Do green entrepreneurship practices matter?

In our societies, it is natural to hear some say, “When the goal is to maximize profits, businesses tend not to care about sustainability, ethical systems, environmental protection, and depletion of energy sources”. Of course, this is both a misconception and a misunderstanding because a “sustainable” green environment refers to management practices used systematically to protect, preserve and restore the environment. It can be achieved through certain operational activities such as energy and water consumption and maintaining an ethical system in place.

In today’s competitive market, enterprises proactively embrace green management practices as a strategic must. For example, businesses in some developing economies such as China continue to face significant pressure from the government, customers, and stakeholders who want them to adopt green management practices to mitigate the increased environmental pollution and pressing food safety concerns.

Therefore, in 2007, China established a system called the “Environmental and Social Disclosure” whereby companies must regularly disclose their business practices in terms of environmental protection and social responsibility.

One of the key reasons that make a business adopt a green orientation is legislation, which can exercise pressure on the business. Another is the business’s desire to keep up with strategic requirements, specifical factors such as eligibility, reputation, or the need to diversify the product portfolio. Undeniably, these reasons compel businesses to take this step. Other reasons include the desire of a business to stand out from others, seize new opportunities, reduce costs and take advantage of pioneering development.

The problem lies in the low level of transparency within economies in transition. In developing countries, the problem gets more complicated for businesses, which need to exert more effort to walk down this road. They need to conduct a full environmental survey in order to understand this orientation, how and where it can be applied within the market.

Businesses must focus on two types of institutions: Government legislation and market mechanisms. These are the visible and invisible hands of any economy, so consideration must be given at the level of the enterprise, the government, and the market at the same time as a primary driver of green orientation.

Organizational slack and green management

Researchers disagree on whether the organizational slack defined as “increasing the organization’s resources above the minimum” has a positive or negative impact on enterprises, although researchers in eastern China and Japan believe it does.

Copious resources and skills as well as the capacity to determine where to apply green management require an investment of time, effort, capital, energy, and resources. It could require a drastic change to the production lines and supply chains. Companies must improve and change previous administrations’ systems in order to better implement green management mechanisms.

This is achievable through the adoption of new practices, processes, and the use of new equipment or techniques. With all these investments and strategic changes, the need for an abundance of resources is important because it would be difficult for any enterprise to apply green management unless it has this level of access to resources.

Enterprises with large organizational stagnation tend to be “resource-abundant,” making them more willing to apply and implement green management policies, allowing them to actively seek out new and unconventional ideas and track projects with a sustainable dimension. It also gets leaders to calm down and reflect deeply on how to apply this type of concept in modern management and align it with the goals of their organizations.

Green management, financial and innovation

Enterprise performance index

Studies indicate that enterprises can benefit from green and sustainable management by capitalizing on opportunities and reducing long-term costs, but how does this translate into improved organizational performance? In general, empirical research focuses on three aspects of a company’s performance: financial performance, market performance, and innovation performance.

When we discuss green governance practices, we focus here on financial performance, which is important to stakeholders in raising awareness about the environment and health, as well as innovation, and which determines the capacity to apply this management model. When discussing practices, such a model is more relevant than others.

Enterprises can benefit from the application of green management practices through four types of opportunities and three types of cost savings.

Opportunities:

1-      Better access to certain markets

2-      Diversification and high-quality products

3-      Selling products that combat pollution or benefit public health

4-      Managing risk and relationship with external stakeholders

Cost savings:

1-      Cost of materials, energy, and services

2-      Cost of capital

3-      Cost of labor

In the light of major shifts, the environmental transformation has become more necessary and critical for enterprises to consider and incorporate in their strategies.

It will thus make them stand out in terms of internal performance by enhancing organizational behavior and innovation and be distinguished externally by promoting the right mental image of the organization. The government’s future support will undoubtedly strengthen this orientation and make us begin where others have stopped in order to realize our ambitious vision.

Fahad Alarjani

PhD Scholar in Sustainable Entrepreneurship, Xi’an Jiaotong University

Head of Entrepreneurship Committee and Board Executive Member

Saudi Chinese Business Council

Twitter: @fahadnalarjani