’ total emissions in Sustainable Supply Chain Management Environmental Sustainability: Impact of Stakeholder pressure on Organizations

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Environmental Sustainability: Impact of

Stakeholder pressure on Organizations’ total

emissions in Sustainable Supply Chain Management

Master thesis

MSc. Supply Chain Management

University of Groningen

Faculty of Economics and Business

by

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Abstract

Organizations need to develop themselves constantly regarding sustainable supply chain management (SSCM) but are exposed to different kinds of pressure; internal and external. Despite the SSCM improvements, organizations’ total emissions keep fluctuating and have attracted attention on a worldwide scale. This study shows what the impact of both regulatory- and organizational stakeholder pressure is on organization’s total emissions in SSCM using secondary data stemming from four databases, since organizations tend to make SSCM decisions more in favour of their stakeholders according to the stakeholder theory. The analyses are performed through the hierarchical moderated regression method by making use of the SPSS-program. Interestingly, the aforementioned relations can be weakened or amplified via organizational slack of resources (e.g. financial- and managerial slack). Organizations with more slack often react differently from organizations with less slack to the pressure of stakeholders, which will be explained via the resource-based view and the bounded rationality with a lens of the upper echelon theory stating that decision-makers are bounded to their own rational and perspectives when facing situations with decisions.

Acknowledgement

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Measurement ... 18 Dependent variable ... 18 Independent variables ... 19 Moderators ... 20 Control variables ... 20 Data analysis ... 21 Results ... 21 Control Variables ... 26 Hypothesis 1a ... 26 Hypothesis 1b ... 26 Hypothesis 2a ... 27 Hypothesis 2b ... 27 Hypothesis 3a ... 28 Hypothesis 3b ... 28 Discussion ... 29

Limitations and future research ... 33

Conclusion ... 34

References ... 36

Appendices ... 43

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Introduction

The importance of organizations to make environmentally sustainable decisions is frequently discussed (Wu & Pagell, 2011; Meixell & Luoma, 2015). Environmental sustainability, by the Brundtland Commission, is the ability to meet the needs of the present population without compromising abilities of the future population in their needs (Clift, 2003). Therefore, organizations manage decisions to reach their sustainable supply chain (SC) targets (i.e. emission reduction, scope and duration) (Dong et al., 2018). Emission reduction is an environmental indicator to gain performance insights of an organization’s SC (Acquaye, Genovese, Barrett & Koh, 2014). This is important for managing a Sustainable Supply Chain (SSCM) since organizations’ total emissions continuously fluctuate and can be highly polluting and costly, while reduction can increase sustainability and save money (Hart & Ahuja, 1996). SSCM is thereby seen as a model for organizations to meet stakeholder wishes, improve profit and competitiveness while achieving environmental- & social responsibility in SCs (Faisal, Al-Esmael & Sharif, 2017). Society demands and pressures organizations increasingly to meet their wishes by upholding a higher standard regarding sustainability and environmental performances (Meixell & Luoma, 2015). SSCM is “the management of material, information,

capital flows and cooperation among companies along the SC while taking goals from all three dimensions of sustainable development (i.e. economic, environmental and social) into account, which are derived from customer and stakeholder requirements.” (Beske & Seuring, 2014 p.

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SC-5 members (Kavusan & Frankort, 2019). However, large numbers of interacting members make interference complex in entire SC-properties and having access to complete information; this increases through addressing uncertainty encompassing environmental decisions and SC-members due to limited information about and consequences of environmental issues on other sustainable dimensions (Matos & Hall, 2007; Wu & Pagell, 2011).

A main literary driver for organizations’ total emissions in SSCM is stakeholder pressure (Roehrich, Grosvold & Hoejmose, 2014; Kirchoff et al., 2016), since external stakeholder expectations often must be incorporated in SSCM (Wu & Pagell, 2011; Meixell & Luoma, 2015). A trade-off between SSCM-practices for long- vs. short-term profitability of organizational decision-making is necessary since stakeholders have different aims and priorities (Wu & Pagell, 2011). For example, managers focus on short-term revenues, while customers are concerned with overall liveability and environmental impacts of organizational processes (Balasubramanian, Shukla & Chanchaichujit, 2020). Freeman defined (1984, p. 25) stakeholders as “any group or individual who can affect, or is affected by, the achievement of

the organization’s objectives.” while stakeholder pressure is “the situation in which an organization is held accountable for its actions and decisions regarding product design, sourcing, production or distribution to stakeholders” (Parmigiani, Klassen & Russo, 2011, p.

215). Due to the growing SC-stakeholder pressures, organizations are facing decisions: which stakeholder-expectation is more important and should be satisfied (Kirchoff et al., 2016). Two stakeholder groups are used in this research: regulatory stakeholders (governments, trade associations, informal networks and competitors) and organizational stakeholders (customers, suppliers, employees and shareholders) (Henriques & Sadorsky, 1999).

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6 “What is the impact of external stakeholder pressure(s) on organizations’ total emissions in

SSCM?”

Organizations with a limited slack of resources (e.g. managerial, financial or technical resources) often oblige increasingly to external stakeholder pressures to maintain their organizational legitimacy (Xiao et al., 2018). This research focuses on financial- & managerial slack as the most important two means regarding organization’s total emissions and emission reduction in SSCM (Greve, 2003; Zhang et al., 2018). Organizations with slack resources have more opportunities to experiment with pursuing goals since less performance monitoring, resources and managerial patience to pursue goals are present (Greve, 2003). These organizations also address problems individually since resources are available, while resource poor organizations prioritize resources to the highest priority problem (Audia & Greve, 2006). To formulate a total emissions SSCM-strategy in these situations, decision-makers are limited in information and resources and bound to their own logical reasoning capabilities and experience, also known as ‘bounded rationality’ (Alexander, Walker & Naim, 2014). Organizational slack of resources is expected to play a moderating role on the aforementioned relationship, which is associated with the following question:

“Is the relation between stakeholder pressure(s) and organizations’ total emissions in SSCM, moderated by the organizational slack of resources?”.

To determine if organizations’ total emissions in SSCM is driven by “managing for stakeholders”, the stakeholder theory is used since stakeholders play a key-role in facilitating and hindering effective SCM in long-term survival (Meixell & Luoma, 2015). The theory emphasizes active management of the organizational environment with its relationships and shared interests of the stakeholders to create value (Freeman, 2010; Meixell & Luoma, 2015; Richter & Dow, 2017). The theory also resembles a trade-off: creating value with stakeholders and having access to more resources or creating value and neglecting stakeholders, leading to decreasing legitimacy (Freudenreich, Lüdeke-Freund & Schaltegger, 2020). The

resource-based view (RBV) is used to determine if financial slack moderates the relationship between

stakeholder pressure(s) and organization’s total emissions in SSCM. RBV proposes that organizations’ internal resources (e.g. financial slack) primarily drive sustainable competitive advantages based on heterogeneity in resource possession, it is also an important driver for managerial discretion and decision-making power (Kull, Mena & Korschun, 2016). Bounded

rationality, for managerial slack, resembles that decisions are not only influenced by the

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7 decision-makers (Roehrich et al., 2014; Simon, 2000). The upper echelon theory lens elaborates that managers have unique interpretations of the strategic situation faced by the organization and react based on their own idiosyncratic interpretation of this situation (Kumar & Paraskevas, 2018). This interpretation is affected by previous experiences, one’s personality & values and evolves from the key-assertion that organizations function under bounded rationality constraints (Hambrick, 2007).

This research extends academic literature by contributing knowledge about stakeholder pressures, organizations’ total emissions in SSCM and the slack of organizational resources. Through stakeholder theory, this study addresses a diverse perspective on the impact of stakeholder pressure(s) on the total emissions. Empirically, this research contributes to literature by demonstrating the impact of different stakeholder pressures on organizations’ total emissions in SSCM. The RBV-perspective regarding financial slack as well as the bounded rationality with a lens of the upper echelon theory of organizational decision-makers may possibly affect total emissions as a SSCM-target. Therefore this study aims to provide insights to make appropriate SSCM decisions regarding emissions for organizations.

Theoretical background and hypotheses

The following sections discuss the main focus areas of this research, which form the conceptual model (figure 1). First, organizations’ total emissions in SSCM will be discussed followed by stakeholder pressures, the stakeholder theory will then be elaborated to justify hypotheses 1a and 1b. Continuing, financial slack of resources will be explained together with the RBV to justify hypotheses 2a and 2b. Managerial slack of resources will be explained together with bounded rationality with a lens of the upper echelon theory to justify hypotheses 3a and 3b.

Organizations’ total emission in SSCM

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8 1996). Disregard of environmental considerations in the management of organizations’ SCs cannot occur anymore since stakeholder groups keep organizations accountable for their environmental performances; new legislations are constantly imposed and their clientele is demanding more (Acquaye et al., 2014; Zissis, Saharidis, Aktas & Ioannou, 2018). This indicates that there is still room for improvement regarding the total emissions of organizations. For example, SSCM entails sustainable decision-making about maintaining a balance among elements of the world’s ecosystem through respecting environmental- and social-concerns, but pursuing economic business objectives at the same time (Faisal et al., 2017). So, organizations can make related SSCM target-decisions to directly reduce their environmental- and social impacts by considering practices within the company (internal) or among organizations (external) (Gualandris, Golini & Kalchschmidt, 2014). These practices often entail more responsible behavior towards the environment through organizational performance (Faisal et

al., 2017).

Internal practices include for example certifications, life-cycle analysis and environmental management systems which help to reduce emissions or prevent pollution (Gualandris et al., 2014). The total emissions can also be managed through two primary means; 1) control: since emissions are trapped, stored, treated and disposed by pollution control equipment; 2)

prevention: emissions are reduced, changed, prevented or all together through better use of

processes and innovation (Hart & Ahuja, 1996). External practices often include improvement structures and mechanisms for environmental performances at supplier-base positions, implemented at corporate-level (Awaysheh & Klassen, 2010; Gualandris et al., 2014).

Stakeholder pressure

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9 resembling a cost-benefit calculation before pressure compliance (Colwell & Joshi, 2013). The calculation entails a trade-off between the compliance costs (e.g. environmental investments) vs. the compliance benefits (e.g. promoting social welfare leading to social support for resources, contacts or information) (Colwell & Joshi, 2013). The power of organizational

stakeholder pressure depends on how much an organization relies for example on their

customers and suppliers for resources. These customers, suppliers or both could demand more environmental objectives, which forces the organization to cooperate with them (Zhu & Sarkis, 2006). Thus, higher organizational pressure compliance is necessary to improve environmental organizational performance (Zhu & Sarkis, 2006).

Organizational stakeholder pressure is crucial in gaining and having competitive advantages

in order to survive and are directly related to organizations or SCs with processes and practices, these stakeholders can impact financial performances of an organization or SC (Xiao et al., 2018; Henriques & Sadorsky, 1999; Zhu & Sarkis, 2006). Employees could for example ask for better working conditions, equality in treatment, transparency in working conditions; whereas customers can ask for more environmentally friendly products or services (Perrini, Russo, Tencati & Vurro, 2011). Regulatory stakeholder pressure is also important in this research since this group can regulate, communicate and mobilize public opinions (Zhu & Sarkis, 2006). Regulatory stakeholders have the ability to determine regulations or convince governments to set particular standards or rules regarding a specific subject (Henriques & Sadorsky, 1999; Zhu & Sarkis, 2006). For example, governments can set environmental regulations that push organizations to comply with these laws; trade associations can push organizations to comply with social- and environmental initiatives related to the production environment (Darnall, Henriques & Sadorsky, 2010).

Stakeholder theory

‘Managing for stakeholders’ has always been the way to build and lead a successful company (Freeman, 2010). The impact of stakeholder pressure on organizations’ total emissions in SSCM can be explained via the stakeholder theory. Freeman (1984) stated that stakeholder

theory is about a system of groups and individuals that can affect an organization, managerial

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10 perspective change on this theory has occurred. Previously, the focus was on ‘financiers first’ priority rule: decisions should be lucrative on the economic aspect and lead to maximization of the organization market value (Freeman, 1984). Presently, the focus is on relationships with stakeholders and their shifting focus toward sustainable thinking and goal setting (Meixell & Luoma, 2015). Also because of stakeholder-involvement in the SSCM-target decision-making processes and the subsequent continuous trade-off between which interests to satisfy (Freeman, 2010). Through balancing stakeholders interests, a link between conflicting requests based on ethical aspects and SSCM-targets can be made (Reynolds, Schultz & Hekman, 2006). It is important to create value for stakeholders, so the organization does not lose stakeholder support (Freeman, 2010; Reynolds et al., 2006). Therefore, stakeholders can have a strategic position from where they can pressure SSCM; if stakeholders disagree with organizational decisions, support can be cut off and access to crucial resources can be denied (Hofmann, Busse, Bode & Henke, 2014).

Hypotheses: Stakeholder pressure and organizations’ total emissions in SSCM

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11 and not conforming, are more vulnerable to negative claims about negligence or irrationality. However, to gain legitimacy for resources and access to information, necessary to survive, organizations need to engage with regulatory stakeholder expectations (Colwell & Joshi, 2013; Parikshit Charan & Murty, 2018). Governmental regulations make it more attractive to conform to stakeholder requests via subsidies for environmental practices (Delmas & Montes-Sancho, 2011). Therefore, the relationship between regulatory stakeholder pressure and organizations’ total emissions in SSCM leads to the following hypothesis:

H1a: Higher regulatory stakeholder pressure to be more sustainable makes organizations decrease, and adhere to, their total emissions in SSCM.

Organizational stakeholder pressure is seen as a highly influential stakeholder pressure across every situation (Meixell & Luoma, 2015). Customers frequently demand that organizations should be held more accountable for SC-situations and can internally pressure organizations to increase managerial support regarding environmental sustainability, in cooperation with employees (Awaysheh & Klassen, 2010; Swaim, Maloni, Henley & Campbell, 2016). Household customers are even willing to participate in public boycotts against the organization if it is not having any environmental targets or strategy (Darnall et al., 2010). Employees could, in extreme cases, engage in public whistle-blowing exposing organizations’ negligent behaviour regarding environmental targets (Darnall et al., 2010). Furthermore, suppliers and shareholders could coercively pressure organizations via cancel on purchasing or selling agreements, as well as blacklisting or even not considering an organization for future projects to implement environmental targets (Balasubramanian et al., 2020; Darnall et al., 2010). Therefore, the relationship between organizational stakeholder pressure and organizations’ total emissions in SSCM leads to the following hypothesis:

H1b: Higher organizational stakeholder pressure to be more sustainable makes organizations decrease, and adhere to, their total emissions in SSCM.

Organizational slack of resources

Slack resources (e.g. managerial, financial or technological) are used to stabilize organizational operations via absorbing excess resources of growing periods and allowing organizations to proceed their ambitions and commitments in times of distress (George, 2005). Known as “The

difference between the total amount of available resources and the total amount of resources necessary to maintain synchronisation between the organization and its environment”

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12 addressed as most important categories (Greve, 2003; Zhang et al., 2018;). Both slack resources should not be considered equally; they are managed differently in divisibility and fungibility, which together form the ‘stickiness’ of resources (Vanacker, Collewaert & Zahra, 2017; Mishina, Pollock & Porac 2004). Divisibility is the easiness in resource-amount-variability according to demands, fungibility refers to whether a resource can be used interchangeably for multiple ends (Mishina et al., 2004). Together, these categories form the degree of stickiness. For example, human capital (e.g. knowledge, skills) is more context dependent and closer tied to organizational routines/practices than financial resources, so human capital is more sticky; knowledge is harder transferable across different task-situations than financial means (Mishina

et al., 2004).

High profitability levels are often regarded as important indicators of organizational resource slack. Organizations can accumulate slack resources (e.g. experienced staff/managers, new technologies or sufficient financial resources), which allows them to compete more confidentially (Xiao et al., 2018). Managers, for example, use slack for multiple purposes: to stabilize organizational core activities and promote strategic value-creating behaviour or inefficient value-destroying behaviour (Vanacker et al., 2017). Financial slack is the easiest interchangeable resource, which provides managers the greatest discretion to reallocate them (Vanacker et al., 2017). These resources are financial means which could be maintained through holding money or lending less than the potential amount that originally could be lent (Daniel, Lohrke, Fornaciari & Turner Jr., 2004; Greve, 2003).

Managerial slack represents knowledge, experience and skills of managers or employees (e.g.

human capital), embedded in or gathered through specific tasks or organizational contexts (Mishina et al., 2004). This slack can be beneficial for organizations since it is difficult for competitors to obtain, which makes copying organizational strategies even harder (Mishina et

al., 2004). Organizations which employ more skilled workers are better in addressing

unforeseen environmental disasters based on prior knowledge, which is crucial for SSCM-targets (Adomako & Phong Nguyen, 2020).

Resource-based view

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13 resources (Hitt et al., 2016; Barney, 1991). Primarily, the RBV focussed on internal controlling or owning resources to gain competitive advantage (Barrutia & Echebarria, 2015); each organization has its unique set of resources based on the heterogeneity of organizations in their industries (Kull et al., 2016). However, these resources have to fit the VRIN-framework (valuable, rare, inimitable, non-substitutable) to be potential sources of competitive advantage (Barney, 1991). Valuable resources enable organizations to implement practices or strategies that improve organizational efficiency and effectiveness; resources are rare when they are unique in implementing or use (Barney, 1991). Inimitability resembles the difficulty of obtaining resources for organizations that do not possess them; non-substitutable are unique in kind and hard to replace resources (e.g. skills or knowledge) (Barney, 1991). Tangible resources (e.g. financial means) are easier to imitate or substitute than intangible resources (e.g. knowledge) (Kull et al., 2016). Therefore, organizations with financial means that want to have sustainable competitive advantage need to create stakeholder-value through differentiating themselves (Kull et al., 2016).

Hypotheses: Financial slack of resources

A greater amount of organizational slack provides organizations with a pool of resources, while the opposite is true for less slack (Tyler & Caner, 2016). From the RBV-perspective, this study proposes that organizations with less financial slack of resources need to comply more and more often with stakeholder pressures regarding organizations’ total emissions in SSCM based on the limited access to valuable resources. Also for the opposite, when organizations have enough financial slack of resources there is less need to comply to stakeholder pressures based on the access to valuable resources.

Regulatory stakeholder pressure and financial slack of resources

Regulatory stakeholders are seen as the most important forces which can influence SSCM by limiting the decision-makers discretion (Vanacker et al., 2017). However, when an organization has a substantial amount of financial slack it can influence the stakeholders via ‘political connectedness’. This refers to “the extent to which an organization’s senior management

actively invests time in engaging and influencing government policies and regulations” (Boso et al., 2017 p. 250). This implies that a more profitable organization can lobby with politics for

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H2a: The impact of regulatory stakeholder pressure on organizations’ total emissions in SSCM will be weaker when financial slack of resources is available.

Organizational stakeholder pressure and financial slack of resources

Greater financial slack is expected to create more financial support for environmental sustainability issues, since an organization with a substantial amount of financial slack is better able to participate in public relation efforts (Boso et al., 2017). When organizations experience more excess of financial means, it can be more lucrative to pursue in social engagement (Julian & Ofori-Dankwa, 2013); because organizations are more able to shape a public opinion and capable of blurring negative consequences related to environmental decadence (Boso et al, 2017). However, decision-makers evaluate continuously existing routines by comparing their organizational performance with set targets (Wiengarten, Fan, Pagell & Lo, 2019). So, the organizational stakeholder pressure could also be internally exerted; when these organizations have financial slack in a period of performing well, they believe that future performances are likely to decrease and therefore these organizations take measures to avoid financial loss (Wiengarten et al., 2019). Furthermore, more financial slack helps an organization in legal support to defend itself against potential crisis emerging from environmental decadence (Boso

et al., 2017). This implies that when a certain amount of organizational stakeholder pressure is

experienced regarding organization’s total emissions in SSCM, so the pressure is externally exerted, but the amount of financial slack of resources is large enough, the adaptation to the organizational stakeholder pressure becomes stronger. This leads to the following hypothesis:

H2b: The impact of organizational stakeholder pressure on organizations’ total emissions in SSCM will be weaker when the pressure is put internally and stronger when the pressure is put externally, when financial slack of resources is available.

Bounded rationality with a lens of the upper echelon theory

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15 (Autry & Golici, 2010), since organizations are not self-contained nor self-sufficient (Kassinis & Vafeas, 2006 p. 146).

The role of the decision-maker (e.g. employee, member of the BoD or TMT) in the organization regarding SSCM decision-making is important (Kumar & Paraskevas, 2018); managerial slack of resources is linked to this. Top-managers seem to make more radical decisions regarding total short-term performances (i.e. efficiency or utilization) of an organization (Xiao et al., 2018). While middle-managers or even employees make less radical decisions: only affecting their own department or specialism (Wiengarten et al., 2019). Organizations with less managerial slack seem to comply more with regulatory pressure (Boso et al., 2017). However, buffering managerial slack, tailored to future challenges and opportunities, is extremely hard; retaining this is extremely costly which leads to lower organizational performances due to not investing in exploration of skills, knowledge and abilities (Vanacker et al., 2017; Mishina et al., 2004). Therefore, compliance with pressures provides organizations access to valuable information, flexible resource allocation and lower costs (Boso et al., 2017).

The upper echelon theory states that managers have a unique interpretation of strategic situations faced by the organization and react based on their own idiosyncratic interpretation (Kumar & Paraskevas, 2018; Simon, 2000). This interpretation is affected by previous experiences, own personality & values and evolves from the key assertion that organizations function under bounded rationality constraints (Hambrick, 2007). Organizations are limited in gathering and processing information, which is needed to make optimal SSCM decisions. Investing in environmental sustainable initiatives is often risky and costly, therefore the role of TMT or BoDs is important; the reliance on them is large regarding decisions (Kumar & Paraskevas, 2018). This is grounded in the existence-level of managerial discretion in an organization emanated from environmental conditions (e.g. organizational growth), organizational factors (e.g. board composition) and the executive self (e.g. ambiguity-tolerance) (Hambrick, 2007). The upper echelon theory provides predictions about organizational outcomes and the level of discretion: more discretion results in more managerial characteristics reflected in the organizational strategy and performances. Less discretion results in less tolerance and managerial disregard (Hambrick, 2007).

Hypotheses: Managerial slack of resources

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a lens of the upper echelon theory, this study proposes that organizations with less managerial

slack need to comply more with stakeholder pressures regarding organizations’ total emissions in SSCM, based on the limited access to valuable resources. Also for the opposite, enough managerial slack represents less need to comply to stakeholder pressures.

Regulatory stakeholder pressure and managerial slack of resources

When organizations do have internally sufficient managerial slack associated with organizational environmental strategies, the impact of regulatory stakeholder pressure is weaker or even does not even exists (Clemens & Douglas, 2006). However, having workers who are more aware of environmental issues provides organizations with opportunities to respond more quickly to unforeseen environmental events (Adomako & Phong Nguyen, 2020). Organizations are also better equipped to challenge certain regulatory pressures and are aware why certain pressure is exposed, which enables them to make decisions in advance to not be exposed to these pressures (Clemens & Douglas, 2006; Adomako & Phong Nguyen, 2020; Sayed et al., 2017). This leads to the following hypothesis:

H3a: The impact of regulatory stakeholder pressure on organizations’ total emissions in SSCM will be weaker when managerial slack of resources is available.

Organizational stakeholder pressure and managerial slack of resources

As mentioned earlier, the management of organizations is concerned with decision-making regarding organizations’ total emissions in SSCM (Kumar & Paraskevas, 2018; Santos & García, 2007). Top managers have a critical role in this legitimating human resource practices, allocation of other resources and arranging agreements within the organization (Järlström, Saru & Vanhala, 2018). Since organizational stakeholders entail a wide variety of people and demands, managers seek to find multiple outcomes to satisfy their stakeholders’ expectations, internal and external, through knowledge and skills (Huang & Li, 2012). This implies that the more an organization is involved with organizational stakeholders, the more managerial support regarding environmental sustainability is examined which results in more responsible organizational behavior (Järlström et al., 2018; Swaim et al., 2016). This leads to the following hypothesis:

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17 The aforementioned hypotheses are the input for the conceptual model, figure 1.

Figure 1 – Conceptual model

Methodology

Data Collection and Sample

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18 (GhG) emissions and internal energy policies (Andrew & Cortese, 2011). Also for policymakers, academics, educators, investors and creditors this is a useful source of information (Andrew & Cortese, 2011; Depoers et al., 2016).

Figure 2 – Histogram total emission World & USA

Furthermore, CompuStat Capital IQ – Fundamentals Annual database was used as secondary data-source to extract financial information about the selected organizations for this research. This database provides insights in complex business information, relevant to determining the organizational slack of resources and the size of the organizations. Information about the TMTs or Board compositions was derived from the BoardEx database, which provides “access to

extensive data on the boards of publicly listed and notable private companies in all regions of the world.” (BoardEx, 2020). Financial data was extracted from CompuStat for the years 2010

until 2018 and managerial data was extracted from BoardEx for the years 2013 until 2017. The timeframe of the extracted CompuStat data was needed to be able to research the organizational pressure and the financial slack. Regarding the regulatory pressure, data is extracted from the International Energy Agency (IEA) database about countries’ share of renewable energy. The IEA is an autonomous worldwide intergovernmental organization that acts as a policy-advisor via authoritative analysis regarding the provision of secure and sustainable energy for the globe (IEA, 2021). Data from the IEA database about the renewable energy share is obtained for the years 2013 until 2017, since no further years were yet available. In total, a timeframe of eight years was used to test the hypotheses of the suggested model (figure 1).

Measurement

Dependent variable

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19 that year, to express the organizations’ total emissions as a percentage of the organizational revenue. Given that intra-organizational targets are part of the organizations’ SSCM strategy: “pro-active environmental practices that take account of all energy, material consumption,

emission and waste related to an organization’s “in-house” processes.” (Shi, Koh, Baldwin &

Cucchiella, 2012 p. 56). Scope 1 emissions are direct emissions from organization-owned and controlled resources (e.g. emissions released to the atmosphere direct stemming from activities), Scope 2 emissions are indirect emissions generated through purchased energy from utility providers (e.g. emissions released to the atmosphere through process-energy consumption) (PlanA Academy, 2021). Thus, the total emissions of scope 1 + 2 represents data about organizations’ gross global emissions in metric tonnes CO2. All data was retrieved from the CDP-dataset since an entire part of the questionnaire was about emission and reduction initiatives (e.g. C8.2 and C8.3), these questions can be found in appendix 1 (CPD Climate Change 2019 Questionnaire).

Independent variables

Organizational pressure

The organizational pressure is operationalized in this study via two aspiration levels: social- and historical aspiration level using organizations ROA (Greve, 2003; Wiengarten et al., 2019). Organization’s ROA represents their overall financial performance of an accounting year and it is a frequently used measure for the aspiration levels (Greve, 2003). The social aspiration level is calculated with data retrieved from CompuStat regarding the ROA’s as the average of other organizations’ performance via calculating the average ROA of an particular industry based on de GIC code (4 digits) minus the ROA of a particular year from the focal company (Greve, 2003). The historical aspiration level is calculated also with data retrieved from CompuStat regarding the ROA’s by taking the focal firms ROA at time lag T0 (i.e. the year you would like to calculate) minus the sum of the ROA’s of the previous two years and divide it by two: [ROAt0 – (ROAt-1 + ROAt-2)/2] (Wiengarten et al., 2019).

Regulatory pressure

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20 change in the share of renewable energy is resembling the demanded level set by the government and to which extent the companies are adhering to this level throughout the years. So, the change in years represents the organizational commitment to governmental demands regarding SSCM targets. Explaining this, a country which already reached the set level of renewable energy regarding sustainability does not have to punish companies with penalties for not reaching their governmental goals.

Moderators

Financial slack

Financial slack is seen as utilizable financial capital of organizations that can be used to achieve its goals (George, 2005). Therefore, financial slack is operationalized via three types of slack: available, absorbed and potential (Tyler & Caner, 2016). Available slack was calculated through dividing the current assets of an organization through the current liabilities, and measures the uncommitted liquid resources to liabilities (Tyler & Caner, 2016). Absorbed slack was calculated through dividing the amount of working capital through the amount of sales, this slack represents the capital utilization of the organization. Lastly, potential slack refers to the capability of an organization to borrow financial means further and is measured via the equity-to-debt ratio (Tyler & Caner, 2016).

Managerial slack

Managerial slack is known as knowledge, experience and skills of managers or employees (e.g. human capital), embedded in or gathered through specific tasks or organizational contexts (Mishina et al., 2004). Managerial slack has been operationalized via the experience in years of the TMT-members per organization, because inside views into different roles and functions can allow executives to investigate other strategies and relations moving towards environmental sustainable choices or strategies (Kumar & Paraskevas, 2018). This information will be extracted from the database of BoardEx.

Control variables

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21 less than 50 (< 50); “medium” organizations have between 50 and 1000 (50 < 100) and “large” organizations have more than 1000 (> 1000) employees. Data was extracted form CompuStat Capital IQ – Fundamentals Annual database.

Data analysis

The focus of this study is on regulatory- and organizational pressure put on organizations’ total emissions in SSCM to, eventually, reduce emissions. It is likely that a time lag is used in decision-making regarding emission reduction; organizations often base their decisions on the data of the previous accounting year and governments cannot decide about a certain renewable energy share and at the same time exert pressure on organizations for an entire year. The aim of this study is to research the strength of the impact of regulatory- and organizational pressure on the total emissions of organizations in SSCM. Therefore, time-lags of zero and one year were employed in the data analysis, which has also been extended to the moderating effects of financial- and managerial slack to research also the strength of the moderating effects on the total emissions of organizations. All analyses have been performed with IBM SPSS Statistics v. 26. The stated hypotheses were tested via the hierarchical moderating regression method (Zhu & Sarkis, 2006), which will be explained in detailed steps in the results to provide guidance through result interpretation. All the variables; dependent, independent and moderators, have been calculated to standardized values to have equal scales which were needed for the hierarchical moderated regressions to prevent data misinterpretation and multicollinearity (Swaminathan, Groening, Mittal & Thomaz, 2014).

Results

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22 TMT experience in years. Lastly, for the fourth round it was necessary to see which moderator was promising in round three; Available slack and TMT experience in years were then multiplied with all the independent variables (separate) to calculate their moderating effect. So, the fourth round included all of the variables mentioned in the first three rounds and the calculated moderating effects. All the regressions are visible in tables 3 until 6.

Subsequently, the hypotheses have been tested with a one-year time lag. There was an expected delay in decision making based on financial results of the previous year and also regarding the renewable energy share by the government. The time frame used starts with the dependent variable, Total Emission, from the direct effect (i.e. time lag of zero: T0) regressed with the independent variables, moderators and moderating effects at a time lag of one year (T-1). Visible in table 1 are the descriptive information of the data, mean values, standard deviations and the correlation values of the variables used for this study. All original, non-standardized values. Visible in table 2, again the descriptive information but with standardized values.

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Table 2: Descriptive statistics and Pearson Correlation coefficients – standardized

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Table 4 : Hierarchical regression analysis per round – Round 2

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26 Control Variables

Regarding the control variables which were present in all the performed regressions, employees/organization size and R&D expenditure, no significant relations are found with coefficients of -0.022 and 0.013 respectively, which are nonsignificant at P-values of 0.786 and 0.658. This indicates that both do not affect the direct relationships of regulatory- and organizational stakeholder pressure with organizations’ total emissions in SSCM. Also, the direct possible relationships of the financial- and managerial slack with organizations’ total emissions in SSCM are not affected by the control variables. Lastly, the control variables are not affecting the moderated relationships onto the organizations’ total emissions in SSCM.

Hypothesis 1a

As visible in table 6, no significant effect is found for the relationship between regulatory stakeholder pressure and organizations’ total emissions in SSCM with a coefficient of 0.110, which is not significant at P = 0.397. This is not consistent with the prediction of this study. Based on theory it was expected that regulatory stakeholder pressure would lead toward a decrease in organizations’ total emissions in SSCM. However, this is not the case so therefore

hypothesis 1a is rejected.

Hypothesis 1b

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27 negative coefficient, it can be concluded that the direct effect of historical aspiration does not trigger organizations to reduce their emissions.

In addition, the results show (table 4) that the adjusted R square by only entering the independent variables was 0.013. This means that the variance in this regression is explained by 1.3% of the included variables in this regression. Which is not really strong, so the results are partially consistent with hypothesis 1b, stating that higher organizational pressure to be more sustainable makes organizations decrease, and adhere to, their total emissions in SSCM. Social

aspiration supports this hypothesis, while historical aspiration does not.

Hypothesis 2a

Including the moderating dimensions, table 6 also shows these effects. First, as stated in

hypothesis 2a, it is expected that the impact of regulatory stakeholder pressure on organizations’

total emissions in SSCM will be weaker when financial slack of resources is available. Based on the analysis the following can be derived. When the difference between years in renewable energy share in a country is large, this is not sufficient to lead to emission reduction with a coefficient of 0.110, which is not significant P= 0.397. Looking at the role of financial slack, it can be concluded that organizations tend to use this slack to reduce their emissions at whatever the share of renewable energy in the country is with a coefficient of -0.927, which is significant at P < 0.001. However, when organizations experience a high share of renewable energy at country level and high financial slack, they will reduce their emissions, but in a lesser amount (coefficient of 0.152, which is significant at P < 0.05). So, organizations with a high financial slack have enough financial means to pay for eventual penalties imposed by the government for not or insufficiently reducing emissions. This implicates that continuing doing business as usual is delivering more results than reducing emissions according to governmental demands. In the opposite case, when organizations have too little financial slack, they will reduce emissions more because they cannot pay the eventual governmental penalties. So, the two effects can be seen as counterbalancing: Organizations that have financial slack are reducing their emissions because they want to reduce them because of the direct effect of financial slack, but the effect is partially reduced by the moderation. Simultaneously, organizations that do not have slack will reduce their emissions only when it is requested at the country level.

Hypothesis 2b

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28 Organizational pressure measured via historical aspiration level and thus internally put on the organization is having a direct effect on total SSCM emissions; which does not triggers an organization to reduce emissions when their ROA is higher compared to their past ROA’s and those of competitors. It is found that this is especially the case when the organization has a high level of financial slack (coefficient of -0.312, which is significant at P < 0.001). Contrary, when financial resources are scarce, the emission reduction efforts may be higher to be able to enlarge the ROA. Furthermore, organizational pressure measured via the social aspiration level, and thus externally put on the organization, is having a direct effect on organizations’ total emissions in SSCM; which triggers an organization to reduce emissions when they lag behind competitors. This is especially the case when the organization has high levels of financial slack with a coefficient of -0.698, which is significant at P < 0.001. Instead, when financial resources are scarce the emission reduction efforts are lower.

In addition, by entering the financial slack, the results show (table 6) that the adjusted R square was 0.143. This means that the variance in this research is explained by 14.3% of the included variables in this regression. These results are consistent with the predictions of this study, therefore hypothesis 2a and hypothesis 2b are supported.

Hypothesis 3a

Including the other moderating dimensions, table 6 also shows those effects. First, hypothesis

3a stated that the impact of regulatory stakeholder pressure on organizations’ total emissions in

SSCM will be weaker when managerial slack of resources is available. However, no significant moderating effect is found of managerial slack for the relationship between regulatory stakeholder pressure and organizations’ total emissions in SSCM. With a coefficient of -0.109, which is not significant at P = 0.398. This is not consistent with the prediction of this study. Based on the theory, it was expected that there was a moderating effect of managerial slack on the relationship between regulatory stakeholder pressure and organizations’ total emissions in SSCM. However, this is not the case, so hypothesis 3a is rejected.

Hypothesis 3b

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29 competitors, does not trigger organizations to reduce their emissions. Organizations with high experienced TMT in years tend not to reduce their emissions with a coefficient of 0.383, which is significant at P < 0.001. However, the opposite holds for an organization that has a less experienced TMT in years, as its efforts for emission reduction are/ will be higher.

Furthermore, organizational pressure measured via the social aspiration level and so externally put on the organization, means that the organization lags behind competitors, which is a trigger for emission reduction. This is however not the case when the organization has an TMT experienced by years, with a coefficient of 0.518, which is significant at P < 0.001. Organizations with a more experienced TMT tend to make less decisions for emission reduction to reduce the lag on competitors. Contrary, when the TMT experience by years is lower, the emission reduction efforts are higher based on the lower experience level regarding total emissions. In addition, the results show (table 6) that the adjusted R square by entering these moderating dimensions was 0.093. This means that the variance in this research is explained by 9.3% of the all included variables in this regression. These results are consistent with the predictions of this study, therefore hypothesis 3b is supported.

Discussion

Literature is extended by the contribution of this study regarding the stakeholder theory, the

resource-based view and bounded rationality with a lens of the upper echelon theory. As main

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30 have on the organizations’ total emissions in SSCM, while other studies focus on accumulative impacts over time regarding attributes (Kassinis & Vafeas, 2006; Darnall et al., 2010).

This study takes a timeframe of one year into account to research the direct effect of decisions and performances of the previous year onto the organization’s total emissions in SSCM. This is to see if the effect exists and, if so, how strong the effect is. Compared to other studies, this is a new perspective, since other studies took timeframes longer than a year or used direct qualitative data derived from field research and interviews. By adding this to the literature, the knowledge about the impact of shorter timeframes and their impact on emission reduction is extended. Organizations and managers have hereby multiple impressions about the impacts of several variables regarding total emissions and emission reduction in SSCM. Furthermore, the outcome of the data analyses indicates that significant organizational stakeholder pressure effects have been found only after one year, while, unfortunately, non-significant effects are found for regulatory stakeholder pressure after one year. These findings do not support

hypothesis 1a but do support hypothesis 1b, therefore the literature regarding stakeholder theory

has been extended by proposing that organizations ‘manage for stakeholders’ to build and lead a successful company (Freeman, 2010). These results differ from prior studies which concluded that stakeholder pressures and its form-variety had a moderating effect (Meixell & Luoma, 2015) and that organization size plays an important role regarding the adaptation to stakeholder pressures (Darnall et al., 2010).

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31 ways: triggering emission reduction, not triggering emission reduction or triggering emission reduction in a lesser extent. This supports hypothesis 2a as well as hypothesis 2b, in the sense that more financial slack weakens the effect of regulatory stakeholder on organizations’ total emissions in SSCM and that having more financial slack weakens organizational stakeholder pressure when it is put internally onto the organization and strengthens organizational stakeholder pressure when it is put externally onto the organization. Therefore the literature regarding the resource based view is extended which proposes that organizations’ sustainable competitive advantage depends on the abilities to continuously recombine its assets-stock to apply it to new opportunities (Hitt et al., 2016).

Lastly, this study also contributes to the bounded rationality with a lens of the upper echelon

theory by taking the power of managerial slack on the relationship between the stakeholder

pressures and organizations’ total emissions in SSCM into account. The moderating effect of managerial slack also helps in understanding why organizations choose to reduce their emissions or to maintain business as usual. Prior research focussed on how managerial slack was related to environmental innovation as a driver (Adomako et al., 2020) while others found grounds for production expansion and growth rates based on managerial slack (Mishina et al., 2004). Managerial slack, however, is used differently in this study by including it as a moderating variable on the relationship(s) between regulatory- and organizational stakeholder pressure with organizations’ total emissions in SSCM. This study displays the importance of TMT experience in years regarding emission reduction and how this could change perspectives regarding sustainability. Results show that managerial slack moderates the relations in different ways: regarding the regulatory stakeholder pressure, it does not have any effect. However, by looking at the organizational stakeholder pressure it does have some effect: organizations with a highly experienced TMT make less emission reduction decisions because they are not much triggered. These results do support hypotheses 3a but do not support hypothesis 3b, as no effect of managerial slack is visible on the presence of regulatory pressure onto the organizations’ total emissions in SSCM. The theoretical background, however, mentioned the following for the regulatory stakeholder pressure regarding managerial slack: “It is found that when

organizations do have internally sufficient managerial slack associated with the organizational environmental strategies, the impact of regulatory stakeholder pressure is weaker or even does not even exists (Clemens & Douglas, 2006)”. This argument could be a suggestion for the

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32 government intends to do regarding sustainability and what the pragmatic gains regarding organizational benefits are (Colwell & Joshi, 2013). However, the focus of this study’s hypothesis (3a) was on the moderating effect of managerial slack on the relation between regulatory stakeholder pressure and organizations’ total emissions in SSCM, and not on organizational environmental strategies, as this argument proposes. Continuing, the effect of managerial slack is visible on the presence of organizational pressure. Organizations feel less triggered with a highly experienced TMT to reduce their emissions when their ROA is higher compared to competitors. Moreover, with a highly experienced TMT, organizations feel less need to reduce their emissions when lagging behind competitors. Therefore the literature regarding the bounded rationality with a lens of the upper echelon theory is extended which proposed that TMT-members are limited in their logical reasoning capabilities and subject to biases in perception (Alexander et al., 2014).

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Limitations and future research

Some prudence regarding conclusion drawing is needed in this study because of limitations, which provide opportunities for future research. First, this study’s results are based on secondary data stemming from four different databases (e.g. CDP, CompuStat, BoardEx and IEA). These databases are frequently used in literature, most of the data stems from large organizations since these are more exposed to pressures, which means conclusions can differ for smaller organizations. This is the first implication for future research, since other conclusions may be drawn for smaller organizations regarding organizations’ total emissions in SSCM. Secondly, the data used in this study is focused on USA headquarter-located organizations, which could cause some distorted results when trying to interpret these results for other regions with different cultures or legislations. Furthermore, the timeframe used in this study extended to one year previous to the base year. Extending the timeframe to multiple time-lags may also lead to interesting results regarding organizations’ total emissions in SSCM with regards to the strength and duration of certain pressures of slack effects. Future research could possibly look deeper into these strengths and durations.

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34 with managerial slack led to nonsignificant results. There might be a couple of reasons why regulatory stakeholder pressure in both cases is nonsignificant. For instance, the chosen dependent variable “organizations’ total emissions in SSCM” could not be related to this pressure. It is wise then to explore the other possible dependent variable options (e.g. scope, targets). Additionally, since large USA organizations are used in this study, the TMT experience levels were already high so no data representing the difference between smaller organizations with presumably less experienced TMTs was available; this could a reason why the moderating effect was nonsignificant. Therefore future research should also address the difference in TMT experience levels based on organization size. Lastly, the findings of this study are solely focused on organizations’ total emissions in SSCM, with emphasizing externalities pressuring organizations to reduce emissions directly or moderated via slack of resources. Therefore, future research should also look into other sustainable practices and possibilities; such as waste reduction through optimizing chain collaboration or overall energy reduction, to discover if the findings of this study are also replicable in broader SSCM-contexts.

Conclusion

Over the past few years, the sustainability knowledge of people has increased, which caused fluctuations in the total emissions of organizations. Emission reduction happened not only through decisions made by the organizations themselves, but also through exerted pressures from stakeholders with increased awareness. However, organizations need regulatory and organizational stakeholders and their support to continue organizational existence (Xiao et al., 2018). The findings of this study show that organizational stakeholder pressure is directly related to organizations’ total emissions in SSCM, but for regulatory stakeholder pressure no direct relation was found, as was assumed based on literature. Although scholars suggested that both stakeholder pressures were directly impacting organizations’ total emissions in SSCM, having slack resources is the key. Organizations with available financial slack are self-decisive whether or not to follow stakeholder pressures regarding total emission reduction. This also holds for organizations with managerial slack based on the TMT experience in years but only with organizational stakeholder pressure.

Previous research focussed on stakeholder pressure exerted on SSCM decision-making, organizational learning, innovation and risk (Vanacker et al., 2017; Boso et al., 2017; Hofmann

et al., 2014). None of them focused on the pressure of two stakeholder groups and their impact

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35 stakeholder pressure by making a distinction between regulatory (e.g. governments, trade associations, informal networks and competitors) and organizational (e.g. customers, suppliers, employees and shareholders) stakeholders while including financial- and managerial slack, drawing upon the stakeholder theory, resource based view and bounded rationality with a lens

of the upper echelon theory. Support is found for the direct relationship between organizational

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36

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