This paper explores various institutional drivers and barriers of the circular economy. Using a cross-regional comparison of China, the US, and Europe to provide insights into the key global sustainability concerns, the author applied a qualitative approach. Methodology for the critique essay was exploratory and narrative in nature. Theories ad concepts discussed in the analysis include the Institutional Theory, Triple Bottom Line (TBL), Corporate Social Responsibility (CSR), Ethics etc. Findings show that companies are more focused on climate change than other equally important sustainability issues such as investing in programs to educate business owners and customers. The author suggests stakeholder collaboration to improve the economic, social and governance (ESG) impact of business.
Modern-day business corporations face complex and unprecedented challenges from the political, economic, social, technological, environmental and legal systems. These systemic setbacks to sustainable business require innovative and strategic management approaches. Yet, many executives are reluctant to align sustainability to their organizational culture and business strategies in the mistaken belief that the costs outweigh the benefits (Acerbi & Taisch, 2020). On the contrary, academic research and business experience point toward the opposite direction. Even so, embedded sustainability efforts result in a positive impact on business performance. In fact, sustainability in business refers to its effects on the economy, society and environment. A sustainable business strategy aims at positively impacting one or more of these three key areas, thereby helping to address some of the world’s most pressing problems vis-à-vis: (a) climate change (b) depletion of natural resources (c) income inequality (d) human rights issues (e) pollution (f) fair working conditions, and (h) racial injustice (Baxter & Childs, 2017).
Circular Economy (CE) emerged in the 1970S, and in recent years, it has been touted as a reliable tool for promoting a sustainable development process. It is also considered a guiding principle for corporate organizations and governments, particularly in the formulation and implementation of industrial and environmental policies. However, opinions on the relevance of CE differ among stakeholders in different sectors—including academicians. This is more so because CE as a concept has contradicting definitions and lacks substance (Julian & Ralf, 2019). This paper is a critique of “Exploring institutional drivers and barriers of the circular economy: A cross-regional comparison of China, the US, and Europe,” a study conducted by Valtteri et al (2018) which explored the facilitators and barriers to CE in three continents.
Valtteri et al (2018) applied the institutional theory to identify and compare various factors impeding or facilitating implementation of the circular economy in China, U.S. and Europe. Then the scholars used a qualitative research method, which includes purposive, theory-based, maximum variation and case sampling methodologies to collate and analyse secondary data collated from books, journals, websites of multinational corporations etc. They also applied replication logic to increase the validity and reliability of research results.
The study by Valtteri et al (2018) is flawed for many reasons, particularly its theoretical leaning and methodology. The institutional theory provides a strong footing for comparative case studies, but it lacks the analytic framework required to make practical conclusions due to some inherent problems. For example, the theory dos not provide coherent explanations of political phenomena, and this limits its acceptance as a key model for sustainability-related global management practices. Moreover, it is difficult to measure institutions due to their complexity. The institutional theory, as proven in various literatures, does not represent a critique of historical evidence in corporate governance. Thus, criteria used in the analysis of institutions are static and ineffective in a dynamic contemporary business and/or political environments (Alston et al, 1996).
Further, the study of selected companies across three continents is totally unrealistic, mainly because results from analysing few companies cannot be validated to have common implications for global businesses. Additionally, it is hard to examine the causality and results of a qualitative research. Therefore, the scholars should have limited the study area to a country (instead of continents) and used some common approaches such as:
- Action research—which allows collaboration between researchers and participants that align theory and practice to achieve social change.
- Narrative research—that promotes critical analysis of stories/experiences shared by participants in order to understand how they perceive a phenomenon. This involves focus groups and use of interviews.
The Triple Bottom Line (TBL)
John Elkington designed the Triple Bottom Line (TBL) theory in 1994 to link sustainable business with the three “Ps” (i.e. people, planet and profit). In a volatile business world where inequality, poverty and climate change have taken the lead, Elkington made an attempt at encouraging frontline stakeholders in our current financial accounting-based business ecosystem to embrace a more comprehensive approach in analysing the environment, social and governance (ESG) impact of business (Acerbi & Taisch, 2020).
Figure 1: The Triple Bottom Line (TBL) Concept
Source: Liang et al (2018)
Global economies have thrived on profit-oriented services or a financial bottom line. But with Elkington’s theory, and its application by many companies, a large number of businesses have shown commitment to CSR, environmental sustainability and social well-being to achieve financial success and resilience. The theory is measured with three indexes: economic (e.g. job growth, employment distribution by sector and personal income); environmental (e.g. solid waste management, electricity/fossil fuel consumption, land use, and hazardous waste management); and social (violent crimes per capita, gender equality, unemployment rate, median household income etc) (Andrew, 2006).
Basically, TBL as a business concept encourages organizations to consistently measure their social and environmental impact—in addition to financial performance—instead of focusing on profits only. Although idealistic in nature, TBL places purpose over profit and large corporations have proved the practicability of Elkington’s theory by adhering to sustainable business practices while making profits.
The world’s sustainability issues present opportunities for businesses. For example, organizations can leverage the ESG challenge to make billions by providing safe, affordable and eco-friendly products. But to achieve competitiveness and survive in volatile market environments, companies should not only embrace sustainable business strategies but adhere to ethical practices that make them attractive to investors and strengthen affiliation with governments, customers as well as host communities (Julian & Ralf, 2019).
Business ethics refer to a mix of moral principles that serve as guide to business activities. Therefore, an ethical business practice means distinguishing between what is “right” or “wrong”. Some examples of unethical practices are: tax evasion, child labour, unsafe work conditions, discrimination at the workplace, poor waste management policies, bribery and corruption etc. Similar to CSR, which involves investing in social welfare and community development, ethical business practices help to keep the workforce and environment safe, as well as improve organizational culture, business strategy, and trade interactions with customers and stakeholders. Integration of ethics in business also strengthens accountability, fairness and transparency, thereby resulting in delivery of better goods and services (Acerbi & Taisch, 2020).
Companies analysed by Valtteri et al (2018) have low ESG indicators in varying degrees. For example, Ekokem, UPM and Republic Services have low investment in waste management. Suzhou produces products that are difficult to waste, and Huawei lacks the accreditation required to improve recycling activities whereas Dell has a robust mechanism for recycling waste. But the American brand is widely criticized for exploiting its sustainability rating to hike prices, thereby scoring low on the economic indicator.
Importance of Creating Sustainable Businesses
Is the circular economy relevant in contemporary business world?
Role of the Market
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