This is the second part of the “When CSR turns into CER” series, which focuses on how businesses in Egypt can adjust their business activities to curb their negative environmental impact. Trying to outline the shift from corporate social responsibility (CSR) to corporate environmental responsibility (CER), the series relies on a number of research papers from different universities.
After understanding how Egypt monitors the environmental impact of companies’ business activities, it is time to look at how these companies can curb these negative environmental effects.
Researchers Florian Becker-Ritterspach and Katharina Simbek from Hochschule für Technik und Wirtschaft (HTW) Berlin, Germany, and Raghda El Ebrashi from the German University in Cairo, recently published a paper entitled “MNCs’ corporate environmental responsibility in emerging and developing economies”, which elaborated on the many ways that multinational companies (MNCs) can reduce the negative impacts of their activities on the environment in emerging and developing economies.
Obstacles to CER in emerging and developing economies
Pursuing corporate environmental responsibility is a significant challenge in emerging and developing economies. This is due to what the scholars refer to as institutional voids which they define as “the absence or poor functions of formal and informal institutions for environmental protection”, and as a result, directly and indirectly cause widespread negative impacts on the environment.
The paper stipulates that there are some noteworthy differences between developing and emerging economies. If you were wondering where Egypt lies between the two, Money Control reported that a study conducted by Standard Chartered, which classified Egypt as an emerging economy, revealed that the North African country is set to become the world’s seventh largest economy by 2030, with a potential gross domestic product (GDP) of $8.2 trillion. According to Egypt Business Directory, a report published by Bloomberg ranked Egypt as the world’s second most flexible emerging economy.
So what are the differences between obstacles in emerging economies and obstacles in developing ones?
According to the paper, developing economies tend to “prioritize macroeconomic development when allocating government funds and setting priorities.” Who tends to receive the most attention are ministries and other public bodies that are responsible for natural resources and the overall economy. Bodies responsible for the environment such as environment ministries and protection agencies are either usually neglected and have little influence over public policy, or simply don’t exist.
In emerging economies, however, the focus on rapid economic growth is argued to be the main obstacle to environmental protection. The aren’t lacking in the developed institutions responsible for environmental policy-making and protection, yet the problem lies in their weakness and inability to exert enough influence and enforcement of their provisions. This is due to them being unable to keep up with the rapid growth characteristic of emerging economies, and their respective governments not prioritising the environment.
So what can be done?
Well, should an MNC decide to enter or remain in the market of an emerging economy, there are three essential strategies they can go for to ensure they are achieving their CER objectives.
One is bypassing, which means to engage in practices which makes the emerging economy’s institutional shortcomings irrelevant to the MNC’s CER objectives. A second is coping, which entails establishing institutions to verify its own CER objectives or seeking informal institutions within the emerging economy to do so. A third is compensating by addressing and actively tackling the negative environmental impacts caused by the MNC’s operations in the emerging economy.
Which strategy should you go for though?
In deciding on which strategy to go for, MNCs should ask themselves three key questions:
- Do the institutional voids matter to the MNC?
- If they do matter, can they be bypassed?
- If they can’t be avoided, how can the MNC cope or compensate?
What if institutional weaknesses aren’t a problem?
If the host country’s own institutional shortcomings aren’t a concern to the MNC, which can mean their product or service won’t have a negative environmental impact anyway, then simply replicating how they’re manufactured and delivered in their home country would be the obvious and ideal approach.
What if they are a problem though?
If they are a major concern, the MNC can mitigate their effects by adapting to the institutional weaknesses of the host country and through collaborating with local businesses and organisations to achieve better environmental sustainability, in addition to working on independent initiatives.
In the case that an emerging economy’s institutional voids matter but can be bypassed, there are three approaches an MNC can take. One is to either withdraw a product or service that causes negative environmental impacts as a result of it’s presence, or to not introduce such a product or service in the first place after the MNC makes its own forecasts on its potential impact.
A second option is to adapt their products and services to reduce or completely remove their negative environmental impact. The paper actually cites an example of this happening in Egypt when the French hypermarket MNC, Carrefour, started using biodegradable plastic bags across its branches. Another cited example was when Unilever introduced a detergent that saves rinsing water in India.
The third option entails what the scholars call “institutional borrowing.” The MNC would look to the competent environmental protection institutions and organisations of other countries for oversight and regulation. This would bypass the emerging economy’s voids as the MNC’s products and services would be help up to the standards and certifications found in a country with strong environmental protection laws, enforcements, and practices. An example cited in the paper was the Italian MNC, Bonfiglioli India, consulting with TUV Nord, a Germany agency that monitors safety standards, to gain environmental certification for their operations in India.
What if they can’t be bypassed?
If in the case that the emerging economy’s institutional voids can’t be bypassed, there are two things which MNCs can do to cope. One is to internally build their own capabilities of reducing or eliminating their environmental impacts, such as managing and controlling their own waste and pollution. A couple of cited examples are Unilever’s operations in India and the Philippines. In the former, the MNC manages its own waste it produces in cooperation with local NGOs. In the latter, Unilever built its own water treatment plant so as to not pollute the Pasig River with waste from its operations.
Another coping mechanism is for the MNC to directly take part in environmental regulation activities, effectively doing the job of the emerging economy’s weak institutions. This can manifest in a number of ways which can include launching environmental awareness campaigns, encouraging the local government to adopt and enforce environmental protection laws, and partnering with local businesses and organisations to strengthen the host country’s environment capacities. Additionally, the MNC can help in establishing organisations that monitor, regulate, enforce, and certify environmental activities and business practices.
An example brought up by the paper was when Coco Cola developed better waste management practices and facilities in Mexico in 2002. The MNC partnered with locals in both the same industry and others to establish a non-profit organisation called Ecology and Corporate Commitment (ECOCE) to help encourage a culture of recycling in the country. Coca Cola also funded the construction of two plastic recycling facilities, which by 2016, recycled 57 percent of the plastic Mexico produced.
What if nothing can be done about the negative environmental effects?
So what if an MNC can’t reduce or eliminate their negative environmental impact? And what if they can’t bypass or cope with the host country’s institutional weaknesses? Well the final thing they can do, the scholars say, is to compensate for them through environmental action.
For example, in 2018, Mercedes Benz in India undertook an initiative to plant 50,000 trees to offset the pollution caused by their industrial activities. Supposedly, the MNC can’t change their practices to reduce their negative impacts at the source and the host country neither has the resources or the institutions to tackle it. So the best thing they can do to achieve their CER objectives is to pursue initiatives which effectively cancel out the negative effects of their business activities.