Engaging with environmental stakeholders: Routes to building environmental capabilities in the context of the low carbon economy

• Date: 01 April 2017
• DOI: http://doi.org/10.1111/beer.12141
• Author: Polina Baranova,Maureen Meadows
• Published date: 01 April 2017

ORIGINAL ARTICLE

Engaging with environmental stakeholders: Routes to building

environmental capabilities in the context of the low carbon

economy

Polina Baranova

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Maureen Meadows

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Strategic Management, Derby Management

School, University of Derby, Kedleston

Road, Derby DE22 1GB, UK

2

Strategic Management, Centre for Business

in Society, Coventry University, Priory

Street, Coventry CV1 5FB, UK

Correspondence

Polina Baranova, Strategic Management,

Derby Management School, University of

Derby, Kedleston Road, Derby DE22 1GB,

UK.

Email: p.baranova@derby.ac.uk

Abstract

The transition to a low carbon economy demands new strategies to enable organizations to take

advantage of the potential for “green”growth. An organization’s environmental stakeholders can

provide opportunities for growth and support the success of its low carbon strategies, as well as

potentially acting as a constraint on new initiatives. Building environmental capabilities through

engagement with environmental stakeholders is conceptualized as an important aspect for the

success of organizational low carbon strategies. We examine capability building across a range of

sectors affected by the sustainability agenda, including construction, rail, water, and health care.

We identify a number of emergent environmental stakeholders and explore their engagement

with the development of environmental capabilities in the context of the transition toward a low

carbon economy.Our conceptual framework offers a categorization of environmentalstakeholders

based on their position in relation toa focal organization and the potential for the developmentof

environmentalcapabilities.

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INTRODUCTION

The low carbon economy, defined as the activities which generate

products or services which themselves deliver low carbon outputs

(Department of Business Information and Skills [DBIS], 2015), is crit-

ically importantto governments across Europe. The EuropeanCommis-

sion (2016) has a “low-carbon economy”roadmapwhich states that by

2050, the EU should have cut emissions to 80% below 1990 levels. A

study entitled “Europe’sNextEconomy”(IPPR, 2012) noted that “the

debates about climate change and the level of the EU’sambitionare

similar throughoutthe continent”(p. 2).

Targets for carbon emissions in the UK are in line with those

wider ambitions across Europe. The low carbon economy is signifi-

cant and growing rapidly in the UK. The low carbon sector

accounted for a third of the total economic growth in the UK during

2011 to 2012 (CBI, 2012). Its turnover was estimated at £121.7 bil-

lion in 2013 with 45% of the turnover or $56.4 billion generated in

waste processing, e nergy from the waste an d biomass sectors

(DBIS, 2015). The gross valued added (GVA) of the low carbon

economy has grown by 28.4%, turnover by 24.7%, and employment

within the low carbon economy grew by 12% during 2010 to 2013

(DBIS, 2015). The UK Government estimates that the low carbon

economy provides employment for 460,600 people in the UK,

which is around 1.6% of all national employment.

The competitiveness of the economy is acritical factor in ensuring

the low carbon transition, according to a numberof low carbon strategy

and regulatory documents at the European and national levels (DECC,

2013; DEFRA, 2013, 2014a, 2014b; European Commission, 2010,

2012; ScottishGovernment, 2010). In this context,stakeholder engage-

ment can be seen as a valuableresource for building the environmental

capabilitiesof a firm to take advantage of “green”growth. Kujala (2010 )

notes that “the numberand speed of changes in the business environ-

ment have accelerated and many industries face growing expectations

Abbreviations: CBI, Confederation of British Industry; CSR, corporate social

responsibility; DBIS, Department for Business Innovation and Skills; DCI,

Derby Carbon Initiative; DCLG, Department for Communities and Local

Government; DECC, Department for Energy and Climate Change; DEFRA,

Department for Environment, Food and Rural Affairs; EGSS, environmental

goods and services sector; ERDF, European Regional Development Fund;

ERP, Energy Research Partnership; GDP, gross domestic product; GVA, gross

value added; HEI, Higher Education Institution; LCEERP, Low Carbon

Economy Engaged Research Project; LCEGS, low carbon and environmental

goods and services; NHS, National Health Service; OFGEM, The Office of Gas

and Electricity Markets; OFWAT, The Water Services Regulation Authority;

RBV, resource-based view; SME, small or medium enterprise; TA, thematic

analysis; UKTI, UK Trade and Investment.

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C2017 JohnWiley & Sons Ltd wileyonlinelibrary.com/journal/beer BusinessEthics: A Eur Rev.2017;26:112–129

Received:8 February 2016

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Revised: 26 October2016

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Accepted:12 November 2016

DOI 10.1111/beer.12141

from differentstakeholders”(p. 14). The naturalenvironment is increas-

ingly being discussed as a salient stakeholder for firms (e.g., Norton,

2007; Takala& Pallab, 2000; Thompson& Driver, 2005).

Much of the existing literature that explores therole of stakehold-

ers in influencing a firm’s environmental strategi es appears to star t

from the position that the key issue is the pressure that stakeholders

bring to bear on the focal organization (e.g., Ramanathan, Poomkaew,

& Nath, 2014). A number of studies take the view that firms tend to

adopt environmental strategies as a result of stakeholders’demands,

and they are, therefore,concerned with evaluating the extent to which

stakeholders put pressure on organizations to adopt environmental

practices (Delmas, 2001; Henriques& Sadorsky, 1996, 1999; Sharma &

Henriques, 2005). Not only the influencing strategies of direct stake-

holders are considered, but also the role of indirect stakeholders, that

is, those that do not control resources but may have an impact on the

focal organization via other significant stakeholders (Henriques &

Sharma, 2005). Eesleyand Lenox (2006) focus upon the issue of action

by “secondary”stakeholders (i.e., those that do not have formal con-

tractual arrangements with the focal firm) and its impact on a firm’s

environmental responses. Murillo-Luna, Garc

es-Ayerbe, and Rivera-

Torres (2008) propose four types of environmental response pattern

(ranging from the least to the most proactive) depending on configura-

tions of both the scope of environmental objectives and allocation of

internal resources; this study seeks to understandthe impact of stake-

holder pressure on the choice of environmental response pattern. The

relationship between managers’perceptions of stakeholder pressure

and the degree of proactivity of a firm’s environmental strategies

appears to be moderated by managers’perceptions of environmental

issues as competitive advantage opportunities (Garc

es-Ayerbe, Rivera-

Torres, & Murillo-Luna, 2012). In addition, the moderating effects of

firm size is observed in Darnall, Henriques, and Sadorsky’s(2010)

study, which suggests that the relationship between stakeholder pres-

sures and environmental strategy tends to vary with the size of the

firm.

In this study, we see k to go beyond a “stakeholder pressure”

approach (e.g., Garc

es-Ayerbe et al., 2012; Murillo-Luna et al., 2008)

by viewing the role of sta keholders in a firm’senvironmentalstrat-

egies from a different perspective. We treat stakeholder engage-

ment as a mechanism through which an organization develops new

capabilities to form environmental responses. Some authors (Di Ste-

fano,Peteraf,&Verona,2010;Teece, 2007; Teece, Pisano, &

Shuen, 1997) refer to such capabilities as second-order capabilities

or dynamic capabilities through which organizations reconfigure

their resource base to better match the external pressures and chal-

lenges they face. In the context of a low carbon economy, such chal-

lenges arise as a result of pressures from government and regulators

to reduce carbon an d minimize “environmental”impact (European

Commission, 2010, 2012; Scottish Government, 2010; The Climate

Change Act, 2008) ; from customers as the demand for env ironmen-

tally friendly goods and services is increasing, resulting in 1.5%

growth in the environmental goods and services sector (EGSS) in

the UK during 2010 to 2012 (Office for National Statistics, 2015);

and from competitors as the “sustainability agenda”is seen as a

source of differentiation (Orsato, 2006; Reinhardt, 1998).

We combine elements from stakeholder theory (with a particular

interest in categories of environmental stakeholders) with a resource-

based view (RBV) perspective to understandhow stakeholder engage-

ment could lead to building environmental capabilities. In doing so, we

review the typology of environmental stakeholders against the well-

established frameworks (Fineman & Clarke, 1996; Henriques & Sador-

sky, 1999) and more recent developments in the field (e.g., Buysse &

Verbeke, 2003;Darnall et al., 2010; Murillo-Lunaet al., 2008). The pur-

pose of this study is to explore the roleof environmental stakeholders

in building environmental capability and to understand the significance

of such a role in the context of transition to a low carbon economy.

This perspective goes beyond the technical processes of accumulating

and combining resources that have value-creating features, and

explores the role of stakeholder engagement in building environmental

capabilities.It advances the understanding of therole of environmental

stakeholders as not just parties that apply pressure to which the focal

organization must respond, but also as a vital resource for building a

firm’s capabilities to succeed in the transition to a low carbon

economy.

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ENVIRONMENTAL CAPABILITY:

DEFINITION AND CAPABILITY BUILDING

THROUGH STAKEHOLDER ENGAGEMENT

Considerable research has been undertaken to explore the role of

firm-specific capabilities in t he pursuit of compe titive advantage .

The vast majority of e xisting research co nsiders interna l sources

such as skills and rou tines (Nelson & Winte r, 1982) as the main

sources for capabi lity building in or ganizations. Ext ernal sources

have also been explored to an extent, including consideration of the

role of formal and informal relationships with other firms (Gulati,

Nohria, & Zaheer, 2000); the degree of network density that affects

the capability building of the firm (Ahuja, 2000; Burt, 1992; Cole-

man, 1990; McEvily & Zaheer, 1999); and the effects of different

types of network ties on capability acquisition by individual mem-

bers and through interactions with each other (McEvily & Marcus,

2005; Mahmood, Zhu, & Zajac, 2011).

For the purpose of this study, we developa definition of the envi-

ronmental capabilities by utilizing the concept of “ecological footprint”

(Hart, 1995). Thus, a firm’s environmental capabilities are those that

allow a firm to reduce its ecological footprint. Asa part of a firm’sstra-

tegic capabilities, they are significant for thesuccess of the firm’senvi-

ronmental strategies (Aragon-Correa & Sharma, 2003; Buysse &

Verbeke, 2003; Klassen & Whybark, 1999; Rugman & Verbeke, 1998)

These capabilitiescan include, for instance, environmental management

skills and routines, product/service design with a focus on sustainabil-

ity, waste management, resource efficiency skills and practices, and

others that focus on the reduction of the ecological footprint of the

firm. We would also notethat the concept of ecological footprint could

be defined sufficiently broadly to include the impact of the firm’s

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