Will Green CSR Enhance Innovation? A Perspective of Public Visibility and Firm Transparency

By Tachia Chin

Will Green CSR Enhance Innovation? A Perspective of Public Visibility and Firm Transparency

With the rise of environmental awareness, global organizations have increasingly been required to attach importance to environmental problems. To face the increasing emphasis on environmental protection from stakeholders, firms make active efforts to involve environmental concern into their corporate landscapes and strategic decision-making processes, in an attempt to go green. As such, more and more firms have started to involve environmental protection actions into the implementation of corporate social responsibility (CSR), which results in the emergence of the concept “green CSR”.

Green CSR and Innovation Performance

Green CSR is the recognition of obligation or the waste-reduction practice of firms’ operation to maximize the efficiency of their inputs and minimize the means of negatively influencing the future generations of the country. In recent years, worldwide environmental issues have brought an increasing challenge to firms that used to pursue fast growth at the expense of massive resource consumption and environmental degradation. Therefore, green CSR is gaining more importance due to the changes of stakeholders’ values from profit-oriented to ecology-friendly. In order to cater to global stakeholders’ interests, today’s firms are often compelled to behave more responsibly toward the environment. Previous research points out three critical stakeholder groups that may act as a driving force to propel firms to undertake green CSR, which are community stakeholders such as industrial associations and non-profit organizations, regulatory stakeholders such as governments and legislatures, and organizational stakeholders including employees, partners, and media. The first two groups are among the most important stakeholders giving attention to firms’ implementation of green CSR. Following the foregoing arguments, it can be inferred that firms with more emphasis on green CSR issues may gain more positive feedback from all kinds of stakeholders, particularly those community stakeholders such as non-profit green groups, as well as regulatory ones. Firms focusing on environmentally friendly activities can capture valuable information and knowledge about the community stakeholders’ green needs, preferences, and early warnings about shifts in green values. The external information and knowledge accepted by collective communication with community stakeholders can help firms achieve innovative potential, as firms can embody this information and knowledge in innovation processes. In this sense, firms with stronger green CSR can lead to innovation through improving the quality features of their products with environmental concern, which may enable their offerings to be unique. Thus, green CSR initiative may be the origin station of proactive innovation. More importantly, by covering the negative impacts of products, operations, and facilities on the environment, firms undertaking green CSR also obtain potential benefits form regulatory stakeholders’ supports, including financial supports and political supports to promote their innovation activities. As the most influential stakeholder, regulatory stakeholders have the power to channel valuable resources toward or away from a firm. Regulatory stakeholders have constructed general environmental protection codes and norms together with related incentive schemes. Firms demonstrate that their obedience to these codes and norms may contribute to increase their political legitimacy from the perspective of regulatory stakeholders, thus resulting in active responses. Therefore, firms that limit their adverse environmental impact can obtain financial capital and preferential political support form regulatory stakeholders, such as tax exemption, support funding, project subsidy, interest-free or discount government lending, and relaxed or stiffer regulatory enforcement.

The Moderating Role of Public Visibility

Public visibility reflects the extent to which firms’ actions are observed by stakeholders. Public visibility plays as a pre-condition for stakeholders to respond to firms’ behaviours. The recent literature indicates that public visibility is generally correlated with stakeholders’ positive responses, including increased attractiveness of community stakeholders and favourable evaluations of regulatory stakeholders. Based on this understanding, we propose that public visibility may moderate the relationship between green CSR and innovation performance. The stakeholder theory argues that the success of firms relies on their capability to involve interest groups’ CSR desires in their business strategy. While global stakeholders, particularly the community ones, are very concerned with green CSR nowadays, firms are expected to acknowledge green CSR and operate in green manners. In other words, awareness of firms’ green CSR not only increases community stakeholders’ identification, but also the intent of community stakeholders to commit personal resources to the benefit of the firm. As the level of public visibility increases, firms that are responsible for their business conduct can receive broad attention of more community stakeholders. Under this circumstance, firms can create more efficient channels for knowledge flow and obtain knowledge. The more involuntary knowledge flows thus facilitate green CSR translate into innovation outcomes. On the other hand, because visible firms can draw more attention, public visibility can also help regulatory stakeholders to judge whether firms’ green CSR meets their expectations. Firms with greater public visibility may indicate conformity to normative pressures and show that they are considering the environmental impact on other interest groups instead of just thinking of personal benefits.

The Moderating Role of Firm Transparency

Firm transparency refers to the quality of a company’s disclosure of relevant important information regarding its business operation and management to the general public. Increasing firm transparency is of great significance to the level of firms’ openness to their stakeholders, and it is an effective mechanism for decreasing information asymmetry between firms and stakeholders. Following this assumption, we propose that firm transparency may moderate the relationship between green CSR and innovation performance. Firm transparency is achieved by information disclosure to meet the reasonable needs and interests of community stakeholders through constant communications. Firms showing greater transparency are assumed to devote substantial time and resources to providing sufficient information to the public in a timely manner, and this facilitates the communication of values and norms between firms and community stakeholders. Thus, firm transparency allows firms to build trustful relationship with community stakeholders. Under this circumstance, firms with higher transparency can convey the image of a reputable organization so that community stakeholders will have strong willingness to support. When the firm transparency is high, the effective social knowledge exchange rises, and these strong ties are more likely to expend effort to ensure that firms can sufficiently understand and put into use newly acquired knowledge, so green CSR can initiative innovation more effectively. On the other side, firms seeking to gain or maintain political legitimacy also have an incentive to use transparency strategies. The level of availability and accessibility of information to its regulatory stakeholders is a fundamental requirement for the operating of firms, and the greater supply of firm transparency can signal firms’ long-term promises to environmental protection. Those firms that have a high degree of firm transparency in their annual reports are believed to have adopted more proactive environmental strategies, which can meet the legal requirements set by regulatory stakeholders. Firm transparency leads regulatory stakeholders to interpret and respond positively in the information asymmetry context, which further helps firms construct high quality interrelationship with regulatory stakeholders. Therefore, firms with high transparency can prevent themselves from government interference and enjoy institutional support. The tangible and intangible resources acquired by the firms enable green CSR to produce innovation process and activities more efficiently and effectively.

Measurement

Following previous research, this paper uses green CSR disclosure to measure green CSR. Firm self-disclosure scores on green CSR are usually derived from the content analysis of firm documents such as annual reports, corporate environmental reports, and corporate websites. In our data collection effort, we depended on the data from firms’ annual reports, CSR reports, green CSR reports (when available), and corporate websites. Our final green CSR measure comprises 17 items, which are environmental management system (qualitative and quantitative), energy saving (qualitative and quantitative), emission reduction (qualitative and quantitative), garbage disposal (qualitative and quantitative), beneficial products and services, pollution prevention, renewable energy, resources recycling, water efficiency, sustainable packaging, process improvement, green innovation, and environmental investment. Public visibility is measured by firm advertising intensity. Obviously, wide advertisement can absorb more attention of outside interest groups. A company with intensive advertisement is more popular to its interest groups, who can have more recognition of its green CSR. Thus, the intensity of a firm’s advertising can be a proxy index of its public visibility. A firm’s advertisement intensity is calculated as the ratio of advertising costs to selling, which reflects the willingness of firms to invest more in advertising and selling so as to do better than others. To capture a firm’s level of the firm transparency of firm-specific information concerning publicly listed firms to the stakeholders, this paper uses the evaluation score on information disclosure of Shenzhen stock exchange to be the proxy index of firm transparency. The scores are used to assess a firm’s communication effectiveness with its stakeholders and its degree of information disclosures needed for stakeholders to make decisions. Patent data is extensively used to measure innovation performance. Thus, the number of successful patent applications filed during each year is used as the dependent variable in this paper. In addition to the green CSR related variables, several control variables are added to explain firm innovation performance, including sales growth, firm size, leverage, and return on assets (ROA).

Conclusions

This paper aims to test the correlation between green CSR and innovation performance considering the moderating roles of public visibility and firm transparency. Our quantitative analysis finds that green CSR has a positive relation with innovation performance that is parallel to the Porter Hypothesis. To take responsibility to implement environmentally friendly activities, companies need to become more innovative than those choosing not to. Green CSR can trigger innovation through improving products, producing best-practice technologies, and developing new ways of using best-practice technologies. The sustainable approach towards environment fosters innovation activities, which means that greater concern for green CSR can always lead to the increasing of innovation performance. Intriguingly, the results also suggest that the positive relationship between green CSR and innovation performance becomes stronger with higher public visibility and firm transparency, which is consistent with the stakeholder theory that the more green CSR is perceived by stakeholders, the more potential benefits are achieved by obtaining necessary stakeholder resources and supports. The availability of information is a key determinant for stakeholders to better understand firms’ environmental behaviour. Stakeholders would like to assess the company positively when they have access to a large amount and high quality of information to judge green CSR practices. The public visibility, which means voluntarily disclosing more environmental information, can inform stakeholder firms’ proactive environmental strategy, and provide an open door for stakeholders to observe their green CSR. Similarly, firm transparency can decrease the negative impact of information asymmetry and help stakeholders to interpret and evaluate green CSR more easily and accurately. When the level of public visibility and firm transparency is high, firms can maintain an extensive and closer relationship with stakeholders, and achieve more firms’ legitimacy, and thus strengthen the positive effects of green CSR on innovation performance.

This is an excerpt of the journal article: Will Green CSR Enhance Innovation? A Perspective of Public Visibility and Firm Transparency, by Weiwei Wu, Yexin Liu, Tachia Chin, and Wenzhong Zhu. Published: February 4., 2018 in Int J Environ Res Public Health 15(2): 268; doi: 10.3390/ijerph15020268 under a Creative Commons Attribution License (CC BY 4.0).

 

Tachia Chin
Professor

Dr. Tachia Chin currently works with the School of Management, Hangzhou Dianzi University.