Introduction
All organizations have a responsibility to their external community. This duty falls on the companies because their operations impact the community around them and the surrounding environment has an impact on the success of their operations. Most firms engage in corporate social responsibility to fulfill these duties to the external community. Most recently, governments and other shareholders encourage different organizations to get involved in corporate environmental responsibility (CER) where they take care of nature as a way of giving back to the community. Notably, there is hesitation from most shareholders because of the cost implications of such investments. Also, making an impact on the environment requires long-term investment which deters smaller organizations. However, there are benefits of engaging in CER especially in boosting financial performance. Therefore, all organizations must understand that CER boosts financial performance in various ways as a motivation factor to invest their skills and resources in such projects.
Approaches to Corporate Environmental Responsibility
Corporate environmental responsibility is enforced at different capacities. These include:
• Change in company policy
• External Environmental Initiatives
Change in company policy
The first step to environmental consciousness and giving back is a change of company policies. Organizations begin by transforming their supply chain so that it impacts the environment positively. Creating a sustainable supply chain ensures the firm is energy efficient and in control of their waste management. This often drastic change take place on three levels which are:
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i. The basics of CER sustainability
At this level, companies use simple environmentally friendly measures. For instance, they switch off their lights and idle PCs, they provide greener transport for their employees and recycle all their waste (Karassin, & Bar-Haim, 2016, p.183) . This approach is considered corporate environmental responsibility (CER) because these steps make a positive impact on climate change and thus protect the surrounding community from harsh conditions.
ii. Thinking sustainably through CER
This action is another internal approach to embracing sustainable means in their supply chain. Corporate environmental responsibility (CER) is attained by carrying out reviews of company processes and adjusting them to more climate-friendly approaches. This process is often cost demanding because expensive experts and equipment are required (Kovács, 2008). However, the cost eventually reduces after the initial stage passes. Thinking sustainably affects the supply management, product design, and distribution optimizations.
iii. The science of CER sustainability
This final internal step involves balancing environmental and economic factors to establish a sustainable supply chain. It is considered corporate environmental responsibility (CER) because it is not mandatory yet the organizations initiate a balanced system for the benefit of the environment (Jo, Kim, & Park, 2015, p.257). It is admirable that management recognizes that financial gain is not the only priority in running a business. They create a system that favors the environment as well.
External Environment Initiatives
The most recognized form of corporate environmental responsibility (CER) is when firms invest in environmental initiatives within their community. This approach plays a significant role in their impact on climate change, their water use footprints and energy use efficiency. In the 21st Century, many companies have embraced these three objectives and thus contributed to the decreased rate of global warming and the improved state of the environment (Testa, & D'Amato, 2017, pp.221-234). Notably, this much-appreciated change has taken time and commitment. Also, the organizations have dealt with the financial implications of researching on the environmental needs facing the society, creating a plan to improve the situation and implementing a well-managed intervention. Notably, their efforts have created opportunities for cost saving, revenue generation, and brand strength as well (Kim, Park, & Ryu, 2017, pp.381-402). Therefore, the end result is actually improved financial performance. This expected result is the reason more and more organizations are getting involved in corporate environmental responsibility (CER).
Environmental initiatives differ in focus. First, there is environmental disclosure where companies are more transparent about their environmentally friendly policies. Also, there are environmental policies where organizations focus on internal strategies and advise policymakers on measures that would impact the community. Some organizations deal with environmental impact where the impact on nature at the local and national scale is the main focus. Lastly, other firms narrow down on environmental performance which is mainly benchmarking with other organizations and assisting them in the environment focused projects (Zhang, 2017, p.539). Notably, corporate environmental responsibility (CER) is very wide and thus all sizes of organizations have room to make a change. It is important that they understand the financial benefit this action allows a business establishment. Hopefully, the management is motivated by how they win and become more willing to dedicate resources to this venture. However, they should remember the focus is not primarily on financial gain.
Reasons for corporate environmental responsibility (CER) and their relation to financial performance
Companies engage in CER for different reasons. A majority of this reasons yield improved financial performance as explained below
i. Corporate Responsibility or Duty
Corporate responsibility is a priority for all organizations. Thus, different companies make an effort to participate in their community’s well-being by initiating environmental programs. This may start as a simple effort such as planting trees, maintaining a nature walk or cleaning up the local market (Cai, & He, 2014, pp.617-635). Managers understand that they have a duty to give back and thanks to the community that supports them and thus they choose to do so by contributing to positive environment options. Since every community has unique environmental issues such as pollution, drought, endangered wildlife or deforestation, the effort to make a difference on these issues is well appreciated and welcomed as well.
Fulfilling this duty improves financial performance since community members or those impacted by the firm’s contribution are willing to associate themselves with this community and environment conscious establishments. By honoring this duty to the community, the business owners indicate the importance of the customer base and the status of the environment they live in (Tan, Habibullah, & Tan, 2017). This actions appeal to the masses and thus attract more revenue. An organization that prioritizes the environment and purpose to make an impact is more attractive compared to an institution that sacrifices these factors for financial gain at the expense of the people around them or the status of their community.
Often, businesses engage in corporate environmental responsibility (CER) because they initiated the problem and thus it is their duty to correct the issue. For instance, when Bamburi Cement was done mining in Mombasa, Kenya they embraced their duty to rehabilitate the quarries into a butterfly sanctuary. Similar cases are seen around the world and they prompt a similar response from the communities that enjoy the benefits (Cai, Cui, & Jo, 2016, pp.563-594). They attract more consumers from the areas they impact with their environmental initiatives. Therefore, the organizations yet to engage in CER are encouraged to do so because it gets the attention of their target market who support the establishment by investing in their products and services.
ii. Brand image (mission, vision, and goals)
Corporate environmental responsibility (CER) improves the brand image and thus many organizations use it as a strategy to increase financial performance. All organizations want their real or potential customers to carry a positive image of their organization. Such an association with a company motivates more people to invest in purchasing the available goods and services. Notably, a strong brand image is good for marketing as the word of mouth recommendations are good and thus more customers are encouraged to make purchases at the establishment.
Corporate environmental responsibility (CER) improves brand image by associating the business with a progressive environmental impact. Also, through the act of charity that benefits the environment, the firm highlights its mission, vision, and goals to their potential customers (Dogl, & Holtbrugge, 2014). This benefit is especially realized when the organization focuses on a CER project that is relevant to their operations. Psychologically, all organization creates an associative pattern in their consumers' mind such that when they see the environmental initiative they are prompted to remember the firm’s name with positive attributes in mind. This works wonderfully and often translates into increased sells.
A good example of a company with a strong brand image due to CER is Starbucks. This coffee establishment chose to reduce its environment foot-print by reducing waste associated with their plastic cups. Consequently, the made reusable cups and focus on recycling as well. This approach led to a 25% reduction of energy use by 2014 (Du, Jian, Zeng, & Du, 2014). Also, it attracted a 35% increase in revenue over the last decade. Customers have visibly shown support for their environment initiative and offered criticism and support on different platforms which in turn markets the brand and increases the customer base regularly.
iii. Improve customer reach and impact
Strategists from all organizations use corporate environmental responsibility (CER) as a tool to improve customer reach and impact which are critical for financial performance. The bottom line of all industries is pleasing the customer. This philosophy supports the idea that CER increases sales and revenue by putting consumers in a conducive mental, physical and financial statements that support increased purchases (Liu, Wei, Huang, & Tsai, 2017). This reasoning suggests that all businesses increase the financial performance by relieving the poor climate conditions that affect consumer purchasing power. For instance, if lack of water is affecting a community an organization’s intervention would eliminate this problem and allow people to focus on improving their lives by purchasing more services from the organization.
Corporate environmental responsibility (CER) improves organizational impact on their customers by interacting with them outside the work environment. When working with a community to provide environmental solutions, employees get to know the people they serve on a personal level. Also, the consumers get to know the people the employees in a different capacity as well (Heltzer, 2011, pp. 65-88). These interactions help both parties learn and while one improves their quality of services as a result of this exchange, the community is more willing to invest in the company because they admire their efforts and understand it, employees, more.
A good example is Organic Valley. As the name suggests this firm focuses on growing organic food in a sustainable way such as using recycled water and renewable energy source (Heltzer, 2011, pp. 65-88). This establishment exhibits corporate environmental responsibility (CER) in two ways. They enforce internal policies that reduce their energy use and also have external initiatives where they educate members on these advanced farming techniques. They participate in the local county fair by setting up stands where all locals can get training and farming information. As a result of this interaction Organic Valley products supply to loyal customers that have stayed with them for decades. This bond allows them to maintain a gross profit of 3 million shilling annually.
iv. Competitive Advantage and differentiation
Corporate environmental responsibility (CER) improves financial performance by sustaining a competitive advantage and allowing a business to differentiate itself in the market. For any institution, it is important to stand-out and gives customers a reason to select them over their competitors (Heikkurinen, 2010, pp. 142-152). Over the years, a variety of companies have attained this trait because they honor consumer climate concerns and make a deliberate effort to enforce change. These actions are important to consumers today who choose to stay educated on climate issues and align themselves with organizations that are environmentally conscious.
Therefore, investing in greener manufacturing and external environmental initiatives is actually an appeal favored by consumers who are willing to pay more for environmentally conscious products and services.
Notably, differentiation through CER involves a variety of cost implications. There are costs incurred in research, changing the product design, improving the supply chain and monitoring the process. Also, there is considerable risk of consumers not accepting the change or moving to competitors who provide products that they are familiar with. In cases where companies change their product to attain a certain environmental requirement, they must invest in marketing techniques that inform and persuade the target market (Gănescu, & Dindire, 2014, pp.48-53). Additionally, such changes are long-term and the financial performance is noted after a long-period of advertising and sales. For this reasons, all organizations need patience and an effective monitoring system that identifies if company goals are met in the initiative or not. Corporate environmental responsibility (CER) promotes differentiation by being unique in the ecological approach that a company chooses and how they communicate the product to the consumer.
Philip’s Electronics is an establishment that proves CER guarantees competitive advantage and differentiation in the market. This Dutch electronics manufacturer has produced goods from green products for the last decade. Furthermore, these products have energy saving modifications that allow the consumer to conserve energy at home. The most common products are the energy saving bulbs available in all shops and supermarkets around the world. Since then it competitors such as LG Electronics and Motorola Inc cannot keep up with the company’s growth. Philips has shown a 43% increase in sales in the last five years and registers high price of shares in the stock market (Meng, Zeng, Xie,., & Qi, 2016, pp.267-291). Evidently, Philip’s Electronic is a strong participant in its industry as a result of their CER initiatives. This example encourages other organizations to follow suit with determination and a viable conservation plan for their communities and the world as well. The scope of impact often determines the firm’s growth.
Based on this analysis, each reason to invest in corporate environmental responsibility (CER) boosts financial performance. With real-life examples, it is clear that embracing CER for financial growth is a long-term investment that requires significant foresight. Therefore, all organizations that choose this route are encouraged to employ experts on environmental issues and be ready to invest in the project whole-heartedly.
Barriers to effective environmental CSR and improved financial performance
Unfortunately, there are some cases where improved financial performance is not the result of corporate environmental responsibility (CER). In these cases, organizations choose to abandon the project and try a different approach. The reasons for these failures are referred to as the barriers to effective environment CSR and improved financial performance. They include:
i. Lack of Funding
The initial costs for a corporate environmental responsibility (CER) project can be staggering. For this reason, they are often supported by multi-million organizations or governments instead of community-based businesses. Even in smaller businesses, taking on environmental initiatives demands to fund in gathering people and sustaining the volunteers with adequate equipment for the project at hand (Chiang, Pelham, & Katsuo, 2015, p.39). Therefore, many companies shy away from corporate environmental responsibility (CER) in favor of other corporate social responsibility activities that are within their financial reach. The financial concern around environmental initiatives is such a priority that organizations must find a balance between sustaining their business and giving back to the community. It is a difficult step to achieve but possible if the executives are determined.
Notably, there are many institutions that use the financial implications as an excuse. They are simply not willing to make this sacrifice in any capacity. These are organizations that make profits a priority at the expense of the environment. This situation is evident in developing countries where there is minimal consumer pressure on businesses to take environmental responsibility. For example, the oil companies in Nigeria such as Shell and BP fall culprit to this mentality (Sindhi, & Kumar, 2012, pp.640-657). They have greatly contributed to the environment’s pollution through excessive oil spills. However, they have made no initiative to help the communities affected by their pollution. Despite being sued countless times by locals, they remain contributors to the problem. As expected this negative contribution has impacted their financial performance in these regions where rebels destroy company resources in protest and the organizations spend money on hiring security for themselves and their staff.
ii. Double Standards
Companies with double standards are also a barrier to effective corporate environmental responsibility (CER) and improved financial performance from this actions. The term ‘double standard companies’ is used to refer to institutions that preach environmental conscious but practice the contrary. Since consumers are more informed and prefer institutions impacting the climate positively, businesses will fake this image while they are in real sense affecting the community’s well-being (Wahba, 2008). This affects the organizations' financial performance as local boycott their products, they are sued for their negative impact on their environment or they lose their customers to their competitors. An insincere approach to corporate environmental responsibility (CER) often backfires of business owners because consumers have the power to call out fake practices and impact the sales, revenue or profits of dishonest organizations. Therefore, participants in environmental initiatives should embrace transparency in their cause or stand to lose their reputation and credibility as a result of their actions.
The best example of an organization with the double standard is the Coca-Cola plant in India. When this firm was set-up they advertised their green policy in different publishing. They expressed their efforts towards practices that controlled water use and reduced waste (Lee, Kim, & Kim, 2018). They sent representatives into neighboring communities to educate farmers on methods that would sustain their crops even through dry seasons. Unfortunately, it was reviled that the Coca-Cola plant was actually the cause for water shortage in the neighboring areas. In fact, they were the caused by reduced yield and also polluted water supplies that residents relied on to grow their food, to cook and fulfill household duties. When confronted by international organizations and local lawsuits the organizations blamed farmers for the problem (Du et al., 2016). This situation created resentment from local and international communities. The plant was closed down and people stopped purchasing the product in protest. Consequently, they saw a drop of stocks at the time of this negative impact.
iv. Lack of corporation from shareholders
Corporate environmental responsibility (CER) is not a personal initiative. It demands a combined effort from the organization, its employees, and the community. Usually, the organization creates a plan and provides funding for the project. Then the employees or organizer’s hired under the company will spearhead the environmental initiative with the support of the community around them (Ruepert, Keizer, & Steg, 2017, pp. 65-78). This external community may act as volunteers who dedicate their free time to enhancing the cause. Essentially a working system is required for an organization to implement their plan effectively.
Unfortunately, this working relationship is not always the case. The shareholders involved may sabotage the project and thus limit any positive impact. For instance, employees may choose to stay away from the CER initiative and this paints a bad picture for the organization (Hossain et al., 2016). Also, local leaders may sabotage the organization’s efforts by stealing funds and being corrupt. Developing countries with leadership issues especially sabotage corporate environmental responsibility (CER) initiatives as their leaders favor certain groups over others. Also, community members may halt the initiative by stealing material or harming those sent to establish the initiative. Individuals sent to harsh areas will especially experience security concerns that interfere with their work.
Lack of corporation from shareholders translates to negative financial performance. First, the organization is likely to lose funds to corrupt leaders and failed projects. This loss takes away from profits that would otherwise be reinvested into the company or other causes (Chiang, Pelham, & Katsuo, 2015, p.39). Also, it deters customers from associating with an organization with a bad reputation for unfinished community projects. Notably, the institution will lose money on paying staff members that did not execute the intended plan. Therefore, this acts as a barrier to improved financial performance or an impact on the climate conditions.
Conclusion
In conclusion, corporate environmental responsibility (CER) leads to improved financial performance. As indicated, CER attracts customers and profits by improving the organization’s outlook, helping the institution interact with potential customers on a daily basis, creating an opportunity to establish a competitive advantage through differentiation and associating the firm with a positive change in the community. Essentially, this CER impact on financial performance is negatively affected when companies have double standards if the lack funding or do not receive corporation from the expected shareholders. Therefore, all organizations are encouraged to take on corporate environmental responsibility (CER) in an internal and external capacity because any effort in this capacity improves the environment by reducing climate change and global warming as well. The most important values to uphold in this efforts are patience and consistency because such projects are time-consuming but worth the wait.
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