The Darker Side of Sustainability

Article

The darker side of sustainability: Tensions from sustainable business practices in business networks. Tura, N., Keränena, J., & Patala, S.

Journal

Industrial Marketing Management, February 2019, Volume 77, 221-231

Reviewer

Dr. Carson Reeling, Assistant Professor

Summary

Implementing environmentally sustainable business practices (SBPs) is increasingly important for a firm’s “triple bottom line”—that is, their economic, environmental and social performance. Despite the obvious (and well-documented) benefits from adopting SBPs, including input cost savings and increased demand from consumer goodwill, they do involve tradeoffs. In particular, a single firm adopting an SBP can impose tensions on partner firms throughout the supply chain. These tensions can threaten relationships, induce uncertainty and raise costs for both suppliers and customers. This article is among the first to identify and classify these tensions with the goal of helping business managers anticipate and lessen their negative effects when adopting SBPs.

The study involved focus group discussions with managers of 17 Finnish process and metal, wood, energy and waste management firms. The firms were related through their respective supply chains, and the managers were probed about their experiences in both adopting SBPs themselves and the effect of SBP adoption by other firms on their own performance.

The authors were able to identify major sources of tension arising from firms’ SBP adoption decisions and classified them into four categories:

• Economic tensions: Firms adopting SBPs often faced greater investment, operating and opportunity costs. Suppliers for adopting firms faced greater costs from having to comply with greater sustainability requirements. Customers of adopting firms faced higher prices and less reliable products.
• Structural tensions: Firms adopting SBPs faced greater monitoring responsibilities to ensure compliance by other firms in the supply chain. Suppliers for adopting firms perceived uncertainties and a loss in market power if they did not have the infrastructure to ensure compliance.
• Psychological tensions: Firms adopting SBPs faced greater financial, technological and political risks (this is because future policy decisions could influence the costs or benefits from adopting SBPs). Suppliers for adopting firms reported less motivation for complying with SBPs due to the uneven distribution of benefits from their adoption. Customers of adopting firmsreported concerns about data security (adopting firms often request process and customer data to assess sustainability impacts of their products) and “greenwashing,” or purchasing inputs that are not as sustainable as their suppliers lead them to believe.
• Behavioral tensions: Firms adopting SBPs face greater pressure to disclose information on business practices to regulatory authorities, customers and supply chain partners. Suppliers for adopting firms reported increased data collection and dissemination requirements.

What this means for Food and Agricultural Business

None of the firms involved in the study were agribusiness firms. Still, it’s not a stretch to imagine that agribusinesses (and firms in their supply chain) face largely the same set of tensions the authors identify in their research. This is particularly true given (i) consumer demand for sustainable products and concerns about regulatory intervention are increasing pressure on agribusinesses to produce environmentally-friendly goods and (ii) the benefits and costs of SBP adoption by a single firm are likely to fall unevenly on related firms throughout the supply chain. So, what lessons does this article have for agribusiness firms keen on adopting SBPs?

The main lesson is that a firm’s success in sustainability initiatives will depend on finding ways to overcome tensions these initiatives may impose on partner firms in the supply chain.

This is easier said than done. As part of an ongoing research project funded by the Walton Family Foundation, I—along with other colleagues at Purdue, University of Illinois, and Iowa State—am working to identify new means of providing agricultural producers with incentives for adopting conservation practices. Through focus group discussions with small groups of non-conservationist farmers, we’re finding that many are unwilling to participate in conservation activities like nutrient management or cover cropping. Farmers’ hesitation stems from many of the tensions summarized above. Greater input and opportunity costs inherent in adopting many conservation practices drive economic tensions. Likewise, many conservation practices are promoted through federal cost-share programs (e.g., EQIP). Uncertainty about future financial support for these practices and the long-run agronomic effects of them drives psychological tensions.

Firms downstream from agricultural producers (e.g., food processors) may have considerable interest in having their suppliers adopt conservation practices. Indeed, there are reams of research showing consumers are willing to pay premiums for sustainable food, representing an important market opportunity for agribusinesses. Our preliminary research findings suggest, unsurprisingly, that the most reliable way to increase producer interest seems to be by easing economic tensions. Farmers have responded positively to the notion of paying them more for their product (e.g., through price premiums for sustainably-raised crops) or discounts on crop insurance or land rents in exchange for adopting conservation practices. This latter incentive is outside the purview of agribusinesses, of course, but perhaps the same effect could be achieved through purchasing contracts or other incentives that reduce some of the uncertainties inherent in agricultural production.

Sustainability initiatives offer considerable opportunities for agribusinesses. This paper shows, however, that these opportunities may not generate benefits evenly along the supply chain. For firms to be successful in their sustainability initiatives, they must be aware of the tensions they impose on partner firms and actively seek means of easing them.