Welcome to this short discussion of the challenges that international implementation of sustainability presents. Before we start looking at specific challenges, I would like to tell you why I think we should care about this. According to the United Nations environmental program, if multinationals would commit to promoting sustainability and responsible business conduct throughout the supply chain, this would have a decisive of impact on the success of the United Nations sustainable development goals. Thus, multinational enterprises are increasingly recognized as central players in the transition towards sustainability. As a result, multinationals are increasingly pressed to conform to norms and standards regarding their sustainability performance and its reporting. For instance, according to KPMG’s 2017 survey of corporate responsibility reporting, 93 percent of the 250 largest firms of the world now report on their sustainability performance. This happens in part as the result of the mounting pressures on firms at a global level to report on their practices in a consistent manner. We can cite several global initiatives, some being initiatives of certification, like the ISO 14001, some guidelines, like the UN Global Compact or the Global Reporting Initiative, political initiatives, like the Paris Agreement for Climate, or industry level initiatives, like the Principle for Responsible Investment or the Salmon Sustainability Initiative. Multinational enterprises also face very heterogenous environments. First of all, in their home country, the pressures, norms, rules, laws regarding sustainability vary tremendously from one country to the next. If we look again at the KPMG study I already mentioned, there are again clear differences across countries in terms of their reporting habits and the priorities in terms of sustainability. In terms of reporting, we can see that firms in certain countries tend to report more than the others. Some leading countries are the UK and India and, for instance, Mexico, where reporting has increased a lot in the recent years as a result of a new regulation on climate change that constrains firms to report on their carbon emissions, as well as the introduction of sustainability indices in the Mexico Stock Exchange. On the other hand, in certain countries like Angola and Israel, we can see that firms tend to report their initiatives and performance to a lesser extent. Even within regions such as Europe, we can see differences between, for instance, firms headquartered in the UK and firms headquartered in Belgium that tend to report their sustainability to a lesser extent. In terms of sustainability priorities, there are also clear national patterns. For instance, 90 percent of French multinationals acknowledge that climate change represents a financial risks, while a little shy of 50 percent of US and Japanese firms do so. Similarly, while 83 percent of German firms link their sustainability approaches to the sustainable development goals, only 31 percent of US firms do so. Multinational enterprises are not only headquartered in home countries with these very large differences that we witness, but they're also operating across a series of of countries where the regulations, the norms again, vary tremendously, which makes the implementation of sustainability particularly challenging for them. If we now move from reporting habits to the extent to which multinational enterprises actually are sustainable or not, evidence is kind of mixed in the academic research. While some find that there is a positive correlation between the level of internationalization and the levels of sustainability, others find that more international firms tend to report their practices to a greater extent but then that they obtain a lower environmental performance on average. When firms decide to go abroad, they’re actually faced with numerous pressures, numerous demands, heterogenous demands that might explain why they should become more sustainable. Then need a license to operate for which adapting to local demands in terms of sustainability might prove very useful. They also fall under the radar of international governmental organizations and non-governmental organizations that might also foster theie sustainability. For instance, a set of studies on emerging market multinationals show that when they go abroad, they tend to become more sustainable than their national counterparts. At a more local level, sustainability means engaging with stakeholders in different types of settings, and for instance in the mining industries it has been shown that firms have to really engage with the local community so that when they go abroad, the more they go abroad, the more they have to be sustainable to actually match the demands of the local communities. However, the positive effect of being global on sustainability is far from straightforward. Indeed, international firms have more opportunities to select places where they want to set their facilities and activities, potentially depending on the level of regulation in terms of environmental and labor. They might actually benefit from institutional differences in that regard, and they might choose to locate their polluting activities where environmental regulations are laxer or the labor intensive activities in places where labor regulations are laxer. Otherwise, they might source from firms that are located in those places, potentially at a lower cost. Now, if we move to the absolute challenges global operations represent for multinational enterprises, it is important to look at the role of the subsidiaries. In many multinational enterprises, while the sustainability policy might be developed at the headquarter level, the actual implementation of sustainability highly depends on the involvement of the subsidiaries. And these subsidiaries again are located in very diverse environments in which they face very diverse pressures for sustainability. Understanding what subsidiaries do is particularly important because there are risks of illegitimacy spillovers from subsidiaries that might exert misconduct on the multinational enterprise as a whole. Subsidiary strategies and headquarter subsidiary relationships have been studied at large in the international business literature. We know, for instance, that subsidiaries are torn between pressures from the headquarters of the firm and from their local environment. We also know that cases where the policies are really rolled out by the subsidiaries are kind of exceptions, because the subsidiaries are able to take initiatives that are inspired by their local environment. The case of sustainability might be a case in point. Indeed, for sustainability the local nature of some of the issues and the local nature of stakeholder relationships means that, indeed, subsidiaries tend to be really embedded in the local environment on top of being responsive to the demands of the headquarters. In my research, I find that beyond differences in their local environment, subsidiaries implement sustainability to different extents, depending on the relative influence of the headquarters and the local environment, on the distance from the headquarters, and on the way the subsidiaries perceive the specific sustainability issue we consider. To conclude, I would like to cite Professor Dima Jamali, who summarizes work on local versus global approaches to sustainability. She explained that while global strategies might be more proactive, efficient, and integrated, they often lack ownership and legitimacy at the local level. Decentralized strategies, on the other hand, while locally responsive, may be fragmented or ad-hoc. So this means basically that there isn't one single recipe for sustainability implementation on a global scale. In terms of coordination of global activities, we typically distinguish between global firms that focus on the global integration, multi-domestic firms that focus on local responsiveness, and transnational firms that tend to mix the two. Academic evidence suggests that there should be some kind of consistency between the approach to sustainability among these three main choices, and more general strategic implementation approaches. These two should be aligned for sustainability to be implemented in an efficient manner. That said, while local adaptation is a good way to address local challenges, enhance local acceptability and license to operate, generate local innovative initiatives that can then be generalized to the whole organization, a minimal level of coordination and harmonization might be necessary to share the vision the company has of sustainability, to improve the efficiency of the implementation, in particular regarding global sustainability issues, to share best practices, and to improve adhesion to the approach. Finally, having a coordinated approach might ensure that no subsidiary lags behind, thanks to some kind of reporting and monitoring.
