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A Cognitive Perspective on the Business Case forCorporate Sustainability

Kai Hockerts*Copenhagen Business School, Centre for Corporate Social Responsibility (cbsCSR), Frederiksberg, Denmark

ABSTRACTThis paper proposes that a cognitive perspective on corporate sustainability and competi-tiveness might allow new insights into the question of the business case. The paper exploreshow respondents from 12 firms make sense of their firm’s investments in corporate sustain-ability activities by analyzing the mental models evoked. The interviews showed that abusiness case perspective emerged as the dominant logic. A subsequent analysis of thecontent of the knowledge schemas that were elicited surfaced four dimensions of corporatesustainability induced competitive advantages: risk reduction, efficiency gains, brandbuilding and new market creation. An analysis of the structure of these knowledge schemasrevealed that respondents from firms with lower perceived sustainability performance drewon less differentiated and less integrated cognitive frameworks (focusing on risk andefficiency). Respondents from firms with higher perceived performance drew on morecomplex mental models to represent the links between corporate sustainability andcompetitiveness. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment

Received 08 May 2013; accepted 15 May 2013

Keywords: business case; cognition theory; cognitive complexity

THIS PAPER PROPOSES A NEW RESEARCH AGENDA FOR CORPORATE SUSTAINABILITY AND COMPETITIVENESS. MOST STUDIES

to date have discussed the topic from an all-or-nothing perspective. Thus corporate sustainability eitherdoes or does not create competitive advantages. The data presented here indicates that future researchmight more profitably study the mental models managers employ when thinking about this relationship.

In particular, this paper aims to study how respondents in firms that are perceived as having a high socialand environmental performance differ from respondents in firms that are perceived to have a less highperformance.

The term ’corporate sustainability’ used in the paper is in line with the definition by Dyllick and Hockerts (2002),who argue that corporate sustainability entails that firms maintain their economic, natural and social capital bases.Thus although there might be short-term exceptions firms should in the long run consume only the income fromtheir capital and not the capital stock itself.

The idea that there might be a ’business case’ for good corporate environmental and social behavior goesback more than three decades (see, e.g., Baumol, 1970; Davis, 1973; Dyllick et al., 1997; Hart, 1995; Wallichand McGowan, 1970; World Business Council for Sustainable Development (WBCSD), 2002). Many scholars,

*Correspondence to: Kai Hockerts, Copenhagen Business School, Centre for Corporate Social Responsibility (cbsCSR), Frederiksberg, Denmark.E-mail: [email protected]

Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment

Business Strategy and the EnvironmentBus. Strat. Env. 24, 102–122 (2015)Published online 4 March 2014 in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/bse.1813

however, remain skeptical (Walley and Whitehead, 1994; Palmer et al., 1995), doubting the existence of ’win–win’ solutions, as they are also often called: ’Unfortunately, this popular idea is also unrealistic. Respondingto environmental challenges has always been a costly and complicated problem for managers’ (Walley andWhitehead, 1994, p. 46).

The debate about whether there is a business case at all for corporate sustainability has spawned a multitude ofempirical studies correlating corporate financial performance (CFP) with corporate social or sustainabilityperformance (CSP). Meta-analyses by Orlitzky et al. (2003) and Margolis and Walsh (2001, 2003) find that amajority of studies indicate a slight positive relationship. However, such studies tend to treat corporate sustainabilityinduced competitive advantage usually as a single variable.

Compared with the hundreds of CSP/CFP studies, there are only a small number of empirical contributions thatunpack corporate sustainability competitiveness (e.g. Dyllick et al., 1997; Reinhardt, 1999, 2000; Székely andKnirsch, 2005). It is the intention of this paper to provide more insights into the different types of competitiveadvantage that respondents perceive as springing from their corporate sustainability activities. Second, the paperaims to study the variance in these perceptions. How do respondents in firms that are seen to perform well in socialand environmental activities differ from respondents in firms that perform less well?

The main contribution of this paper’s findings is to propose that managers use different mental models. Ratherthan seeing competitiveness as a single yes/no construct, managers tend to perceive it through numerous lenses.The data from this study indicates that the complexity of these models (i.e. their differentiation and integration)seems to change with the perceived sustainability performance. Being based on a small sample qualitative study,this finding has to be taken with a grain of salt. However, the findings might nonetheless indicate a path for futureresearch into the CSP/CFP question.

The findings of this paper finally raise the question of how mental models about corporate sustainabilityand competitiveness develop over time. The data being cross-sectional, there is no longitudinal element inthis paper. However, the cognitive perspective taken begs the question of how mental models develop. Isit a generic development path or do mental models of managers in different settings develop differently?Moreover, this perspective raises the question of whether firms can take an active role in developing thesemental models.

The Business Case for Corporate Sustainability in the Literature

Past literature on the business case differentiates four main dimensions through which corporate sustainability maycreate competitive advantages. These are risk reduction, efficiency gains, social branding and new market creation(Dyllick et al., 1997; Dyllick, 1999; Reinhardt, 1999; Stefan and Paul, 2008). In the following, prior research on eachof these four dimensions will be discussed briefly.

Reducing Business Risks

Previous research has identified reduced firm risk as one possible way in which a proactive stance on corporatesustainability could create competitive advantages (Davis, 1973; Yaziji, 2004; Henisz, 2009). Several perspectivesare discussed in the literature: accident risk, litigation risk, regulatory risk, campaign risk and reputation risk as wellas the general risk of loss of a firm’s licence to operate.

Accident RiskEnvironmental disasters such as the Deepwater Horizon oil spill in the Gulf of Mexico (Force et al., 2010), the Bhopaltragedy in India or the Love Canal contamination have demonstrated that the costs following an accident (e.g.cleanup cost, production loss) can pose significant financial risks (Barth and McNichols, 1994; Hamilton andViscusi, 1999).

103A Cognitive Perspective of the Business Case

Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 24, 102–122 (2015)DOI: 10.1002/bse

Litigation RiskIn addition to direct losses, accidents such as the ones mentioned also pose considerable litigation risks. Ithas, therefore, been hypothesized that a proactive sustainability stance can help to mitigate litigation risk(Reinhardt, 2000; Olsen, 2002). Kassinis and Vafeas (2002), for example, find that companies can reduce the risksof being prosecuted for violating environmental laws and having to pay steep penalties by bringing in more outsidestakeholders on their board of directors.

Regulatory RiskA third type, regulatory risk, concerns the emergence of stricter regulation over time (Simons et al., 2003). Firmsthat are hit by new, unanticipated laws are exposed to potentially huge competitive disadvantages. Thus proactiveinitiatives can be motivated by a desire to retain freedom of decision making (Davis, 1973).

Campaign RiskEnvironmental or social campaigns against firms may be based on specific behavior. However, companies may alsofind themselves singled out as representatives of a sector. Such ’proxy wars’ (Yaziji, 2004) are more likely to beaimed at market leaders, even if these do not have the worst sustainability performances. Yet, the media attentionthat NGOs can garner from campaigning against an industry champion means that such firms face a higher riskof being singled out for attack.

Reputation RiskWhen hit by either accidents or campaigns firms also run the risk of serious damage to their corporate brand.Proactive sustainability management has therefore also been proposed as a means of brand protection (Jones andRubin, 1999; Barnett and Hoffman, 2008; Bebbington et al., 2008).

License to OperateAn extension of reputation risk is the danger of losing a firm’s license to operate (DeSimone and Popoff, 1997).Davis describes this as the ’iron law of responsibility, which is that in the long run, those who do not use powerin a manner which society considers responsible tend to lose it’ (Davis, 1973, p. 314). Extant literature contains manyexamples of the consequences firms have had to face because of mismanaged stakeholder relations (Kolk andPinkse, 2006), and typically proposes extensive stakeholder dialogue as a means to mitigate it (Van Huijstee andGlasbergen, 2008).

Increased Operational Efficiency

Apart from reducing managerial risks, corporate sustainability has also been hypothesized to increase operationalefficiency (Schaltegger and Sturm, 1998; Dyllick, 1999). However, building on the economic law of diminishingreturns, past research has emphasized that any double dividends that firms may gain from environmentalmanagement are likely to diminish fast. The idea is that there are only a limited number of ’low hanging fruit’(Reinhardt, 2000; Bréchet et al., 2004), i.e. investments that pay off quickly and do not require much investment.Once these have been harvested, firms can no longer expect cost advantages from proactive corporate sustainabilitymeasures (Walley and Whitehead, 1994; Palmer et al., 1995). Two perspectives in particular stand out in theliterature when it comes to sustainability-related efficiency gains.

Eco-efficiencyWhen Porter and Van der Linde (1995a, 1995b) were writing about double dividends, they were primarily thinkingof cost reductions that had been prompted by proactive environmental initiatives. This is the idea that is at the heartof ’eco-efficiency’, a concept first developed by Schaltegger and Sturm (1990, 1998) and popularized by theSwiss businessman Stefan Schmidheiny (1992) and the World Business Council for Sustainable Development(Ayres et al., 1995; DeSimone and Popoff, 1997; Verfaille and Bidwell, 2000). Typically, eco-efficiency is seen tocomprise efficiency gains from reduced waste management cost and resource consumption (energy, water, metal)(Stefan and Paul, 2008).

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Employee ProductivityA second important element of increased operational efficiency concerns employee productivity (Branco andRodrigues, 2006; Morsing, 2006). A good corporate reputation may help to attract, motivate and retain employeeswho care about environmental and social issues. Henriques and Sadorsky (2007) and Grolleau et al. (2007), forexample, find that the implementation of environmental management is also driven by the desire of firms tomotivate their staff.

Cost of CapitalThird, proactive firms have been suggested as benefiting from lower costs of capital. Sharfman and Fernando(2008), for example, have found that improved environmental management is associated with a lower cost ofcapital. However, as Stefan and Paul (2008) show in their overview article, robust empirical proof of this effect isstill missing.

Branding

There is a large literature pertaining to social branding, which describes opportunities from differentiating productsalong social or environmental lines (e.g. Menon and Menon, 1997; Reinhardt, 1998; Charter and Polonsky, 1999;Hansen and Schrader, 2004; Belz, 2006; Pedersen and Neergaard, 2006). Four particular branding advantages arediscussed in the literature: premium pricing, customer acquisition, customer retention and share of wallet.

Premium PricingThe biggest debate among academics pertaining to whether corporate sustainability drives product branding hingeson the question of the willingness of clients to pay a premium for socially or environmentally superior products(Wüstenhagen, 1998; Charter and Polonsky, 1999). Empirical research suggests that some customers are indeedwilling to pay premiums for environmentally or more socially responsible products; however, there remains agap between what consumers say they are willing to do and their actual buying decisions (Moon et al., 2002; DePelsmacker et al., 2005; Ward et al., 2011).

Customer AcquisitionResearch also suggests that a proactive sustainability stance can help to attract customers. In B2B markets, forexample, green sourcing guidelines of public organizations mean that sustainable performance may well be ameans to attract new clients (Christensen, 2008).

Customer RetentionA green product image has also been found to lead to higher customer loyalty, for example, in liberalized energymarkets where green branding can help to retain customers in the face of growing competition (Cai et al., 1998;Hartmann and Apaolaza, 2007). Similar findings have been reported from the food sector (Wettstein et al., 2011;Gottschalk and Leistner, 2012).

Share of WalletFinally, the question can be raised of whether offering green products is likely to increase a retailer’s share of walletby inducing customers to shop for other products at the same time.

Creating New Market Space

A fourth type of competitive advantage concerns the notion of corporate sustainability also being a driver for thecreation of new market space. Hockerts and Wüstenhagen (2010), for example, describe how sustainabilityinnovations often start in the NGO or voluntary sector, where they are usually ignored by business. Only asthese innovations grow do they develop their full competitive potential. Three types of new market space arediscussed in the literature: the commercialization of sustainability competencies, cleantech venturing and the baseof the pyramid.



Commercialization of Sustainability CompetenciesFirms excelling at corporate sustainability might as a first step aim to sell their capabilities to outside customers.Thus they might be able to turn their internal knowledge about climate change, sustainability reporting orenvironmental management system implementation into a new market.

Cleantech VenturingThe field of cleantech venturing typically involves the development and commercialization of environmentaltechnology into new products that reduce either environmental pollution or the consumption of fossil resources.A large part of cleantech venturing is concerned with clean energy technologies (Boehnke and Wüstenhagen,2007; Caprotti, 2008; Bürer and Wüstenhagen, 2009); however, other technologies such as water and wastemanagement have also been covered by past research (Forester and Skinner, 1992).

Base of the PyramidThe assumption of Prahalad and Hart (1999) is that by focusing on the unmet needs of low-income populationsfirms can create profitable markets at what they call the base of the pyramid (BOP), while also helping the pooraddress some of their most urgent needs (Christensen et al., 2001; Prahalad and Hammond, 2002; Prahalad andHart, 2002). Prahalad’s most notable assumption is that BOP markets have to pay a ’poverty premium’ (Prahaladand Hammond, 2002). This means that many poor have to pay more for products and services such as food, water,medication, credit or telecommunication than their middle or upper class counterparts. By using BOP thinking,firms are believed to be able to better target their design, as well as improving distribution, thus bringing downthe poverty premium.

Cognition Theory

When discussing why firms engage in corporate sustainability activities, many authors take organizational orindustry level approaches, often drawing on institutional theory (e.g. Campbell, 2006; Doh and Guay, 2006; Hustedand Allen, 2006; Yang and Rivers, 2009; Jackson and Apostolakou, 2010; Brammer et al., 2012; Julian andOfori’Dankwa, 2013). However, little is known about the cognitive reasoning of the individuals in firms. Do theirmental models about the business case for corporate sustainability differ? If so, what could explain this variation?In simple terms, cognitive theory would lead us to expect that increased exposure to corporate sustainability willimpact people’s mental reference frames, which they draw on when rationalizing corporate sustainability. Increasedexposure to corporate sustainability might lead to more appreciation of the business case if it exists. On the otherhand, if the business case fails to materialize, respondents might exhibit doubts.

In order to inform the debate about the business case this paper explores respondents’ cognitive representationof the business case for corporate sustainability in firms with varying sustainability performance. The focus is thuson the knowledge structures that people use to make assessments, judgments or decisions involving the evaluationof whether corporate sustainability creates competitive advantages and if so how.

Cognition theory has emerged from social psychology (Fiske and Taylor, 1991; Reed, 2007; Fiske, 2013) as ameans to explain how individuals process information. The underlying assumption is that prior experiences guideinformation processing, since the complexity of our information environment does not allow for a case-by-casedecision process in which all data is considered. Instead knowledge structures are employed as mental templates,making decision making more efficient. This theory has been widely applied in management and organizationaltheory (Stubbart, 1989; Spicer and Sewell, 2010; Kaplan, 2011) due to it is inherent ability to explain manymanagerial phenomena.

Managerial cognition theory sees decision makers as limited information processors. Decisions are thus usuallybased on ’mental models’ (Walsh, 1995, p. 282), which managers use to give available information form andmeaning. Mental models are organized knowledge structures, which originate from implicit theories derived frompast experience (Nisbett and Ross, 1980; Abelson and Black, 1986) and guide identification, structuring and analysis

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of new data (Sims and Gioia, 1986; Fiske and Taylor, 1991; Hitt and Tyler, 1991) that enable interpretation andaction in an information environment (Walsh, 1995).

The intriguing problem for management researchers has been that while these knowledge structures maytransform complex information environments into tractable ones, they may also blind strategy makers, forexample, to important changes in the business environment. [. . .] The paradox, then, is that schematicinformation processing can be at once enabling and crippling’ (Walsh, 1995, p. 281).

In his overview of managerial cognition research, Walsh (1995) identifies three research streams relating toknowledge structures in organizational contexts.

• The content and structure of knowledge representation. What knowledge categories constitute the contentrepresenting managerial information environments and how are these categories structured into a mental model(i.e. the mental models used in IT purchasing decisions or in market research)?

• The use individuals make of knowledge structures. How does the use of mental models improve or hinder effectivedecision making (i.e. knowledge structures can increase the speed and effectiveness of decisions making on theone hand, while they also carry the risk of selective perception)?

• The development of knowledge structures. How do mental models develop and can this process be purposefullyguided (i.e. the impact job rotation can have on alleviating the risks of strategic myopia)?

It is believed that more complex mental models facilitate better decision making (Okeefe and Brady, 1980;Bartunek et al., 1983; Streufert and Swezey, 1986; Hambrick and Finkelstein, 1987). Research on mental modelsdifferentiates between two structural attributes which together represent the cognitive complexity of a mental model(Bartunek et al., 1983; Streufert and Nogami, 1989).

1. Cognitive differentiation describes the number of dimensions an individual invokes when reflecting about aninformation environment. In other words, it is an individual’s ability to dissect information into smaller units(Green, 2004).

2. Cognitive integration describes the degree of interconnectedness among the knowledge structure’s dimensions.They are an individual’s ability to form conceptual frameworks that organize complex situations (Stabell, 1978).

Research suggests that people with less complex cognitive structures tend to grow impatient with complex trade-offs and thus tend to prefer monistic rather than pluralistic ideologies (Tetlock, 1984). In the context of corporatesustainability this might imply that managers with less complex mental models are likely to be less attuned towardsthe conflicting demands of multiple stakeholders.

In the past, cognition theory has been used to analyze entrepreneurial opportunity identification (Mitchell et al.,2000; Krueger, 2007) as well as organizational learning (Barr et al., 1992; Spender, 2008). The first study tomention cognitive models in the context of this paper goes back three decades. In their study on the cognitivestructures of corporate social responsibility, Boal and Peery (1985) illustrate three content dimensions underlyingethical reasoning about corporate social responsibility: an acceptable decision had to be perceived as economicallyworthwhile, as justly affecting all stakeholders and as protecting or promoting the rights of those affected.

Since then quite a number of studies have been carried out looking into the content and impact of sustainabilityrelated knowledge structures. For example, Schlange (2009) uses cognition theory to explain how sustainability-driven entrepreneurs identify and perceive stakeholders differently than normal entrepreneurs. Swift (2012)illustrates the potential of mental models as decision support frameworks in the context of the Future ForestEcosystem Scientific Council (FFESC) project.

Bundy et al. (2012) address the usage of knowledge structures and how they can impact the choice of a firm’sstakeholder responsiveness. They find that firms will respond more substantially to those issues perceived as salientto multiple cognitive logics and more symbolically to those issues salient to only one logic.

Taking the discussion from Walsh’s first two levels (content and use of knowledge structures) to the third level(development of knowledge structures), Branzei et al. (2004) focus on the evolution of corporate sustainabilityrelated knowledge structures over time. They develop a dynamic model of corporate greening showing howsatisfactory or unsatisfactory results strengthen or weaken managers’ cognitive models.



This paper studies not the knowledge representation of corporate sustainability itself, but rather the respondents’representation of how corporate sustainability interacts with competitive advantage. In other words the focus is onpeoples’ perceptions of the business case for corporate sustainability. This is important since most research into thebusiness case for corporate sustainability fails to take it apart and analyze its different elements.

Specifically, this paper aims to address the following two research questions.

• How cognitively differentiated and integrated are the mental models managers use when representing theirperceptions of the link between corporate sustainability and competitiveness?

• How does the cognitive complexity of these models differ between managers in firms that are perceived as havinga higher or lower corporate sustainability performance?

Methods

Research Design

The research design of this paper follows a multiple-case ’replication’ logic, which treats the cases as a series ofindependent experiments that substantiate or refute emerging insights (Eisenhardt, 1989). All 12 companies weremultinationals included in the Euro Stoxx list of the 600 largest European firms. Cases were chosen followingtheoretical sampling (Eisenhardt, 1989; Yin, 1989). Three types of company were identified in the following categories:

• top performance (firms with outstanding perceived sustainability performance),• runners-up (firms with above average perceived sustainability performance) and• followers (firms with average to low perceived sustainability performance).

Two public sustainability rating indices were used as proxies for perceived corporate sustainability performance:the Dow Jones Sustainability Index (DJSI) STOXX, and the Ethibel Sustainability Index (ESI) Europe Pioneer. Beloeet al. (2004) have identified Sustainable Asset Management (SAM), the provider of the Dow Jones SustainabilityIndex (DJSI), as a clear leader, with a ‘best practice’ mention in four of six categories. Launched in 1999, the DJSIis the first global index tracking the financial performance of the leading sustainability-driven companies worldwide.Its index of European firms, the DJSI STOXX, is made up of the top 25% firms of the Dow Jones STOXX 600 Index(150 firms) considered to be leading in terms of social and environmental performance in Europe. Eight out of the 12firms considered in this study were included in the DJSI STOXX (see Table 1).

Name Industry Focus Dow Jones Sustainability Index Ethibel Index

Folllowers Dandelion Consumer no noRose Technology no noHyacinth Raw Material no noTulip Services no no

Runner-ups Magnolia Consumer yes noRhododendron Technology yes noAzalea Raw Material yes noLavender Services yes no

Top Performers Maple Consumer yes yesOak Technology yes yesSequoia Raw Material yes yesHemlock Services yes yes

Table 1. Description of case data

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The second sustainability rating index used in this study, the Ethibel Sustainability Index (ESI), has been namedas best practice in one of the six categories assessed by Beloe et al. (2004). The ESI contains two public indices, theESI Europe Excellence index, which is similar in ambition to the DJSI STOXX (aiming to identify firms with goodcorporate sustainability practice), and the ESI Europe Pioneer index, a much more selective measure. For this studythe more demanding ESI Europe Pioneer index has been chosen, containing only 86 European firms that are seenby Ethibel not just as above average but as belonging to a more proactive group of ’pioneers’ in terms of social andenvironmental performance. Of the 86 firms cited as pioneers on the ESI, 37 firms are not included in the DJSI.This leaves an overlap of 49 firms that are covered by both indices (about 8% of the Euro STOXX 600 or roughlya third of the DJSI STOXX).

Based on the data from DJSI and ESI four firms were selected for inclusion in this study in each of threecategories, resulting in a total of 12 studied firms (see Table 1). The paper considers firms as ‘top performers’ ifthey were included in the DJSI STOXX and the ESI Pioneer Europe. ‘Runner-up’ firms had to be included in theDJSI STOXX, but had to be absent from the more exclusive ESI Pioneer Europe. ‘Follower’ firms had to be absentfrom both indices but still be part of the Euro Stoxx universe.

It is important to note that the term ’corporate sustainability performance’ is not unproblematic. There exists abody of literature that highlights how difficult it is for external rating companies to approximate a firm’s objectivecorporate sustainability performance (Sharfman, 1996; Chatterji et al., 2009). It is for this reason that this papertalks about perceived corporate sustainability performance. In that sense it might be fairer to conclude that whatwe term ‘top performers’ here are those companies that have the best ability to present themselves as sustainableto external rating firms such as DJSI or ESI.

In order for the study to cover a wide range of corporate sustainability issues, firms were selected in four sectors:consumer, technology, raw material extraction and services. Each of these four sectors faces unique corporatesustainability issues, thus providing a broad and yet balanced sample of firms. In order to protect the confidentialityof informants, firm names are masked with code names in this publication.

Data Collection

Data was collected through 12 semi-structured individual interviews of about an hour. Interviews were recorded andtranscribed. Interviews first probed respondents’ awareness of corporate sustainability issues. The interview thenfocused on the firm’s motivation to engage in corporate sustainability, and the perceived link with competitiveness.

Research into similar questions has often used dedicated corporate sustainability managers as informants(see for example an overview of 24 studies by Steger, 2000). These respondents have the advantage of hands-onexperience with the topic in question. However, they will also be tempted to present their own achievements in aparticularly favourable light, since this might mean more resources and better career options in their own firm.To avoid this kind of bias, this research project has approached investor relations (IR) directors as the main sourceof information. Due to their position, IR directors are usually familiar with activities across the whole firm. Thusthey are well placed to assess whether a firm’s action advances its competitiveness or not.

Moreover, as one of the main conduits between socially responsible investors and a firm’s corporate sustainabil-ity department (Hockerts and Moir, 2004), they can be expected to be aware of corporate sustainability issues intheir respective firms. While reducing the bias towards corporate sustainability, this choice does, however, introducea bias towards shareholder value creation. When interpreting responses from the IR managers it must be kept inmind that they tend to look for ways to present their firms as having competitive advantages.

Prior to the principal data collection, desk research was carried out for each firm. In this process, each company’swebsite was reviewed for material pertaining to corporate sustainability. Of the 12 firms studied all (even thefollowers) had a link to their corporate sustainability website (or an equivalent title) on their corporate front page.Furthermore, web searches for media articles were carried out pertaining to corporate sustainability issues. Thisdata was used as preparation for the interviews and also for triangulation in the analysis section.

The interview data was supplemented with material from the desk research to verify the reliability of theinformation received from the respondents. This analysis revealed some small inconsistencies with regard to datesof events and names. However, no considerable discrepancies were found between the publicly reported corporatesustainability strategies and the IR directors’ account thereof.



Data Analysis

Data analysis used approaches common to qualitative research studies (Miles and Huberman, 1984; Eisenhardt,1989; Yin, 1989; Lee, 1998). For each interview a transcript was prepared and studied regarding the key researchissue. Codes and sub-codes were developed as the analysis progressed. These codes were developed after a closereading of prior literature as laid out earlier in this paper.

Codes were then represented in mental maps (Eden, 1992; Eden et al., 1992). The value of mental maps as a dataanalysis tool has been demonstrated by a number of authors over the past years (Eden et al., 1992; Ojastu et al., 2011;González et al., 2012), and is also increasingly used in sustainability related studies (Figge et al., 2002; Mendoza andPrabhu, 2006; Parisi and Hockerts, 2011).

For this study separate mental maps were created for each of the 12 respondents. These maps were thenintegrated into three collective maps (Langfield-Smith, 1992; Klimoski and Mohammed, 1994; Mohammedet al., 2010; Fairweather and Hunt, 2011), which represent the key schemata used by respondents fromthe follower, the runner-up and the leader groups. The results of these three maps will be discussed inthe next section.

Findings

The insights that emerged from the data linked perceived corporate sustainability performance with a set ofcompetitive advantages. The respondents usually identified certain positive aspects (e.g. philanthropy, goodgovernance) and negative aspects (e.g. pollution, discrimination, child labor) of sustainability performance asrelevant to their firm. As part of the semi-structured interview guide, respondents were then prompted to commenton why they thought their companies should or should not take action on these corporate sustainability issues. Asecond question probed further into whether they felt that such activities created competitive advantages.

The data presented in the following contains quotes that were selected to best represent a respondent’s cognitiverepresentation of the business case for corporate sustainability. Each quote corresponds to longer statements thatmay run over two or three paragraphs. In some cases several quotes are attributed to one respondent; this signifiesthat the informant has come back to the theme at a later point in the interview.

A first insight from the data concerns the general question of why some firms invest more in corporatesustainability than others. Previous research suggests different explanations. Bansal and Roth (2000) identify bothextrinsic factors (such as competitiveness and legitimization) and intrinsic factors (such as individual responsibilityand ethical motives). This would suggest that the knowledge structures of respondents in firms with a lowersustainability performance should exhibit both less intrinsic and extrinsic motivation. Cognitive structures ofrespondents in firms with a higher sustainability performance on the other hand should be expected to contain bothmore competitiveness arguments and more ethical motives.

Walley and Whitehead (1994), on the other hand, postulate that competitive advantage is only a temporaryeffect. Thus one might also expect that respondents in firms from the ’runner-up’ group would be more likely toperceive competitive advantages than managers in firms from the ’leaders’ group (since the leaders havepresumably already exhausted all ’low-hanging fruits’ (Walley and Whitehead, 1994) and win–win solutions, andconsequently are now facing more trade-offs. According to this logic one would expect that respondents from firmsin the ’leader’ group would cite ethical arguments and corporate values more often as drivers of corporatesustainability than competitive advantage.

At a first glance the evidence from this study does not fully support either Bansal and Roth (2000) or Walley andWhitehead (1994). In fact, the results are eerily undifferentiated. Respondents in all three categories claimed thatcorporate sustainability increases competitiveness. Ethical motives and individual responsibility on the other handwere hardly ever mentioned. This finding does not exclude the possibility that firms and managers act upon certainsustainability issues out of a conviction that this is the ethical right thing to do, even if it comes at a price. However,the data suggests that the business case for corporate sustainability has so far permeated the consciousness ofrespondents that the respondents would not admit to any other motivation for addressing corporate sustainability.

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In other words, professing ‘good ethics is good business’ has become an organizational ’dogma’ (Hoffman, 1999)in itself.

Proponents of corporate sustainability may be heartened by the fact that managers seem to have knowledgestructures that positively link corporate sustainability with the business case. However, it is also interesting to notethat respondents were reticent when asked whether there might not be at least some sustainability activities that leadto competitive disadvantages. It seems that considering sustainability in a business case perspective has become thedominant logic (Prahalad and Bettis, 1986).

However, such dominant mental models may be deleterious if they become dogmatic and simplistic. Anunreflective perception that all sustainability activities will eventually pay off may lead to an impoverished view ofthe complex challenges corporate sustainability poses. Weick (1979) and Gioia (1986) point to the fact thatsimplified knowledge structures may actually turn out to be liabilities if they incorrectly simplify highly complexissues. In his later work Prahalad similarly warned against the dangers of dominant logics becoming ’blinders’(Prahalad, 2004, p. 171).

DeNisi et al. (1984), for example, have found in their study of performance appraisal that supervisorswho have a positive perception of a subordinate may feel it unnecessary to collect more information. Theymay also interpret a person taking a break more positively (i.e. as planning time rather than loafing). In thecontext of corporate sustainability this might mean that an unreflective appreciation of corporate sustainabilityas always in the long-term interest of the firm may lead to a simplistic view of corporate sustainability.Managers may run the risk of ignoring any issues that fall outside this stereotype. Thus any discussion of’corporate sustainability beyond the business case’ (Dyllick and Hockerts, 2002) is seen as heresy andbecomes impossible.

Turning our attention to the content and structure of the mental models employed by respondents, a more dif-ferentiated picture emerges. Whereas followers mainly employed knowledge structures related to risk, runners-upand leaders used more differentiated and integrated mental models. In the following, data for each of the threegroups will be presented briefly.

Mental Model Employed by Followers

An analysis of the data shows that the mental models employed by respondents from followers were not verydifferentiated, focusing primarily on risk reduction with only minor considerations towards efficiency gains.Figure 1 represents the data from followers in a collective cognitive map, which shows that branding and marketopportunities were not part of the cognitive repertoire of these firms.

Risk ReductionAwareness of risk was particularly strong among the followers. The dominant cognitive model employed byfollowers is best represented by the respondent from Dandelion, who described sustainability performance as a kindof insurance: ’[Corporate sustainability] can protect you from losing added value’. All four respondents in thiscategory mentioned emerging regulation as a major motivation for their corporate sustainability programs. ’Ifyou [are not proactive], later on you could lose money. You may face new regulations and complying with thesecould be very expensive and difficult’, stated, for example, Dandelion. Rose concurs with this when stating that if’you don’t have a strong policy [. . .] you can become the subject of lawsuits (such as for example in the case ofasbestos). This could actually eat up shareholder value’.

Both Rose and Hyacinth reported that product and production standards have been constantly tightening.Being aware of this trend, both firms stated that their aim was to stay several years ahead of legislation in orderto safeguard managerial options. The respondent from Rose, for example, concludes ’We know we won’t be ableto sell [products] if we don’t meet these standards [. . .] on things like noise pollution and emissions’.

The respondent from Tulip confessed to a fear of being ’named and shamed by the environmental minister’.Rose cited its social HR policies as the main reason the company hadn’t had a serious strike for 12 years, whileits largest competitor was regularly subject to strikes. The risk of losing its license to operate was a clear motivatorfor Hyacinth. Owning plants with a long depreciation time, they felt vulnerable to hostility in the local community,as they could not easily delocalize.



Efficiency GainsAt first glance the interviews seem to bear out the assumption that efficiency gains are limited to the low-hangingfruits hypothesized by Walley and Whitehead (1994). None of the followers brought up increased operationalefficiency as the first motivation for engaging in corporate sustainability. Only when probed as to whether theycan imagine any further motivations for engaging in corporate sustainability did two of them (Dandelion and Tulip)mention more as an afterthought: ’And then there are, of course, cost reductions’. This fact would indicate thatincreased operational efficiency is not the primary motivation for these firms to engage in corporate sustainability.

An exception is Dandelion, which stressed that for ten years they have worked on ’reducing energy bills and theimpact on the environment, [since then we] have become highly successful – both from an economic aspect and anenvironmental point of view’. Tulip also refers to water and effluent controls as a way of saving costs. Moreover,Tulip points towards its long tradition in people development and management development: ’[This has] beenintegral to the success of the company. [. . .] Can we quantify [the savings from this]? No. But it’s been a real factor’.

Mental Model Employed by Runners-Up

The mental models elicited from runner-up companies were both more differentiated and more integrated thanthose of the followers. Figure 2 represents the data from runners-up in a collective cognitive map, which shows thatrunners-up also consider branding and new market opportunities part of their cognitive repertoire. Theseknowledge structures are, however, less integrated than those for risk reduction and efficiency (meaning that therewere fewer interconnections among knowledge structures).

Figure 1. Mental map of followers

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Risk ReductionAll four runners-up identified risk reduction as a major motivator for corporate sustainability. The best illustrationfor managing regulatory risk could be found at Azalea. As the first player in its industry the company had voluntarilycommitted to much tougher emission targets than were required by law. When the national environmental agencybegan contemplating tougher laws it turned to Azalea for help in how to design the law most efficiently, and whenthe law was extended to a European level Azalea once again was part of the negotiations as the only firm with severalyears of data to draw on.

Azalea also cited the risk of campaigns as a relevant motivator: ’Another example is Greenpeace’s [consumerboycott] campaign. [If such a campaign endures] loss of volume starts to have a financial effect and analysts will startsaying: "Do something to sort it out"’. The respondent from Azalea also saw a direct link between being perceivedwell by local communities and the firm’s ability to deliver projects on time and budget, ’because we won’t findourselves opposed by communities and governments’.

This line of thought was echoed by Magnolia: ’We’re [clear] about the risks involved from a PR point of view.[We] ensure that we’re not damaging the value of [our brand]’. The respondent from Lavender felt that his companywas doing quite well in this dimension: ’We have not been getting a lot of flak over [social responsibility in thesupply chain] because we have a good program in place’. However, being a market leader Lavender also realized thatit was exposed to much more scrutiny from stakeholders than some of its competitors. According to Rhododendronthis attention also includes certain types of investor who will not invest in a company if it seen as having anunsustainable product portfolio.

Efficiency GainsAll four respondents also referred to efficiency gains as a reason for investing in corporate sustainability. Lavender,for example, stated that ’the benefits from being environmentally friendly are extra cost savings’. This was shared by

Figure 2. Mental map of runners-up



Magnolia, which reported quite a lot of gains, the best being from energy efficiency, as well as by the respondentfrom Azalea, who felt that ’for things like carbon trading, there is an economic benefit’. Azalea also saw the potentialfor productivity gains from a lower staff turnover if a firm is seen as responsible. A similar argument was made byRhododendron with a view towards hiring staff.

Brand BuildingThree of the four runners-up have reported brand building as a consequence of proactive corporate sustainability.Magnolia, for example, linked its status as a most trusted brand to its CSR program: ’So people look at us and expectus to be doing the "right thing"’.

As for more tangible outcomes, Azalea admitted that at the beginning sustainability might create a short-termdisadvantage: ’If you take sulfur out of gasoline products before anyone else, you’ll initially see a financial disbenefit.[However,] the idea is that customers will appreciate what you’re doing and you’ll benefit later’.

Lavender agreed that increasingly customers were factoring sustainability criteria into their purchasing decisions:’The customer has shown a lot of interest in organic products, service levels, diversity in personnel in stores’.

New Market OpportunitiesOnly one of the runners-up talked about the possibility of using sustainability to enter new markets. ’We realizegreenhouse gases are an issue’, said the respondent from Azalea: ’We [have moved into] gas and renewables. Wehave research going on carbon sequestration. We do research [. . .] on the use of hydrogen. We spend money onall of these things. [They are] a development business. They give us options for the future’.

Mental Model Employed by Leaders

Compared with the followers and runners-up, the mental models used by leaders were more complex. In particular,they were more cognitively integrated across the four dimensions of risk reduction, efficiency gains, brand buildingand new markets (see Figure 3).

Risk ReductionThe respondent who evoked risk reduction the most was from Sequoia. He saw corporate sustainability as a meansto manage both regulatory and litigation risk as well as to maintain Sequoia’s license to operate and thus safeguardits survival in the long run. Hemlock referred to risk only in passing when talking about its carbon risk unit.

Today the regulatory controls mean that the track record you have with [social and environmentalmanagement] is vital for the way you get permits. If you have a good track record, then you get permits toexploit new areas more easily (Sequoia).

Interestingly, two of the leaders (Oak and Maple) did not bring up risk reduction at all as a category toconsider when talking about the business case, indicating that their mental models seem more focused on findingopportunities than avoiding threats. In other words, they were less cognitively differentiated.

Efficiency GainsAll four leaders referred to efficiency gains as a motivator for their sustainability activities. Sequoia, for example, sawmuch potential in alternative energy: ’The use of alternative fuels [. . .] is vital not only from an environmental pointof view but also to contain the increase in fuel costs’. Hemlock made a similar statement: ’The energy we buy isconsidered to be very ecological and it is also at a lower price. So it doesn’t always mean you have to spend moreto achieve ecological criteria’. Maple’s main focus on energy efficiency was linked to the use of teleconferencing.’We saved £5–6 million in fuel costs. [. . .] Over the last 10 years our [environmental program] has saved about £600million.’ Only Oak was somewhat doubtful about the real potential of efficiency gains in the short run: ’[These are]all long term. You have to invest more now to save in the long term’.

In addition to energy efficiency Hemlock also stressed the impact its CSR activities have on employeeproductivity. ’Hemlock is very committed to CSR and we are known as an employer of choice. We have a reputationas a good employer.’

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Brand BuildingThe support of the corporate brand through sustainability was mentioned repeatedly by Maple and Oak. Oakadmitted that its dedicated eco-products were not a big sales success. However, the Oak respondent felt that itssustainability activities were driving its overall corporate brand and its ability to charge a premium price for allOak products. Oak also felt that it was attracting and retaining customers by making products that allowed itscustomers to receive tax exemptions due to their lower emissions.

Maple was very pleased with the way its CSR activities had helped improve the firm’s image, which at one pointwas that of ’a most hated company’. An in-house study found that CSR had an important impact on improvingMaple’s image with its customer base: ’[We found that] half of the factors impacting image are due to CSR’. Publicrecognition for Maple’s employee diversity program has also been important in bids with government and otherpublic clients, who include such activities in their sourcing decisions.

New Market OpportunitiesThree out of the four leaders interviewed reported seeing new market opportunities arising from their corporatesustainability activities. Hemlock, for example, has started a carbon certificate trading unit, which it hopes to evolveinto a new business. The business idea arose directly from the fact that Hemlock’s core business was very exposed tocarbon risk.

Maple also reported having leveraged its internal environmental management system into a new product line:’[We sell it] primarily to government departments. [. . .] It is significant revenue for us. This application uses our corecompetencies’. Maple also sees cleantech services (such as teleworking to avoid the environmental impacts oftraveling) as a possible growth market.

In this context Oak stressed the importance of the cutting edge of green R&D activities and forward lookingeco-design: ’[Oak products] are [used] 10 years or more. [So] we are always thinking ahead. Today we have[the most efficient product in the market], but we also have a [more efficient one in the conceptual stage]’.

Figure 3. Mental map of leaders



Discussion and Theory Development

As described above, the respondents in this study represent information about the business case for corporatesustainability by drawing on four distinct knowledge structures. They describe process oriented opportunities suchas risk reduction and operational efficiency, as well as market oriented opportunities such as sustainability brandingand new market creation. These categories mirror broadly findings suggested by prior literature (e.g. Schneidewind,1995; Dyllick et al., 1997; Dyllick, 1999; Reinhardt, 1999, 2000). However, the findings from this study extendour understanding of the business case by indicating that managers in firms with higher perceived corporatesustainability performance tend to display more cognitive complexity when discussing the business case.

Cognitive Differentiation

As a study of the maps shows, respondents from firms with a lower perceived corporate sustainability performancereferred to fewer dimensions (only risk and efficiency) than the runners-up and leaders (risk, efficiency, brandbuilding and new markets). In cognition theory this is referred to as cognitive differentiation, which Feldmanand Hilterman (1974) describe as the number of independent dimensions that a person employs when talking aboutdifferent constructs (Bartunek et al., 1983; Streufert and Nogami, 1989; Green, 2004).

Bartunek et al. (1983) argue that a narrow cognitive framework often results in ineffective managerial behavior.They thus advise managers to aim for a more complex understanding of their information environments. Inthe context of this study this would mean that managers in firms such as the followers might want to look for moreelaborate mental models.

One obvious concern with such an idea could be that followers evoke fewer business case dimensions becausetheir firms simply have fewer opportunities to explore, either due to the legal or market environment they act in,or due to their competency base. This lack of opportunities might explain why both sustainability ratings such asthe DJSI or ESI rate these firms lower and why respondents from these firms did not evoke brand building ornew market opportunities.

However, it might also be possible that the causal relationship is in the opposite direction. This means thatbecause individuals in follower firms have less differentiated mental maps about the business case they do notsee the opportunities and accordingly miss out on opportunities to create competitive advantage from corporatesustainability activities.

The work of Guicherd et al. (2011) might shed some light on this question. They have demonstrated that highercognitive differentiation impacts the kind of negotiation strategy people will employ. Negotiators with moredifferentiated mental models will tend to be less confrontational and focus less single-mindedly on profitmaximization alone. In other words, they are less likely to perceive interaction with stakeholders as a zero sumgame. Instead, they might perceive win–win scenarios that allow them to achieve environmental and social goalswhile at the same time creating competitive advantages.

Whichever, of these explanations is correct, one can deduce from the data that a positive relationship seems toexist between cognitive differentiation and corporate sustainability performance.

Proposition 1. Managers in firms with higher perceived corporate sustainability performance will tend to havemore differentiated mental models about the business case for corporate sustainability.

Cognitive Integration

A second trend emerging from the data concerns the cognitive integration of the mental models employed. Asexplained by Stabell (1978), cognitive integration describes the degree of interconnectedness among a knowledgestructure’s dimensions. They are an individual’s ability to form conceptual frameworks that organize complexsituations (Stabell, 1978).

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An analysis of the collective maps reveals that the map of the followers contains 10 interconnections, that ofthe runners-up 15 and the map of the leaders 19. In other words, the map generated from runner-up data is morecognitively integrated than that of the followers. It contains more interconnections between corporate sustainabilityand each of the four business case dimensions. The same is true for the leader map, which again contains moreinterconnections than that of either the followers or the runners-up.

Proposition 2. Managers in firms with higher perceived corporate sustainability performance will tend to havemore integrated cognitive mental models about the business case for corporate sustainability.

Knowledge Structure Content

Another trend emerging from the data concerns the content categories of the cognitive maps. Here awarenessruns from risk reduction (eighteen mentions) via operational efficiency (thirteen) to brand building (eight) and newmarket creation (five). These findings indicate that, generally speaking, process oriented opportunities (risk and efficiency)outweigh market advantages (branding and new markets). This would indicate that the large academic attentionpaid to sustainability marketing and sustainability innovations does not match with the actual preoccupations offirms. In general, companies seem to see more potential in operational benefits such as risk and efficiency thanin market opportunities.

Proposition 3. Cognitivemodels of the business case for corporate sustainability tend to containmore interconnectionsregarding risk and efficiency oriented categories than brand building or new market development.

Cognitive Development

The only content category for which the relationship outlined in Proposition 2 does not hold true concerns riskreduction. Here the follower map contains more interconnections (seven) than those of the runners-up (six) orthe leaders (four). Actually, two leaders did not refer even once to risk reduction as a motivation for theircorporate sustainability programs. A possible explanation for this could be that, as firms improve their sustainabilityperformance, their mental models develop from a risk reducing logic towards an opportunity logic.

Proposition 4. With increased perceived corporate sustainability performance, cognitive mental models of managersregarding risk reduction become less integrated.

Conclusions

This paper investigates how mental models about the business case for corporate sustainability differ between firmswith different perceived corporate sustainability performance. It finds that respondents from all firms have mentalmodels in which corporate sustainability programs are primarily motivated by competitive advantages. In fact, thebelief in the business case seems to be the dominant logic among the respondents of this study. A possiblelimitation may be found in the selection of respondents. The mental models of IR managers are obviously attunedtowards looking for possible competitive advantages. The assertion that the business case has become a dogma isnot implausible. However, it will need to be verified through studies with other types of respondent.

A second finding of this study is a clear bias among respondents from firms with perceived lower sustainabilityperformance towards measures resulting in risk and cost reductions. Respondents from perceived high performerson the other hand have more differentiated and integrated cognitive structures. While this allows some preliminary



speculations, this paper is limited in the sense that is does not actually contain much data about the development ofbusiness model knowledge structures. Future research might, in particular, study this area.

The conclusions to be drawn from the data in this study are limited in several other ways. This study only pointsto a link between more complex mental maps of the business case and sustainability performance. It does not provecausation. Is it that firms whose managers have more differentiated models of the corporate sustainability businesscase eventually invest more in their sustainability performance? Or is it that managers in such firms are exposedmore to corporate sustainability thinking and therefore have more complex cognitive models? Intuition wouldsuggest a mix of the two effects, but no data is available as yet to analyze the question.

It is also important to remember that this study does not explore the business case directly. It only elicits theofficial discourse of managers about the business case for corporate sustainability. A competing explanation forthe findings of this study could be that with increasing corporate sustainability expenditure managers feelpressured to justify these investments. This might explain why managers in firms with higher corporatesustainability performance gave more examples of the business case. Future research will have to control for thepossibility of such an effect.

Furthermore, it would be very interesting to test research by prior scholars related to the development ofknowledge structures. Bartunek et al. (1983), for example, find that the articulation of a leader’s new vision for anorganization may cause the development of cognitive models in employees. It would, for example, be interestingto see whether grand sustainability visions such as Jeff Immelt’s Ecomagination strategy for GE or Philips’ GreenFlagship program actually change mental models significantly.

Another promising research venue would be to follow up on the work of Westenholz (1993), who suggests that byexperiencing a paradoxical situation individuals can develop their reference frames. This raises the interestingquestion of how far firms should promote a discourse about the paradoxical challenges of sustainability insteadof promoting the dogma that there is always a business case in the long run.

It would also be interesting to explore what role NGOs and other stakeholders can play in helping firms reframetheir mental models. Sequoia, for example, has gone to extraordinary lengths to bring its most critical stakeholdersinto the firm to start a discussion about the complex issues the firm faces. Similarly, Oak has been drawinginspiration for its conceptual work from the challenges NGOs such as Greenpeace have leveled against its industry.In this context it would be interesting to see whether, and if so how, sustainability rating firms impact thedevelopment of mental models.

Another extension of the research begun here would be a study of the creation of group level cognition aboutthe business case. How does the representation of this issue differ between managers at HQ level and those inbusiness units? Similarly, the construction of industry wide cognitive maps and their evolution over time offerdevelopment options.

If the propositions emerging from this paper survive empirical testing, they will extend our theories of corporatesustainability beyond the all-or-nothing type of argument underlying most of the CSP–CFP debate. This in turn willhopefully lead to a more relevant description of the corporate sustainability challenges faced by most managers.

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