Administrative environmental innovations, supply network structure, and environmental disclosure

• DOI: http://doi.org/10.1002/joom.1114
• Author: Ravi Subramanian,Suvrat Dhanorkar,Marcus A. Bellamy
• Date: 01 October 2020
• Published date: 01 October 2020

RESEARCH ARTICLE

Administrative environmental innovations, supply network

structure, and environmental disclosure

Marcus A. Bellamy

1

| Suvrat Dhanorkar

2

| Ravi Subramanian

3

1

Questrom School of Business, Boston

University, Boston, Massachusetts

2

Smeal College of Business, Pennsylvania

State University, State College,

Pennsylvania

3

Scheller College of Business, Georgia

Institute of Technology, Atlanta, Georgia

Correspondence

Marcus A. Bellamy, Questrom School of

Business, Boston University,

595 Commonwealth Avenue, Boston, MA

02215.

Email: bellamym@bu.edu

Handling Editor: Subodha Kumar,

Sriram Narayanan, Fabrizio Salvador

Abstract

This study contributes to a theoretical and empirical understanding of whether

and how administrative environmental innovations (AEIs)—implemented to

help track and manage a firm's environmental impacts—are related to environ-

mental disclosure. Drawing on the Belief–Action–Outcome framework, we

posit that the motivation of individuals (employees, managers, and the leader-

ship) within the firm to access, use, and act on the environmental information

available to them would be enhanced by the firm's implementation of AEIs,

resulting in more extensive environmental disclosure by the firm. Additionally,

building on the literature on supply chain networks, we posit that the struc-

tural position of the firm vis-à-vis its supply network—reflecting information

flows, network learning, and status—moderates the AEI implementation–

environmental disclosure relationship. To test our hypotheses, we build a

multi-industry dataset of 3,106 firm-year observations based on 67,809 dyadic

cost-of-goods-sold-based relationships obtained from Bloomberg's supply chain

relationships database to construct the supply networks of focal firms. We also

draw on Bloomberg's environmental, social, and governance (ESG) data for

our AEI implementation and environmental disclosure measures. We find sig-

nificant evidence to support our hypothesis that AEI implementation is posi-

tively associated with the extent of environmental disclosure. However, the

implementation of both internal and external forms of AEIs has a more pro-

nounced positive relationship with the extent of environmental disclosure,

compared to the implementation of either form alone. With regard to supply

network structure, we identify three principal variables—accessibility,control,

and interconnectedness—that influence network learning and status of the focal

firm and find that they moderate the AEI implementation–environmental dis-

closure relationship. We provide insights for theory and practice based on our

findings.

KEYWORDS

administrative environmental innovations, environmental disclosure, environmental

management systems, supply network structure

Received: 28 June 2019 Revised: 13 July 2020 Accepted: 20 July 2020

DOI: 10.1002/joom.1114

J Oper Manag. 2020;66:895–932. wileyonlinelibrary.com/journal/joom © 2020 Association for Supply Chain Management, Inc. 895

1|INTRODUCTION

Within the realm of environmental sustainability, legiti-

mate, accountable, and effective governance of the orga-

nization in the form of disclosure of various dimensions

of environmental information is a prevalent concern.

Firms are being pressured to disclose information about

the environmental impacts of products and the produc-

tion processes used along the supply network to manu-

facture them (Gupta, 2010; Jira & Toffel, 2013; Mol,

2015). There is increasing evidence regarding the perti-

nence of environmental disclosure to a firm's perfor-

mance, value, and reputation (e.g., Flammer, 2013;

Grewal, Riedl, & Serafeim, 2019; Hora & Subramanian,

2019; Marquis, Toffel, & Zhou, 2016). Yet, such disclosure

can be challenging because it involves accessing, assem-

bling, and presenting credible environmental information

that can stand up to investor, regulator, and consumer

scrutiny.

For example, to pursue their environmental sustain-

ability goals, Coca-Cola and PepsiCo need to track the

sources and volumes of greenhouse gases across their

beverage manufacturing, packaging, delivery, and refrig-

eration processes. Similarly, in an attempt towards being

more sustainable amid pressure from environmental

groups, 3M has taken on an ambitious task of extracting

information from about 5,000 paper, pulp, and packaging

suppliers to ensure that the materials supplied originate

from sustainably-logged timber (Forbes, 2017; Reuters,

2015). Thus, more evidence in practice indicates that

informational flows—both internally (within the firm)

and externally (through the firm's supply chain network)

need to be better understood and leveraged in order for

firms to be able to disclose environmental information on

processes or products.

In this article, we posit that the implementation of

organizational innovations to track and manage a firm's

environmental impacts can be a key enabler of environ-

mental disclosure. Organizational innovations—compris-

ing both technical and administrative innovations—have

been identified as critical sources of knowledge, unique

capabilities, and competitive advantages (Daft, 1978).

Research in environmental sustainability has regarded

firms’implementation of environmental management

practices and environmental management systems

(EMSs) for tracking and improving environmental perfor-

mance as organizational administrative innovations, and

has also linked these innovations to firm environmental

outcomes (Delmas & Montiel, 2008; Porter, 1985). The

focus of our study is on administrative environmental

innovations (AEIs)—characteristically deployed as the

implementation of environmental management practices

and systems (Delmas & Montiel, 2008; Golini &

Gualandris, 2018; Henriques & Sadorsky, 2007). AEIs

involve establishing an environmental policy or plan for

the organization, quantifying environmental impacts,

creating goals for managing these impacts, investing

resources and training employees, tracking progress on

the attainment of the goals, and correcting deviations

from the attainment of the goals (Coglianese & Nash,

2001; Darnall, Jolley, & Handfield, 2008).

Our first research question asks whether a firm's AEI

implementation is associated with a greater extent of

environmental disclosure by the firm. To address this

research question, we explore how AEIs may help

unravel environmental knowledge and information

embedded in a firm's operations and supply network.

Specifically, we draw on the Belief-Action-Outcome

(BAO) theoretical framework in Melville (2010) to con-

jecture that the motivation of individuals (employees,

managers, and the leadership) within the firm to access,

use, and act on the environmental information available

to them would be enhanced by the firm's implementation

of AEIs, resulting in more extensive environmental dis-

closure by the firm. Indeed, the management of knowl-

edge and information flows is a critical component of

AEIs (A

gan, Kuzey, Acar, & Açıkgöz, 2016; Lintukangas,

Kähkönen, & Ritala, 2016; Seuring & Müller, 2008). AEIs

facilitate knowledge and information flows (El-Gayar &

Fritz, 2006; Hilty & Rautenstrauch, 1997) through stan-

dardization, tracking, and utilization of key environmen-

tal data (Melville, 2010).

We also examine an important contingency factor in

the AEI implementation–environmental disclosure rela-

tionship: the structural position of the firm vis-à-vis its

supply network, reflecting information flows, network

learning, and status (Beckman & Haunschild, 2002; Mol,

2015; Rowley, 1997). The supply network for a typical

consumer product accounts for more than 80% of the

associated greenhouse gas emissions and more than 90%

of the associated impacts on air, land, water, biodiversity,

and geological resources (Bové et al., 2016). As a firm-

specific example, the top 50 suppliers in Sprint's supply

chain accounted for over 94% of the overall carbon foot-

print (Sprint, 2011). The literature on supply networks

has established the importance of structural characteris-

tics of a focal firm's supply network in: (a) determining

the way in which information and knowledge flow across

firm boundaries (Choi & Hong, 2002; Dyer & Hatch,

2004; Dyer & Nobeoka, 2000); (b) driving “network learn-

ing”(Beckman & Haunschild, 2002; Powell, Koput, &

Smith-Doerr, 1996); and (c) elevating the firm's structural

capital or “network status”(George, Dahlander,

Graffin, & Sim, 2016; Gulati, 1998; Podolny, 1994;

Rowley, Behrens, & Krackhardt, 2000). Though progress

has been made in understanding the technical (Caro,

896 BELLAMY ET AL.

Corbett, Tan, & Zuidwijk, 2013), market (Jira & Toffel,

2013), and regulatory (Reid & Toffel, 2009) drivers of sup-

ply chain transparency, the extant research has not inves-

tigated how a focal firm's position relative to its supply

network may affect the relationship between the firm's

AEI implementation and extent of environmental disclo-

sure. Our second research question asks whether and how

a focal firm's structural position vis-à-vis its supply network

moderates the AEI implementation–environmental disclo-

sure relationship.

To test our hypotheses, we build a dataset that lever-

ages 67,809 dyadic cost-of-goods-sold (COGS)-based rela-

tionships obtained from Bloomberg's supply chain

relationships (SPLC) database to construct the supply

networks of focal firms—with the focal firms and their

suppliers as nodes and COGS-based relationships

between them as links. Our dataset comprises 3,106 firm-

year observations over the two-year period 2013–2014 for

focal firms located in over 50 countries spanning more

than 100 Global Industry Classification Standard (GICS)

sub-industries.

For our measure of firms’AEI implementation, we

use Bloomberg's environmental, social, and governance

(ESG) data that provides information on whether a firm

has implemented AEI internally and/or externally with

its suppliers. To operationalize a firm's extent of environ-

mental disclosure, we use Bloomberg's Environmental

Disclosure Score, which assigns firms a score based on

their extent of environmental disclosure. This score is

based on up to 120 disclosure-related indicators, is stan-

dardized by industry, and is used by more than 320,000

subscribers globally, including companies, investors, and

analysts. A firm's activity along each indicator is con-

firmed through multiple sources, including corporate

social responsibility (CSR) reports, annual reports, com-

pany websites, carbon disclosure project (CDP) data, and

third-party research (Bloomberg, 2018b).

With regard to supply network structure, we identify

three principal variables that determine a focal firm's

positional status within its network and that influence

information flows between the upstream supply network

and the firm (Beckman & Haunschild, 2002; Rowley,

1997). The first is network flow accessibility,

operationalized as Closeness Centrality, where higher

levels reflect a “shorter”supply chain, entailing improved

access to and less distortion of information (Freeman,

1979). The second is network flow control, operationalized

as Betweenness Centrality, where higher levels reflect a

greater “gatekeeping”role between the firm and other-

wise disconnected partners in the supply network,

thereby enhancing the firm's ability to access non-

redundant sources of information (Burt, 1992). Finally,

we operationalize network interconnectedness as tier-1

Network Density: While the density of a buying firm's sup-

ply network has been shown to positively influence col-

laboration and information flows (Dyer, 1996; Dyer &

Hatch, 2004), it may also induce complexity in retrieving

environmental information (Awaysheh & Klassen, 2010;

Gualandris, Klassen, Vachon, & Kalchschmidt, 2015;

Kim, Choi, Yan, & Dooley, 2011; Kim & Davis, 2016). We

find empirical evidence that supports our contention that

the firm's structural position vis-à-vis its supply network

moderates the relationship between AEI implementation

and environmental disclosure.

This study makes several contributions to theory and

practice in the broad categories of environmental disclo-

sure, organizational innovations, and supply networks.

First, this study integrates the literature on administrative

environmental innovations in the form of environmental

management practices and systems, with the recent liter-

ature that underscores the pertinence of information sys-

tems and knowledge flows for environmental

sustainability (Melville, 2010). We incorporate tenets

from the BAO lens to frame the accountability expecta-

tions of a firm's primary and secondary stakeholders and

the enabling effects of AEI implementation on individual

and managerial intentions to access, use, and act on the

environmental information available to them (Coleman,

1986; Melville, 2010): We find empirical support for our

hypothesis of an association between AEI implementa-

tion and the extent of environmental disclosure. Second,

this study incorporates an additional contingency factor

not considered in the prior literature on environmental

disclosure by showing how the structural characteristics

of a firm's supply network influence the relationship

between its implementation of AEIs and extent of envi-

ronmental disclosure. We construct the supply networks

of focal firms and, using three principal network struc-

ture variables grounded in network theory, find empirical

support for network structure plays a significant role in

moderating the AEI implementation—environmental

disclosure relationship. By doing so, we build on the

recent literature on supply networks that emphasizes the

pertinence of network structure for knowledge and infor-

mation flows involving the focal firm (e.g., Bellamy,

Ghosh, & Hora, 2014; Gao, Xie, & Zhou, 2015; Kim et al.,

2011; Lu & Shang, 2017). Finally, our work also contrib-

utes to the growing body of operations management

(OM) literature that studies the implications of network

structure for the risks, governance, and sustainability of

supply chains (e.g., Jira & Toffel, 2013; Kim & Davis,

2016; Montabon, Sroufe, & Narasimhan, 2007; Osadchiy,

Gaur, & Seshadri, 2016; Wang, Li, & Anupindi, 2019).

From a managerial standpoint, our findings suggest

that a decision to invest in either only internal or only

external AEI towards effecting environmental disclosure,

BELLAMY ET AL.897