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Real Versus Rhetorical Environmental Actions: What’s Their Impact on Corporate Reputation?
by Professor Pascual Berrone
Amid a barrage of alarming news on extreme weather, air pollution, and rising sea levels, global businesses have felt mounting pressure to do more protect the environment. While many companies now include ESG (environmental, social and governance) factors as part of their corporate purpose, their real-world impact runs the gamut. These range from superficial greening campaigns to complete production overhauls aimed specifically at reducing the firm’s environmental footprint.
Environmental actions also have repercussions beyond the operational realm, playing a key role in shaping the firm’s reputation – for better and for worse, depending on the audience. Before the general public, for instance, symbolic actions might suffice to enhance corporate image, since most people will lack the time, expertise and inclination to cross-check and validate their claims. But what about highly informed industry peers, better equipped to separate the wheat from the chaff? This is where the benefits of symbolic actions might turn into liabilities.
By the same token, might the standing of firms with costly environmental investments grow among their peers? Effectively communicating these initiatives – whether big or small – is also critical since actions alone aren’t enough to cut above the noise. When it comes to moving the public-image needle, do symbolic and substantive environmental actions reap the same reward? These are the questions my recent research sought to answer.
Conducted in collaboration with Profs. Yann Truong and Hamid Mazloomi of the Burgundy and Rennes Schools of Business, respectively, the study gathered longitudinal data from 213 publicly traded companies in 21 polluting industries over a six-year timeframe (2006 to 2013) to evaluate the reputational impact of their environmental actions among industry peers.
To this end, corporations were divided into two camps based on the intensity of their environmental agendas. On one end of the spectrum are symbolic actions, including greenwashing and window-dressing tactics that have little bearing on the firm’s daily operations and long-term strategy. Inexpensive to employ, they convey the illusion of environmental compliance, such as ceremonial committees or eco-certifications with no requirement of third-party audits to confirm their application.
Substantive actions, on the other hand, are interwoven into corporate operations with the overriding mission of decreasing the firm’s environmental impact. In support of this commitment, firms will realign their strategic goals and integrate performance indicators to monitor their progress, sometimes at the expense of operational efficiencies. Unlike symbolic actions, they require significant structural changes and financial resources to reach their end objective.
In today’s world, symbolic actions are extremely widespread, making it difficult for general public to distinguish between truly environmentally conscious firms and those which merely pay lip service. Based on our findings, however, symbolic actions backfire before an audience of industry peers, significantly damaging their corporate reputation. That said, when combined with a solid – albeit deceptive – communication strategy, this negative impact was somewhat mitigated.
Substantial environmental actions, on the other hand, bolstered corporate reputation among industry peers by nearly the same degree. And what role did communication play? Did these eco-friendly firms earn an additional reputational boost by coupling their actions with solid reporting? In a word, no. In these cases, perhaps actions alone speak for themselves.
As the iconic U.S. president Abraham Lincoln observed, “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” Global firms would be wise to remember his sage advice when designing their long-term environmental agendas.
Pascual Berrone
Professor of Strategic Management
IESE Center for Corporate Governance
*For further information on the matter you can read our recent study “Understanding the impact of symbolic and substantive environmental actions on organizational reputation”, Yann Truong, Hamid Mazloomi, Pascual Berrone, Industrial Marketing Management, 2020.
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