Towards a Global Sustainability Approach: Challenges and Opportunities for Multinationals

Abstract We discuss how multinational enterprises (MNEs) can play a leading role and take more responsibility towards reducing inequalities by developing a global sustainability regime. We especially focus on how this may contribute towards the United Nations’ Sustainable Development Goals (UN SDGs). Our purpose is to identify and discuss the components and activities that are needed to develop such a strategy and implement it in markets with different structural and institutional conditions. We will especially discuss interactions between the head office and the local subsidiaries/organizations as well as interactions with different salient groups of stakeholders. We focus on three highly significant groups: business, social and political actors. We identify four key components of a global sustainability approach – namely, (i) make it relevant within the organization, (ii) establish a legitimate sustainable network position, (iii) present incentives and gains that stimulate action and (iv) establish long-term salient structures. These components and the associated activities have not been discussed in a coherent manner although some aspects have been put forward in earlier studies. We present a comprehensive framework that suggests what role MNEs can play and what challenges they face while doing so. The chapter is based on more than 10 years’ experience of studying MNEs’ activities in developing as well as developed markets, including how they work with sustainability. The study is based on data from four Swedish MNEs and three major research projects. Keywords Global sustainability Multinational enterprises Stakeholder relationships Structural and institutional factors United Nations’ Sustainable Development Goals Qualitative research Citation Elg, U. and Ghauri, P.N. (2023), "Towards a Global Sustainability Approach: Challenges and Opportunities for Multinationals", Ghauri, P.N., Elg, U. and Hånell, S.M. (Ed.) Creating a Sustainable Competitive Position: Ethical Challenges for International Firms (International Business and Management, Vol. 37), Emerald Publishing Limited, Bingley, pp. 11-31. https://doi.org/10.1108/S1876-066X20230000037002 Publisher: Emerald Publishing Limited Copyright © 2023 Ulf Elg and Pervez N. Ghauri License This work is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of these works (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode. Introduction Existing research shows that the activities of MNEs are crucial and that they can play a central role in driving sustainability and creating value (Ghauri et al., 2021; Montiel et al., 2021). Furthermore, Ghauri (2022) describes how MNEs may provide significant support in fulfilling the 17 SDGs launched by The UN and expand their traditional missions beyond profit maximization. Wood et al. (2021) further discuss that MNEs must take on a clearer responsibility for their own impact and its relevance with the developments on a societal level. The SDGs launched by the UN in 2015 refer to global inequalities, environmental deterioration and worldwide human development (United Nations, 2015). Challenges concerning, for example, the climate change and sustainable developments require global responsibility and actions (Pinkse et al., 2010; Shapiro et al., 2018). Furthermore, citizens require fair working conditions and equality, regardless of where they live. This means that MNEs need to strive for consistency and balance between markets and the need to adapt their strategies to local culture and context (Miska et al., 2016; Morris et al., 2014; Roth & Kostova, 2003) that influence the expectations regarding issues such as sustainable development (Elg et al., 2017; Ghauri et al., 2017). The development of a globally sustainable strategy appears relevant for taking responsibility for the triple bottom line of the corporate sustainability construct – the economic, social and environmental (Bansal, 2005; Bansal & Song, 2017; Wilson, 2015) and thereby may contribute to the SDGs. More and more scholars and international organizations are now discussing how multinationals can pursue such a global sustainability agenda (e.g. Boston Consulting Group, 2021), but few studies have empirically investigated how MNEs might do this, what the challenges are and how it might interact with local conditions (c.f. Burritt et al., 2020). Our purpose is to identify and discuss the mechanisms and activities that are needed to develop such a strategy and implement it in markets with different structural and institutional conditions. We will discuss interactions between head office and the local subsidiaries/organizations as well as the interactions with different salient groups of stakeholders. We particularly focus on three different groups that are highly significant: business, social and political actors (Elg et al., 2017; Hadjikhani et al., 2012). We will also discuss the challenges and constraints that are faced by MNEs that strive to develop and implement sustainable strategies that are congruent with UN SDGs. The empirical foundation for this chapter is the activities of four Swedish MNEs that all have an ambition to develop a sustainability strategy for the whole corporation, with clear goals and codes of conduct, while the implementation of this strategy is managed locally in each market. We have used an exploratory qualitative case study approach to conduct this research (Ghauri et al., 2020). The study highlights relevant steps to implement such an approach. It also illustrates the complexity, resistance and challenges involved in such a process. The next part of this chapter will describe the research that we have conducted over more than a decade, in different interrelated projects, and the methodologies used to collect data. This is followed by an empirical part that presents the conceptual model that we have developed and its four components. In a final part, we relate our findings to existing knowledge on MNEs and sustainability and suggest some avenues for future research. Research Method As argued by Burritt et al. (2020), a main problem with existing studies on MNEs and sustainability is that they tend to have a narrow focus on a certain well-defined problem and that there is still little knowledge on the MNEs’ development of a corporate sustainability strategy, the interplay between head office and local subsidiaries and the role of salient stakeholders. However, for more than a decade, our research group has investigated positioning strategies of MNEs on different markets, how they link corporate strategies to local culture and interests and how they interact with local critical stakeholders. We have conducted three projects, and though they have been based upon different overarching research questions, sustainability has persistently appeared as a main aspect, and especially the strategic challenges of coordinating the overall sustainability goals and local contexts. Our ambition in this chapter is, therefore, to present the critical dimensions of a global sustainability strategy that have been identified during our work with these projects over a period of more than 10 years. The first project was entitled ‘Creating brand value and market orientation on emerging markets: The role of economic and socio-political relationships’ and took place between 2010 and 2016. This project focussed especially on the four BRIC markets (Brazil, Russia, India and China). Here, sustainability was found to be a main aspect for the international activities of the Swedish MNE Tetra Pak. The second project, ‘Developing and implementing CSR: Corporate perspectives vs. employee and consumer involvement’, specifically concerned sustainability. It was carried out between 2016 and 2020. Here, the empirical data consisted of an in-depth and thorough case study of the Swedish retailer IKEA, involving the head office as well as the local Swedish organization, and the country organizations in Germany and the United Kingdom. The third project, ‘Responsible Business and Competitive Advantage: Swedish Firms’ Ethical Behaviour in Emerging Markets’ started in 2019 and is still ongoing. We have carried out case studies of H&M and Ericsson at the head office in Stockholm as well as on different emerging market areas, including Bangladesh, India, Turkey and the Middle East. Qualitative case studies were considered fruitful because they can provide a rich, in-depth understanding of this rather understudied area (Eisenhardt & Graebner, 2007). The four case companies are highly relevant because they are all globally very active, have corporate strategies for how to work with sustainability globally and on different country markets. These strategies are also presented and discussed in detail in various strategic documents that we have studied. In our interviews, we have covered how the firms work with sustainability at head-office level, the strategic principles behind the strategy and how they collaborate with local organizations including external stakeholders. We have also interviewed local managers regarding how they experience these issues. Usually, our interview questions were of a broad nature and open ended, and often our meetings with respondents became more of an open conversation where they were able to bring up the issues that they found particularly relevant within their context (Ghauri & Firth, 2009). In all, this research is based upon 78 interviews at different organizational levels. We have also analysed a substantial number of documents and strategic plans that explain and describe the firms’ sustainability strategies. Some of the interviews in the ongoing project were conducted online due to the pandemic. All the empirical material was analysed using NVIVO 11/12. The first step was to identify the four general dimensions presented in the empirical part below. These dimensions have been discussed, to a varying extent, in previous research on sustainability and MNEs (e.g. Burritt et al., 2020; Elg et al., 2017) but not in terms of a comprehensive framework. As a second step, we then searched for critical factors and recurrent themes within each of the dimensions that appeared to be especially important to implement the global sustainability strategy. As an illustration for each dimension, we present short quotes from the interviews. We have decided to anonymize them in order not to reveal the identity of the company and the respondent. The empirical data are, thus, based upon case studies of four Swedish MNEs. Tetra Pak was founded in Sweden more than 70 years ago (https://www.tetrapak.com/about-tetra-pak/the-company/history). The headquarters were situated in Sweden for more than 50 years. The basis was an aseptic packaging technology. It could preserve the colour, texture, natural taste and nutritional value of liquid food for up to a year, with no need for preservatives or refrigeration. The MNE today is part of the Tetra Laval Group, with headquarters in Switzerland, and operates in more than 170 countries. IKEA was founded in 1943 as a mail order company. Today, the company is controlled by a foundation registered in the Netherlands, and there are 466 stores in 63 countries. The MNE has identified sustainability as a major and integrated part of the corporate strategy. The strategy is based upon a global identity having a similar brand perception across the world. This idea would also include a consistent sustainability profile all over the world. H&M started in Sweden in 1947 as a single store for women’s clothing. Since then, it has developed into reaching customers worldwide. In 2019, the MNE had around 5,000 stores in 74 markets, with online stores being available in 50 markets. The MNE often describes itself as a driving force in promoting sustainability within the fashion industry. The sustainability vision was expecting ‘to lead the change towards a circular and climate positive fashion industry, while being a fair and equal company’ (H&M, 2019, p. 13). Ericsson started in 1876, and the MNE’s first telephones appeared in 1878. Since then, the portfolio has developed into having a focus on mobile and fixed network infrastructure, telecom services, software, broadband and multimedia solutions for operators, enterprises and the media industry. In 1999, Ericsson had 99,000 employees worldwide. The firm’s global operations are divided into five geographical market areas: North America; Europe and Latin America; Middle East and Africa; Southeast Asia, Oceania and India and Northeast Asia. The sustainability vision was expressed as ‘Improve lives, redefine business and pioneer a sustainable future’ (Ericsson, 2023). Below, we will present the four dimensions identified, illustrated by quotes and examples from the four cases. It should be stressed that this is not a process in the sense that it starts with internal support and ends with having salient supporting structure. Rather, it is a constant and ongoing work where all these four dimensions are consistently developed and reconsidered. Developing the Internal Support It is reasonable to start the discussion about global sustainability by focussing on the internal organization and how it can incorporate sustainability as an integrated part of the activities and priorities. This is especially challenging for a multinational that stretches over markets and subsidiaries having diverging cultures and perspectives. We have identified two specific questions that need to be addressed in a convincing way to build internal commitment. One is why the company should give priority to sustainability and the other is how to work with the sustainability issue. Relevance for the Organization It is very much about what we stand for. What we think is important. Where we put the bar regarding how we do business. This was a common dimension and illustrates how the companies we studied all strived to make sustainability a part of the organizational culture and identity. One way to do this is to refer to the background and history of the company and to stories and legends about how the MNE has always cared about these issues. In the case of IKEA, the respondents repeatedly mentioned the founder Ingvar Kamprad and his origin from a relatively poor part of Sweden where resources were scarce. He, therefore, always emphasized the need to minimize the waste of resources, which also creates a strong base for a sustainability narrative. In the case of Tetra Pak, the respondents often stressed that the firm’s history is based on the idea to protect food content and develop a packaging technique that does not require preservatives or harmful ingredients and keeps food fresh for a long time without a need for refrigeration. This is also stressed by the brand statement in company documents ‘Protects what’s good’. Linking sustainability to the brand may be particularly important when developing a global sustainability approach because the identity and values that make up the brand are expected to be acknowledged by all employees and subsidiaries. The link to the brand was also a key issue in other ways. Managers often argued that a strong sustainability image will support the firm’s reputation and thereby increase the strength and value of the brand. Being publicly active and visible in sustainability work will also create brand attention. This can, in turn, increase brand profile and trust as well as customer loyalty. Another answer to the why issue is simply that this is required and expected by several external stakeholders. This links not only to the brand positioning but also to the companies’ broader reputation. To amplify this, the importance of following the Paris agreement, the principles of the UN global compact, the ILO (International Labour Organization) conventions, etc. were stressed. If you don’t get the engagement of the store behind it and their understanding as well, then it’s never going to have longevity. It was clear that the relevance of sustainability was also linked to the level of personal motivation. If you understand and support the importance of being sustainable on a personal level, it is much more likely that you will give it priority within your organization. Therefore, it was considered important to identify, encourage and engage co-workers so that they would lead by example and convince their colleagues. Another dimension that was mentioned by all the companies was the engagement of top managers, both on the corporate and on the subsidiary level so that they explain and show why sustainability is an integral part of the agenda. Establishing Sustainable Practices Before we used to have guidelines and that is an important distinction, now we have standards and they cannot be misinterpreted, basta! You use them! All the MNEs illustrated the importance of having organization-wide codes, standards and rules that cannot be compromised. Putting up clear and understandable targets was stressed as central. This is also related to the importance of evaluating employee and organizational performance on all levels of the organization in relation to sustainability. For example, H&M developed and was using KPIs related to sustainability. Our research has also highlighted that there should be a clear organization-wide reward system linked to sustainability performance. In many cases, however, this still appears to be a weak spot. Another point here is a clear division of responsibilities between managers as well as between organizational levels. In Ericsson, it was very clear that corporate managers design the sustainability programme and, for example, produce risk assessment templates that local organizations must follow closely. The most common approach was, thus, that codes and directives were formulated on a corporate level, but that the subsidiaries had a certain degree of freedom regarding how to implement and explain this on the local market. Managers from the central offices emphasized the importance of local ownership and relevance. At the same time, it was usually not considered acceptable to deviate from standards and codes that had been established at a central level. Therefore, having clear routines and procedures for how to follow up the sustainability work is an essential part. It can be noted, however, that IKEA is a more decentralized organization, where it was to some degree optional for the stores and local markets to decide to what extent they wanted to work with different sustainability messages. This will then depend on the commitment of the local manager in charge. On the supplier side, however, there are universal codes and standards that must be followed. Another key mission is to work with sustainability as an integrated part of all activities. Respondents often stressed that this can be a problem, and if sustainability is considered something separate from the business activities, it will be given a low priority. Therefore, the ambition is that sustainability activities are clearly integrated into managers’ responsibilities and, for example, into different parts of the value chain and different markets. Furthermore, it was stressed that it is important to integrate sustainability aspects into the local business plans because this is the guideline for managers as well as for other employees. Provision of proper training and education to new and existing employees was also found to be a key. Ericsson had an onboarding programme for all new employees that also covered the relevant sustainability areas and what is expected there. In addition, further training, face-to-face as well as online, was tailor-made, considering the manager’s specific area and competencies. […] make sure it’s integrated into their number one two and three priority. Even if it’s a tiny bit, but if there is a tiny bit that is integrated into it so then it’s not just stand alone. Because if it stands alone, it always will be at the end. This statement emphasized one of the main challenges of developing and implementing a global sustainability approach. There will always be competing interests and priorities that may have a more obvious and short-term impact on sales and market position. It was often stressed that the lack of time forces employees to make priorities that may not benefit the sustainability work. Another aspect is communication. For example, one IKEA respondent argued that there are tens of thousands of messages in a store and that it might be difficult for sustainability to gain the attention of customers as well as of the employees who decide how and where different messages will be shown. Establishing a Legitimate Sustainability Network Position For obvious reasons, navigating the external environment across markets and adapting business relationships and building specific relationships that support sustainability is a key dimension. Here, we will discuss two aspects. One is how the MNE can strengthen its general credibility and legitimacy as a sustainable and responsible actor. The other concerns how the firm works with and promotes sustainability in relationships with different types of stakeholders. Credibility and Legitimacy […] to demonstrate the purpose, you have to spell out as a company, what are you there for, what’s your vision, how do you contribute to society. A critical step in creating a position as credible and legitimate when it comes to sustainability is to demonstrate that you take responsibility for the local community at all levels as well as for global sustainability challenges. An example is Tetra Pak’s work in developing a school milk project that is implemented on several continents, such as Africa, the Middle East and East Asia. The main idea is to supply milk to local schools to ensure that the children receive nutrition as well as to increase the families’ incentives to send their children to schools. The main aspect here is to be an integrated and responsible part of the local society. This requires that the MNE understands that the culture and the local issues of special concern. Even though this can be regarded as a part of building a global sustainability position, it may mean that firms prioritize different matters on different markets. At the same time, our research shows how these MNEs have tried to replicate successful initiatives within their supply chain on the industry level and between markets. Another aspect is the importance of being visible and to gain notice and respect for the firm’s sustainability commitment. For example, IKEA managers stressed that the culture has emphasized humility and never to brag about accomplishments. Today, however, this view has changed, at least when it comes to sustainability, and managers appear on international platforms such as the World Economic Forum in Davos, or in the UN in New York City to demonstrate how the retailer works with different sustainability issues. Furthermore, making it public that the MNE has close cooperation with respected organizations such as the World Wildlife Foundation (WWF), Greenpeace or Forest Stewardship Council (FSC) enhances the profile and value of the brand. For Tetra Pak, the collaboration with WWF and FSC could be used as co-branding that also has benefitted their customers. It was also considered essential that top managers draw upon sustainability when presenting their companies in different public arenas, such as interviews in the press and industry conferences and are not afraid to make a stand. One interesting comment was that it is important to be aware not only of the actions that can have a strong impact on, for example, the environment, but also be aware of things that have a symbolic value even though the overall impact is limited. For example, it was stated that 85% of H&M’s impact on the environment comes from the supply chain, but it is nevertheless critical to show that the firm strives to minimize energy consumption in stores and offices for the sake of credibility. Maybe two times per year, a few times there is an event that we need to respond to. The China situation, we need to respond to that. There was this report in Malaysia, about the tech industry, that was not handled or managed correctly. This quote stresses that the MNEs must be prepared to follow up on different critical incidents that occur on a certain market. It can concern environmental problems, working conditions or an accident on a site. This preparedness is of course important in order to deal with sustainability problems, but a quick response will also reduce the pressure from media. The downside of being visible is that the MNEs expect to be scrutinized by media and held accountable for problems that may not even be related to the particular firm. It was often stressed that it is important to have routines for how to handle rumours and negative stories in the press. For H&M, problems and accidents in factories in developing countries are crucial. The firm has well-established routines for how these incidents should be handled and by whom. Another illustration is that H&M invited German journalists to India to see first-hand how the MNE works with the Better Cotton initiative. In addition, an important challenge is to understand the expectations and interests that different stakeholders have and balance them. Again, this may require establishing different priorities depending on the market as well as on the issue at hand. For example, the study of Ericsson illustrated how different stakeholders such as customers, investors and non-governmental organisations (NGOs) required accountability and to know how the MNE mitigates risk on different markets related to environmental impact, local working conditions, human rights, etc. This will also require that the firm is able to assess the specific risks on different markets, understand where they might appear and apply proper monitoring. Furthermore, balancing stakeholder interests is related to understanding their salience and level of support for sustainability. There is also a difference between local and global priorities. When we for Germany say it is more relevant for us to put the emphasis on the work with the communities and not something else, we have the right to do it. This is our decision. This quote illustrates that managers in each market may have discretion to prioritize between different sustainability issues. Respondents from several firms discussed how environmental concerns may have a low priority on certain markets because the focus is on other issues, such as poverty alleviation. Nevertheless, the corporate agenda and more global stakeholders will expect that a firm also drives the environmental issues on those markets. In addition, differences may even appear between different regions or areas of a country. For example, IKEA respondents discussed how London requires different sustainability prioritizations as compared to other parts of the United Kingdom. Stakeholder Relationships for Sustainability We must really empower and take ownership to our suppliers who take it to their sub-suppliers, and in different areas. And you can’t do that if you tell everybody exactly how to do everything. Now, you need to be there for support and development. The supply chain is obviously in focus when developing specific sustainability links within different relationships. As this quote illustrates, it is often a matter of having a long-term view and to commit to it; for example, suppliers were driving the sustainability issue based on their own interests. Regarding working conditions, H&M worked systematically on convincing suppliers in Bangladesh that it will benefit them to pay fair wages, to have worker representatives in the factories, and a transparent system that clearly explained why a certain worker had a certain salary level. Another issue was gender differences. According to one respondent, 60% of the workers were female in Bangladesh but at the most only 10% of the supervisors. Here, the firm worked on convincing managers that female supervisors would be better at communicating with the workers and gaining their trust. Our study also showed how suppliers who successfully developed their sustainability ambitions could be rewarded by getting increased orders, loans, support from consultants etc. Furthermore, one ambition was to transfer solutions and processes developed with partners on one market to other markets to show suppliers that it will pay off in the long run, for example, by reducing the use of energy and chemicals or having a system for fair wages. It was also often stressed that it is not a matter of finding suppliers and other business partners who are perfect from the beginning. It is more important to find partners who have the right mindset and are interested in improving themselves. At the same time, our research has stressed that different forms of monitoring and control systems are also an important part. The study of Ericsson illustrated that it might be necessary to add extra layers of control depending on the nature of the market or the specific project that is implemented. Furthermore, the firm uses approved training centres for supplier employees working with certain risky tasks. They need to have a certificate from a centre before being approved. There are also cultural differences that may require different levels of monitoring. Again, the Ericsson case illustrates this. Most accidents and even casualties are caused either by climbing towers or driving, and this is especially critical for certain markets. For example,