Does the market of origin of a MNE have an impact on environmental human rights violations?

(1)

Does the market of origin of a MNE have an impact on

Environmental Human Rights Violations?

Master Thesis International Management

Author: Esin Gunes

Date: 22 March (Final Version) Student Number: 10660054

First Supervisor: Michelle Westermann-Behaylo Second Supervisor: Lori DiVito

(2)

Statement of originality

This document is written by Student Esin Gunes who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

(3)

Abstract

Perspectives on human rights have increasingly changed since the emergence of big multinational corporations. Now, the protection of human rights is viewed as the responsibility of both states and companies. The violations of corporate human rights have increasingly gained increasing attention in the media, from human rights activists and non-governmental organizations as well (NGOs). Companies that operate in the oil, gas and mining industries in emerging markets have especially faced criticism for their operations. In order to prevent companies from violating human rights, companies increasingly use various tools and theories such as voluntary codes, corporate social responsibility (CSR) models, and finally, measuring and reporting mechanisms. It is important to understand the factors that have an impact on human rights violations. This study examines the impact that the market of origin of a multinational enterprise (MNE) has on human rights violations. This relationship can be used to explain the behavior of MNEs. An MNE’s firm size is used to moderate this relationship. This study focuses on human rights violations related to the environment. The data on environmental human rights violations are retrieved from the corporations and human rights database (CHRD) and the data of the MNEs from different markets is retrieved from the Orbis database. This study utilizes a logistical regression analysis to its hypothesis. The analysis’s results demonstrate support for the hypothesis, which indicates that MNEs from emerging markets are more likely to have human rights violations. This study contributes to both MNE and corporate human rights literature, as it is the first study in which the relation between these two fields of literature are examined.

(5)

1. Introduction

“Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, color, sex, language, religion, political or other opinion, national or social origin,

property, birth or other status.” (UDHR, 1948)

This is an article from the Universal Declaration of Human Rights (UDHR). The UDHR is a milestone document in which a common set of standard were created to protect human rights for all people and all nations (The United Nations, 2015). Originally, these human rights standards were created to limit state actions towards civilians, after the events of World War II (Morsink, 1999). These common set of standards are meant for all actors of society, including corporations. Businesses, however, for a long time have argued that their only responsibility is to make profit for their shareholders (Muchlinski, 2001). From their perspective, the protection of human rights was seen as the responsibility of governments.

Recent developments have resulted in an increase of the importance of human rights in corporations. Firstly, the rapid growth of international businesses led to an increasing number of multinational enterprises (MNEs) around the world. A number of significant cases have documented the apparent collusion between MNEs and host governments in major violations of human rights (Muchlinski, 2001). These violations in host countries, subsequently, gained the attention of international media. Besides their financial impact on the host country, companies also needed to regard their social responsibility with respect to the host country (Chandler & Werther, 2013).

Comparable to the emergence of the importance of human rights, environmental issues have also entered the corporate agenda. In conjunction with corporations’ responsibility to society, theorists began to research environmental human rights (Banerjee, 2011). The oil crisis of the 1970s, the mounting evidence of the environmental and health dangers caused by pollution, the indiscriminate use of pesticides, and the dumping of toxic waste all led to a rise public environmental concern, which was accompanied by new environmental legislation (Banerjee, 2011). Academics began to research energy conservation, ecological responsibility, and corporate

(6)

social responsibility (CSR). As human rights is such a broad topic, this study focuses on environmental human rights in particular.

Wolfgang Sachs (2004) analyzed the challenges of companies in emerging markets with respect to environmental human rights. For the most part, the challenges occur through the extraction of raw material. Sachs argues that the opening of borders for foreign companies has intensified the exploitation of host countries. According to him, oil and mineral extraction damages plant and animal biotopes as well as human communities, especially those of indigenous people (Sachs, 2004). The other major consequences of violations in this sector include: “displacement from living space, loss of livelihood, pollution of living space” (Sachs, 2004). Lindsay et al. (2013) argues similarly to Sachs, and state that the oil and gas industry are an important industry to exmaine when investigating human rights abuses, “particularly in respect of their operations in conflict-affected areas”. This study therefore investigates companies in the oil, gas and mining industry that operate in emerging markets.

The Business and Human Rights Resource Centre (BHRRC) has documented environmental human rights violations for many years. According to the BHRRC, allegations of human rights violations with direct or indirect participation of corporations range from human trafficking, discrimination, the denial of labor rights, oil pollution and toxic waste dumping to unlawful killings (Business and Human rights research center, 2014). This research utilizes the BHRRC database to collect data on corporate environmental human rights.

Environmental responsibility has previously been a topic in different theories within business studies. Corporate social responsibility (CSR) is a well known theory that stretches the importance of the environment. CSR seeks to identify a company’s social, environmental and economic responsibilities (Wood, 2012). It provides tool for companies so that they may gain a competitive advantage, for example, through an improvement to their reputations. It is difficult, however, to assess a company’s greening initiatives (Forbes & Jermier, 2011) because these

(7)

voluntary actions differ for every company, and because they are not legally binding. Conversely, there are internal guidelines that contribute to a company’s CSR strategy.

The United Nations (UN) initiated a global set of standards that elaborated upon the importance of companies’ responsibility to actively prevent and address human rights violations. These standards were published in the ‘Protect, Respect and Remedy’ framework. This framework argues that it is a state’s duty to protect its citizens from non-state actors, including companies, and that it is a company’s responsibility to respect the law, and finally, companies and states need to provide access to remedies to victims of human rights violations (Ruggie, 2011). This framework facilitates companies’ engagement in voluntary human rights policies and codes of conduct (Ruggie, 2011). It leads companies to be accountable for their impacts on human rights.

Although there is much known about environmentally friendly corporate strategies and their implementations, there is little research with respect to the causes of human rights violations. This research will focus on these causes to try to understand, explain and prevent human rights violations from happening. A factor that is argued impact firms’ environmental policies is the market of origin of a subsidiary (Christmann & Taylor, 2011; Shaomin Li , Ajai Gaur , 2014; Visser, 2008). The market of origin can divided into two categories: either a developed market or an emerging market. These researchers argue that due to the difference in the nature of the two markets, MNEs react differently towards environmental issues. Some researchers state that developed market MNEs (DMNEs) have advantages over their emerging market competitors and that they are less likely to commit environmental violations. One explanation of this difference is the high environmental standards in developed markets, the improved technologies that prevent violations, and the lower tolerance of risk (Christmann& Taylor, 2011; Joseph, 1999; Li & Gaur, 2014; Meyer, 1996; Mookerjee and Orlandi, 2004).

Firm size constitutes a factor that might moderate the relationship between the market of origin and human rights violations. Researchers have found that there is concave relationship between firm size and a firm’s corporate responsibility performance (Johnson & Greening, 1999;

(8)

Muller & Kolk, 2010; Stanwick & Stanwick, 1998). Larger firms may have more resources to devote to social programs as well as a larger asset base from which they can spread the costs of social responsibility (Lerner, 1991). The largest firms, however, can easily resist external pressure because they are more powerful and may be less socially responsive (Schreck& Raithel, 2015). As already understood, a firm’s size can have an impact on the correlation between MNEs from different markets and human rights violations. This thesis investigates the effect of firm size.

This research attempts to gain insight into the relation between the origin of the multinational (emerging market or developed market), the firms size and the human rights violations, in order to understand and prevent human rights violations from happening in the future. The research questions is as follows: Is there a difference between EMNE’s and DMNES in terms of environmental violations? Does firm size have an impact on the number of human rights violations that firms commit?

This thesis contributes to existing literature and practice in various ways. Firstly, the results of this thesis expand the limited literature regarding corporate human rights and EMNEs. It can contribute to a scientific body of knowledge and can provide new conceptual insights into this field of research. This study can also explain why some firms have environmental human rights violations and others do not. This data can help the management of large multinationals that operate in emerging countries, so that they may better understand the factors that cause human rights abuses. All actors of society can therefore use this research’s outcome, such as companies and governments, in order to prevent the violation of environmental human rights.

The structure of this thesis is as follows. The first chapter provides an overview of the current state of research with respect to the topics environmental human rights, DMNE and EMNE (Ch. 1). This chapter also highlights the most important contributors of these two topics. The second chapter (Ch. 2) briefly presents the methodology used to investigate this phenomena. Then, (Ch. 3) explains the results of this study, which is then followed by a discussion (Ch. 4). The fifth chapter

(9)

elaborates upon the limitations and recommendations for future research (Ch. 5) and the last chapter presents the conclusion (Ch. 6).

(10)

2. Literature Review

The literature review contains multiple parts. The first section (2.1) introduces the change of the world’s perspective on environmental issues. Afterwards, the second section (2.2) explains firms’ self-driven voluntary initiatives, such as CSR practices. Then, the third section (2.3) details the industry in which the environmental human rights violations are most often committed. Next, the fourth section (2.4) explains the contemporary situation of companies’ environmental responsibility in emerging markets. Lastly, the final section (2.5) reviews the literature on market of origin and then reviews firm size (2.6).

2.1 Introduction to Environmental Movements

“The business of business is business, not sustainability.”

This quote is a typical response one has heard from business executives for many years (Blackburn, 2007). For a long time, corporations argued that their only responsibility was to make profits for shareholders, and furthermore, that they did not have any duty to observe human rights (Muchlinski, 2001). For sustainability advocates, this response was not especially encouraging. The concept of sustainability first emerged during the U.N. Conference on Human Environment in 1972. Since then, attention to this concept has grown increasingly among leading businesses, academic institutions and other sectors (Blackburn, 2007). Many Green NGOs started to direct their attention to the environmental impacts of “big business” (Banerjee, 2011), and thus, an early environmental movement began. This movement was primarily a cultural movement with limited mass mobilization and capacity to disrupt authority or to stop the course of industrialization (Weber and Soderstrom, 2011). The oil crisis of the 1970s, the mounting evidence of the environmental and health dangers caused by pollution, the indiscriminate use of pesticides, and the dumping of toxic waste, all led to a rise in the public’s concern for the environment, which was accompanied by the introduction of environmental legislation (Banerjee, 2011).

Environmental issues, however, were not the only concern (Blackburn, 2007). Human rights also gained considerable attention, especially during the Apartheid’s racial segregation policies in

(11)

South Africa. A burgeoning number of universities began to divest from companies that refused to recognize human rights and equal opportunity in South African operations (Blackburn, 2007).

Environmental human rights advocates raised their voices towards companies to act responsibly. The opposition, however, argued that the protection of human rights was considered an issue that involved state action, not the private sector (OHCHR, 2000). The regulations on corporate human rights originated decades ago, when the United Nations Higher Commission of Human Rights published the Universal Declaration of Human Rights. This declaration was the first attempt in history to set common standards to protect the fundamental rights and freedoms for all aspects of society. People from all nations are entitled to these basic rights and freedoms regardless of nationality, sex, national or ethnic origin, race, religion, language, or other status (Amnesty International, N.A). Although the principles of the Universal Declaration of Human Rights count for all organs of society, companies did not feel responsible to protect human rights.

A decade after the U.N. Conference on Human Environment in the 1980s, the discussion on business, human rights and the environment in international institutions was amplified through the draft of the UN Code of Conduct on Transnational Corporations (Cragg, 2012; Arnold, 2010). As a result of this UN Code of Conduct, companies were made liable for human rights duties, in the same way that states themselves had accepted: ”to promote, secure the fulfillment of, respect, ensure respect of and protect human rights” (Ruggie, 2011). Translational companies were obliged to take economic, developmental and socio-cultural objectives and values of the host country into account. After the UN Code of Conduct was publicized, a deeply diversified debate began about the responsibilities of the public and the private sector. This debate was an early sign that significant changes were forthcoming with respect to companies’ responsibilities.

In 1998, the United Nations Sub-Commission for the Promotion and Protection of Human Rights established a sessional working group to study and report on human rights and business (Cragg 2012; Arnold, 2010; Muchlinski, 2012). This working group published a report: "Norms on the Responsibilities of Transnational and Other Business Enterprises with Regard to Human

(12)

Rights". This report’s core was the proposal that transnational corporations and other business entities should be brought directly under the ambit of international human rights law, humanitarian law, international labor law, environmental law, anti-corruption law and consumer protection law (Hillmans 2003: 1070). The responsibility to protect and promote human rights should lay within the private sector, rather than only in the public spheres.

This report, however, failed to be adopted due to major disagreements within the business community. This debate led to the ultimate conclusion that large transnational corporations had the power to infringe human rights and that they were furthermore guilty of significant human rights abuses (Clapham 2006). Nevertheless, there was still a way to reach an agreement about the allocation of responsibilities. Two major factors impacted the shift in mindset. First, the UN secretary mandated Professor John Ruggie, who together with the UN Sub Commission took responsibility for the issue of human rights and businesses. Secondly, a growing consensus followed from the development of legal scholarship on the responsibility of companies and the protection of human rights.

In 2008, three years after Professor John Ruggie was mandated by the UN Commission to ‘identify and clarify’ existing standards, he and his team issued Protect, Respect and Remedy: A Framework for Business and Human Rights. This framework set a common baseline for both states’ duties and corporate responsibility. The United Nations Human Rights Council endorsed this framework. Beyond the Human Rights Council, individual Governments, business enterprises and associations, civil society and workers’ organizations, national human rights institutions, and investors also endorsed this framework (Ruggie, 2011). This study views this framework as a guideline to investigate human rights issues.

The UN ‘Protect, Respect and Remedy’ framework was developed to provide a common basis to address the issue of business and human rights. The framework rests on the following three pillars: (a) the state duty to protect, (b) the corporate responsibility to respect, and (c) access to remedies. The first pillar, ‘the state duty to protect’, indicates that states have a duty to protect

(13)

against human rights abuses by non-state actors, including businesses that persons within their territory or jurisdiction. The second pillar, ‘the corporate responsibility to respect’, states that companies are expected to obey the law, even if it is not enforced, and to respect the principles relevant to international instruments, in cases where national law is absent (Ruggie, 2008). Companies can pursue this responsibility through their degree of due diligence, which is ‘a process whereby companies not only ensure compliance with national laws but also manage the risk of human rights harm with a view to avoiding it’ (Ruggie, 2008). This statement reflect the basic expectation that society has towards business (OHCHR, 2008). The last pillar, ‘access to remedies’, incorporates the need for corporations as well as states to provide access to effective remedies when rights are violated (Aarenson and Higham, 2013). It is an expectation geared toward victims to ensure some form of redress (OHCHR, 2008).

The UN Global Compact is another framework of the United Nations that functions as a guideline for companies. This Global Compact encourages companies to adopt sustainable and socially responsible policies. The Global Compact publishes ten general principles in their business activities, including principles on environmental responsibility. These general principles of the environment are: “Businesses should support a precautionary approach to environmental challenges; undertake initiatives to promote greater environmental responsibility; and encourage the development and diffusion of environmentally friendly technologies.” Companies set the stage for long-term success when they incorporate these Global Compact principles into their strategies, policies and procedures to establish a culture of integrity (UN Global Compact, 2000).

The United Nations’ focus on human rights and the environment has led to a more rational and strategic approach to address the environment. The environmentalism that had emerged, imported frames, networks, and protest repertoires from the civil rights and peace movements, which gave rise to ideas of environmental justice, consumer rights, and sustainability (Weber and Soderstrom, 2011). Companies voluntarily adapted their strategies, because environmentalism had the potential to impact the financial performance of firms. It could lead to escalating costs of

(14)

pollution control, environmental liability for damage caused by a firm's products and processes, stricter environmental legislation, and increased consumer awareness of environmental issues (Banerjee et al. 2003).

Nowadays companies’ strategies contain voluntary, self-regulatory approaches to environmental protection that go beyond compliance with legal requirements (Jermier et al. 2006; see also Carraro & Leveque 1999; Morelli 1999; Reinhardt 2000; Gunningham, Kagan, & Thornton 2003; Lyon & Maxwell 2004). The national environment has become more and more important for businesses and their strategies. The natural environment intrudes upon business strategy, organizational design and business models, finance and accounting, product development, production, logistics, marketing and sales, as well as the company's relationships with other economic, social, and political actors (Bansal & Hoffman, 2011). This development can be viewed through elements such as the gains in eco-efficiency gains through technological innovation, waste reduction and cleaner production systems, the elaboration of eco-sensitive mission statements and codes of conduct, eco-inspired stories and rituals, and other cultural elements (Jermier, 2011).

2.1.2 Environmental sustainability strategies in companies

Companies’ voluntary, self regulatory strategies that include environmental responsibility are considered corporate social responsibility (CSR). This theory is of growing popularity, especially in Europe (Blackburn, 2007). There are multiple terms that are sometimes used to refer to the same idea, such as corporate social responsibility (CSR), organizational social responsibility, social responsibility, corporate responsibility, corporate social investment, corporate citizenship, global corporate citizenship and sustainable growth.

Corporate social responsibility (CSR) is a sub-discipline of management that has gained prominence within academic debate and business practice over the last two decades (Bondy & Matten, 2011). It is a topic that covers a wide range of issues and themes. The World Business Council for Sustainable Development defines CSR as: “Corporate social responsibility is the continuing commitment by business to contribute to economic development while improving the

(15)

quality of life of the workforce and their families as well as of the community and society at large” (WBCSD, 2000). The definition of the European Commission specifically includes environmental concerns: “CSR is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment” (2001) and and as “a concept whereby companies integrate social and environmental concerns into their business operations and in their interaction with their stakeholders on a voluntary basis” (2006).

As evident in the definitions from the European Commission and the World Business Council for Sustainable Development, the idea of CSR is that companies have a duty towards their wider community. The word ‘social’ in CSR therefore includes environmental and also ethical, economic, and political aspects of the business relationship with society (Bansal & Hoffman, 2011). Bondy and Matten (2011) also mention that CSR and the environment are interrelated in their statement, “addressing social responsibilities does inevitably include the relevance of environmental concerns for society and—vice versa—the big environmental challenges for business cannot be discussed without considering their implications for wider society.”

The implementation of CSR in a companies strategy and managerial practices can benefit companies in multiple ways. Companies with a CSR strategy operate with a perspective that is broader and lasts longer than their own immediate, short-term profits (Lambooij, 2010). It can improve a firms’ competitive advantage, by improving the company’s reputation, by reducing risks of litigation and social pressure (e.g. Zadek 2004) or by creating niche market opportunities such as ‘ethical’ or ‘green’ products (e.g. Shaw & Clarke 1999, in Bansal& Hofman 2011). In this perspective, CSR is a tool used to maximize business profits rather than avoiding the costs it can help to generate new revenue.

CSR, however, is often only used as a tool to improve the reputation of the company, rather than to effectively add value to its environment. Critiques argue that this tool does not add value to the environment if it is not incorporated in a company’s strategy. For example, Porter and Kramer argue: “prevailing approaches to CSR are so fragmented and so disconnected from business and

(16)

strategy as to obscure many of the greatest opportunities for companies to benefit society”. The use of CSR to improve a company’s reputation is often considered ‘greenwashing’.

Greenwashing is defined as the “superficial corporate environmentalism that is all style and no substance, basically giving lip service to some or all ‘greened’ cultural elements” (Greer & Bruno 1996; Tokar 1997; Beder 2002; Bruno & Karliner 2002; Ramus & Monteil 2006, in Forbes& Jermier, 2011). Therefore, in order to avoid greenwashing, it is necessary to “take a comprehensive approach to assessing organizations and their greening efforts in order to separate genuine improvements from mere claims about progress” (Bondy & Matten, 2011). The assessment of organizations and their greening efforts can be done through various instruments and environmental policies.

2.1.2 Environmental sustainability strategies in companies

Companies’ voluntary, self regulatory strategies that include environmental responsibility are considered corporate social responsibility (CSR). This theory is of growing popularity, especially in Europe (Blackburn, 2007). There are multiple terms that are sometimes used to refer to the same idea, such as corporate social responsibility (CSR), organizational social responsibility, social responsibility, corporate responsibility, corporate social investment, corporate citizenship, global corporate citizenship and sustainable growth.

Corporate social responsibility (CSR) is a sub-discipline of management that has gained prominence within academic debate and business practice over the last two decades (Bondy & Matten, 2011). It is a topic that covers a wide range of issues and themes. The World Business Council for Sustainable Development defines CSR as: “Corporate social responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large” (WBCSD, 2000). The definition of the European Commission specifically includes environmental concerns: “CSR is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment” (2001) and and as “a concept whereby companies

(17)

integrate social and environmental concerns into their business operations and in their interaction with their stakeholders on a voluntary basis” (2006).

As evident in the definitions from the European Commission and the World Business Council for Sustainable Development, the idea of CSR is that companies have a duty towards their wider community. The word ‘social’ in CSR therefore includes environmental and also ethical, economic, and political aspects of the business relationship with society (Bansal & Hoffman, 2011). Bondy and Matten (2011) also mention that CSR and the environment are interrelated in their statement, “addressing social responsibilities does inevitably include the relevance of environmental concerns for society and—vice versa—the big environmental challenges for business cannot be discussed without considering their implications for wider society.”

The implementation of CSR in a companies strategy and managerial practices can benefit companies in multiple ways. Companies with a CSR strategy operate with a perspective that is broader and lasts longer than their own immediate, short-term profits (Lambooij, 2010). It can improve a firms’ competitive advantage, by improving the company’s reputation, by reducing risks of litigation and social pressure (e.g. Zadek 2004) or by creating niche market opportunities such as ‘ethical’ or ‘green’ products (e.g. Shaw & Clarke 1999, in Bansal& Hofman 2011). In this perspective, CSR is a tool used to maximize business profits rather than avoiding the costs it can help to generate new revenue.

CSR, however, is often only used as a tool to improve the reputation of the company, rather than to effectively add value to its environment. Critiques argue that this tool does not add value to the environment if it is not incorporated in a company’s strategy. For example, Porter and Kramer argue: “prevailing approaches to CSR are so fragmented and so disconnected from business and strategy as to obscure many of the greatest opportunities for companies to benefit society”. The use of CSR to improve a company’s reputation is often considered ‘greenwashing’.

Greenwashing is defined as the “superficial corporate environmentalism that is all style and no substance, basically giving lip service to some or all ‘greened’ cultural elements” (Greer &

(18)

Bruno 1996; Tokar 1997; Beder 2002; Bruno & Karliner 2002; Ramus & Monteil 2006, in Forbes& Jermier, 2011). Therefore, in order to avoid greenwashing, it is necessary to “take a comprehensive approach to assessing organizations and their greening efforts in order to separate genuine improvements from mere claims about progress” (Bondy & Matten, 2011). The assessment of organizations and their greening efforts can be done through various instruments and environmental policies.

2.3 Oil, Gas and Mining Industries

Sectors in which many environmental human rights violations are encountered include the oil, gas and mining industries. Many researchers have argued the impact of the oil and gas industry on human rights (Sachs, 2004; Banerjee, 2011; Lindsay et al., 2013; Gaur, 2014; Aharoni, 2011; Lambooij, 2010). The extraction of raw material is considered an important environmental challenge (Sachs, 2004). The companies that operate in this sector cause environmental danger through pollution, the indiscriminate use of pesticides, thedumping of toxic waste (Banerjee, 2011) and the displacement of living space (Sachs, 2004). These threats resulted, for example, in death rivers, road-scarred forests and polluted air, which all affect the lives of the people, plants and animals in the area.

The environment of the people who live around the Niger is an example of environmental dangers caused by a MNE is Delta. For hundreds of years, the rural community of fishermen and subsistence farmers lived in the Niger Delta with a harmonious relationship with their environment. For the local community, “The land was considered sacred, and to commit acts that polluted or desecrated, it was viewed as an abomination and promptly visited with appropriate sanctions.” (Lambooij, 2010). The community reports the change of the situation as:

“Thirty-five years of reckless oil exploration by multinational oil companies has left the Ogoni environment completely devastated. Four gas flares burning for twenty-four hours a day over thirty-five years in very close proximity to human habitation; over one hundred oil wells in villages backyards; and a petrochemical complex, two oil refineries, a fertiliser

(19)

plan, and oil pipelines crisscrossing the landscape aboveground have spelled death for human beings, flora, and fauna. It is unacceptable.” (Lambooij, 2010).

The preceding case illustrates that human rights violations are carried out by many firms in an industry. A collective effort from all firms is required in order to improve human rights standards (Gaur, 2014). This research investigates the oil, gas and mining industries. Lindsay et al. (2013) argue that firms in the oil and gas industry that operate in conflict areas must especially be investigated (Lindsay et al. 2013). In the next section, I therefore focus on firms that operate in emerging markets.

2.4 Emerging Markets

There has been a dramatic change in the world economy over the last decades . For many decades, the world had been dominated by the triad economies (USA, Europe and Japan). The new economic order, however can be characterized by its multiple centers of economic power and activity (Accenture, 2007). The rapidly developing economies of other parts of the world have challenged western dominance. There has been a strong shift in the dynamism of global trade and economic activity towards Asia and other emerging markets (Nair & Demirbag, 2015). It is estimated that by 2035 the gross domestic product of emerging markets will permanently surpass that of all advanced markets (Ghauri, Hadjikhani & Elg, 2015).

This scenario is similar within the academic realm, in which there is an increasing focus to provide explanations for this shift, its effects and its implications in terms of what the future holds for the rest of the world (Nair & Demirbag, 2015). The emerging market theory is a relative new area of study in international business literature. In 1981, economist at international finance corporations (IFC) first coined the term emerging market (Khanna& Palepu, 2013). Since then, references to emerging markets have become ubiquitous in the media, foreign policy and trade debates, investment fund prospectuses, and multinationals’ annual reports, although definitions of the term vary widely (Khanna& Palepu, 2013).

(20)

An emerging market can be defined as “a country that has undertaken transition in its

political or economic systems and experienced rapid economic development” (Fan, 2008). The Emerging Economy Report of the Center for Knowledge Societies defines emerging economies as those "regions of the world that are experiencing rapid informationalization under conditions of limited or partial industrialization." For the vast majority, definitions overlap in the sense that they see EM as nations with social or business activity that are in the process of rapid growth and industrialization.

Various criteria are used to cluster emerging markets. Poverty, capital markets or growth potential constitute some of the criteria used to cluster the world markets . It is difficult to make an exact list of emerging or developed markets, since countries can develop rapidly and can pass the emerging market phase within decades. There exist indexes to establish these standards, such as the MCSI index, FTSE Index and the S&P Index. This research utilizes the MCSI index, which uses the capital market criteria as a way to divide the world into clusters. This index is a reference that

MSCI ACWI & Frontier Markets Index

MSCI World Index MSCI Emerging Markets Index MSCI Frontier Markets Developed Markets Emerging Markets Frontier Markets Ameri

cas Middle EastEurope & Pacific Americas Europe & Middle East & Africa

Pacific America

s Europe Africa Middle East Asia

Canad a Unite d States Austria Belgiu m Denma rk Finlan d France Germa ny Ireland Israel Italy Nether lands Norwa y Portug al Spain Swede n Switze rland United Kingd om Australia Hong Kong Japan New Zeeland Singapor e Brazil Chile Colomb ia Mexico Peru Czech Republi c Greece Hungary Poland Qatar Russia South Africa Turkey United Arab Emirate s China India Indonesi a Kenya Malaysi a Philippi nes Taiwan Thailan d Argentin a Jamaica Trinidad & Tabago Bosnia Herzeg ovina Bulgari a Croatia Estonia Lithuan ia Kazakh istan Romeni a Serbia Sloveni a Ukrain e Bots wana Ghan a Keny a Maur itius Moro cco Niger ia Tune sia Zimb abwe Bahrai n Jordan Kuwai t Leban on Oman Palesti ne Saudi Arabia Bangl adesh Pakist an Sri Lanka Vietna m

(21)

clusters the headquarter locations into markets. Frontier and emerging markets form one group and the developed markets form another.

(22)

One of the most important factors of the rise of these economies are the increase of emerging market multinationals (EMNEs). Attention to these EMNEs as a result of the growing internationalization of firms from developing countries (Luo & Thung, 2007). In researching concerning multinational enterprises (MNE) in emerging markets, however, most literature is written from a developed market MNE (DMNE) perspective. This research analyzes MNEs that operate in emerging markets from both the perspectives of developed and emerging markets. Firstly, this study defines the emerging market multinational. Secondly, it explains the differences between EMNEs and DMNEs as well as their CSR practices.

2.5 Market of Origin

An EMNE is defined as “international companies that originated from emerging markets and are engaged in outward FDI, where they exercise effective control and undertake value-adding activities in one or more foreign countries.” (Luo and Tung, 2007) or “a company based in an emerging market country that has engaged in business operations in international markets” (Fan, 2008).

An understanding of the different characteristics of EMNEs and DMNEs helps to identify opportunities and limitations that these MNEs face in an emerging market. Sethi & Elango (1999) argue that the country characteristics of a MNE influence its behavior. They argue that nations engender competitive advantages through a combination of factor endowments, unique cultural traits, and deliberate policy options (Sethi & Elango, 1999). Combinations of these country characteristics can have an impact on how the MNEs operate in a market.

Some researchers argue that a firm’s market of origin has an affect on its CSR strategy and its environmental policies (Christmann & Taylor, 2011; Shaomin Li , Ajai Gaur , 2014; Visser, 2008). However, there is still ambiguity as to whether developed market or an emerging market MNE better protects its environment. This ambiguity is a result of the fact that both MNEs from

(23)

developed and developing countries have ownership advantages from firm-specific resources that help them to internationalize (Dunning, 1977; Dunning, Van Hoesel, & Narula, 1998; Hymer, 1976; Rugman & Verbeke, 1992; Tallman, 1992; Cuervo-Cazurra & Genc, 2008). It is accepted, however, that EMNE’s tend to be less competitive than their counterparts from developed countries. MNEs from developed countries tend to have stronger advantages than DMNEs with regards to their CSR and environmental policies.

Some researchers argue that DMNEs commit fewer human rights violations as they are better suited to prevent them. Joseph (1999) states that firms with developed home states are more likely to possess the requisite technical expertise to impose adequate safety standards as well as to have a legal system that is able to cope with the proper attribution of responsibility within complex corporate arrangements. Eaton (1995) supports this argument in his statement that companies from wealthy countries, such as the US, are typically in a better position to regulate parent corporations and to impose liability through their court systems. According to laws in the UK and US, the courts can also sue foreign firms, including subsidiaries of companies, which leads to fewer human rights violations from DMNEs.

In Baskin’s study (2006), he examined the area of reported CSR performances. His results demonstrate that firms from emerging markets lag behind their counterparts from developed countries with respect to reporting business ethics and equal opportunities. He also found that CSR reporting from EMNEs are less formalized or institutionalized in terms of the CSR benchmarks that are commonly used in developed countries (i.e. voluntary regulations such as: CSR codes, standards, management systems and reports (Visser, 2008). In turn, firms from developed countries tend to perform better than emerging market firms with respect to reporting their CSR strategy. Firms from emerging markets do somewhat report on CSR, although according to Visser (2008)m these CSR codes and standards “tend to be issue specific (e.g. fair trade, supply chain, HIV/AIDS) or sector‐led (e.g. agriculture, textiles, mining)”. Thus, developed market firms have more voluntary regulations.

(24)

Baskin’s study (2006) also provides insight into the extent of CSR activity of EMNEs. He believes that CSR is less embedded in corporate strategies, less pervasive and less politically rooted than in most high‐income OECD countries’ (Visser, 2008). “CSR is most commonly associated with philanthropy or charity, i.e. through corporate social investment in education, health, sports development, the environment, and other community services.” (Visser, 2008). The various perspectives on CSR and the values on environmental human rights of emerging market firms lead to different business strategies and operations.

According to Shaomin Li & Ajai Gaur (2014), a MNE faces pressures from their home country and other stakeholders to uphold a higher standard of human rights. They say that “MNCs' overseas operations are often highly visible targets subject to criticism by the home government, the media, and consumers” (Shaomin Li & Ajai Gaur, 2014). Furthermore, due to the different views of developed countries on CSR, the firms from developed markets might hold higher human rights standards and CSR policies in their home country, “which will also put pressure on the human rights practices of their foreign subsidiaries” (Shaomin Li & Ajai Gaur, 2014). These higher standards of the home country forms a force that restrains the MNC from violating human rights in the host country (Shaomin Li & Ajai Gaur, 2014).

Another difference between DMNEs and EMNEs are their risk perceptions, according to a reseach of the OECD Global Forum on International Investment. They argue that the risk perceptions of EMNEs are different than the developed country counterparts, since they receive a higher level of political risk in the home country. This leads to a greater tolerance for risk (Sauvant, Maschek and McAllister, 2009). Also, the strategy for Corporate social responsibility (CSR), is seen as a risk factor for the EMNEs operating in developed markets. As George Kell and John Gerard Ruggie stated (1999, 15, in Sauvant, Maschek and McAllister, 2009), many developing countries have less stringent environmental standards than industrialized countries, and thus, EMNEs have

(25)

not embedded strict environmental standards in the business strategy of their parent firm. Therefore, there might be a higher level of tolerance for riskier operations.

Moreover, researchers argue that DMNEs contribute to a better protection of human rights in the emerging markets in which they operate (Meyer, 1996; Mookerjee and Orlandi, 2004, in Shaomin Li & Ajai Gaur, 2014). A study of child labor in 40 countries found that the presence of an MNC has a beneficial impact on child labor rates (Mookerjee and Orlandi, 2004). An explanation for this tendency is that economic prosperity and development promote socio-economic rights, such as the right to better working conditions, unemployment protection, and social security (Meyer, 1996; Pritchard, 1989). Meyer (1996) investigates the correspondence among an MNC presence, economic development, and human rights, and he finds there is a positive association between economic development and human rights, as well between the presence of an MNC and human rights (Shaomin Li & Ajai Gaur, 2014). Besides the positive relation between MNEs and human rights, Christmann and Taylor (2011) found a positive relation between MNEs and the environmental quality of the emerging country. They argue that “MNEs from developed home states can contribute to improving environmental quality in emerging economy host nations by transferring advanced production technologies and environmental management practices to their subsidiaries in these countries” (Christmann& Taylor, 2011). Thus, MNEs from developed countries can improve the human rights conditions of the emerging market by transferring their knowledge, advanced production technologies and environmental management practices.

To conclude, with respect to the characteristics of markets of origins, DMNEs face more competitive advantages over EMNEs, which leads to the following hypothesis:

Hypothesis 1: Firms from developed markets operating in emerging markets are less likely to commit human rights violation.

This relationship is shown in the following model:

!25

Market of Origin (EMNE/DMNE)

Environmental Human Rights

(26)

2.6 Firm Size

Company size tends to have an effect on a firm’s corporate social responsibility. Previous research suggests that firm size can positively affect the corporate social performance of a firm (Johnson & Greening, 1999; Muller & Kolk, 2010; Stanwick & Stanwick, 1998). Larger companies are able to generate stronger competitive capability than their smaller rivals as a result of their superior access to resources, greater market power, and economies of scale and scope (Baum, 1996, in Meng-Ling Wu , 2006).

Various arguments can explain the positive relationship between firm size and CSP. One argument that partly explains this relationship is the fact that larger companies enjoy higher levels of resource availability (Brammer & Millington, 2006), and therefore, can more easily afford sustainability expenditures (Schreck& Raithel, 2015). Some researchers similarly argue that since large firms tend to have a stronger social impact as a result of their scale of activities, they are more likely to actively engage in socially responsible practices than small firms (Cowen, Ferreri, and Parker, 1987). In addition, larger firms tend to have a higher organizational visibility. Campbell (2007) argues that highly visible firms are more exposed to public scrutiny, due to the attention the firm receives from external stakeholders such as press, NGOs and social movement organizations. Schreck and Raithel (2015) therefore argue that visibility leads to a higher sensitivity to social and political stakeholders. Thus organizational visibility will encourage companies to engage voluntary in sustainability activities.

The relationship between firm size and CSP, however, is not always linearly founded. Schreck and Raithel (2015) argue that the largest firms feel less of a need to report on their CSP more extensively. They found that the positive relationship between firm size and CSP diminishes as firm size increases (Schreck& Raithel, 2015). Furthermore, research from Owen, Ferreri, and Parker (1987) and Graves and Waddock (1994) found that there is either a negative or no

(27)

relationship at all. This finding indicates that very large firms may have a greater diffusion of responsibility, which may translate into heightened concern for financial goals at the expense of social goals (Judge, 1994 in Meng-Ling Wu ).

Schreck and Raithel (2015) found the relationship between firm size and the reporting of sustainability to have a concave relationship. They support the positive relationship between firm size and CSP. However, they argue that this relationship does not count for the largest firms. This graph below illustrates this relationship:

Figure 1: Relationships between firm size/visibility and sustainability reporting, Source:

Schreck& Raithel (2015)

Schreck and Raithel (2015) explain this relationship through various arguments. First, very large companies are usually more powerful (Meznar & Nigh, 1995), can more easily resist external pressures, and are therefore less socially responsive (Brammer & Millington, 2006). Second, very large firms already have access to the resources they need (Udayasankar, 2008). The largest firms thus do not prioritize CSR since they already are powerful (Schreck& Raithel, 2015) and they have

(28)

a heightened concern for financial goals at the expense of social goals (Meng-Ling Wu, 2006). Based on this dynamic, we argue that firm size does moderate the relationship between MNEs and human rights violations. The following hypothesis reflects these arguments:

Hypothesis 2a: Firm size moderates the relationship between the various MNEs (EMNE/DMNE) and the human rights violations.

Hypothesis 2b: The largest MNEs are more likely to commit human rights violations.

The conceptual model for this research is presented as follows:

Environmental Human Rights Violations Market of Origin (EMNE/DMNE) Company Size H2 H1

(29)

3. Methodology

This chapter outlines the methodology of this study, explains the research methods and describes the data collection.

3.1 Choice of method

The research approach of this thesis can be described as hypothetical deductive. There are four steps to this method. Firstly, hypothesis are developed based on the literature in the literature review. Secondly, it formulates predictions from the hypothesis (Gripsrud et al, 2007). Thirdly, it derives an empirical analysis in order to test the hypothesis. Lastly, the outcome of the analysis demonstrates whether the hypothesis is confirmed or not (Gripsrud et al, 2007). This research utilizes a quantitative research method. As the term suggests, quantitative research is characterized by the collection and analysis of data in numeric form (Costello, 2012). This research method is suitable to understand whether EMNE have a relatively larger number of more human rights violations.

3.2 Regression analysis

This thesis uses the regression analysis as a statistical method for data analysis. A regression analysis evaluates the relationship between a given dependent variable and one or more independent variables (Pallant, 2013). This study performs a logistic regression analysis with one dependent variable and one independent variable. Additionally, the analysis uses firm size as a moderator variable to determine the correlation of the firm size and the relationship between the dependent and independent variable. This form of statistical method can therefore confirm or reject the hypothesis. Some pretests are necessary in order to ensure the validity and reliability of this analysis. The following chapter demonstrate the outcome of these tests.

(30)

3.3. Data Collection

3.3.1. Environmental Human Rights Violations

The data are collected from various databases. The data regarding the environmental human rights abuses are retrieved from the CHRD Database. This database is a joint project between Oxford University, the University of Denver and the University of Amsterdam. The cases from the database have been retrieved from the website of the Business & Human Rights Resource Centre (BHRRC). The BHRRC collects company abuse allegations (CAA) and also tracks the human rights policies of 6,000 companies. According to the BHRRC, the CAAs are defined as ‘an instance in which some group and/or individual accuses a company of a human rights abuse” (Olsen & Payne, 2013). These CAAs are systematically coded with an online coding tool called Qualtircs.

The CHRD database, however, is still under construction, as it has a total number of 715 CAAs committed by local and multinational companies based in Africa and Latin America. For this reason, this research has only focuses on CAAs committed by companies located on those two continents. This research furthermore only investigates multinational companies. In order to identify if the company is a multinational enterprise, an investigation is conducted with respect to the location of the headquarters, which shows whether the company is a national company or a subsidiary. Additionally, this research only examines MNEs from the oil gas and coal mining industries. This sector is selected because of the extensive coverage of the CHRD database of companies that operate in this industry. and this industry is of great importance for environmental human rights. After applying the filters described above, a total number of 29 companies with CAAs were retrieved. 11 of these companies originate from an emerging market and 18 from a developed market. Interestingly, of these 18 DMEs with CAAs, 50% of the companies have more than one violation, in comparison to the 18.2% of the EMNEs.

Besides the information on the companies with human rights violations, the total number of MNE’s that operate in Africa and South America is necessary, in order to test the hypotheses information. This information is retrieved through a database called ORBIS. This database is produced by Bureau van Dijk and is unique in its breadth of geographies and the extent of

(31)

companies that it covers (Erasmus University, 2015). It contains information of over 150 million companies worldwide (Bureau van Dijk, 2014). Of these 150, about 80 million companies originate from Europe, 40 million from the Americas and 27 million from Asia- Pacific (Bureau van Dijk, 2014). Furthermore, in this database, it is important to filter the companies that are multinational enterprises. This selection is made through the use of the following filter: “a company who has control and is owned by at least 50.01% by a Global Ultimate Owner (GUO) and their parent company should be a foreign company”. In this way, information about the location of the parent company is retrieved. A total number of 205 companies are used in this analysis. The information of the data of both databases are combined to produce one master list.

3.3.2. Emerging market vs. developed market

The information regarding the two categories EM and DM are identified using the MSCI ACWI & Frontier Markets Index. This index is among the most widely used benchmarks in the financial industry. Today, they offer more than 160,000 consistent and comparable indexes that are used by investors from around the world in order to develop and benchmark their global equity portfolios (MCSI, n/p). A cross-regional comparison of country, size, sector, industry is conducted for specific market segments. From the list of 205 companies derived from the Orbis database, their market of origin is investigated through the use of the MCSI Index.

3.4. Variables

3.4.1. Dependent Variable

The dependent variable in the regression analysis are the Environmental Human Right Violations. The hypothesis is tested through the use of a sample of MNEs that operate in countries in Latin America and Africa that are active in the oil, gas and coal industry. As mentioned, the countries selected for this sample are used because of the environmental human rights abuses identified in these countries. The list of countries in Africa and Latin America where the CAAs have been coded are as follows:

(32)

Out of the 310 violations in the oil, gas and coal industry, 123 cases contain an environmental human rights violation. Of these 123 cases, 85 environmental human rights violations belong to MNEs. These 85 violations belong to a total of 29 companies. This research is only concerned if the MNE committed an environmental human rights violation. The MNEs with an environmental human rights violation are coded as N=1, whereas the MNEs without violations are coded as N=0.

3.4.2. Independent Variable

The market of origin of the MNE is the likely variable that affects the dependent variables. In this research, the countries are clustered according to the market that the countries belong to, which are emerging markets or developed markets. The MNE that are based in a emerging market have been coded as N= 0, whereas the MNEs based on a DM are coded as N=1.

3.4.3. Moderator Variable

This research uses firm size as a control variable. Aguilera-Carauel et al. (2012) state that firm size is an important determinant of the environmental behavior of companies. The operating revenue in dollars is the indicator used for the firm size. This information is retrieved from the Orbis database, in which operating revenue is expressed in thousand US dollars. The missing values of the operating revenue in the Orbis database are found in the financial statements of companies. As this process has been a manual search, it could have contained some human error.

Table 2: Countries of coded CAAs

Latin America Africa

Argentina Bolivia Brazil Cameroon Colombia Ecuador Guatemala Honduras Madagascar Mexico Peru Angola Chad Congo (Democratic Republic) Gabon Ghana Namibia Nigeria South Africa Uganda

(33)

3.4.4 Control Variable

A country’s corruption level is used as a control variable that is maintained constant in the analysis. The data on the corruption level is retrieved from the corruption index of Transparency International. Transparency International develops and promotes practical tools that reduce the opportunities for corruption, and furthermore, enhance the ability of people and organizations to resist it (Transparency International, 2015). According to their website, they monitor public procurement processes, provide concrete guidance for companies to avoid extortion and curtailing bribery, and perform reliable diagnostics for measuring corruption, through the use of tools that individuals and institutions creative solutions to the most common challenges in countering corruption (Transparency International, 2015). Every country in this index has a score from 0 to 100, with a low number indicating more corruption. The rates of the countries in this thesis vary from 34 (Argentina) to 86 (Norway).

3.5. Pre-tests and missing data

Before the execution of the regression analysis, some important assumptions are tested in order to ensure the final regression models are not flawed. These assumptions assess the sample size, inspect the correlation among predictor’s variables through the multicollinearity, and finally, test the outliers that might influence the results of a logistic regression (Pallant, 2013).

3.6. Procedure

The list of companies with and without CAAs are combined into one list. The market of origin, company size, the corruption index rate and the market of origin are added to this list. With this full list of 4 variables, an analysis is conducted through the use of the software SPSS. Firstly, a descriptive analysis is conducted, a logistic regression analysis is performed after, and finally, the hypothesis is tested.

(34)

4. Results

In this chapter the results of the quantitative data analysis are presented. As described in the previous chapter first the results of the pre-test will be shown (4.1). Then the descriptive statistics will be published (4.2) and afterwards the results of the logistical regression analysis will be stated (4.3).

4.1. Assumptions

Before being able to do a logistic regression analysis, it is important to check for the presence of linearity, multicollinearity and outliers. The first assumption to be tested is the linearity. Here is tested whether the independent variable is a predictor for the dependent variable. The Durbin- Watson test has been run with an outcome of the value 0.578. This value is below the 2.0, indicating that there are are other variables with an impact on the dependent variable. Adding different variables might be a solution to increase this value.

The next assumption is the multicollinearity, which examines the linearly related variables. This assumption has been checked with two values: the tolerance and the VIF values. The Tolerance and VIF values for the variables Company Size, Corruption and Market of Origin Tolerance are in sequence .992, .265 and .266 and 1.008, 3.769, 3.755. All values are within the required ranges above .2 for Tolerance and below 10 for VIF.

Then the correlation between the variables are tested. In the table below the results are shown for the Pearson Correlation Test.

Table 3: Correlation between four variables according to the Pearson Correlation Test

Measure 1 2 3 4

1. Violation —

2. Company Size .426 —

3. Corruption -.090 -.069 —

(35)

Concluded from this table can be that the correlation between Market of Origin and Corruption is a high correlation (.8 <|r| > .1) , with a value of r -.858. This indicates that both variables almost predict the same. The lower the corruption level (the more corrupt a country is), the higher the chance exist that company originates from an emerging market. The high level of correlation has led to remove the variable Corruption from the analysis.

Lastly, the assumption of outliers has been checked. An outlier is detected if the value of the Z - Score is higher than >3.29. The Z scores for all variables vary from -2,069 to 2,715, indicating that there are no outliers detected.

4.2. Descriptive Statistics Results

In this research, a total N =205 companies are investigated. Three variables are used to analyse these companies. Violations, which is an independent variable, recorded an N range between the values 0 and 16. The company with the most violations (16) is the company Royal Dutch Shell. The number of the companies without an environmental human rights violation is 173 with a total percentage of 84.4%. The number of companies with a violation is 32 representing 15.6% of the total number of companies. Of these companies with a violation, the distribution of number of violations is; 18 with only one violation and 14 with more than one.

The variable Market of Origin is divided into EMNEs with a number of 46 firms, which is 22.4% of the total. And DMNEs have a total number of 159, with a total of 77.6%. The companies in this sample have their origins in a total of 44 different countries. There are in total 17 home countries originating in emerging markets and 27 from developed markets. The countries with the most environmental human rights violations are Canada (44), United States (39), United Kingdom (26), Austria (18). In the emerging market are the top three countries with most violations: Bermuda Islands (6), Argentina (5) and Colombia (5).

The Company Size, which is a moderator variable, has a minimum value of operating revenue of 0 and a maximum value of 255.750 million USD. The means and standard deviations for all three variables can be found in the table below:

(36)

Table 4. Means and Standard Deviations

M SD

Market of Origin ,22 ,418

Company Size 8420168306 27933978464

Violations ,16 0,363836

Before a logistic regression analysis could be run, the variables Violation and Company Size have been centered (Variable - Mean) and an interaction term has been created (abuse*CCompanySize). This has been done to test the moderator effect of the Company Size.

4.2. Logistic Regression Analysis Results

A linear logistic regression analysis is used to assess the impact of a number of factors on the likelihood of MNEs to violate human rights. The model contained two independent variables; market of origin and company size. In this analysis the independent variable has a probability of a human rights violation by a MNE (1) or no human rights violation by a MNE (0).

The logistic regression gives an indication of the adequacy of the model. The Omnibus Test of Model Coefficients gives us an overall indication of how well the model performs (Pallant, 2013) If the results in the model are significant, it will mean that there is a good fit. The full model containing all the variables was statistically significant, X (3, N=205) = 35.400, P = 0.000. This indicates that the model was able to distinguish the variables in the model have an impact on environmental human rights violations. The Cox & Snell R Square and Nagelkerke R square values provide an indication of the amount of variation of the dependent variable explained by the model (Pallant, 2013, p 147). In the results these two values are 0.16 and 0.275 Suggesting that between 16% and 27.5% of the variability is explained by the set of variables in the model.

Another output to consider wether the model is predicting the correct category is the output of the classification tables in Block 0 and Block 1. The output of the classification table in block 0 is 84.8%, indicating the percentage of the correctly classified categories. This is higher for Block 1

(37)

with 87.1%. An increase in these values indicates that with the predictor variables the model is better in explaining the correct classifications. The second model (Block 1) explained 27.5% more of the part that the first model could not explain. The contributions of the different variables in each category individually, are displayed in the table below.

Table 5. Logistic Regression Predicting Likelihood of Violations According to Market

B S.E. Wald df Sig. Exp(B) Market of Origin .794 .482 2.713 1 .100 2.212

Company Size .000 .000 5.238 1 .022 1,000

Interaction .000 .000 .241 1 .623 1.000

Constant -2.009 .277 52.686 1 .000 .134

As shown in table 5, the variable Company Size is the only variable which is making a significant contribution to the predictive ability of the model. The outcome of the Market of Origin variable is not significant, however, it does have a odd radio of 2.212. This indicates that companies with an environmental human rights violation is 2.212 times more likely to report an emerging market multinational, controlling for all other factors in the model.

Thus, both the Market of Origin and the interaction effect are not significant for this model, leading to a rejection of both hypothesis. However, considering the value of sig (p = .1) of the Market of Origin, shows that this variable is not completely irrelevant. Also, the B value supports this with a value of .794 indicating the correlation between the Market of Origin and human rights violations.

Does the market of origin of a MNE have an impact on environmental human rights violations?