Multinational enterprises and climate change: Exploring institutional failures and embeddedness

Abstract

This paper explores how climate change affects MNEs, focusing on the challenges they face in overcoming liabilities and filling institutional voids related to the issue. Climate change is characterized by institutional failures because there is neither an enforceable global agreement nor a market morality. Climate change is also a distinctive 'international business' issue as its institutional failures materialize differently in different countries. As governments are still highly involved, MNEs need to carefully consider their strategies to cope with nonmarket forces, including their embeddedness in multiple institutional settings. Using some illustrative examples of MNE responses to climate-related components in stimulus packages, we explore MNEs' balancing act concerning their institutional embeddedness (or lack thereof) in home, host and supranational contexts as input for further research on the dynamics of MNE activities in relation to climate change.

International business responses to institutional voids

“…Thus in addition to providing a logic that helps to isolate the institutional features of a country's environment that are particularly important for firms, it offers a basis for comparison of these features and their effects across national contexts. Nonetheless, it is interesting to note that, barring a few exceptions (i.e., Pinkse & Kolk, 2012;Stephan, Uhlaner, & Stride, 2015;Santangelo & Meyer, 2011), scholarship on responses to institutional voids has not been commonly featured in JIBS or other outlets.…”

Commitment to Emissions Restrictions of Major Consumers of Electricity in Brazil

“…Even though some knowledge about the response of firms in advanced economies to climate change are described in the literature [57][58][59], very little is known about organizations in developing and emerging economies that, certainly, also have a huge and growing impact on the environment. The considerations that were obtained from the survey results associated with this complex subject were obtained from the survey results were detailed for a representative sample of high-consuming customers (classified by economic sector) of an electricity power company.…”

Environmental Performance of Multinationals: A Comparative Study Based On Climate Change Strategy

“…Bansal and Gao (2008) stated the need for developing specific firm capabilities, capital investments, and adherence to regulations to deal with technical challenges thrown by the environmental issues. At the national, regional, or international level, the support of firms is critical as it represents the productive resources of the economy and is essential to achieve sustainable development (Kolk and Pinkse, 2012). The MNEs may try to develop environmental or 'green' FSAs that can be scaled across the borders through knowledge assimilation and transfered across their internal networks.…”

“…Rugman and Verbeke (2008) extended their research by focusing on the difference between manufacturing and service industries apart from adding asset dispersion as another parameter. Climate change being a global issue, MNEs may not be able to approach this as a separate issue for each country (Pinkse and Kolk, 2012) and this could mean that there is a need for regional or global-orientation in MNEs dealing with this issue.…”

“…Standardizing decisions of managerial practices will be more likely when there are low legitimacy requirements owing to low institutional distance, and will be less likely when high institutional distance prevails because of liability of foreignness (Aguilera-Caracuel, 2012). Even though climate change is a global issue where most of the nations are involved, there is no binding global agreement to all the nation actors, as country level institutional failure is a key issue (Pinkse and Kolk, 2012).…”