporate strategy choices and the consideration between institutional regulatory pressure and compliance costs or potential benefits.

Before we start of by distinguishing and operationalizing existing corporate strategies, it is important to make a clear distinction between corporate preferences and strategies. Certain basic material interests and ideas of firms are seen as corporate preferences. When these preferences become situated in specific institutional context, they are translated into more complex corporate strategies. Next to the material interests, these strategies consist of corporate identities, visions and causal and normative beliefs on the issue at hand. Corporate strategies are often formulated when TNCs must interact with a plethora of other actors in a complex institutional environment to pursue their interests (Woll 2012: 195-198). Corporate environmental strategies are thus developed in light of expectations and assumptions concerning a firm's internal competencies and the external market and non-market environments. These external expectations are shaped by institutional forces at multiple levels, including the national and global industry, national governments, NGO’s and the specific environmental issue at hand. Moreover, the interpretations on the solutions to the environmental problem of the different actors involved constitute as important drivers of corporate environmental strategy formulation (Levy & Rothenberg 2002: 173-174).

3.1 Corporate strategies in private environmental governance arrangements

Corporate environmental strategies usually take place on a continuum ranging from reactive on the on extreme, to proactive at the other extreme (Steger 1993). A reactive corporation will only act when the regulatory pressure or the pressure from civil society has become too high to remain indifferent. These reactive strategies are rather defensive in nature and TNCs employing reactive strategies usually leave market opportunities unexploited and oppose environmental regulation. In the middle of the reactive-proactive scale are the intermediate firms. These firms tend to be indifferent to both regulatory pressure and market opportunities, which is manifested

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by maintaining existing practices. At best, intermediate corporations make only very small incremental changes to their environmental practices. These changes are often more caused by contextual changes in civil society, rather than by the conscious development of a particular corporate environmental strategy. Proactive companies will mostly support environmental regulation by exploiting market opportunities, motivated by increasing profits and improvement of the firm’s environmental reputation. In these cases, firms have come to regard civil regulation, as well as other social and economic dimensions of CSR, as consistent with their business objectives. Within this category of proactive TNCs, innovative firms will go even further by supporting environmental regulation through implementing major changes in the production process or by developing new technologies and products. Especially in the automotive sector however, these innovative firms only exist sporadically (Skjærseth & Skodvin 2003: 13-14; Vogel 2008: 268-269).

Several indicators are needed to determine whether a TNC belongs to the opposing, indifferent or supporting category on the reactive-proactive continuum. Skjærseth and Skodvin (2003) have done extensive research on strategies in the oil industry. Since the oil industry is also one of the world’s most polluting industries in dire straits to revise and improve its environmental practices, it can be well compared to the automotive industry in terms of formulating environmental corporate strategies. The authors have developed four useful indicators for categorizing environmental strategies. These indicators are (1) the companies’ acknowledgement of the environmental problem of a human-induced climate change; (2) their position with regard to international climate agreements like the Kyoto Protocol or the Paris Climate Agreement; (3) self-imposed targets and measures to reduce CO2 emissions from their own practices; and (4) the extent of reorientation in their core business areas, which looks to an alteration of investments and product development. These indicators address both the rhetoric and activities that TNCs employ (Skjærseth & Skodvin 2003: 15, 43-44, 197-198).

As noted, Meckling states that reputational concerns are the main driver in determining corporate behaviour. If firms ignore public demands for environmental action, they tend to incur reputational damage resulting less revenue and higher costs. Vice versa, corporations can maintain or even enhance their reputation when giving in to these public demands. Following the reputational concerns, there are two main causal factors that determine which strategy the corporation chooses to employ. On the one hand there is regulatory pressure and on the other hand there are distributional effects, or costs versus benefits (Meckling 2015: 21-22). The cost-benefit factor is relatively simple to comprehend. This basically encompasses the distributional effects of environmental policies and regulation on transnational corporations. This

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environmental regulation determines whether a firm becomes a winner or a loser to the distributional effects, because this generates either costs or benefits for the firms involved. It is important to note that due to the large heterogeneity of firms, there may exist different compliance costs under the same environmental regulation. Another TNC may even receive relative gains, while another faces high costs. The analysis of the formation of firms’ material interests versus environmental regulation needs to take into account how regulation affects a firm not just in absolute financial terms but also compared to its competitors. Thus, the interpretations and beliefs on the perceived distributional impact of a policy on a firm is just as crucial as the real absolute impact in defining its strategy regarding a environmental regulatory initiative (Meckling 2015: 21-22).

The other causal factor is regulatory pressure exercised on firms. Institutional pressure in an environmental governance arrangement comes from governmental regulators, customers, competitors, and community and environmental interest groups. The demands from these different organizational fields may conflict, adding to the complexity of the institutional context in which TNCs formulate their strategies (Delmas & Toffel 2004: 212-214). For example, a TNC may experience pressure from other firms in the same industry sector to oppose a regulatory initiative, while environmental groups try to persuade the same firm to support it. When exposed to this pressure, a certain degree of sense-making and interpretation at the firm level enters. When TNC’s interpret the institutional environment in which they are situated, certain firm-level factors such as a firm’s history, size, and organizational culture play a role. Such firm-level factors determine which strategy the firm decides to use in the institutional environment. TNCs thus adapt their corporate environmental strategies to the perceived regulatory pressure, which is the result of how a firm interprets its multi-layered institutional environment and its mixed signals with regard to demand for regulatory action on a given environmental issue (Meckling 2015: 20-22).

Combinations of different distributional effects (costs versus benefits) and levels of regulatory pressure create four possible strategies that transnational corporations can employ towards environmental governance arrangements. The corporate strategies identified are (1) opposition: costs and low regulatory pressure; (2) hedging: costs and high regulatory pressure; (3) support: benefits and high regulatory pressure; and (4) non-participation: benefits and low regulatory pressure. When transnational corporations decide to oppose an environmental governance arrangement, the regulatory pressure is low and the costs outweigh the financial benefits. Moreover, in this absence of other civil society actors such as national governments and NGOs, the costs of rejecting and opposing an environmental policy are often low, while at

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the same time costs to support the regulation are high. Opposing is especially likely at the agenda-setting stage, when the policy process regarding a specific issue has not been completed yet. Once corporate actors have invested a significant amount of financial capital in an environmental governance project, it becomes increasingly unlikely that TNCs will oppose this completely. Opposing environmental regulation is usually the default strategy chosen by TNCs, as compliance costs tend to be high (Meckling 2015: 22-23).

When both regulatory pressure and compliance costs are high, transnational corporations use hedging as a strategy towards private environmental governance arrangements. Increasing public pressure from governments and NGOs leads firms to propose environmental regulations themselves. They hedge against the regulatory risk of a more costly policy option, while accommodating public demand for regulatory action. This strategy allows the TNCs on the one hand to maintain their good public reputation by complying with the environmental arrangement. On the other hand firms become an integral part of the policy process as they propose regulation themselves too. Typically, hedging strategies have the goal of minimizing or levelling compliance costs. This means that protecting or even extending profit margins is still the main goal of TNCs. When employing a hedging strategy firms have two options to minimize compliance costs. First, corporations can advocate for the use of different, more cost-efficient policy instruments. Second, corporations can lobby to create a new low-cost design in the existing environmental governance arrangement. In case of the latter option, firms can for example opt for a self-regulatory system instead, to substitute planned pollution taxes. The minimizing of compliance costs occurs when the policy process is still in motion and no solid regulatory arrangements have been adopted yet (Meckling 2015: 22-23).

When the policy process has been finished, TNCs have several options to level compliance costs in their hedging strategies. The main argument firms use to make governments level costs is to maintain international competitiveness. Corporations anticipating high compliance costs might lobby their home governments to internationalize the environmental policy to include competitor countries under the same policy and thus the same compliance costs (Kelemen & Vogel 2009: 435-437). Thus, the hedging strategy has two sides. As Meckling puts it: ‘[On the one hand, hedging is]... defensive towards government and social

interests. On the other hand, hedging strategies can also be seen as a self-interested contribution to a “problem-solving approach,” as they provide support to some form of environmental policy.’ (2015: 23-24).

Transnational corporations employ the supporting strategy when regulatory pressure and benefits are high, while compliance costs are low. This means that when firms perceive the

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pressure from civil society as high and may even receive benefits from the environmental regulation, they are likely to support and even advocate for the environmental policy within the environmental governance arrangement. Without sufficient demand for regulation from other actors, firms run the risk of spending too much political and financial capital with no return on investment. Moreover, low costs and benefits may attract firms even more in supporting a regulation. These corporations’ goal here is to expand existing markets or create new markets through environmental regulation. They may support policies not only if they have absolute benefits from a new regulation, but also if they receive relative gains with regard to competitors (Meckling 2015: 24-25).

When both regulatory pressure and financial benefits are low and uncertain, transnational corporations in some cases may choose not to participate in an environmental governance arrangement at all. If a certain industry sector has little interest in taking part in an environmental regulation, there is usually not enough corporate influence in the policy process to create beneficial circumstances for participating firms. Hence, there is great uncertainty for TNCs to receive a return upon their investments. Due to this uncertainty, corporations rather choose to abstain from participating in the corporate environmental governance arrangements, than to take the risks of losing money. Moreover, potential losses are valued more highly than potential benefits (Meckling 2015: 25-26). This implies that when both pressure and costs are low, firms rather choose to continue their existing business-as-usual practices than to take risks by participating in a corporate environmental governance arrangement lacking acclaim.

Table 1 below schematically summarizes the four strategies described TNCs can employ towards corporate environmental governance arrangements.

Table 1: Business strategies in Environmental private governance

Distributional effects

Regulatory pressure Costs > Benefits Benefits > costs

Low Oppose Abstain

High Hedge Support

3.2 Dynamics of corporate power preservation

The four strategies mentioned above thus contain the main assumption that the reputation of transnational corporations is the main factor that determines the consideration between (perceived) regulatory pressure and certain distributional effects resulting in a particular corporate strategy. While reputation is arguably a very important variable, corporate power dynamics are so too, which Meckling largely ignores. Automotive transnational corporations

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have become influential actors in environmental governance arrangements. Therefore, an emphasis on a new factor, which I would like to call a ‘preservation of power’, is needed. This preservation can exist next to Meckling’s reputational factor, as another underlying factor determining the consideration that results in corporate strategies. Examining the strategies and level of support along the lines of this factor will shed additional light on why the automotive corporations choose to employ certain strategies regarding the GFEI.

Due to their increase in power and influence, TNCs have been interacting with civil society more than ever. An important aspect of this interaction is civil regulation, which is meant to check on business practices and to ensure private decision-making in corporate environmental governance arrangements remains a democratic process, as public actors are involved too. NGOs play an important role in this, as they usually provide civil activist groups with political levers that exist outside of the governmental sphere and can still exercise influence on corporations (Falkner 2003: 79). Following this support for increased civil regulation, NGOs have changed their strategies towards transnational corporations as well. Many NGOs and activist groups have decided that working directly with firms to establish and enforce improved codes of conduct and develop more sustainable production practices is more effective. Therefore, both formal and informal cooperation between civil actors and corporations have increased. There is now considerable evidence for a shift from boycotts and antagonistic behaviour to working in global partnerships. Still, however, TNCs tend to be very selective in their choosing of NGOs to cooperate with (Doh & Teegen 2003; Gereffi et al. 2001; Rondinelli & London 2003; Domask 2003: 57).

This empowerment of civil society actors interacting with actively with transnational corporations obviously goes at the cost of corporate power and influence in the environmental governance arrangements. Surprisingly, many corporations have already adopted voluntary regulatory standards and codes of conduct into their CSR standards. Meckling would label this as protection of the corporation’s reputation, however in many cases this adoption of environmental CSR strategies represents a political strategy for avoiding additional governmental regulation. In some cases large corporations or even complete sectors acquiescently adopt improved environmental standards to release pressure on larger national or even international regulatory arrangements by showing proactiveness. This was mainly to prevent the adoption of heavy regulatory measures on corporate activities (Vogel 2008: 268). Thus, corporate power preservation is characterized by firms trying to bypass more stringent governmental regulations by selectively working with NGOs and impose self-regulation.

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Corporate power preservation is a political process that usually follows from broader ‘conflicts’ on the power of states, markets, and civil society in a context of globalization (Dezalay & Garth 2002: 326-330). This means firms not only choose a certain strategy to guard their reputation, but also to preserve their political power vis-à-vis other influential civil society actors. This implies that this preservation of corporate power, and thus the choice of strategy, is in fact the result of the political contestation on which actor is to govern the environmental governance arrangement (Bartley 2007: 298-299). Because firms tend to be mutual competitive, they are relatively slow to act collectively in a complex institutional environment with multiple powerful actors involved. Usually, NGOs are much more assertive when it comes to developing new rules and regulations in a particular institutional setting. This means firms often play a reactive role, which explains well why TNCs decide to focus on power preservation. In environmental institutional settings transnational corporations are unlikely to be the only relevant actors and with NGOs being the actors that shape the institutions most, it seems obvious that firms choose to protect their interests. This is especially the case in an environmental institutional setting, because the interests of environmental NGOs and TNCs only sporadically align. Since it is not possible for TNCs to capture the governmental role and create rules in favour of themselves amidst influential NGOs, corporations now focus on preserving their power. They usually do this by creating or at least stabilizing both regional and international markets (Fligstein 2005: 194-195; Bartley 2007: 339-341).

Corporate power preservation thus occurs in complex institutional environments in which transnational corporations have to cooperate with other influential civil society actors. While both the reputational concerns and the newly introduced preservation of power focus on protecting corporate interests, there are some key differences. The reputational concerns are directed towards customers and are directly linked to the firm’s revenue, because, in short, reputational damage means a loss of income while reputational enhancement means a rise of income. Corporate power preservation is more oriented towards other civil society actors, because it largely shaped by the actions of other actors in the same governance arrangement. When governmental and NGOs impose more stringent measures, this will lead to a higher and more conservative level of power preservation. At the same time, when civil society actors are more willing to cooperate with the TNCs, the corporations will be more likely to share power in the governance arrangement, as it will probably serve their financial interests. This means the preservation of corporate power can also be linked as an underlying causal factor in the consideration between regulatory pressure and distributional effects resulting in strategy choice, just as the reputational concerns Meckling uses. For example, when firms choose to

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preserve their power they will most likely end up hedging or opposing the environmental regulation, as this will give them the opportunity to influence the content (hedging) or blocking the idea altogether (opposing). In other words, when TNCs will employ more conservative strategies when they wish to protect their interests from other civil society actors in the same corporate environmental governance arrangement. Examining corporate strategies regarding the GFEI from a perspective of corporate power preservation will thus be a very useful addition to Meckling’s idea on reputational concerns, as it will provide more insights into the institutional dynamics that play a role in corporate strategy formulation.

The concept of corporate power preservation has several indicators to be adequately measured. First there is the non-compliance with non-private NGOs and initiatives. TNCs try to evade stringent regulations and costs and therefore only engage in private engagements with CEO-led NGOs and initiatives. The second indicator is that a profitable business case is required before a strategy is undertaken. Obviously, profitability is an underlying factor in every ECSR campaign. With partial compliance, however, it is a central aspect of the environmental strategy. The third indicator is the creation of individual environmental targets. This means that a TNC does support the greater environmental cause, but on its own terms, thereby protecting profit margins. Moreover, setting individual targets does imply voluntary commitment, which allows the TNC to avoid compulsory targets and regulations. The fourth and last indicator is the use of a materiality assessment. This means that TNCs first carry out a thorough cost-benefit analysis before addressing an environmental issue. This is closely related to the setting of individual targets, because conducting a cost-benefit analysis secures profits and influence. Corporate power preservation comes with the strategy of partial compliance, as the empirical analysis in chapter 6 will show. This means that to a certain extent the TNCs do comply, but still try to stay away from regulatory pressure and high costs. This is a more nuanced approach to Meckling’s four strategies, as partial compliance finds itself between the hedging and supporting strategy. The automotive TNCs are not part of the policy process, which is a characteristic in hedging, but at the same time the public targets are not fully supported either.

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4. Methodology

This chapter will give an extensive description of the methods used to conduct this research. I will subsequently discuss the chosen research design and case selection, the data collection and measurement, the validity, reliability and replicability and lastly the limitations of this research. This will all add up to a clear and coherent and description of how this investigation was done.

4.1 Research design and case selection

The research design is a single case study, which focuses on one single case that is expected to provide an insight into a phenomenon occurring across a wider universe of cases (Gerring & Seawright, 2007: 86). Studying one single case makes it possible to examine the complexity of the situation, while at the same time being able to devote enough attention to related aspects of the case. The advantage over a multiple or comparative case study design is that the use of a single case study allows for more in-depth exploring of the issue as well as describing the causal mechanism at work in a general cross-case relationship. Moreover, multiple case studies imply less observation time for each case. In contrast, a single case study makes it possible to examine the complexity of a phenomenon and is therefore more likely to produce new or high-quality insight in the analysis of automotive corporate strategies in the GFEI.

In the GFEI case study, my unit of analysis are the four largest transnational automotive corporations. My universe of cases consists of all environmental private governance arrangement initiatives. The GFEI case will be used as a deviant case. As the literature review shows, engaging in environmental corporate social responsibility initiatives tend to be very beneficial for TNCs. Therefore, it seems rather odd that automotive corporations are not a part of the GFEI. Especially since this is such a large transnational environmental initiative, which seems to be very suitable for TNCs to participate in. Theory has shown that when regulatory pressure is high and there are high potential benefits and costs, transnational corporations tend to support or at least hedge environmental governance arrangements. The GFEI case and accompanying automotive strategies seem to be an empirical anomaly, as both are not cooperating and both unsuccessful at the development of their sustainable endeavours. Examining this case will therefore contribute to theory building by explaining why this case deviates from theoretical expectations (Levy 2008: 13).

This thesis uses an inductive qualitative approach to answer the core research question, using the integrated cases of the automotive manufacturers to shape theory and argument. The four automotive corporations examined are, in order of size, the Alliance 2022 (Nissan, Renault

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and Mitsubishi), Volkswagen Group, General Motors and Toyota. These TNCs are selected with the assumption that the higher the production figures of an automotive corporation are, the larger its environmental impact is. Selecting the four largest automotive corporations thus also reduces the arbitrariness of the sampling selection. Moreover, because there are two dimensions to this study, that is a public and private dimension, it is recommended to use four cases to understand the full complexity (Hancke 2009: 50-51). The strategies of the four firms will be analysed as ‘sub-cases’ integrated in the main GFEI case study. The inductive qualitative approach corresponds to the aim of the research to contribute to the understanding of the strategies automotive corporations employ in environmental private governance arrangements such as the GFEI. This approach provides a thorough data analysis, while simultaneously leaving room for alternative explanations and outcomes and the surrounding context through multiple empirical observations (Hancke, 2009: 110).

4.2 Data collection and measurement

The results presented here are based on primary and secondary data sources, all of which were collected by the author. There are three main sources of primary data used. First there are the reports published by the GFEI and its partners. These reports give great details on the goals and assumptions as well as on the progress made by the GFEI. Moreover, these reports reveal other environmental initiatives undertaken by the GFEI partners as well. The second main source of primary data consists of reports and records issued by the automotive corporations. These reports go into great detail on the sustainable activities and environmental strategies employed by these TNCs. Moreover, these reports often reveal many numerical data like investment and production figures. The reports from both the GFEI and the automotive TNCs proved to be very valuable, as these are high quality first hand accounts of the Global Fuel Economy Initiative and the strategies surrounding this.

The third primary data source comes from interviews with representatives from both the GFEI and its partners and the automotive corporations. The interview data was collected through an open, semi-structured interview. The list of questions was emailed to the interviewee on beforehand, to give them some time to think the question through. I gave the respondents the option to either respond back via email or conduct the interview via telephone. With semi-structured interviews the interviewee has the ability to answer the predefined questions in his or her own words and, is able raise other relevant issues or questions. Semi-structured interviewing methods allow for more flexibility to adjust the order in which the questions are asked as well as to ask additional related questions depending on how the interview proceeds

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(Hancke 2009: 103-104). For this thesis, four interviews were conducted. Two of these were conducted via email, and two were conducted by telephone. Unfortunately, none of the automotive corporations responded to my interview requests.

Besides the primary data I have also made use of secondary academic literature on the topic. This literature was mainly used to construct the analytical framework. This secondary literature is especially used to place the empirical findings from the primary data in a broader academic cadre. The measurement of the data developed in the analytical framework is twofold. On the one hand I will construct a systemic overview of corporate strategies that are identified in the academic literature. This will be used to analyse, and in a way ‘measure’ the activities of the automotive corporations according strategically guidelines. Additionally, I will also construct a framework to assess to what extent the strategies employed add to sustainability. This sustainability assessment framework will be constructed on the basis of relevant secondary literature as well, and will allow for a sound analysis of the automotive greening. It is important to examine this since the GFEI is in fact an environmental initiative and we assume automotive corporations are willing to contribute to developing a sustainable automotive sector.

4.3 Validity, reliability, replicability and limitations

Validity, reliability and replicability form three key challenges every research project faces. These three criteria are used to determine whether a research has been adequately and can hold a certain academic value. Validity, the first criterion of these three, refers to whether the concepts as you have defined them are correctly expressed in the measurements you use. In other words, do you measure what you want to measure? Some concepts are harder to measure than others. In this research, the validity is limited by use of largely qualitative data in the absence of a large quantitative data set. Validity therefore mostly relies on my own interpretive analysis of the data. A critical note that should not be overlooked here regarding the corporate reports, is to what extent the automotive corporations are willing to share the goals and strategies in their respective private environmental initiatives. In the end, they remain competitive actors despite being part of an environmental private governance arrangement.

The second criterion is reliability, which tests that statements about the world need to pass, deals with the issue of how stable your measurement is. This means that if you apply the same procedure for measuring something, you will end up with the same result if nothing else has changed that could influence that (Hancke 2009: 90-91). In this research examining multiple data sources in the same way enhances the reliability. The sustainability reports are all examined according to the same analytical framework and all interviewees received more or

Environmental tire tracks : an analysis of automotive corporate strategies towards the Global Fuel Economy Initiative