How environmentally sustainable SME Business Strategies affect Shareholder Profits within a Liberal Market Economy

Table of Contents

1.INTRODUCTION
1.1 Background
1.2 Research objectives
1.3 Research questions
1.4 Research aim
1.5 Significance of research

2. LITERATURE REVIEW
2.1 Introduction
2.2 Research
2.3 The UK and Europe Textile Industry

3. METHODOLOGY
3.1 Research Design
3.2 Data Collection
3.3 Instrumentation
3.4 Research Ethics and Confidentiality
3.5 Validity and Reliability

4. FINDINGS AND ANALYSIS
4.1 Introduction
4.2 Implications for Business
4.3 Practical Considerations
4.4 The UK and Europe Textile Industry
4.5 Positive Signs of Change
4.6 Progressing towards Sustainability and Corporate Social Responsibility

5. CONCLUSIONS AND RECOMMENDATIONS

6. REFERENCES

Abstract:

It was not long ago that we thought that the world's resources were never ending and the short term view was that better business and greater profit was gained by learning how to harvest and manipulate those resources whatever the consequences. Little thought was given to the environmental impact that our activities were having on the planet. Companies are there to make a profit for their shareholders and the company share price must be protected at all costs, whatever the cost. Increasingly companies understand that rather than finding new ways to exploit the planet, companies and populations need to find new ways to grow in a sustainable way and protect the planet’s resources.

Corporate Social responsibility is one of the most important business developments to happen over the last 40yrs. starting in the 1970’s, the idea that a business could cease to do harm to its environment and community and instead put in strategies to limit its impact upon the world and still make a profit, was radical, but with the benefit of hindsight seems like a natural evolution. Integrating CRS into a business comes with its own set of unique problems though and the aims of this work are to assess the short term and long term viability and impact both negative and positive on short and long term profits for the shareholders of small and medium-sized enterprises adopting a sustainable and environmentally positive business strategy within the scope of a Liberal Market Economy. Some emphasis will also be on the CSR activities and shareholder returns relating to the environmentally damaging, SME Textile industry.

INTRODUCTION

1.1 Background

It was not so long ago that a company strategy was to provide the maximum returns for shareholders and investors whatever the cost to the environment and the world's resources. Businesses had other agendas than that of environmental and social objectives Lester and Lipinksi (2015). In addition, the human resources and natural exploitation in many industries were the norms in terms of the health of the communities in which the SMEs operated (Skipworth, Godsell, Wong, Saghiri, and Julien, 2015). The responsibility was on the management team and board of directors to provide short and long-term shareholder value and protect the share price even though this may have been detrimental to the long-term viability of the SME and damaging to the environment.

Davcik and Sharma (2016) discusses management performance and shareholder involvement with the board of directors in SMEs and highlight SMEs that are focused on CSR activities measure the shareholder value in the long-term instead of focusing on the short-term metrics. There is a wide and diverse view which shows that the organization is accountable to its stakeholders and must also take greater accountability for its impact on society. Lehmann, Bocken, Steingrimsson and Evans (2015) show that SME organizations seek to solve environmental and social issues in their markets. This view has developed the definition of stakeholders only with regard to investors and shareholders. The concept of stakeholders was explained in detail by (Long, Tallonare and Young, 2015).

Lozano (2013) argued that SME managers tailor their policies with the intention to satisfy the stakeholder’s needs and not only for the shareholder. This approach shows that corporate social responsibility has become a strategic mandate for some organizational leaders. There has been much research done on company ‘value creation’ through CRS and there are various implications for financial performance if a company wishes to be more socially responsible.

According to Marinova, Nummela and Larimo (2017), there are subcategories for stakeholders which also comprises of shareholders, customers, workers, communities, business partners, natural environment and future generations. These stakeholders are made up of the state, local and federal government, civic institutions, regulatory bodies, special interest groups, competitors, media and industry groups.

Some of the previous researchers demonstrate that organizations gain a position with stakeholders such as customers by meeting their needs and with workers through investment in training etc. and this, in turn, creates value for shareholders. Pastrana and Sriramesh (2014) argue that adopting social and environmental policies can destroy the wealth of the shareholder. This shows the argument related to sustainability which demonstrates the advantage for managers and embedded social and environmental policies in SMEs strategy. This can also have negative financial implications for the company.

According to Orsato, Garcia, Silva, Simonetti and Monzoni (2015), the intangible value that sustainable developments attract is more appealing to shareholders and investors in the company. Traditionally, the firm view and the shareholder view shows that shareholders are seen as the owners of the company to which the organization has a fiduciary duty to put their customer needs first in order to enhance value for their organization. According to Skipworth, Godsell, Wong, Saghiri and Julien (2015), the theory of the traditional shareholder being the owners of the company leads to environmental protection ignorance.

Sadovníkova and Pujari (2015) comment that, social stakeholders comprise of shareholders, communities, investors, management, employees, suppliers, customers and other cooperative organizations. There are also minor social stakeholders in SME’s which include social pressure groups, government, and regulatory agencies, competitors and media. The governance of SMEs must change from first shareholders to care stakeholders.

In the view of Teti, Perrini and Tirapelle (2014), SME’s that have a negative impact, both social and environmental, should share the blame with employees, management, and other stakeholders. Another finding is that firms following differentiation strategies generate considerably higher value to the stakeholder than companies following a low-cost leadership strategy. ‘Differentiators, presumably because of their structural outward-facing orientation, seem to be better positioned to meet the challenges of the next wave of growth, which resides in the substantial interconnection between economic and societal value. Companies need a better understanding of how the stakeholder value theory and social capital can influence value creation and long-term success.’

1.2 Research objectives

- To explain what is meant by Corporate Social Responsible Activities and how companies interpret these issues within their companies.
- To explain how shareholder returns can be enhanced of hindered by companies that wish to become environmentally responsible.
- To explore the repercussions for companies that have a ‘green’ agenda but do not have the framework or infrastructure to enable the company to become environmentally responsible without damaging shareholder returns.
- To explore the short-term and long-term implications for the shareholder.
- To discover what barriers are in place for environmentally responsible strategy.
- To explore the shareholder influence over the company to adopt a ‘responsible’ strategy or not.

1.3 Research questions

- Can a Company go too far in its ambitions to become environmentally responsible and in return harm the organization and its shareholder returns by embracing an environmentally sound strategy into a company that is not yet prepared to or does not have the framework set up?
- What are the short-term and long-term implications for the shareholder?
- How much weight can shareholders put on a company to change the way it does business.
- What are the long-term ramifications of a strategy of creating no superfluous harm and eventually will this permit SMEs to be more productive?

1.4 Research aim

The main aim of this empirical research study is to assess the implications for shareholder returns both short term and long term in a liberal market economy when SME’s put in place or develop their Corporate Social Responsibility agenda and in turn develop a sustainable environmentally positive business strategy.

1.5 Significance of research

The researcher examines how a 21st-century organization whilst managing the different stakeholders, manages to be environmentally responsible which in turn improves the longevity of the company and it keeps on doing business on a livable planet. The researcher empirically assesses the short term and long term viability of this proposition and analyses the impact both negative and positive on short and long term profits for the shareholders of small and medium-sized enterprises.

2. LITERATURE REVIEW

2.1 Introduction

In this section, I will research and provide a review of Key resources including Journals, Books, and Published Papers to create a critical analysis summary relating the current thinking and research relating to How Environmentally Sustainable SME business strategies affect shareholder profits within a Liberal Market economy.

2.2 Research

Over time firms become more resilient and adaptable. In a way, long-term value is created as a result of sustainable business. It is unambiguous that a firm's actions have an impact on the environment to some degree and it is, therefore, vital that firms reduce their negative impact on the world and its resources (Hart, & Milstein, 2003). More importantly, small and medium-sized enterprises must take into consideration factors that are believed to impact the environment and thus take into considerations those aspects when making long-term investment decisions (Antiova, 2009).

For many companies, Corporate Social Responsibility strategy is at the very core of its business practice. Because of this, the company creates a great deal of value and goodwill as it develops systems, resources, and capabilities to manage the various social or community projects that the company takes on, Kanter (1999).

According to Jenkins (2009), SMEs are believed to be well aware of sustainable business practices as there is often close links with suppliers, employees, customers and the community in which they operate. Hence they are considered to be doing better than big companies in understanding communities and environmental concerns. Moreover, when it comes to sustainability and a legacy, these are known to be part of the SMEs day to day activities (Ong, & Ismail, 2008).

CEOs are not only concerned with the profits of the shareholder but there is evidence that they wish their companies to be environmentally sustainable as well and thus they are required to introduce and over time implement environmentally sustainable strategies. In addition, ‘Small and medium-sized enterprises (SMEs) have a major advantage over larger organizations in regard to addressing sustainability issues and their size means they are able to react very quickly to changes in the business environment. They are disadvantaged, however, by the lack of information on marketplace changes that make sustainability an opportunity to innovate, and to inspire employees.’ (Condon, 2004, pp. 57-67).

However, there is some resistance to sustainable efforts, especially by institutional investors, and other various actors such as corporate governance, social responsibility, and environmental accountability. There have, however, been legislation changes and as barriers are falling and roles are changing in a globalized world it becomes easier to be environmentally responsible (Raynard, & Forstater, 2002).

Hence, it is not just about free trade and globalization in terms of the flow of goods from one corner to another corner of the world; the flow of communication, etc., but about society as well. In other words, it is not just about free trade, but about how do we want to progress ahead as a society in such a competitive and resource hungry world (Dhungana, 2003 pp.16-28). In the same manner, Subrahmanya (2004) asserts that it is not just about globalization, corporate governance, and corporate accountability but it is about global values and the set of global values, democratic values and the rights of all of human beings living on this planet. There is no doubt nonetheless that it is society which has higher expectations of SMEs and MNCs in fulfilling those in terms of being environmentally sustainable (Acs, & Preston, 1997). While companies are able to deliver goods and services in accordance with sustainable environmental standards and while naturally, enhancing an organization’s social, ecological and financial position, the capacity to gauge and monitor this is all the more difficult (Burkhardt, 2008).

The World Business Council for Sustainable Development’s (WBCSD) distributed report, ‘Environment and Shareholder Value’ does notwithstanding, give a helpful structure (Hopwood, Meilor, & O’Brien, 2005, pp.38-52). utilizing the eco­efficiency framework developed by the WBCSD, allows firms to assess the performance related to economic and environmental sustainability, using indicators that are important to the organization (Singh, Murty, Gupta, & Dikshit, 2012, pp.284­296). A formal financial examination of supportability systems, utilizing Free Cash Flow, Economic Value Added (EVA) and ecological bookkeeping procedures, can yield significant advantages. Linking the ecosystem with the economy in an integrated input-output model allows the calculation process of economic activities. (Kratena, 2004, pp.189-200).

According to Lafferty & Langhelle (1999), the natural sustainablity of our planet profoundly affects the economy. The contamination of air, soil, and water is progressively harming the biological framework and in turn, the economic viability of the planet. An efficient, working economy is fundamental for making long-term economic developments. Given the multifaceted nature of asset use and the effect of contamination on the environment, it is hard to figure out what to do, keeping in mind the end goal is to really move towards a more sustainable planet. The various media outlets both traditional and online have done much to expand the education and mindfulness of the outcomes of ecological debasement and has likewise made the overall population more engaged to the significance of the decimation of the earth’s natural resources. (Alier, 2009).

According to Canton, Farr, & Obbagy (2009) some examples of CSR strategy issues include: Governance, Charitable Giving, Community Investments, Compliance, Fair Labor Practices, stakeholder Outreach, Greenhouse Gases, Waste Management, Product Integrity, Green Manufacturing, Fluman Rights, Natural Resource Use, Supply Chain Management , Water Management and Workplace Safety.

Sustainability entails using less and cleaner energy and reducing the amount of waste business produces etc. there is sufficient evidence to imply that businesses have greater negative impacts on the ecosphere (Moldan, Janoušková, & Flák, 2012, pp.6-11 ). There is no doubt that economic growth is the result of resource exploitation, and by the same token pollution is not sustainable. Companies should ensure that they are economically sustainable and need to evolve to survive. Corporate activity is possible without resorting to damaging the environment and the protection of the Earths water, soil, and atmosphere are paramount (Doran, 2002, pp.119-127). The relationship has changed a lot in the past twenty years between society and business. There are regulations now in place enumerating the areas for which businesses need to be careful and ensure that their operations are environmentally sustainable.

SME’s can gain a competitive advantage by adopting environmental good practices however as a recent study has shown, there are fundamental misunderstandings and difficulties associated with achieving this in practice. The main findings of the survey were that most of the organizations surveyed agreed that there were environmental issues affecting their business, however, changing the way they did things came at a cost and was not transferable on to the customers in terms of value added benefits (Simpson, Taylor, & Barker, 2004, pp.156-171). However, if the overall impact is collectively taken, it does become a substantial change for the better. Legislative policy changes and globalization throws open the doors to new opportunities and markets (Subrahmanya, 2004), eventually, turning out to be more environmentally friendly and economically viable in the long term. The choice each firm faces is to decide to what degree it can attempt practical strategic environmental improvements. SME’s, notwithstanding, do not generally have the required data about the opportunities and threats in regards to their sustainability (Partidario, 2001).

According to the United Nations Industrial Development Organization (UNIDO), more than 90 percent of global businesses worldwide are classed as a Small or Medium sized enterprise (SME), they also account for fifty percent of GDP of all countries (Knight, 2001, pp.15-171). While more than 60 percent of employment all over the world is the result of SMEs. In addition, it is claimed that more than 70 percent of Industrial pollution is the result of SMEs. Hence, SMEs are considered as important as MNCs in controlling industrial pollution all over the world so as to create an environmentally sustainable world. SMEs with sustainability coordinated in their strategic normal operating procedures (NOPS) presently have admittance to new markets and expanded business openings. This has brought about new opportunities, joint community ventures - and altogether new markets. (Hopwood, Meilor, & O’Brien, 2005).

It is believed that some companies have gone on to integrate aspects of sustainability in their business model and in turn, they are considered to have more business opportunities (Ness, Urbel-Piirsalu, Anderberg, & Olsson, 2007). A Large number of SMEs have come under pressure over the years to ensure increasing sustainability in their operations, besides taking care of ethical practices in their supply chain. The role of the shareholder is critical in this regard as they would expect as much profit as possible. This, in turn, creates an additional number of difficulties for firms and companies to ensure continued vigilance on their part to be sufficiently environmentally sustainable (Lafferty, & Langhelle, 1999).

It is believed by advocates of sustainable business practices that such a business practice is not just beneficial for the environment but for the bottom line (Larson, Teisberg, & Johnson, 2000). Furthermore, as per the study conducted by The Harvard Business Review, more than anything, sustainability can be most effective for the bottom line. In an analysis and comparison, the companies which

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