Energy- and resource-saving technology investments
– Do they pay off?
A mixed-methods study focused on the manufacturing industry
Student:
Rick van Ooijen
Student number:
4333233
Supervisor:
dr. P.M.M. Vaessen
Co-reader:
Prof. dr. J. Jonker
Radboud University
Nijmegen School of Management
General information
Topic: Energy-saving technologies and business performance
Author: Rick van Ooijen
Student number: 4333233
Address: Het Hout 4
6652 GA Druten
Phone: +31 (0)6 11996933
E-mail: rick.vanooijen@student.ru.nl
rickvanooijen@live.nl
Nijmegen School of Management Radboud University
Supervisor: dr. P.M.M. Vaessen
Co-reader: Prof. dr. J. Jonker
Master: Business Administration
Specialisation: Strategic Management
Title of master thesis
Preface
In front of you lies the master thesis ‘Energy- and resource-saving technology investments – Do they pay off?’. This thesis is written as part of my graduation from the strategic management master at the Nijmegen School of Management at the Radboud University. From January 2020 till June 2020 I have been conducting my research and writing this thesis.
In consultation with my supervisor, Dr. Peter Vaessen, the research question of this thesis has been come up with. A mixed-methods study was conducted, because the combination of both quantitative and qualitative research is very interesting and insightful. After analysing the quantitative data, four interviews have been conducted with different firms. This combination of methods and the different data inputs made it possible to answer the research question.
Writing this thesis was due to the current circumstances not always easy. I would like to thank Dr. Peter Vaessen for his support and flexibility during these strange times. I also want to thank him for helping me whenever I had a question or needed feedback. This is one of the main reasons why I finished my master thesis on time. Furthermore, I would like to thank my 2nd examiner, Prof. Dr. Jan Jonker, for his feedback.
There are a lot of other people which I would like to thank. First, I want to thank all interviewees who shared their time and knowledge with me. Furthermore, I would like to thank my fellow students, especially Flore de Kort and Pieter Meijers, who gave me useful feedback and were always open to discuss my research results. Finally, I would like to thank my sister, friends, and parents for their moral support during the past couple of months.
Rick van Ooijen
Abstract
There is a lot of research on the subject of Corporate Environmental Responsibility (CER) and its relationship with Corporate Financial Performance (CFP) and results are divided. Therefore, the goal of this study is to find out how this relationship between CER and CFP looks like in the manufacturing industry. Furthermore, it looks at two proposed moderator variables: organizational capabilities and managerial cognition and framing which could influence this relation. To achieve this goal, the following research question is proposed: “To what extent do investments in new resource- and
energy-saving technologies affect firm’s costs and revenues independently and to what extent is this potential relationship conditioned by certain capabilities of the organization as well as its management’s cognition and framing of the potential rewards of such investments?”
To answer this research question, a mixed-methods study is performed which consists out of a survey (n=176) and four interviews. The survey results are obtained from the European Manufacturing Survey (EMS) and the interviews are held with managers of Dutch manufacturing firms.
The results of the quantitative analysis show that CER does not have a direct significant on either revenue or production costs as was predicted. This can be explained by the fact that the market does not always look for environmentally friendly firms, while they are more focused on price and quality. Furthermore, organizational capabilities do have a moderating effect on the relation between CER and revenue, but not on the relation between CER and production costs. Looking at managerial cognition and framing, it did not have a significant effect on either the relationship between CER and revenue or CER and production costs. On the other hand, the results of the qualitative analysis show somewhat other results. First, it shows that CER does have an effect on CFP, whether it be revenue or production costs. This can be due to the fact that the firms only invested in CER technologies or practices when it was thought of to be profitable. Next to that, it was found that managerial cognition and framing could have an effect on revenue, but not on production costs.
Based on these results it can be concluded that there is no direct significant relationship between CER investments and revenue or production costs. Firms that do want to increase their revenues from energy- and resource-saving investments, should combine this with investments in organizational capabilities, e.g., training, R&D, and cooperation. Furthermore, more research is needed to find out which factors do influence the relationship between these pollution prevention investments and production costs as the results were insignificant. Finally, the moderator managerial cognition and framing did not have a significant effect on either revenue or production costs. Therefore, this is also something where more research is needed for.
Keywords: Corporate Environmental Responsibility (CER), Energy Saving Technologies, Material Saving Technologies, organizational capabilities, cognition and framing, manufacturing industry
Content
1. Introduction ... 7 1.1 Research question ... 9 1.2 Relevance ... 10 1.3 Thesis outline ... 10 2. Theoretical framework ... 112.1. Corporate Environmental Responsibility ... 11
2.2 The natural-resource-based view ... 14
2.3. Shareholder theory versus stakeholder theory ... 16
2.4. Linking the concepts ... 17
2.5. The moderator effects: organizational capabilities and cognition and framing ... 20
2.6. Conceptual model ... 24
3. Methodology ... 25
3.1. Research design... 25
3.2. Quantitative research method ... 25
3.3. Qualitative research method ... 31
3.4. Validity and Reliability ... 32
3.5. Research Ethics ... 33 4. Quantitative research ... 35 4.1. Response data ... 35 4.2. Variable construction ... 36 4.3. Univariate analysis ... 38 4.4. Bivariate analysis ... 40 4.5. Multivariate analysis ... 41 5. Qualitative research ... 48 5.1. CER-related technologies ... 48 5.2 Organizational capabilities ... 49
5.3 Cognition and framing ... 51
6. Conclusion ... 53
8. List of references ... 63
Appendix ... 69
Appendix A: Questions European Manufacturing Survey 2015 ... 69
Appendix B: Operationalization scheme ... 77
Appendix C: Univariate and Bivariate table ... 79
Appendix D: Assumptions multiple linear regression: revenue... 80
Appendix E: Figures multiple linear regression revenue ... 82
Appendix F: Figures bias: residuals analysis ... 84
Appendix G: Figures multiple linear regression revenue: method 2 ... 86
Appendix H: Assumptions multiple linear regression: production costs ... 87
Appendix I: Figures multiple linear regression production costs ... 89
Appendix J: Interview questions ... 91
Appendix K: Interview transcripts ... 93
Appendix L: Coding interviews ... 115
1. Introduction
Since the 1970’s research has been conducted on the subject of corporate social performance (CSP) and corporate financial performance (CFP) and results are divided. Where researchers have long assumed that investments in CSP-related activities only provided few financial benefits (King & Lenox, 2001), nowadays one of the biggest question that exists within the strategic business world is if a company can do good and do well at the same time (Morrissey, 1989; Wells, 2002). After more than forty-five years of research, the results are diversified (Belu & Manescu, 2013; Margolis, Elfenbein, & Walsh, 2007; Wagner, Schaltegger, & Wehrmeyer, 2001). Many studies identify a positive effect between CSP and CFP (Li et al., 2017; Waddock & Graves, 1997; Wong, Miao, Cui, & Tang, 2018), a minor part a negative effect (Baron, Agus Harjoto, & Jo, 2011; Zhao & Murrell, 2016), while another significant amount of studies shows a nonsignificant relationship (Belu & Manescu, 2013; Margolis et al., 2007; Pons, Bikfalvi, Llach, & Palcic, 2013). Knowing what influences this relationship is therefore an important aspect for firms and their reasons why they should invest in CSP.
There are a lot of different reasons why firms engage in CSP. The main reason for businesses to enhance CSP should not only be doing good, but also to profit from it themselves (Baron, 2001). Firms could profit from engaging in CSP, by charging a premium price for its products and services (Belu & Manescu, 2013; Siegel & Vitaliano, 2007), by asking and receiving a higher price for its shares, by proud employees that show a better performance and possibly even accept lower wages (Belu & Manescu, 2013), and by opportunities to save costs in the future by minimizing future liabilities, reducing compliance costs and by increasing efficiency (King & Lenox, 2001). Companies could also expect non-monetary benefits from acting socially responsible (Siegel & Vitaliano, 2007). An example of these benefits is a better reputation which leads to attracting and retaining better-skilled high quality employees (Belu & Manescu, 2013; Siegel & Vitaliano, 2007), while another example is to get access to superior resources from the supply chain because other corporations might value these CSP efforts (Belu & Manescu, 2013). Knowing what benefits CSP could offer to firms, it is important to know what CSP is and how it can be measured.
In order to assess CSP, and therefore CSR, there are many different perspectives which utilize a variety of different measures (Carroll, 1991). Even if all information on all dimensions was available it is still hard to measure CSR (Belu & Manescu, 2013). Wolfe and Aupperle (1991) stress out that CSR can be assessed in many ways and that multiple measures and perspectives contribute to this topic. This thesis therefore only focuses on corporate environmental responsibility (CER) which is the environmental facet of CSR (Dahlsrud, 2008; Mazurkiewicz, 2004). CER is defined as “the duty to cover
environmental implications of the company’s operations, products and facilities … maximize the efficiency and productivity of its resources” (Mazurkiewicz, 2004, p. 2). Within this research CER is
material-saving technologies’ (Bunse, Vodicka, Schönsleben, Brülhart, & Ernst, 2011; Pons et al., 2013). In order to profit from these CER activities it is important to know what factors could possibly influence this divided relationship with CFP.
Two factors that could influence the relation between CER and CFP are organizational capabilities and managerial cognition and framing. Hart and Dowell (2011) argue that however there is a lot of academic literature about how CER measures influence firms’ financials, it is yet unclear what the key factors are between the link of CER and financial performance. It is therefore important to look for circumstances under which there is a positive or a negative relation between CER and CFP. Hart and Dowell (2011) propose two forms of indicators that could possibly influence the capability of businesses to profit financially from pollution prevention (CER) activities; organizational capabilities and managerial cognition and framing
Organizational capabilities, especially innovation- and implementation capabilities, are the abilities of an organization to achieve competitive advantage from CER strategies. Hart and Dowell (2011) argue that organizational capabilities affect the extent to which businesses could profit from pollution prevention strategies. It is expected that businesses with compelling innovation capabilities, especially those related to continuous improvement, can profit from these CER strategies (King & Lenox, 2002). According to Hart and Dowell (2011) it is not likely that firms can profit from only having a pollution prevention strategy, but when this strategy is combined with innovative capabilities and implementation skills, higher revenues can be expected (Christmann, 2000). In this point of view pollution prevention strategies and innovative capabilities are complementary to each other (Teece, 1986). Thus, having organizational capabilities is an important factor for manufacturing companies which could positively influence the relation between CER strategies and its profitability.
Apart from organizational capabilities, managerial cognition and framing of environmental issues could also affect the ability of firms to enact environmentally proactive strategies that are profitable. The main idea behind the cognition and framing of managers is that managers who do not look for profitable opportunities, do not find them and therefore profiting from waste reduction and energy saving measures depends on the cognition and framing of managers (King & Lenox, 2002). Thus, when firms voluntary contribute to CER-related activities, these activities are made more profitable.
1.1 Research question
Due to previously mentioned argumentations, more research on the topic of CER and its relationship with CFP is needed. Earlier work of Baron et al. (2011) suggests that in industrial markets the relation between CER and firm performance is negative. However, as mentioned before, there is also a substantial amount of research which concludes the exact opposite. Furthermore, the two additional factors as suggested by Hart and Dowell (2011) come into play: organizational capabilities and managerial cognition and framing. Therefore, this thesis has two main goals. First, this thesis wants to provide more clarity about the relationship between CER and financial performance in the manufacturing industry. Second, this thesis examines the conditions under which this relation does and does not apply. Thus, this thesis will partly be the empirically research of the statements of Hart and Dowell (2011).
While there is a lot of dividedness between different empirical studies within this topic, it is also important to discuss CFP. Margolis et al. (2007) found that there are many ways of how researchers have measured CFP within this topic. There are two main critics about the way that most of these studies have measured CFP. First, having a CER strategy could influence the turnover of a firm, but it could also influence the production costs. Where many studies measure the financial performance of firms with indicators that simultaneously record both revenues and production costs, e.g. Pons et al. (2013), Siegel and Vitaliano (2007), and Wong et al. (2018), this study chooses to measure both these financial indicators separately. Furthermore, most of the empirical research measured CFP at a particular state, for example Pons et al. (2013) and Wong et al. (2018). While many different factors influence this state, it is better to look at the developments of these financial indicators over a specific time period as X. Zhao and Murrell (2016) did. By doing this, the effect of the investments in resource- and energy-saving technologies is better findable.
In sum, this thesis measures the autonomous effect of CER on both turnover and production costs in the manufacturing industry, and in addition it investigates to what extent these effects are moderated by firms’ organizational capabilities and management’s CER cognition and framing. This is measured according to the following research question:
“To what extent do investments in new resource- and energy-saving technologies affect firm’s costs and to what extent is this potential relationship conditioned by certain capabilities of the organization as well as its management’s cognition and framing of the potential rewards of such investments?”
1.2 Relevance
Over the last 45 years many academic scholars have contributed to the topic of CER (Belu & Manescu, 2013). The scientific relevance of this thesis touches upon this already existing literature about CER and its influence on firm performance. It contributes to the academic literature in several ways. Firstly, although there exists much literature about the relation between CER and firm performance, the literature is quite divers and no hard conclusions can be made out of it yet (Belu & Manescu, 2013; Margolis et al., 2007).Therefore, this thesis provides more clarity about the relationship between CER and financial performance. Furthermore, this thesis also contributes to the literature by adding two moderating effects (organizational capabilities and managerial cognition and framing) that could explain a relevant part in the relation between CER and CFP as suggested by Hart and Dowell (2011). This thesis therefore performs the empirically research of Hart and Dowell. Additionally, this thesis contributes to the literature, because it makes a clear distinction between production costs and revenues. By conducting this research, it contributes towards the already existing literature. The insights could be useful for follow-up research in this field of study.
The social relevance of this thesis is also important. By conducting this research, the outcomes lead to a conclusion to the question if investments in resource- and energy-saving technologies pay off and what the influences of organizational capabilities and the attitude of the manager are on this relation. It therefore contributes to the decision-making process of the managers. If they know which factors contribute to a profitable CER strategy, they could conduct a CER strategy more often. Eventually this contributes to the worldwide environment, because if it is proven that it pays off, companies invest more in these saving technologies and this is beneficial for the environment.
1.3 Thesis outline
This thesis proceeds as followed. First, the theoretical background and the theoretical framework are described in chapter two. This chapter begins with discussing the central aspect, CER, and elaborates further on relevant theories. After, concepts and theories are linked and this chapter ends with a conceptual model based on the proposed hypotheses. In chapter three the methodological foundation of this thesis is discussed. This section presents the research design, the data collection technique and the operationalization. The fourth and fifth chapter present the quantitative and qualitative data analysis and its results. Also, the hypotheses are tested here. Finally, the conclusion in which the research question is answered is presented alongside the discussion in which limitations, managerial implications and possible directions for further research are discussed.
2. Theoretical framework
Relevant literature is discussed in this section, key concepts are defined and linkages between the concepts are made. At first, in section 2.1 there is an elaboration made on the central concept of this thesis, corporate environmental responsibility (CER). Sections 2.2 and 2.3 describe and explain theories that underlie the rest of this thesis. Section 2.2 describes the natural-resource-based view and section 2.3 presents the discussion in the literature between the shareholder theory and the stakeholder theory. Having discussed the central concept and relevant theories, CER is linked with the financial performance indicators revenue and production costs in section 2.4. An extension of the theory is made in section 2.5 where organizational capabilities and managerial cognition and framing are discussed and linked with the theory of the natural-resource-based view, the shareholder theory, and the stakeholder theory. Finally, the conceptual model of this thesis is presented in section 2.6.
2.1. Corporate Environmental Responsibility
2.1.1. History of CSR
Since the 1950s much academic literature has been written on the topic of CSR (Carroll, 1999) and it has continued to evolve over time ever since (Sun Young Lee & Carroll, 2011). Upon now, a single straightforward definition of CSR is not existing in the academic literature and business world (Dahlsrud, 2008). One of the first to mention the concept of CSR when it comes to the obligation of businesses’ ethical behaviour towards society was Bowen. He stated that CSR was “the obligation of
businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” (Bowen, 1953, p. 6).
A few years later, in 1960, Davis build upon this first definition of CSR by Bowen. He referred to CSR as “businessmen’s decisions and actions taken for reasons at least partially beyond the firm’s direct
economic or technological interest.” (Davis, 1960, p. 70). He makes the distinction between the
obligation of businesses towards the community regarding economic development and the obligation towards the development of human values, such as self-realization and motivation. Till Davis’ research firms were economic institutions and therefore only had responsibilities towards the economic aspects of the public welfare.
The assumption that businesses also had a social responsibility (a non-commercial activity), next to an economic responsibility, triggered capitalists of which Friedman was one of the biggest critics. He criticized this concept of social responsibility already in 1962, when he stated; “There is one and only
one social responsibility to use its resources and engage in activities designed to increase its profits as long as it stays within the rules of the game, which is to say, engages in free and open competition without deception or fraud.” (Friedman, 1962, p. 112). This shareholder approach of Friedman was
opposed by Freeman’s stakeholder theory in 1984. This stakeholder theory presented a new approach to organizational management and business ethics and has certain values and morals which are of
importance when managing a business (Freeman, 1984). This stakeholder approach identifies certain groups which are affected by- and have an effect on the activities of organizations (Freeman, 1984). Thus, Freeman takes an opposite position compared to Friedman’s proposition that the sole duty of businesses is to enlarge its revenues (Friedman, 1970), by accepting the fact that stakeholders can have an effect on businesses. If a firm does not take care enough of the responsibilities it has to its stakeholders, it might influence the business economically. Thus, firms have not only a financial responsibility, but also a social responsibility towards society.
As mentioned before, the concept of CSR is widely discussed and well established in academic literature. According to Dahlsrud (2008), nowadays, most CSR definitions consist out of five dimensions: the stakeholder dimension, the social dimension, the economic dimension, the voluntariness dimension, and the environmental dimension. Taken all together, the definition of CSR that combines all these dimensions best is “A concept whereby companies integrate social and environmental concerns
in their business operations and in their interaction with their stakeholders on a voluntary basis”
(Commission of the European Communities, 2001, p. 7).
2.1.2. Corporate Environmental Responsibility: a definition
While literature about CSR is well established, research is shifting from this broad concept to the specific dimensions (Li et al., 2017). Within this thesis the focus is on corporate environmental responsibility (CER), because of urgent subjects such as climate change and environmental deterioration (Flammer, 2013; Holtbrügge & Dögl, 2012). CER is the environmental aspect of CSR as is described by Dahlsrud (2008) and is about the voluntary commitment and practice of firms adopting responsible actions to secure and better the natural environment while accomplishing financial growth (Crifo & Sinclair-Desgagne, 2013; Holtbrügge & Dögl, 2012). Having in mind what the purposes are of CER, a definition of CER can be formed.
CER consists out of a wide range of environmentally responsible behaviours (Crifo & Sinclair-Desgagne, 2013). It ranges from bringing environmental aspects into the process of designing and manufacturing goods and processes, preserving water resources, and securing biodiversity to aspects such as energy efficiency and cleaner production (Crifo & Sinclair-Desgagne, 2013, p. 3). Mazurkiewics (2004), defines CER as: “the duty to cover the environmental implications of the company’s operations,
products and facilities; eliminate waste and emissions; maximize the efficiency and productivity of its resources; and minimize practices that might adversely affect the enjoyment of the country’s resources by future generations” (Mazurkiewicz, 2004, p. 2). This definition is used as the definition of CER.
2.1.3. Corporate Environmental Responsibility: motives
There are many motives firms can have to adopt CER measures. The question that keeps returning is ‘why firms choose to respond to the increasing demand for businesses to engage in CER policies?’. The reasons that is mentioned most often is that engaging in CER activities offers the firm a positive and distinctive reputation (Marquis, Glynn, & Davis, 2007; Rangan, Chase, & Karim, 2012). This positive status can provide many benefits to firms such as attracting more customers (Creyer & Ross, 1997; Sen & Bhattacharya, 2001), attracting and retaining talented workers (Beddewela & Fairbrass, 2016; Turban & Greening, 1997), the ability to demand higher prices, lower costs, competitive advantages (Hart & Dowell, 2011), and a better performance (J. T. Campbell, Eden, & Miller, 2012). Furthermore, this positive status can affect the willingness of suppliers and clients to do business with the organization (J. T. Campbell et al., 2012). In addition, it can influence the loyalty and support of (local) communities (Rangan et al., 2012) and it could eventually lead to a better financial performance (Belu & Manescu, 2013; J. L. Campbell, 2007; Cavaco & Crifo, 2014; Rangan et al., 2012). Furthermore, CER can, according to Wong et al. (2018), be a contribution to the future for two reasons. First, the scarcity of raw resources is becoming a more and more serious problem, which leads to difficulties in the traditional ways of production and operation of businesses when they want to achieve a sustainable development on the long term (Wong et al., 2018). Thus, implementing CER solutions that aim to reduce this consumption of high value resources becomes important. Second, CER solutions are being accepted more and more as a way of adding value to goods, and this improves the intangible assets of firms, for example their reputation (Vanhamme, Lindgreen, Reast, & Popering, 2012) and competitive advantage (T.-Y. Chan et al., 2016; Wong, Lai, Shang, & Lu, 2014). Knowing what CER is and that it could possibly lead to better financial performances, it is needed to know what possible CER technologies there are.
2.1.4. Energy Saving Technologies (EST) and Material Saving Technologies (MST)
The manufacturing industry is one of the most polluting industries and therefore it needs to use its energy and its resources more efficient. Manufacturing is the transformation process of materials into products. This process of turning natural and chemical materials into goods is a leading source of the environmental deterioration (Palcic, Pons, Bikfalvi, Llach, & Buchmeister, 2013). Recently, production firms have made first steps into cleaner production methods under pressure of environmental regulations (Kliopova & Staniskis, 2006; Tseng, Lin, & Chiu, 2009). Manufacturing firms, however, still account for around 75 percent of the worldwide coal consumption, half of the natural gas consumption, 20 percent of the global oil consumption (Palcic et al., 2013), and 42 percent of the worldwide electricity usage (Thollander, Danestig, & Rohdin, 2007). However renewable energy technologies are a sustainable long-term solution, using energy in a more efficient way makes a bigger economic improvement in the short run (Palcic et al., 2013). According to Palcic et al. (2013) there are many things that can improve the energy efficiency of firms, for example, using more efficient technologies, the
recovery of energy, and by increasing the efficiency of the energy conversion. Although there already have been made improvements in the manufacturing industry, the energy efficiency potential has not been exploited full yet (Bunse et al., 2011; Mundaca, 2008). Therefore, more investments need to be made in both new technologies and the implementation of these new technologies.
Looking at EST and MST it is necessary to know what their differences are. Energy saving technologies are about CER technologies focused on energy consumption efficiency and technologies which are focused on the saving of energy (Pons et al., 2013). Examples of EST technologies are control systems that shut down machines during off-peak hours, speed regulation, and energy recovery (Pons et al., 2013). Thus, mainly technologies which are focused on using less energy. Material saving technologies are CER technologies which are focused on the consumption of (raw) materials in manufacturing processes (Pons et al., 2013). MST examples are the amount of recycled material that is used in production, but also how much of the product is recovered or could be recovered (Pons et al., 2013). Thus, technologies focused on using- and wasting less raw materials.
While CER is more than only EST- and MST technologies, this thesis focuses on only these technologies. This choice was made due to the fact that this study focuses on the manufacturing industry. As elaborated upon before, the manufacturing industry is a polluting industry. Combining both the focus on the manufacturing industry and CER, the choice was made to focus on aspects such as energy efficiency and cleaner production as proposed by (Crifo & Sinclair-Desgagne, 2013). Furthermore, as will be elaborated on in the next section, EST- and MST technologies can be seen as pollution prevention strategies as suggested by Hart and Dowell (2011).
It was found by Palcic et al. (2013) that EST and MST measures were mostly implemented in low-tech firms and less in high-tech firms. This proves that high-tech companies are focused less on energy- and material efficiency than low-tech companies. In addition, Pons et al. (2013) state that EST does have a positive relation with the environmental performance of a firm. Thus, implementing EST measures by a manufacturing firm is more helpful in making the business environmentally responsible. EST therefore has a more direct effect on the energy efficiency level of production firms by making a contribution to the savings of energy and materials (Pons et al., 2013). Next to these technological investments, there are also management practices at the organizational level that can benefit pollution prevention and therefore CER.
2.2 The natural-resource-based view
The natural-resource-based view forms the basis for both moderators in this research; organizational capabilities and cognition and framing of the manager. This natural-resource-based view describes which resources are needed in the context of CER and performance. This natural-resource-based view stems from the theory of the resource-natural-resource-based view (RBV). According to the RBV,
competitive advantage is a result of the development of organizational capabilities. These are capabilities such as organizational learning, continuous innovation and stakeholder integration, that form the base of a sustainable competitive advantage (Hart, 1995; Teece, Pisano, & Shuen, 1997). These resources and capabilities must be valuable, rare, and inimitable in order to determine the competitive position of the firm (Barney, 1991). Thus, a competitive advantage can only be sustained if it is created by capabilities that are not easily accessible by competitors. These resources consist out of physical and financial assets, skills of employees and organizational processes. Over time, it was found that the RBV had one serious problem. It lacked and ignored the constraints that are constantly demanded by the natural environment (Brown, Kane, & Roodman, 1994). A significant increase in the world population caused major environmental problems such as pollution, chemical spills, and toxic emissions. These created regional, national, and worldwide public health crises around the world (Brown et al., 1994). Due to these increases in public health issues, the environment got more important over time. The RBV theory got deficient as being a theory to identify sources and capabilities of competitive advantage (Hart, 1995). The natural aspect has to be included into the RBV, the natural-resource-based view (NRBV).
The creation of the NRBV started with accepting that both internal and external factors were vital for the success of firms. Firms have to pay attention to the increasing environmental challenges and try to profit from it through the relation between natural resources and competitive advantages (Hart & Dowell, 2011). Organizational resources and capabilities, focused on the environment, must be used in order to sustain as sources of competitive advantage (Hart, 1995). This, because firms are dependent on the conditions and resources of their natural environment (Wong, Lai, Shang, Lu, & Leung, 2012). The NRBV has four important antecedents: resources and capabilities, stakeholders’ pressures, firm size, and the role of managers (Hamdoun, 2020). The NRBV, which contributes to CER with the purpose of affecting the profitability of firms, consists out of three strategies: pollution prevention, product stewardship, and sustainable development (Hart, 1995).
The CER strategy of pollution prevention is the central capability within this thesis. Pollution prevention is an incremental sustainability strategy (Hart & Dowell, 2011), which enhances environmental performances (Hart, 1995). This pollution prevention strategy involves employees extensively to the process and is focused on minimizing emissions, waste, and resources by making use of continuous improvement processes (Hart & Dowell, 2011). In order to do this, advanced capabilities are needed that firms have to establish (Russo & Fouts, 1997). Pollution and emissions signal the ineffective use of resources and are therefore economically wasteful (Hart, 1995; Hart & Dowell, 2011). Especially through pollution prevention, firms could increase their productivity and efficiency (Hart, 1995). These pollution prevention strategies are therefore focused on EST and MST technologies. This improved efficiency leads to an improved usage of inputs which could possibly result in cost savings in both the usage of raw materials and the disposal of waste (Hart, 1995; Hart & Ahuja, 1994). This results into a
cost advantage compared to competitors (Hart & Ahuja, 1994). This is not only achieved through a better utilization of inputs, but also through an increase in efficiency and productivity. Product stewardship is about integrating stakeholders into the design and development of products and processes (Allenby, 1991). Product stewardship can therefore form a basis to build a green reputation. This demonstrates that the company is an early mover into the sustainable domain and this results in an early mover advantage (Hart, 1995). Finally, sustainable development is focused on the position of the firm in the future. It is about having a shared vision of how business and environment are interconnected (Hart, 1995), meaning that firm growth should go together with minimizing environmental hinders. In order for an organization to achieve competitive advantage, it needs a capability that both exploits and preserves natural resources in its direct external environment (Wong et al., 2012). According to Wong et al. (2012) such a capability must be casually ambiguous or socially complex. A casually ambiguous capability is based on the skills of companies, meaning that skills can be learned through repeated practices (Hart, 1995; Wong et al., 2012). This means that if firms are skilled at continuous learning, this will lead to a competitive advantage. A social complex capability is aimed at preserving natural resources in coordination with partners (Wong et al., 2012). This allows organizations to access the resources of its partners and this kind of cooperations are difficult to imitate by competitors (Wong et al., 2012). Thus, learning and cooperation skills are important organizational capabilities to achieve and sustain competitive advantage.
2.3. Shareholder theory versus stakeholder theory
Besides the NRBV, the debate between the shareholder theory and the stakeholder theory is also of big influence on the moderator cognition and framing of the manager. These theories explain why a CER strategy could be profitable or not for a firm. There are two schools of thinking which influence the debate of CER and its effects on CFP: the shareholder theory school and the stakeholder theory school. Both these theories are related to CER since they impose the role of firms within a broader perspective. The shareholder theory focuses on managers’ responsibility of maximizing shareholder returns, while the stakeholder perspective is a perspective which focuses managers’ responsibility on both the economic concerns of shareholders and the social interests of other stakeholders (Waddock & Graves, 1997). Therefore, the stakeholder perspective is often seen as a perspective which decreases shareholder return, and the shareholder perspective is thought of as a perspective which neglects all non-shareholder stakeholders.
Shareholder theory has one goal and that is to makes as much profit as possible, while conforming to laws and ethical subjects. The shareholder theory follows Friedman (1970) who states that companies have one sole responsibility and that is to make as much profit for their stockholders as possible while obeying the law. Therefore, the main focus of commercial companies is to maximize its shareholder value (Forte, 2013). According to Friedman (1970), businesses are not responsible for social matters,
these problems should be resolved by the free market system. It needs to be clear that these profit-seeking activities always have to conform to social- and governmental rules, such as laws and ethical subjects (Carroll, 1991; Friedman, 1970). Furthermore, the shareholder theory perspective is thought of as one that focusses only on the rights of the shareholder, while violating the rights of other stakeholders (Freeman, Wicks, & Parmar, 2004). In contrast, Danielson et al. (2008) state that the stakeholder perspective, when not acknowledging the interests of all future stakeholders, can do more harm than shareholder theory does.
The stakeholder theory is one that encourages creating economic value by people who work together in order to improve the collective circumstances of all their stakeholders. The stakeholder theory focuses on the social responsibilities that an organization has towards its stakeholders (Forte, 2013). It is about the duty that firms have to do what is good and decent, while minimizing harm to their stakeholders (Carroll, 1991). It is often said that stakeholder theory is not focussing sufficiently on the profitability of firms, it is often seen as one that withholds their responsibilities to their shareholders. This is however not true. According to Freeman et al. (2004) the stakeholder theory is in favour of creating economic value by people who voluntary come together and cooperate to improve the collective circumstances of all their stakeholders. Creating value for stakeholders therefore means also creating value for shareholders (Freeman et al., 2004). Thus, it can be concluded that both theories are related to each other but represent two opposing views of what the responsibilities are of firms and their managers and how it influences their profitability.
Assessing the profitability of conducting a CER strategy, Friedman (1970) states that there are only a few readily available financial benefits to CER activities while there are numerous costs. Theorists of the shareholder theory therefore expect that the relation between CER and CFP is negative (Waddock & Graves, 1997). Contrarily, theorists of the stakeholder theory expect that the relation between CER and CFP is positive (Waddock & Graves, 1997). This because stakeholders appreciate CER measures and therefore reward firms that contribute to this.
2.4. Linking the concepts
In this section the concept of CER is linked with corporate financial performance (CFP). As described in section 2.1 CER consists out of several strategies of which pollution prevention is the central concept in this thesis. Pollution prevention, and thus also CER, are measured according to the technological investments and management practices as described before. CFP is measured in this thesis by the revenue and the production costs of firms over a specific time period as mentioned in the introduction. This is due to two reasons, which were also mentioned in the introduction. The first one is about the possibility that CER strategies could influence both the turnover and the production costs. Combining them in one variable therefore presents less interpretable data, while it is still not known
how CER influences these specific individual financial indicators. Secondly, most of the research measures CFP at a particular state. While many different factors influence this state, it is better to look at the developments of these financial indicators over a time period. With doing this, the effect of the resource- and energy-saving technologies are better to find.
2.4.1. CER and Corporate Financial Performance (CFP)
This section first describes empirical evidence which connects CER with CFP. Finally, hypotheses are proposed based upon this empirical literature. As described before there is no consensus within the literature if CER has a positive, negative, or insignificant relationship with CFP. Whether CER strategies pay off could be affected by other factors, such as external environmental regulation and internal organizational slack (Li et al., 2017).
Most empirical research on the subject suggests a positive relationship between CER and CFP. Li et al. (2017) found a positive (.21) and significant (p<.01) relation between CER and CFP, which indicated that having more CER technologies leads to a higher economic performance. This study was conducted in China among 1179 firms in the manufacturing industry. Li et al. concluded that this positive relationship came from the fact that having an active CER strategy led to a positive reputation, which met the needs of stakeholders and therefore attracted more investors and thus improved the financial performance (Li et al., 2017). During the same period Wong et al. (2018) also found a positive (.18) and significant (p<.01) relationship between CER and operating income. They conducted a research amongst 113 Fortune 500 manufacturing firms in China and were merely interested in the impact of regional differences on this relation. They concluded that CER had a positive impact on the operating income due to the fact that these big firms rely for their exports on the Chinese government and investing in CER led to a good relationship with the government (Wong et al., 2018). A third study of Melnyk, Sroufe and Calantone (2003) also found a positive significant relation (P < 0.05) between CER and CFP in the manufacturing industry in the US amongst 1222 firms. Their main question was what the influence was of having a formal, certified Energy Management System on the financial performance and they concluded that there was a positive relation between these two. Jones and Murrell (2001), who found a positive (.217) significant effect amongst 51 US firms, conclude that investors are capable of knowing the significance of a CER event, being either positive or negative, and react rational to this information resulting in an impact on the financial performance of firms. Karpoff, Lott, and Wehrly (2005) found a positive (.252) significant relationship between CER and CFP in the US amongst 423 firms. They concluded that firms who were investigated due to a violation of environmental regulations, experienced a significant and financial meaningful decrease in share values (Karpoff et al., 2005). Thus, investing in CER activities could lead to operating efficiency, higher stock prices, improved environmental reputation, a better financial performance, and competitive advantage (Cai & He, 2014; Guenster, Bauer, Derwall, & Koedijk, 2011; Heinkel, Kraus, & Zechner, 2001).
In contrast, Zhao and Murrell (2016) found a significant (p < 0.01) negative effect between CER and CFP. They replicated the research of Waddock and Graves (1997), who discovered a positive relation between CER and financial performance, with a larger sample over a longer time period to test the generalizability of their research results (Zhao & Murrell, 2016). The sample consisted out of over 27,000 observations between 1991 and 2013 in the United States. The results of Zhao and Murrell (2016) led to an invalidation of the results of Waddock and Graves (1997). The contribution of Zhao and Murrell (2016) is important in this field of research, because they were one of the firsts who used a similar method on a different sample to conduct their research. They proved that research results are therefore not as easily generalizable as was thought of before. A second study, which was conducted by Boyle, Higgins, and Rhee (1997), also found a negative (-.184) significant relation between CER and CFP across 61 firms in the US defence sector. They found that firms who signed an initiative to prevent unethical practices from happening were punished financially for signing this agreement (Boyle et al., 1997). They conclude that signing this agreement could be interpreted as admitting that unethical practices did happen in the past and therefore these firms were punished by socially aware investors (Boyle et al., 1997). Brammer, Brooks, and Pavelin (2006) also found a negative (-.076) relationship between CER and CFP across 451 firms in the UK. They found that organizations with higher social performance scores achieved lower returns, while organizations that got low social performance scores outperformed the market (Brammer et al., 2006). They conclude that investing in (some) corporate social activities has an high impact on the decrease of shareholder value (Brammer et al., 2006)
Next to the positive and negative relations between CER and the financial performance, there were also studies who found nonsignificant relationships between these two aspects. A nonsignificant relationship between CER and CFP was found in the manufacturing sector in Spain and Slovenia (N = 180) by Pons et al. (2013). The research question of their study was: what the relationship was between the adoption of energy efficiency technologies and firms’ financial performance. This study tested the impact of the implementation of EST and MST on the financial performance of these companies (Pons et al., 2013). CFP was measured by return on sales (ROS). They concluded that EST did not have a clear relationship with economic performance, but did have a relation with environmental performance. Thus, investing in EST did help firms to become ‘greener’, but only has an indirect effect on financial performance at highest. A second study that found a non-significant relationship between CER and CFP was conducted by Wong et al. (2012). They were interested in the relationship between pollution reduction measures and its impact on ROA, ROE, and the net profit of firms. They used a sample of 122 Taiwanese electronics manufacturers and found non-significant relations between pollution reduction and the CFP indicators. They conclude that these pollution reduction measures are not easily detected by the market and therefore gains on financial performance cannot be directed to these pollution reduction measures
(Wong et al., 2012). In order to achieve financial gains from these measures firms should promote these measures, so the market knows that the firm is investing in CER (R. Y. K. Chan, 2000).
As described before and as shown by empirical evidence it cannot be stated straightforward that there is a relationship between the investments of firms in pollution preventing technologies and the financial indicators of turnover and production costs. There are studies who found a positive relationship, studies who found a negative relationship, and studies who found insignificant relationships. Furthermore, looking at the empirical evidence, there are a lot of different indicators used for both CER technologies and practices and CFP. Also, as Zhao and Murrell (2016) found, using the same indicators with different samples could give different outcomes. Finally, Hart and Dowell (2011) state that it is unlikely that firms can profit from only having a pollution prevention strategy (p. 1468), thus more is needed than only this strategy. Following this reasoning and the dividedness within the empirical research, the following hypotheses are proposed:
Hypothesis 1a: The extent of a company’s investments in pollution preventing technologies and practices is not significantly independently or autonomously associated with growth in turnover.
Hypothesis 1b: The extent of a company’s investments in pollution preventing technologies and practices is not significantly independently or autonomously associated with a decrease in production costs.
2.5. The moderator effects: organizational capabilities and cognition and framing
According to the fact that there is no consensus in the academic and empirical literature and following the argumentation of Hart and Dowell (2011), it is needed to identify factors that influence the relationship between CER and CFP. Hart and Dowell (2011) state that however there has been done a lot of research on this subject, there is still little known about which factors influence this relationship. They propose two factors which could possibly influence the capability of businesses to gain economic benefits from a pollution prevention (CER) strategy. These antecedents of environmental capabilities are organizational capabilities and managerial cognition and framing. The moderator organizational capabilities is based on the NRBV theory as presented in section 2.2 and the moderator cognition and framing is based on the NRBV theory and the shareholder- and stakeholder theory which were elaborated on in section 2.3.2.5.1. Organizational Capabilities
This section first describes the organizational capabilities in relation to the NRBV. After empirical evidence is presented and hypotheses are proposed. Organizational capabilities are “the
the purpose of achieving a particular end result” (Helfat & Peteraf, 2003, p. 999). Hart and Dowell
(2011) argue, building upon Teece (1986), that organizational capabilities affect the extent to which firms profit from pollution prevention activities. Profiting from these CER activities is more likely if businesses have strong innovation capabilities related to continuous improvement (King & Lenox, 2002). Thus, combining a pollution prevention strategy with continuous improvement skills, innovation skills, and implementation skills leads to a situation in which firms can profit from a pollution prevention strategy (Christmann, 2000; Hart & Dowell, 2011). Hart and Dowell (2011) prove that having the strategic capability of pollution prevention does even lead to a competitive advantage of having lower costs. In addition, Teece (1986) states that these CER activities and these capabilities are complementary assets. According to Teece (1997, p. 520) it is especially important to see these complementarities between the processes and incentives, in order to understand organizational capabilities and their usage.
According to Sharma and Vredenburg (1998) organizational capabilities enhance stakeholder integration, higher-order learning, and continuous innovation. This is expanded by the leveraging of interfirm relationships (Lorenzoni & Lipparini, 1999), which can be seen as cooperation. Sharma and Vredenburg (1998) conducted a survey amongst 110 Canadian oil and gas companies to test their hypotheses if having a proactive environmental responsiveness strategy leads to having more firm-specific organizational capabilities or not. They conclude that integrating stakeholders, having regular R&D activities and training employees are some of the most important organizational capabilities. Especially integrating stakeholders led to a better way of managing waste reduction and energy efficiency (Sharma & Vredenburg, 1998). Therefore, stakeholder management does play an important role when it comes to profiting from these CER measures (Hart & Dowell, 2011).
Investing in energy-efficient technologies combined with promoting energy management activities results in a cost efficient way of improving energy efficiency (Backlund, Thollander, Palm, & Ottosson, 2012). What is meant by this is that firms can invest in energy efficiency technologies which is capital intensive, but management can also invest in increasing awareness, attention and knowledge amongst employees and partners (training), which is less capital intensive and also has a positive effect on energy efficiency (Backlund et al., 2012). Furthermore, Thollander and Ottoson (2008) state that devoted energy managers are determining factors in driving the energy efficiency in manufacturing companies. Another important factor is having a long-term energy strategy to incorporate energy efficiency and a reduction of energy costs (Thollander & Ottosson, 2008). Following the empirical evidence and the argumentation of Hart and Dowell (2011), the following hypotheses were determined:
Hypothesis 2a: The effect of a company’s investments in pollution preventing technologies and practices on growth in turnover is significantly positively affected by having more organizational capabilities.
Hypothesis 2b: The effect of a company’s investments in pollution preventing technologies and practices on decrease in production costs is significantly positively affected by having more organizational capabilities.
2.5.2. Cognition and framing
This paragraph first relates managerial cognition and framing with the shareholder theory, stakeholder theory and the NRBV theory. After, empirical evidence is presented and hypotheses are proposed. The reason for entrepreneurs to execute CER-related activities can be looked at from both the shareholder perspective and from the stakeholder perspective on management level. From the shareholder perspective, firms prosecute CER activities only because they are forced to, e.g. due to obligations from the government (laws). This is in line with Friedman (1970) who stated that firms always must conform to social- and governmental rules, such as laws and ethical subjects. From the stakeholder perspective, firms know that they have a social responsibility and therefore act more socially. This stakeholder versus shareholder debate can be extended by the cognition and framing perspective of Hart and Dowell (2011).
As mentioned before, the NRBV states that pollution prevention strategies could help firms to increase their efficiency and productivity. Hart and Dowell (2011) argue that managerial cognition and framing affects the ability of firms to gain financial benefits from having a proactive environmentally strategy. This managerial attention and framing of environmental issues is essential in developing a sustainable development strategy according to the NRBV (Hart & Dowell, 2011). In addition to this, King and Lenox (2002) argue that managers only find rewarding opportunities when they are open to them and vice versa, meaning that the expectation of managers is vital in order to find opportunities to profit from pollution prevention strategies. This search for opportunities to profit is strongly affected by the prior expectations of managers if these opportunities exist or not (Hart & Dowell, 2011). Also, whether the organization sees interacting with the environment as a risk or as an opportunity is strongly affected by the cognitive framing of environmentally issues by managers and employees (Tenbrunsel, Wade-Benzoni, Messick, & Bazerman, 2000). Furthermore, businesses can better manage their energy management systems and waste reduction when stakeholders are effectively integrated in the firms’ strategy (Sharma & Vredenburg, 1998), meaning that this integration is valuable for pollution prevention strategies (Hart & Dowell, 2011).
Managers also play an important role in implementing environmental practices. The individual skills and competencies of managers make a vital contribution to the environmental sustainability practices of a firm (Akhtar, Khan, Frynas, Tse, & Rao-Nicholson, 2018). The attitude of the top management plays a crucial role in the scope of environmental management and the decision to what level firms invest in environmentally friendly solutions (Su Yol Lee & Rhee, 2007). The perception of the management on
environmental subjects is important in determining decision making on these environmental issues and are influenced by internal and external forces. These perceptions affect the level of proactivity on the subject of the environment (López-Gamero, Molina-Azorín, & Claver-Cortes, 2011).
Research on cognition and framing has proven that they play major roles when developing environmental (sustainable) competencies (Hart & Dowell, 2011). Moreover, it is important that an increase in pollution control is not related to higher profits, but an increase in pollution prevention actions could be (Hart & Dowell, 2011). Sharma and Vredenburg (1998) identified that managers of proactive and reactive firms both found improving shareholder mission important. Managers of proactive firms are seen as managers that see opportunities, from an economic point of view, in sustainability investments. Managers of reactive firms do not directly see the profitability in sustainability investments, they only invest if something is immediately profitable. While reactive firms see environmental responsiveness as a distracting factor from this goal of improving shareholder value, proactive firms perceived competitive benefits from this environmental response (Sharma & Vredenburg, 1998). These benefits were lower process- and input costs, more innovations, improved firm reputation and better relationships with more stakeholders (Sharma & Vredenburg, 1998). Sharma and Vredenburg (1998) conducted a survey amongst 110 Canadian oil and gas companies to test their hypotheses if having a proactive environmental responsiveness strategy is crucial for increasing shareholder value or not. Sharma and Vredenburg (1998) found, just as Aragón-Correa and Sharma (2003), that proactive firms see environmental responsiveness as an important aspect in order to increase shareholder value. In contrast, reactive firms see environmental issues and strategies as more distinct and even opposing factors. The expectation of the manager is thus vital in order to find opportunities to profit from pollution prevention strategies. This because if a proactive manager wants to incorporate pollution prevention strategies, then it is plausible that he wants to promote this, because he values the environment and he sees opportunities to profit economically from these investments. This has a positive effect on the firms’ image and therefore not only costs are lower, but also sales are higher. The following hypotheses are proposed according to this reasoning:
Hypothesis 3a: The effect of a company’s investments in pollution preventing technologies and practices on growth in turnover is significantly positively affected by managers that see opportunities, from an economic point of view, in sustainability investments.
Hypothesis 3b: The effect of a company’s investments in pollution preventing technologies and practices on decrease in production costs is significantly positively affected by managers that see opportunities, from an economic point of view, in sustainability investments.
2.6. Conceptual model
This conceptual model is based on the theory and the hypotheses. The goal of this thesis is to test if investing in new resource- and energy-saving technologies has a positive effect on the financial performances of businesses and what the role is of both, organizational capabilities and the cognition and framing of the manager in this relation.
3. Methodology
The purpose of this study is to test whether investing in new resource- and energy-saving technologies pays off for manufacturing companies and how this relation is interfered by organizational capabilities and the cognition and framing of the entrepreneur. In order to test the hypotheses that were drawn in previous chapter, this chapter elaborates on the empirical foundation of this study. This is done by discussing the research design, a sample description, an operationalization of the variables, the development of a data analysis technique and by discussing the validity and reliability, and research ethics. This chapter will end by elaborating upon some methodological limitations of this study.
3.1. Research design
In this thesis a mixed-methods research is performed. A mixed-methods research is a combination of both quantitative- and qualitative research methods (Bleijenbergh, 2013). Quantitative research is used to analyse a lot of data from the sample and qualitative research is used to go in depth on this topic and to get to know the reasoning behind the numbers (Vennix, 2010). The essence of using a mixed-methods is that qualitative and quantitative methods complement each other and therefore compensate for each other’s shortcomings (Bleijenbergh, 2013). This study is approached from a deductive perspective. Hypotheses were developed to test the theory of CER technology investments and its influences on CFP. Deduction is characterized by reasoning from the more general to more specific aspects (Vennix, 2010). The hypotheses help to find a pattern within the quantitative date. Furthermore, qualitative data help to interpret the quantitative data analysis results. Due to the differences between the methods, they are both described separately in the next sections.
3.2. Quantitative research method
As part of the quantitative research method, a secondary analysis is performed to analyse the results of the secondary data set and to assess the hypotheses adequately. Babbie (2013) describes a quantitative analysis as “the numerical representation and manipulation of observations for the purpose
of describing and explaining the phenomena that those observations reflect” (p. 414). Secondary
analysis is a research method where data is gathered and handled by the original researcher and reanalysed by another researcher (Babbie, 2013). In this study, the data are thus analysed with a different interest as was originally intended. One of the advantages of secondary analysis is that this study benefits of the work of other professionals (Babbie, 2013). Contrarily, the validity of this design could be a problem. The questions asked in the original survey are close to measuring the interest of this study, but they have not the same intention and are thus little different (Babbie, 2013). The data set is obtained from the European Manufacturing Survey (EMS) and the information in this EMS was obtained through a sector specific survey.
3.2.1. Sample description
The used data dates back to 2015, when the last EMS was conducted. The data used consists out of 177 Dutch manufacturing locations who filled in the survey that was distributed. It is important to know that these are not all different firms, but different locations. The research population in this research consists out of location managers, R&D-managers and production managers.
The goal of the EMS is to map the innovativeness of the manufacturing industry in various European countries and beyond (Ligthart, Vaessen, & Kok, 2015). The EMS consists out of questions on the topics of, for example: management of production modernization, the use of new and eco-efficient production technologies, and central production performance indicators. Not all data was used in this thesis to answer the hypotheses. Only the data that was needed, was obtained and used. In the next section, an extensive overview of the variables is presented.
3.2.2. Operationalization
The operationalization of all variables is presented in this section. It is defined what every variable represents in the analysis. Besides, it makes sure that it is made explicit what every variable means in this research and how it is measured. First the dependent variables are discussed and after the independent-, moderator-, and control variables. An empty format of the complete survey is shown in appendix A. Which questions of the EMS are used in the analysis is shown in table 1 ‘operationalization scheme’.
Dependent variables
Revenue
The first dependent variable in this research is the annual revenue. This variable is measured by comparing the annual revenue of 2014 with the annual revenue of 2012 as can be seen in appendix B. This way a change in revenue is measured instead of the usual one-moment figures in many other studies. Measuring it this way makes it more plausible to measure the change in revenue due to the investments in CER. This variable is measured in the EMS as annual revenue in 2014 (and in 2012) as figures of million euros. Thus, this variable has a ratio measurement level.
Production costs
The second dependent variable in this research are the production costs per unit. Within the EMS this data is gathered as a percentage as can be seen in appendix A and table 1. The categories of this question are therefore: decreased with over 10%, decreased up to 10%, decreased up to 5%, remained equal, increased up to 5%, increased up to 10%, and increased with over 10%.
Independent variable
Corporate Environmental Responsibility
CER is the only independent variable in this research that is not a moderator- or control variable. Within this research CER is measured by the use and the extent of this usage of energy- and resource-efficient technologies as can be seen in appendix B. In the EMS this is measured by three questions. The first question is about organizational concepts aimed at energy- and environmental control. The second question is about the application of energy- and resource saving technologies. The third question is about measures that firm locations took to reduce energy consumption. Firms in the EMS do either score a 0 (for not having the technology) or a 1 (for having the technology).
Moderator variables
Within the conceptual model there are two moderator variables: organizational capabilities and cognition and framing of the manager. According to the academic literature both have a positive effect on the relation between CER and CFP
Organizational capabilities
According to the theory, organizational capabilities are mainly the stakeholder integration-, learning-, innovation-, and cooperation capabilities of a firm that can be used to achieve competitive advantage when enhancing CER. According to Hart and Dowell (2011) firms can only profit from having a pollution prevention strategy when this is combined with organizational capabilities. Therefore, this moderator is an important one within this research. Within this thesis, this variable is constructed out of five different questions of the EMS that describe the four most important capabilities according to the theory as can be seen in table 1. Question 5.2 is about learning, question 6.1 is about cooperation, question 11 is about open innovation, and questions 18.1 and 18.2 are about R&D.
Cognition and framing of the manager
Cognition and framing cover the manager’s perception of the profitability and usefulness of acting in an environmentally responsible way. It is argued that managerial cognition and framing is about if managers see economic opportunities of sustainability investments or not. Firms and managers can have multiple reasons to operate CER activities. It is assumed that if they act in line with the shareholder perspective they will merely invest in sustainable activities because of external pressures, for example complying with legislation and regulations, without expecting much financial benefit of this. In contrast, if firms are guided by the stakeholder perspective it is assumed they expect positive revenues from these investments. For example, improving the corporate image among their customers or other stakeholders. The expectation of the managers is thus vital in order to find opportunities to profit from pollution prevention strategies. This is based on the following reasoning: if a manager
