Disrupting structural constraints. The influence of sustainable entrepreneurship on the transition towards a more sustainable economy

Table of content

Summary

Introduction to this master thesis

Paper 1: Key concepts of sustainable entrepreneurship and its potential to contribute to sustainable development.
1. Introduction
2. Entrepreneurship in the context of sustainable development
2.1. Mapping sustainable development in the context of defining a ‘more sustainable economy’
2.2. Economic, environmental and social sustainability: How three forms of entrepreneurship are connected to the goals of sustainable development
3. The necessity of a triple bottom line for the pursuit of sustainable development objectives: Introducing sustainable entrepreneurship
4. Defining sustainable entrepreneurship
4.1. The discovery and exploitation of opportunities in a context of market failure
4.2. The initiation of societal and economic change towards sustainability
5. Positioning sustainable entrepreneurship in the current debate on sustainable economic development
6. Conclusion
7. Discussion

Paper 2: Developing a framework for the analysis of a bottom-up sector transition led by sustainable entrepreneurs: An institutional theory perspective
1. Introduction
2. Pathways of transition: Top-down vs. bottom-up
2.1. Top-down: Governing transition management
2.2. Bottom-up: The influence of sustainable entrepreneurship
3. Changing a sector by transforming its underlying institutions
3.1. Three pillars of institutional theory and how their misalignment can lead to institutional change.
3.2. Key concepts of institutional theory
4. The four phases of transition: Aligning the S-curve model with the concept of sustainable entrepreneurship
5. Developing a framework to analyse the bottom-up transition of a sector
6. Conclusions
7. Discussion

Paper 3: The influence of sustainable entrepreneurship on the transition of an industry: The case of Fair Trade
1. Introduction
2. The global success of Fair Trade: A revealing case of a bottom-up transition
3. Methods and analytical framework
3.1. Applying the 3x4 transition analysis framework
3.2. The six steps of analysis using the paradigm model of axial coding
4. Analysis of the institutional change processes in industry transformation towards Fair Trade
4.1. Transition phase 1: Creating awareness for a different form of trade
4.2. Transition phase 2: Active manipulation on all three institutional levels
4.3. Transition phase 3: Maximizing normative pressure on incumbents
4.4. Transition phase 4: The onset of isomorphism
5. Main Findings: Insights for entrepreneurs and transition managers
6. Conclusions
7. Discussion

Conclusion to this master thesis

Table of References

Appendix: [Axial paradigm model] Analysis of the institutional change processes in industry Transition towards Fair Trade

Summary

Over the last decades, two realizations hit humanity: The first was that human life on this planet can most likely not be sustained if we just continue acting like we do now. Secondly, a realization occurred that the current way business is done has been at least partly responsible for the severity and urgency of the global sustainability challenges our world is facing today. Out of scholarly discussion it emerged that a transition towards a new form of capitalist development is needed, a transition towards an economy which is in line with the objectives of a sustainable society. Sustainable entrepreneurship, a form of entrepreneurship that combines ecologic, social and economic sustainability, has been generally declared as suited to advance this so-called ‘sustainability transition’. However, scholars have neglected to investigate the ‘how’ and ‘why’ of such an assumption. This thesis aims at filling this research gap by answering the following research question:

In what way can sustainable entrepreneurship influence a transition towards a more sustainable economy?

After providing a concise definition of the term sustainable entrepreneurship, the concept is then positioned into the current debate on sustainable economic development. Out of this positioning it emerges that both strands of literature display some shortcomings when it comes to explaining how to overcome obstacles that stand in the way of a transition towards a more sustainable economy. Structural constraints, such as political orientation towards competition, need to be disrupted before a sustainability transition can be brought on the way.

An analytic framework is therefore developed that uses institutional theory to explain how individual actors, such as sustainable entrepreneurs, are able to change dominant structures: by influencing the underlying cultural cognitive, normative and regulative institutions. Furthermore, the framework makes it possible to determine which institutional changes take place in which phase of the sustainability transition, by categorizing the phases of a transition according to the ‘s-curve model’ of innovation theory. This framework is then applied to the example of the Fair Trade movement, which is a revealing case study of a sustainability transition initiated by sustainable entrepreneurs. Five insights arise out of this analysis:

(1) A sustainability transition can be divided in four phases. In the first three phases, an active influence on all institutional levels is necessary to prevent the transition process from coming to a stop or developing in a direction that is not in line with the objectives of sustainable economic development.
(2) The final transition phase marks the beginning of so called ‘isomorphic processes’, which make it difficult for any actor to influence the direction of the transition any further.
(3) The activeness of responses towards institutional pressures decreases during the transformation. While the transformation is actively pushed by sustainable entrepreneurs during the first phases, the transformation is finalised by mainstream actors – i.e. incumbents – joining the market. These mainstream actors have almost exclusively been found to respond purely reactive to institutional pressures.
(4) In order to be able to influence institutional changes effectively, actors need to exert both a large market influence and a large social or political influence. To reach this goal, networking tactics have proven to be effective as well as the involvement of sustainable entrepreneurs in issues outside of their original agenda
(5) To successfully transform an industry, sustainable entrepreneurs need to speak the language of the market.

Introduction to this master thesis

“Anyone who believes in indefinite growth on a physically finite planet is either mad or an economist.”

- Sir David Attenborough

For the last five decades, one important goal has driven the world economy: The pursuit of growth. The global economy has reached a size that is almost five times the size it was half a century ago. As the economy expands, the resource implications associated with it cannot be ignored any longer. In the last 25 years, an estimated 60% of the world’s ecosystems have been degraded and global carbon emissions have risen by 40% since 1990. In less than a decade, we may face significant scarcity in key resources, such as oil. Considering these facts it is obvious that a world in which things simply go on as usual is neither sustainable, nor can it be maintained (Jackson, 2009). In 1980, the term ‘sustainable development’ was first coined by the International Union for the Conservation of Nature and Natural Resources (IUCN) World Conservation Strategy Report (Thatchenkery et al., 2009). Seven years later, the World Commission on Environment and Development report ‘Our Common Future’ (Brundtland, 1987) brought more prominence to the concept. It defines sustainable development as ‘‘a development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’ (World Commission on Environment and Development, 1987, p. 43). Since the introduction of the idea, the concept of sustainable development has been much criticized, in part for the vagueness of its definition (Loorbach et al., 2009) and in part for the overreaching optimism of its advocates who, 20 years later, must admit the fact that sustainable development has not lived up to its goals (Brand, 2012).

Nevertheless, sustainable development is still increasingly appreciated as a legitimate and urgent public policy priority and a vivid discussion is under way for new models of sustainable societal and economic development. Scholars agree that the current way business is done has been at least partly responsible for the severity and urgency of global sustainability challenges (e.g. Visser and Sunter, 2002; Jackson, 2009; Gibbs, 2009). It is clear that incremental solutions will not be enough to maintain critical levels of natural and social capital (Russo, 2003). Since innovation and entrepreneurship have always been seen as the engines of “creative destruction” and disruptive change (Schumpeter, 1934), policy makers, researchers and entrepreneurs themselves begin to ask what role entrepreneurship can play in the transition towards a more sustainable economy (Parrish, 2010). Over the last decade a term has emerged from scholarly debate which combines the objectives of sustainable development with the goals of entrepreneurship: ‘sustainable entrepreneurship’ (Schlange, 2009). The general research question to this master thesis can therefore be phrased as follows:

In what way can sustainable entrepreneurship influence a transition towards a more sustainable economy?

To find an answer to this question, this master thesis is divided into three different papers, each choosing a different method on its way of developing an answer. The first paper investigates different models of entrepreneurship in order to find and define a form of entrepreneurship that is most suitable to pursue the objectives of sustainable development. This concept is then positioned into the current discussion on sustainable economic development in order to discover possible links on how to advance the understanding of the role of entrepreneurship in the transition towards a more sustainable economy. The second paper develops an analytical framework that makes it possible to perform an in-depth analysis of a sustainability transition with a focus on the operating actors and their contribution to the transition, specifically emphasising the role of entrepreneurship.

In the third paper this analytical framework, which is based on insights from innovation literature, sustainable entrepreneurship literature and institutional theory, is applied to analyse the revealing case of the transition of a global industry towards Fair Trade. Based on this case study, it is shown how actors can change the cultural-cognitive, normative and regulative institutions of an industry, ultimately transforming the industry in a way that supports a sustainable development of the economy.

Paper 1: Key concepts of sustainable entrepreneurship and its potential to contribute to sustainable development.

Abstract

Growing concern about the question how human well-being can be sustained over the long term has given rise to sustainable development as a broad social goal. This paper attempts to analyse which form of entrepreneurship is most likely to contribute towards the objectives of sustainable development. In this context, a differentiation is made between economic, social and environmental sustainability, finally bringing the three goals together in the concept of sustainable entrepreneurship. By providing an in-depth definition of this recent form of entrepreneurship, it is shown why sustainable entrepreneurship is best suited to contribute to the goals of sustainable development. Furthermore, this paper defines three key concepts which together compose the notion of sustainable entrepreneurship: (1) the interaction of economic, social and environmental objectives, (2) the discovery and exploitation of opportunities in a context of market failure and (3) the initiation of societal and economic change towards sustainability. This paper is the first one in a series of three papers that aims to answer the question how sustainable entrepreneurship can influence the transition towards a more sustainable economy.

1. Introduction

Scholars agree that the current way business is done has been at least partly responsible for the severity and urgency of the global sustainability challenges our world is facing today (e.g. Visser and Sunter, 2002; Jackson, 2009; Gibbs, 2009). It is clear that incremental solutions will not be enough to maintain critical levels of natural and social capital (Russo, 2003). A new form of capitalist development is needed, that is in line with the objectives of a sustainable society (Gibbs, 2009). Innovation and entrepreneurship have always been seen as the engines of “creative destruction” (Schumpeter, 1934). It is therefore no wonder that, as the concept of sustainable development is increasingly appreciated as a legitimate and urgent public policy priority, policy makers, researchers and entrepreneurs themselves begin to ask what role entrepreneurship can play in the transition towards a more sustainable economy (Parrish, 2010).

To date, a great part of the research about entrepreneurship focuses merely on economic and socio-economic performance (Cohen et al., 2008). Yet, Parrish (2010) finds that the amount of research built on entrepreneurs driven by alternative motives, even though in comparison still small, is rapidly growing. Most of this research focuses on entrepreneurship that is trying to solve either environmental or social problems (see for instance Nicholls, 2009; Sen, 2007; Isaak, 1998, 2002; Schaper, 2002; Schaltegger, 2002), but researchers are beginning to suspect that this separation of goals might be counterproductive towards the objectives of sustainability (Tilley and Young, 2009). Over the last decade, a term to combine the three entrepreneurial goals of economic, environmental and social sustainability has emerged from scholarly debate. The term ‘sustainable entrepreneurship’ stresses the need to balance objectives on the three basic dimensions of society, economy and ecology (Schlange, 2009), a goal popularly quoted as ‘managing the triple bottom line’ (Elkington, 1998). By doing this, the company can satisfy current organizational needs, including shareholders’ value, employees’ benefits, clients’ requirements, community well-being, etc. and still be able to generate value and meet the needs of future stakeholders as well (Thatchenkery, 2010).

Since sustainable entrepreneurs are increasingly seen as being part of the solution to create a new form of capitalist development, there is a rising interest in sustainable entrepreneurship as a phenomenon and a research topic (see for instance Cohen and Winn, 2007; Dean and McMullen, 2007; Schlange, 2009; Hockerts and Wüstenhagen, 2010; Schaltegger and Wagner, 2011). In contrast to conventional entrepreneurship, sustainable entrepreneurship not only aims at market success but, according to Schaltegger and Wagner (2011), also initiates social change, changes market conditions and regulations. Sustainable entrepreneurship as a trigger of change, the starting point of a transition – this is the hope all these authors have in common. However, it is still unclear how exactly such a transition may come about and why and how sustainable entrepreneurs might influence it.

In order to answer this question, an in-depth understanding of the concept of sustainable entrepreneurship is crucial. This paper lays the foundation for the remaining two papers of this master thesis by providing a concise definition of sustainable entrepreneurship and an explanation of how this form of entrepreneurship can contribute to sustainable development. In order to do so, the literature review that builds the foundation of this paper was guided by the following two research questions: (1) Which entrepreneurial goals are to be pursued in order to meet the objectives of sustainable development? and (2) Which are the key concepts defining sustainable entrepreneurship? By answering these questions, this paper aims at contributing to the ongoing debate over the concept of sustainable entrepreneurship (Shepherd and Patzelt, 2011) and answers Schaltegger’s (2011) call for paying more attention to sustainability entrepreneurship as a concept that integrates social and environmental aspects, instead of concentrating on either one of the two objectives.

Starting with an introduction to sustainable development and its societal and economic relevance, this paper gives a brief overview over three different goals that can drive entrepreneurs. These three goals are (1) economic sustainability, (2) social sustainability and (3) environmental sustainability. The paper further proceeds by discussing why each of these goals does not, in isolation, lead to sustainability. In the remaining sections, sustainable entrepreneurship is introduced as a suitable concept to pursue the objectives of sustainable development through entrepreneurial action and an in-depth definition of the concept will be developed. Finally, the paper concludes by developing its own definition of sustainable entrepreneurship, followed by a discussion about the limitations of this paper and possible further research paths.

2. Entrepreneurship in the context of sustainable development

To answer the question of how entrepreneurship can influence a transition towards a more sustainable economy, it would be helpful to know what a ‘more sustainable economy’ might look like. Unfortunately, there is no easy answer to this. Chapter 2.1. gives an overview over three different concepts of sustainable economic development currently discussed in literature: the green economy, the blue economy and the circular economy.

The concept of sustainability entails the connection of the economic, social and ecologic level. To be in line with the objects of sustainable (economic) development, entrepreneurs therefore need to pursue sustainability on all of these levels. Chapter 2.2. explains the difference between economic, social and ecological sustainability, as well as different forms of entrepreneurship connected to them, before connecting the three levels in the concept of sustainable entrepreneurship in chapter 3.

2.1. Mapping sustainable development in the context of defining a ‘more sustainable economy’

Since it was first coined in 1980, the term ‘sustainable development’ has been widely discussed. However, one definition exists that is probably the most frequently cited in literature, which defines sustainable development as “a development that meets the needs of the present without compromising the ability of future generations to meet their own needs’’ (World Commission on Environment and Development, 1987: 43). Loorbach et al. (2009) note how this definition is not only slightly normative and subjective, since it states that future generations should have the same possibilities without defining what these future needs are, but also ambiguous, because the cultural, ecological and economic developments that determine these future needs can be weighted in more than one way. In their paper they gather three basic characteristics which occur in almost all definitions and scientific writings about sustainable development (Loorbach et al, 2009; Frantzeskaki et al, 2012). First, sustainability is defined as intergenerational, which means that more than one generation has to be considered. Second, sustainability can evolve at different levels, meaning that local or regional sustainability is not necessarily the same as national or global sustainability. And finally, sustainability is related to multiple domains, since it aims to balance ecological, economic and socio-cultural values and stakes.

The broadness of these characteristics makes it very difficult to derive recommendations for actions from them, in terms of pursuing a more sustainable economy. Indeed, it has been criticized that the call for sustainable development has remained widely unanswered. “It was, right after 1989, part of a prevailing optimism that global problems could be solved cooperatively. However, sustainable development has failed because of the absence of relevant socio-economic actors needed to significantly push this strategy […] The worldwide use of resources, ecosystems, and sinks has dramatically increased within the last 20 years” (Brand, 2012: 28). Recently, new visions of sustainable economic development have emerged, of which three will now be briefly introduced.

The ‘green economy’

The green economy is one of the more recent concepts that have emerged in recent years out of an effort to integrate the different dimensions of sustainable development (UN Secretary-General, 2010). A feature that distinguishes the green economy from that of former economic concepts is the direct valuation of natural capital and ecological services as having economic value, which, in contrast to sustainable development, makes the idea attractive for relevant socioeconomic actors (Brand, 2012). This enhanced economic interest in the subject has been explained as follows: “Technologies to develop renewable sources of energy or electric vehicles are available, and microelectronics play a much more important role today than 20 years ago. And there is another dynamic, i.e. the current financial crisis, the major cause of which is an enormous amount of over-accumulated capital that seeks new investment opportunities.” (Brand, 2012: 28). Due to its strong focus on green technology and alternative forms of energy, the green economy is also sometimes called ‘low carbon economy’ (Runnals, 2011: 3).

Political strategies towards a green economy have been summarized in seven points by the UN Secretary-General (2010: 15f.):

(1) The adjustment of prices in order to internalize external costs, impose taxes on environmental “bads”, support sustainable consumption and incentivize business choices,

(2) Implement policies to promote greening of business and markets,

(3) Implement tax reforms to support environmentally- friendly and sustainable practices,

(4) Expand public support in sustainable infrastructure and natural capital, to maintain and enlarge the stock of natural capital,

(5) Support research and development on green technologies,

(6) Strategic investment through public sector development outlays, incentive programs and partnerships to enable alliances that promote self-sufficient ecologically and socially-sound economic development,

(7) Implement social policies that bring social goals in line with existing or proposed economic policies.

The concept of the green economy has been criticized for different reasons. Brand (2012: 30) highlights structural constraints, such as political orientation towards competition and a dominant societal orientation towards growth, as the stumbling blocks against implementing truly sustainable changes, which “should be changed if the necessary socio-ecological transformation is to be taken seriously”. Furthermore, in a paper for UNCTAD, Hoffman (2011: 2) warns that the green economy may not be enough to cope with the fundamental challenges our world is facing: “One should not deceive oneself into believing that such evolutionary (and often reductionist) approach will be sufficient to cope with the complexities of climate change. It may rather give much false hope and excuses to do nothing really fundamental that can bring about a U-turn of global GHG emissions”.

The ‘blue economy’

The blue economy is an open source movement initiated by Former Ecover CEO and ZERI creator Gunter Pauli, who claims that while the green economy has had an impact on specific products in niche markets, it is not enough to substitute one product or one process with another, but instead necessary to change the entire system (Pauli, 2010). In his book ‘The Blue Economy: 10 years - 100 innovations - 100 million jobs’, he presents successful projects all over the world as the basis for his ideas on the blue economy. Pauli suggests that, in order to transform the economic system towards sustainability, it is necessary to copy those mechanisms prevalent in ecosystems, specifically focusing on the following two principles:

(1) All matter and energy cascades from one species to another: In order for this to be possible, locally available resources are consumed while all contributors are employed and one species’ waste serves as the resource for another.

(2) Ecosystems rely first and foremost on the laws of physics and only secondarily on chemistry: By explaining how zebras and termites develop physics-based mechanisms of air and humidity control, Pauli shows how much our current mechanical and electronic systems could be improved by taking inspirations from nature (biomimicry).

The ‘circular economy’

The circular economy is a concept developed as an alternative to our current linear model of resource consumption that follows a ‘take-make-dispose’ pattern (Ellen McArthur Foundation, 2012).

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Graphic 1: The circular economy (Ellen McArthur Foundation, 2012: 24).

The concept draws from different schools of thought and cannot be traced back to one single date or author. However, research about the circular economy is currently maintained by the Ellen McArthur foundation, who recently published an extensive report on the concept. Based on a few simple principles, a circular economy aims to accomplish the following objectives (Ellen McArthur Foundation, 2012: 7):

(1) ‘ Design out’ waste: Products are designed and optimized for a cycle of disassembly and reuse, which leads to waste being non-existent.

(2) Strict differentiation between consumable and durable components of a product: Consumables in the circular economy are largely made of biological ingredients or ‘nutrients’ that are at least non-toxic and possibly even beneficial, and can be safely returned to the biosphere — directly or in a cascade of consecutive uses. Durables such as engines or computers, which are made of technical nutrients unsuitable for the biosphere, are designed from the start for reuse.

(3) Renewable energy: Energy required to fuel this cycle should be renewable by nature.

The report claims that if these ideas can be mainstreamed, an economic opportunity arises which is worth billions of dollars, stemming from advantages such as reduced externalities, decreased volatility and increased rates of innovation and capital productivity. However, the foundation acknowledges that the way towards making the circular economy reality cannot be an easy one^[1]. Amongst other things, behavioral changes are needed to change the current way of consumption and it will take time and educational efforts to move away from the illusion that everything is available, cheap and plentiful.

For any of these three currently discussed visions of more sustainable economies to be realized, sustainable entrepreneurship is needed. The reasons for this will be discussed in chapter 5.

2.2. Economic, environmental and social sustainability: How three forms of entrepreneurship are connected to the goals of sustainable development

Due to the fact that the task of defining a more sustainable economy is already a struggle, it becomes clear that the way towards actually achieving it holds plenty of obstacles. A variety of actors can be classified who might or might not be contributing to overcoming these obstacles. The following section aims at analyzing how different kinds of entrepreneurial actors can contribute to a more sustainable economy and to answer the question if there is a form of entrepreneurship that is best suited for reaching this goal. Since sustainable development integrates the three dimensions of societal, economic and ecologic sustainability, this chapter discusses the three different forms of entrepreneurship that are generally associated with each of these goals. The next chapter will then combine the three goals in the concept of sustainable entrepreneurship and explain why the pursuit of the triple bottom line is necessary to achieve the objectives of sustainable development.

Economic sustainability

Economic sustainability is seen as the primary goal of traditional economic actors, because without it, the company is usually not able to survive. The concept of economic sustainability seems quite straightforward: The assets of a firm should equal or exceed its liabilities (Dyllick and Hockerts, 2002). But classifying the assets of a firm is complicated by concepts such as intellectual capital. Dyllick and Hockerts (2002) come to the conclusion that no matter which form of accounting is used, a firm can only make an approximation of its economic capital at a given time and they define corporate economic sustainability as follows: “Economically sustainable companies guarantee at any time cashflow sufficient to ensure liquidity while producing a persistent above average return to their shareholders.” (Dyllick and Hockerts, 2002: 133)

Social sustainability

Social sustainability is the primary goal of social entrepreneurship, a form of entrepreneurship which has at its core the contribution to solving societal problems and to create value for society. This form of entrepreneurship has been defined as follows: “Social entrepreneurship creates new models for the provision of products and services that cater directly to basic human needs that remain unsatisfied by current economic or social institutions.” (Seelos and Mair, 2005: 243). The social entrepreneurship literature is concerned with topics such as: how to achieve funding that is necessary to pursue societal goals, or: how to provide innovation for specific deprived market segments (Schaltegger and Wagner, 2011). One stream of social entrepreneurship literature specifically focuses on base-of-the-pyramid (BOP) innovations, such as the research of Prahalad (e.g. Prahalad and Hart, 2001). Social entrepreneurship is also often seen as philanthropic or a fund-raising venture with research that analyses successful non-profit social ventures and a clear primacy on the social goal compared to profit-seeking objectives (see for example Martin and Osberg, 2007). A socially sustainable company, according to Dyllick and Hockerts (2002), is one that adds value to the community within which it operates and manages social capital in a way that its motivations and value system are clearly understood and agreed upon by stakeholders.

Ecologic sustainability

Ecologic sustainability is the primary goal of environmental entrepreneurs. In comparison with the social entrepreneurship literature, environmental entrepreneurship, or ‘ecopreneurship’ (Isaak, 1998) is more strongly linked to the pursuit of profitable entrepreneurial opportunities (Schaltegger, 2011). An ecopreneur, according to Isaak (2002: 82) is “a person who seeks to transform a sector of the economy towards sustainability by starting up a business in that sector with a green design, with green processes and with a life-long commitment to sustainability in everything that is said and done.” The concept of ecological entrepreneurship can be seen as closest to sustainable entrepreneurship since environmental problems are often the cause of all kinds of political, social and economic challenges the world is facing (Lubchenko, 1998; Schlange, 2007). Ecologic sustainability is also usually contributing to a collective social profit, since the reduction in ecological hazards is beneficial for societies as a whole (Schlange, 2007). In summary, environmental entrepreneurship can be defined as “ the process of discovering, evaluating, and exploiting economic opportunities that are present in environmentally relevant market failures” (Dean and McMullen, 2007: 58). An ecologically sustainable company, according to Dyllick and Hockerts (2002), is one that does not engage in eco-system degrading activities. It uses only natural resources and consumes them at a rate below the natural reproduction or a rate below the development of substitutes. Emissions caused by the company do not accumulate in the environment at a rate that is beyond the capacity of the natural system to absorb and assimilate these emissions.

3. The necessity of a triple bottom line for the pursuit of sustainable development objectives: Introducing sustainable entrepreneurship

Each of the three primary goals that can drive entrepreneurial ventures has to be sustained in a different way and they can be accomplished relatively independent from each other. This is to say, a social entrepreneur can sustain his goal of adding value to the community he operates in, even if in the process of doing so, he harms the ecological environment. Likewise, an ecopreneur can reach his goal of sustaining the environment, without necessarily sustaining the socially relevant structures he is touching upon. And finally, there are plenty examples from traditional economic entrepreneurship which show that being financially sustainable does not necessarily include the preservation of either social or environmental goals. It is therefore clear that neither tradition entrepreneurship nor social or green entrepreneurship is fit to combine the three objectives of sustainable development.

Over the last decade, one term has emerged from scholarly debate which combines the concept of entrepreneurship with all three objectives: ‘Sustainable entrepreneurship’ (Schlange, 2009). In light of the above mentioned different annotations the term ‘sustainability’ can have, it would however be more precise to refer to ‘entrepreneurship for sustainable development’ (Kuckertz and Wagner, 2010: 525), to prevent confusion with a business that sustains itself financially (Schlange, 2009). Yet, in accordance to prior literature (e.g., Dean and McMullen, 2007; Cohen and Winn, 2007; Kuckertz and Wagner, 2010), the term ‘sustainable entrepreneurship’ will be used in the remainder of this paper to refer to those entrepreneurial activities which contribute positively to sustainable development and its objectives.

In conceptualizing sustainable entrepreneurship, this article goes in line with Tilley and Young (2009), who argue that the pursuit of a triple bottom line is the only goal that will really lead entrepreneurs to sustainability. Even if, by chance, the pursuit of economic goals leads to positive contributions to the other two goals, this cannot be compared to the pursuit of a triple bottom line. “The issue with a purely economic motivation leading to social and environmental improvements is that it is oriented towards the short term and limited by inherent characteristics of incremental innovation” (Schaltegger and Wagner, 2011: 228). Even though sustainability oriented forms of entrepreneurship, such as ecopreneurship and social entrepreneurship have sometimes been categorized under the collective umbrella term of ‘social enterprise’ (Young and Tilley, 2006), these organizations do not contribute to sustainability in the same way or may not even do so at all. “We argue that, while they each maintain their single primacy, they are not on their own or in aggregate going to lead to sustainability. This is because they are not combining all components of sustainable development equally, holistically or integratively. Consequently, social, environmental and economic entrepreneurship has a primacy that overrides and therefore potentially blocks the move towards sustainability” (Tilley and Young, 2009: 83). In summary, entrepreneurship that contributes to the objectives of sustainable development needs to combine the goals of economic, environmental and social sustainability without giving a primacy to any goal.

It has to be noted however, that, while this equal integration of environmental, social and economic goals builds an important defining basis of the concept of sustainable entrepreneurship and sustainable development, the approach (i.e. the notion of the triple bottom line) has been heavily criticized. The discussion section at the end of this article will briefly discuss this criticism, which indeed provides some legitimate points to critically assess the concept. Discussing the triple bottom line in-depth would however decidedly exceed the scope of this work and has been done elsewhere (i.e. Norman and MacDonald, 2004; Pava, 2007).

4. Defining sustainable entrepreneurship

Out of the connection between sustainable development and sustainable entrepreneurship, the necessity for the pursuit of a triple bottom line crystallized as a defining attribute of sustainable entrepreneurship. However, other concepts exist, that repeatedly show up in definitions of sustainable entrepreneurship. Shepherd and Patzelt (2011) note that to date there is still no clarity about the definition and core assumptions of sustainable entrepreneurship. In order to get a better understanding of what the concept entails, an analysis of most contemporary definitions of sustainable entrepreneurship has been conducted. The research articles containing these definitions were conducted by running a literature search using the following keywords: “sustainable entrepreneurship”, “sustainability entrepreneurship”, “sustainopreneurship” and “entrepreneurship for sustainability”. Since sustainable entrepreneurship is a very recent concept, only a small number of research articles matched those key words in the title and/or abstract. Ignoring all those articles just quoting one of the following definitions – i.e. not developing a definition of their own - and sorting out the definition of Tilley and Young (2009), which is too broad and complicated to be summarized in a few sentences, twelve definitions where gathered. Table 1 gives an overview, ranked by the year of publishing.

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Table 1: Definitions of sustainable entrepreneurship.

Out of the analysis of the presented definitions, three key concepts emerged, which together compose the overall conception of sustainable entrepreneurship. These concepts are (1) the interaction of economic, social and environmental objectives, (2) the discovery and exploitation of opportunities in a context of market failure and (3) the initiation of societal and economic change towards sustainability. The first concept, namely the triple bottom line, has already been alluded to in this paper. The following sections will provide a discussion of the second and third concept.

4.1. The discovery and exploitation of opportunities in a context of market failure

By taking a look at traditional theory from environmental and welfare economics it becomes clear that market failures within the economic system not only prevent entrepreneurial action from solving sustainability related problems, but actually motivate entrepreneurs to behave in environmentally degrading ways (Dean and McMullen, 2007). Pacheco et al. (2010) find that the reason for this lies in the divergence between individual rewards and collective sustainability goals which creates a prisoner’s dilemma for the economic actors in a society. Many scholars agree however that sustainable entrepreneurs can turn market failures into opportunities (see for example Cohen and Winn, 2005; Hockerts and Wüstenhagen, 2010; Dean and McMullen, 2007; Pacheco et al., 20010). Dean and McMullen (2007) list the five most common types of market failures (public goods, externalities, monopoly power, inappropriate government intervention and imperfect information), followed by a suggestion how each market failure poses an entrepreneurial opportunity.

The process of turning market failure into opportunity will now be explained using an example that outlines how a sustainable entrepreneur can use the market failure ‘externalities’ to create a business opportunity. Dean and McMullen (2007) cite Black (1997: 169) in order to define externalities, as “a cost or benefit arising from any activity which does not accrue to the person or organization carrying on the activity”. Externalities can be positive (if one person gets vaccinated against a disease, it also decreases the probability of another person to contract the disease) or negative (like the impact of industrial waste on the health and environment of the surrounding community) in which case the externalities have a damaging effect on another individual (Cowen, 1988, as cited in Dean and McMullen, 2007). In relation to firms, negative externalities exist when costs are not accurately reflected in the price of a firm’s products or services (Cohen and Winn, 2007). A very common negative externality in the global economy is environmental degradation, such as the toxification or deforestation of land in connection with unsustainable farming practices. From a social perspective, negative externalities such as sickness of workers due to poor working conditions can be observed. In the current state of the global economy, these costs are borne by society instead of being internalized by the firms which are responsible for them (Dyllick, 1999). For entrepreneurs, these externalities hold the chance to identify opportunities which arise from negative externalities. The following paragraph will give a brief overview of the theory behind entrepreneurial opportunity recognition, before illustrating the process at the example of externalities.

From a research perspective, entrepreneurship is centred around the perception of opportunities and involves the activities of opportunity identification, evaluation and exploitation (Shane and Venkataraman, 2000). The analysed definitions (see table 1) distinctly show that the concept of entrepreneurial opportunity recognition and creation has been transferred to sustainable entrepreneurship theory as well. Pacheco et al. (2010) distinguish between two types of entrepreneurial opportunities: discovery opportunities and creation opportunities. Discovery opportunities are those available in the current economic incentive and reward system and current structures are enough to make their exploitation profitable. Due to circumstances such as technological developments or changes in consumer preferences, such opportunities are created exogenously to be discovered by the observant entrepreneur. The second type of opportunity requires the alteration or creation of new institutional structures. Negative externalities pose both types of opportunities. Substituting current practices with new technologies that minimize or improve on earlier negative externalities would be a discovery opportunity. Creation opportunities in connection to negative externalities are strongly related to the minimization of transaction costs. Dean and McMullen (2007) give the example of a factory that is polluting a neighbouring community. Due to transaction costs, individuals may choose not to seek compensation for these damages because the costs of the transactions – e.g. hiring legal professionals and the opportunity costs of time spent on the matter – would exceed the potential gains. In this case, a creation opportunity for a sustainable entrepreneur lies in reducing the transaction costs associated with proceeding against the polluting factory. An example could be the coordination of the interests of the affected parties through an organization that represents their rights, which would decrease the costs for single parties and increase the power of the petitioners.

4.2. The initiation of societal and economic change towards sustainability

From the moment when Schumpeter introduced them as the two engines of “creative destruction” in 1934, innovation and entrepreneurship have been understood as primary sources of economic growth. But scholars have increasingly started to question the ecologic and social viability of innovation entrepreneurship that is solely focused on economic goals and have therefore started to shift their focus towards sustainable entrepreneurship instead, which can be seen as the interface of sustainable development and innovation-entrepreneurship (O`Neill et al., 2009). As O´Neill et al. (2009: 34), phrase it, sustainability innovation and sustainability entrepreneurship are logically continuing the heritage of innovation-entrepreneurship as the driver of creative destruction and economic growth, thereby becoming the “primary engine by which the holistic economic–environmental–social system is transformed towards sustainability”.

As the previous argumentation of this article shows, many authors are in line with O’Neill’s statement. Sustainable entrepreneurship is seen as a driver of societal and economic transition towards sustainability. Only the explanation of how or why this should be so has been neglected in scientific research. To understand how entrepreneurship can initiate change towards sustainability, that is, initiate a societal and economical sustainability transition, it is necessary to get a better understanding of the term ‘transition’. Loorbach et al. (2009: 4) define the term as follows: “a system in a relatively stable equilibrium is (suddenly) going into a phase of rapid change through a process in which self-organization and co-evolution play an important role before a new equilibrium is found”. It is generally assumed that societal structures go through long periods of relative stability and optimization, before a relatively short period of structural change sets in (Loorbach et al., 2009). This change emerges when “the dominant structures in society (regimes) are put under pressure by external change in society, as well as endogenous innovation” (Loorbach, 2010: 166).

Therefore, developing an understanding of how the dominant structures of this economy can be put under pressure by sustainable entrepreneurship is crucial to comprehend the influence of sustainable entrepreneurs in steering a transition towards a sustainable economy.

5. Positioning sustainable entrepreneurship in the current debate on sustainable economic development

As an intermediary result it can be shown that the two analysed strands of literature, namely sustainable entrepreneurship research and literature on sustainable economic development, are not very well connected. While researchers trust sustainable entrepreneurship to transform the economy towards more sustainability, and dwell on the advantages of sustainable entrepreneurship over other forms of entrepreneurship, they completely neglect to paint a clear picture of how this ‘more sustainable economy’ might actually look like. At the same time, a variety of such pictures of ‘sustainable economies’ are being painted elsewhere, sometimes powerful ones, which would require a complete turnaround of economic thinking and acting. These visionaries of new economic models refer to the importance of innovation and entrepreneurship, but without fully illuminating the role of entrepreneurship in their scenarios and, more importantly, without giving clear recommendations for actions on part of entrepreneurs.

It is at the point where both strands of literature lose their confident explanatory power, that the clearest overlap can be found: in the question how a more sustainable economy can actually be realized. Granted, both parties know what needs to be changed, as both parties in unison list market failures such as externalities that need to be internalized – the question is how. “ Through opportunity discovery” says one party, “Through new product design” says the other – they both mean the same. To transform the economy, disruptive sustainable innovation is needed. And disruptive sustainable innovation needs sustainable entrepreneurial thinking. But disruptive innovation is not enough. It needs to be brought to market. And if the goal is the transition of the whole economy, then it needs to be brought to the mass market. And exactly at this point – at convincing the mass market to accept sustainable innovation – lies the actual weakness of both theories.

A criticism that frequently comes up against the above mentioned models of sustainable economies is the existence of structural constraints, like political orientation towards competition, the societal habits of consumption and the illusion of unlimited resources. Again, the same question arises that has been mentioned in the last chapter, namely: how is it possible to change the dominant structures of an economy.

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^[1] http://www.ellenmacarthurfoundation.org/circular-economy/circular-economy/its-all-good-on-paper-but (last accessed 04/10/2012)