Business Responses to Climate Change in Developing Countries: A Conceptual Framework* *

This paper is a part of the PhD research at School of Management - Asian Institute of Technology.

Hoang Duc Binh1, and Do Ba Khang2

1

Economics and Commerce School, Hoa Sen University, Vietnam

2 Economics

Email: [email protected] Phone: (84) 913 131 517

and Commerce School, Hoa Sen University, Vietnam Email: [email protected] Phone: (84) 838 301 877

Abstract Climate change has been one of the most pressing environmental issues facing business in the past few decades. While a large number of studies have examined business responses in developed countries to climate change and the resulting regulatory constraints, there is a lack of research on how businesses, both multinational and domestic firms, respond to climate change in developing countries. This study aims at examining and comparing strategies adopted by both multinational and domestic firms in developing countries to reduce greenhouse gas emissions (GGE). Factors influencing the adoption and implementation of these strategies in developing countries will also be investigated. This report is the first part of the research where the conceptual framework will be developed, based on both a review of the literature on the various strategies adopted by companies in developed countries, and qualitative analysis of the GGE data collected by Carbon Disclosure Project. The result will yield an instrument for empirical study to be conducted in the next stage of the research to be conducted on the firms operating in developing countries.

Keywords: climate change; greenhouse gas emissions; business strategy; environmental management; developing countries.

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1. Introduction 1.1. Background Climate change has been one of the most pressing environmental issues facing business in the past two decade. From the mid of 1990s witnessed an increasing attention of business to climate change because it is likely to effect business on both climate change consequences and policies to address it (Llewellyn, 2007; Kolk and Pinske, 2007). Multinational companies have developed different strategies over time, from focusing mainly on non-market (political) activities to market-oriented approach. In recent years, under pressure of stakeholders, while many MNCs are forced to address climate change on their annual sustainable reports, others are using climate change as a competitive advantage or means to enter new markets (Kolk, 2008). Standpoint of multinational corporations on climate change have gradually changed from disagreement or opposition to more positive approaches to climate measures such as preparations to deal with regulations or considering risks and opportunities of climate change (Kolk, 2008). With the diversity of the business’s responses to climate change, many researches have been conducted to examine not only climate change actions of business on market and non-market (political) strategies (e.g. Levy and Newell, 2005; Kolk and Pinkse, 2007a; Dunn, 2002; Skjaerseth and Skodvin, 2001; Hoffman, 2005; Cogan, 2006), but also influences on the climate change policy and regulation development (e.g. Kolk and Levy, 2001, 2004; Levy and Egen 2003; Dunn, 2002; Levy and Newell, 2000; Pulver, 2002). However, these studies have the following limitations. First, there is lack of research about how business, both multinational and domestic firms, response to climate change in developing countries. Most of current researches on business responses to climate change have focused on the large multinational corporations (MNCs) with headquarters only based in developed countries (Jones and Levy, 2007; Kolk and Pinkse, 2007). Only a few researches with some emergences have examined responses to climate change of business in developing countries and influencing factors on these responses (e.g. Jeswani et al., 2008). Second, there is lack of research about how multinational corporations respond to climate change in host and home country. Many of previous studies on the business responses to climate change have been analyzed from disclosed data of climate or environment groups such as Carbon Disclosure Project (CDP), the environmental group Ceres, The Climate Group, the Pew Center on Global Climate Change, Business Environmental Leadership Council (BELC), and Chicago Climate Exchange (CCX) (e.g. Kolk and Pinkse, 2004, 2005, 2007, 2008; Kolk et al., 2008; Jones and Levy, 2007; Reid and Toffel 2009; Stanny and Ely, 2008). These are voluntary disclosures of businesses, and MNCs mainly provide information related countries (normally developed countries)

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where they have got better sustainable strategies than, though still lack of disclosure of data in host countries of MNCs, especially in developing countries. Furthermore, there are arguments that multinational corporations often have differently environment and climate policies in different countries (Hamilton et al., 2003; Schreurs, 2003). So the question is whether multinational corporations have the same or different responses to climate change in host countries and in their home country?

1.2. Objective This research aims to determine how business (both multinational and domestic firms) responds to climate change in developing countries by examining strategies adopted to reduce greenhouse gas emissions (GGE), factors influencing the adoption and implementation of these strategies in developing countries. To achieve this objective, this study will be performed sequentially in two stages with the specific objectives of each stage are as follows: 



The first stage is a desk research to develop an instrument that helps identify the various types of activities adopted by companies to reduce GGE in developing countries and assess the levels of implementation of these activities. The second stage is an empirical study, and will be conducted by using the instrument that have been developed in the first phase to collect data in a developing country in order to (1) classify the activities into categories to identify GGE strategies of companies operating in developing countries; and (2) define the similarities and differences in implementation of GGE activities among different types of companies operating in a developing country.

This paper describes the first state of the study.

1.3. Brief of Methods In order to achieve the objective of the first stage, an initial conceptual instrument will be developed based on: (1) The existing literature on business responses to climate change; (2) experiences of developed countries; and (3) questionnaires of Carbon Disclosure Project1 (CDP) that have been developed 1

Carbon Disclosure Project (CDP) is a non-profit organization and was established in 2000 to accelerate the solution to climate change by providing the relevant information at the center of policy, business and investment decisions. CDP has the largest database of climate change of major enterprises in the world. In Carbon Disclosure Project 2011, instigated by 551 institutional investors with assets of US $71 trillion, CDP sent the more than 6,100 questionnaires to the world’s largest corporations requesting information on GHG emissions. There were 3,375 corporations in some 60 countries from mostly developed countries and some from developing countries had answered questionnaires. This data is provided free of charge by CDP for non-profit purposes of any individual and organizations and can be accessed via CDP’s website at: https://www.cdproject.net/

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since 2002. Climate change models or strategies will be first reviewed and then corresponding activities of each strategy will be clarified and identified. The instrument will include a set of questions for asking respondents to identify the extent of implementation for each GGE activities and will then be used to gather data in an empirical study in Vietnam for the second stage of research. The development process is illustrated in figure 1. During literature reviewing process, two aspects of the instrument will be reflected including the types of classification of climate change strategies and the level of implementation of these strategies of business. In order to construct the instrument, all existing models will be accessed and models or strategies of models that cannot represent for developing countries will be rejected. Criteria for selecting a model or strategies for the instrument comprise: (1) Focus on actual climate change strategies that undertaken by companies; (2) Address to greenhouse gases emission strategies; (3) Up to day the climate change issues; and (4) Do not inconsistent with commitments and requirements of the Kyoto Protocol for developing countries on greenhouse gases emission. Figure 1: The Instrument Development Process

1.4. Contribution of the study From literature review most of existing climate change models have been developed based on data of firms in developed countries. Although there are

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many strategies in the existing models are suitable for both developed and developing countries, others are proper for developed countries that does not occur in the developing countries such as changing expert opinion (a specific strategy of firms in the U.S. and Australia), acquisition of emission credits strategy, and policy inputs or lobbying activities in the information strategy are expected do not occur explicitly in the developing countries. The instrument will comprise the appropriate activities for both developed and developing countries that were selected from existing models, and activities represent only for developing countries. In addition, in the activities and strategies selected from existing models will be re-described in the context of developing countries. The instrument can be used to classify and measure levels of implementation of GGE activities adopted by firms in developing countries that no one has proposed so far. This is the main theoretical contribution of this study. This instrument will become a tool to be able to conduct surveys in other developing countries, which could help to better understand the responses of firms in different contexts. In addition, in-depth analysis from data that will be collected by using this instrument can help to identify climate change strategies (by using exploratory factor analysis2) and / or determine the extent of response of businesses in each country (by using cluster analysis 3). This instrument will be a measurement to assess climate change responses of business in developing countries at national level and this is the practical contribution of the first stage of this research.

1.5. Outline of paper This paper will be presented with a four-section structure as following. In the first section, this paper will review previous climate change models in order to provide inputs for developing the instrument of this research. The second section will then develop the conceptual instrument to identify various types of activity and assess the levels of implementation of these activities of companies operating in developing countries. At the end of this section an initial conceptual instrument will be presented in order to gather data in an empirical study in the second stage of the study.

2. Literature Review Purpose of this section is to review previous climate change models in order to provide inputs for developing the instrument of this research. Two types of model of environmental and climate change strategy, namely continuum and typology will be indicated to illustrate a background of development of these models. Then two subsections will discuss the development of strategic climate change models so far. The first subsection will review typology models of 2

Exploratory factor analysis (EFA) is a statistical technique to group activities/attributes to become new composite variables (factors) with a minimum loss information (Hair et al., 2006). 3 Cluster analysis technique will group companies with unidirectional attributions into different organizational categories or specified clusters for the climate change strategy and will be conducted by using the rescaled factor scores of climate change activities resulting from factor analysis (Hair et al., 2006)

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climate change strategies of business to clarify appropriate climate change strategies, and the second subsection will discuss continuum models or the implementation levels of climate change strategies of business to develop a suitable set of levels for the instrument. While discussing the typology models, the market strategy on climate change will be discussed first and then the political strategy will be followed4. These reviews or discussions will provide a theoretical foundation to develop the instrument in the section 3.

2.1. Types of environmental and climate change strategy model Researches in classification of environmental strategy of business are diverse, with over fifty models have been developed (cf. Kolk and Mauser, 2002). From their research, Kolk and Mauser (2002) classified these models into two main categories, called continuum and typology. The scope of these models are varied, and depended on the aim of the authors, including the levels of responses to environmental issues, the states and levels of environmental management, the environmental strategies and policies. Most of models comprise between three to five stages (in case of continuum models) or positions (in case of typology models) and the name of these stages or positions vary from generic concepts such as “reactive”, “defensive”, “accommodative” and “proactive” (RDAP-scale, Clarkson, 1995) to more specific categories of environmental strategies such as “pollution control”, “pollution prevention”, “product stewardship” and “sustainable development” (Hart, 1995).

Continuum model is based on the notion that firms should make the transition to the final stage because it benefits mitigation of firm impact on the natural environment (Wehrmeyer, 1999). In the other words, continuums describe the development of environmental management through time, based on the underlying assumption that firms go through a number of stages. This approach has been widely used to describe the relationship between environmental issues and business policy and strategy (Jeswani et al., 2008) and have been using in international standards in environmental management such as ISO14000, BS7750, GRI, and Greenhouse Gas Protocol. Although the continuum has advantage that providing rules for classifying, however, this model also has disadvantage that the states are mutually exclusive (Doty and Glick, 1994).

Typology model, in contract, emphasizes the competitive implications of distinctive responses to environmental issues. This model simply classifies position of company by their close similarity to a pattern, using an originated theoretical set of correlated principles (Doty and Glick, 1994). Most typologies are conceptualized as a matrix in which environmental strategies are compared along two dimensions (Pinkse, 2006). While this model is quite 4

‘The market environment includes those interactions between the firm and other parties that are intermediated by markets or private agreements. The non-market environment includes those interactions that are intermediated by the public, stakeholders, government, the media and public institutions. A market strategy is a concerted pattern of actions taken in the market environment to create value by improving economic performance (…). A non-market strategy is a concerted pattern of actions taken in the nonmarket environment to create value by improving its overall performance (…) (Baron, 1995: 47).’

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flexible and has been used quite widely in other academic fields, its application in the context of environmental management has been more difficult (Hass, 1996). Global climate change, however, is an emerging environmental issue that businesses have responded in recent years and researches to classify climate change strategies of the business just have been conducted (e.g. Levy and Kolk, 2002; Kolk and Pinkse, 2004; Kolk and Pinkse, 2005; Jeswani et al., 2008). These classifications characterized and organized climate change strategy of business into either a typology such as those of Levy and Kolk (2002), and Kolk and Pinkse (2004) or a continuum such as those of Jeswani et al., (2008) and Kolk and Pinkse (2005). And all of these classifications have been developed based on previous continuum or typology models of environmental strategy (see Levy and Kolk, 2002; Kolk and Pinkse, 2004; Kolk and Pinkse, 2005; Jeswani et al., 2008). Because climate change is an attracted environmental issue (Kolk and Pinske, 2007), literature in responses to environmental issue is a good starting point to examine responses of business to climate change (Pinske, 2006, pp. 21).

2.2. Typology models of climate change strategy A typology of climate change classifies position of firm in climate change to their close similarity to a pattern. It groups climate change activities in to categories (strategies) and conceptualize as a matrix. Climate change typology therefore provides an instrument to classify climate change strategies of firms. Following will discus three existing typologies that have been developed for business responses to climate change so far. Table 1 (cf. appendix) summarizes these models with emphasizing on type of climate change strategy, data and its limitation. 

Market strategies

The early typology model regarding business responses to climate change is developed by Levy and Kolk (2002) (see figure 2), in which they suggested four types of climate change strategies of the US and European oil multinational corporations: resistant, compliant, avoidant and proactive. Figure 2 is a two dimensional matrix that describes the different climate change strategies of large oil multinational corporation in the Europe and the US. The first dimension relates to the cooperation of companies, determining whether companies support for mandatory emission controls and investment in reducing greenhouse gas emissions or not. The second dimension identifies assertiveness of the companies, through their public expression of supports or oppositions to the regulations. The figure 3.1 illustrates that the climate changes strategies of the companies change over time and shows a certain degree of convergence to compliance. This typology, however, focus only on the publicity strategies in climate change of companies rather than actual climate change strategies that undertaken by companies. As the aim of this study is to identify actual GGE strategies that business in developing countries has used, this typology is inappropriate to apply for conducting.

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Figure 2: Business responses to climate change by oil multinational corporations

Source: Levy and Kolk (2002) With the view that there was a significant amount of market activities and commitment of resources for reducing emissions of business, based on a data of 111 multinational corporations in the Financial Times Global 500 list, Carbon Disclosure Project 2002, Kolk and Pinkse (2004) formulated market strategic options for climate change of business by a typology as figure 3. The typology of market strategies for climate change has two dimensions of business strategy: the aim (strategic intents) and the organization (the degree of cooperation). The firms can reach their climate strategy objectives at three degrees that do at individual company level (internal), through their own supply chain (vertical) or together with other companies (competitors or companies in different sectors - horizontal). The aim of firms differs and comprises two types: innovation and compensation. For innovation selection, firms can choose among three strategies that process improvement, product development or new product/market combinations. For compensation selection, there are also three strategic options comprise internal targets, control and trading (Internal transfer of emission reductions); supply chain targets, control and trading (supply-chain measures); or external market mechanisms (acquisition of emission credits). Companies choose their strategic options in climate change in the context of global diversity policy (Grubb et al., 1999) and based on aim of their climate change strategies (Kolk and Pinkse, 2004). The typology shows that companies can choose innovation that executing their own activities or compensation. Regarding innovation, companies can reduce energy, use higher energy efficiency, and measure to reduce greenhouse gases emissions by developing and implementing new energy-efficient technologies (process improvement strategies). Companies can also either focus on product development strategies by reducing emission of current products and/or developing new energyefficient products or on new product/market combinations strategies through entering new markets by strategic alliance and other forms of cooperation with other companies.

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Figure 3: Strategic Options for Climate Change

Organization

Internal (company) Vertical (supply chain) Horizontal (beyond the supply chain)

Main aim

Innovation

Compensation

Process improvement (1) Product Development (3) New Product/Market Combinations (5)

Internal transfer of emission reductions (2) Supply-Chain Measures (4) Acquisition of Emission Credits (6)

Source: Kolk and Pinkse (2004)

Unlike innovation, compensation strategy focuses on using emission reduction or low-emission technologies created by others. Companies can select internal transfer of emission reductions strategies by transferring intensive-emission activities to locations where pressure to reduce emission are not yet stringent. Companies may use supply-chain measures strategies that replacing inputs with lower emissions (for example, purchasing electricity from renewable energy sources) or transferring high-emission activities to partners by subcontracting (for example, subcontracting transportation). Finally, companies can archive reductions by using acquisition of emission credits strategies. By applying these strategies, companies interact with other to reduce emission either by buying emission credits or by other forms of offsets, through mechanisms such as Joint Implementation or Clean Development Mechanism. Although Kolk and Pinkse (2004)’s model provides a set of market strategies of companies responding to climate change, it may not fully sufficient to use to measure responses of firms in developing countries. That model was developed based on CDP2002 data of FT500 list. As the nature of the FT500, this is the list of 500 largest multinational corporations in Financial Times ranking so it can fully confirm that this model is representative of multinational corporations in developed countries rather than those in developing countries. This research, therefore, will be based on these strategies to develop the instrument and then be adjusted and verified based on an empirical survey that will be conducted in a developing countries. Moreover, in order to select all six strategies of Kolk and Pinkse (2004), the last strategy, acquisition of emission credits should be aware of both in terms of the sellers (for example, local companies) or buyer (for example, subsidiaries of multinational corporations) and renames as emission credit trading. 

Non-market strategies

For the business’s political strategy (non-market strategies) on climate change, although many studies have focused on the type of business involved, the

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impact of industry on corporate’s political strategy (Levy and Egan, 2003; Pulver, 2002; Kolk, 2001), and political standpoint of business in different regions (Levy and Rothenberg, 2001; Kolk and Levy, 2001, 2004; Levy and Kolk, 2002; Le Menestrel et al., 2002), there is few research identify and classify types of political strategies of business (Kolk and Pinkse, 2007). In the wider of business’s political strategy, Hilman and Hitt (1999) proposed a model with three strategies: information strategy, financial incentive strategy and constituency building strategy. For information strategy, companies seek to impact public policy by providing policy makers specific information about their views. The tactics used in this strategy includes lobbying, report the results of surveys and research, providing technical reports and use the thinktank to provide research reports to policy makers. Instead of providing information, a financial incentive strategy uses financial incentives to persuade policy makers to support the company's position. Companies those choose the financial incentive strategy often contribute finance to a political party or a particular policy maker. Finally, while the strategic information and financial incentive strategy impact directly policy makers through the providing information or financial contributions, constituency-building strategy influence policy makers by acquiring support of individual voters. Companies can use the media, public relations to persuade voters to support their activities, with the aim then the voters will express their political opinion to policy maker (Hilman and Hitt, 1999). Based on the model of Hilman and Hitt (1999), Kolk and Pinkse (2007) have tested in the context of climate change (using raw data of Carbon Disclosure Project 2004), with 117 firms of the 500 largest multinationals worldwide (The Financial Times Global 500 - FT500 list) and found that both financial incentive strategy and constituency building strategy are not common in the case of climate change, while some activities of information strategy is strongly preferred by companies such as market-based polices and voluntary initiatives. Kolk and Pinkse (2007) then proposed three types of political strategies of multinational corporations, including: information strategy, changing expert opinion strategy and self-regulation strategy. With an information strategy in climate change contest, companies try to influence policy makers to build policy types that they preferred. The well-known activities include involving with governments to build and launch emissions trading schemes, or lobbying their governments. Influence of expert opinion strategy stand on argument that firms from the U.S. and Australia have found the existence of political uncertainty on the impact of climate change in their home countries, therefore these companies attempt to influence the opinions of experts and political activists through their research activities or support researches on the effects of climate change to business and society. Companies from the U.S. and Australia consequently dominate this strategy. Selfregulation strategy is the most widely chosen by multinational corporations and implemented through the establishment of voluntary targets to reduce greenhouse gas emissions and measures to achieve them. There are wide ranges of activities of self-regulation from voluntary membership of business group to participating in international organizations such as IETA or UN’s

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Global Compact or working at firms themselves to set voluntary targets to reduce the emissions (Kolk and Pinkse, 2007). Models of Hilman and Hitt (1999) and Kolk and Pinkse (2007) still have its limitations and could be not fully sufficient for this study. Changing expert opinion strategy is the specific strategy of firms from the U.S. and Australia (Kolk and Pinkse, 2007), and firms in developing countries therefore might not adopt it. Moreover, unlike developed countries, the Kyoto Protocol does not bind emissions targets for developing countries, so there is not too much pressure for the establishment of emissions trading schemes, and the emissions policy greenhouse gases are also not too strict at these countries. Therefore, activities such as policy inputs or lobbying in the information strategy is expected do not occur explicitly in the developing countries. Other activities of firms such as educating the public about climate change or informing to shareholders about their efforts to meet the guidelines of the Kyoto Protocol may be the main activities in the information strategy of firms in developing countries. And obviously, without pressures of regulations, selfregulation strategy is expected to be the most widely implemented by firms in developed countries. In summary, there are eight climate change strategies have been refined from the literature, including six market strategies (entitled process improvement,

product development, new product/market combinations, internal transfer of emission reductions, supply-chain measures and emission credit trading) and two non-market strategy (entitled information strategy and self-regulation strategy). These strategies will be selected to add to the instrument and will be tested experimentally in a developing country in the next stage of the study. The next section will discuss previous continuum models to identify appropriate classification of implementation levels of GGE strategies of firms in developing countries.

2.3. Continuum models of climate change strategy Continuum models describe the development of environmental management over the time, relied on the underlying notion that firms across a number of stages in their development. A continuum model in climate change thus illustrates the levels of implementation of firms regarding to their adopted climate change strategies. Studies on environmental management has noted a significant number of continuums describe the stages that companies go through or levels of response of companies to environment (e.g. Buysse and Verbeke, 2003; Clarkson, 1995; Hunt and Auster, 1990; Roome, 1992; Hart, 1995; Shrivastava, 1995). A few recent researches on classification the levels of business responses to climate change have been conducted based on previous environmental continuums (see Kolk and Pinkse, 2005; Jeswani et al., 2008). In particular, the most notable are three models of Kolk (2000), Kolk and Pinkse (2005) and Jeswani et al. (2008). Table 2 (cf. appendix) recaps three existing models with highlighting on levels of implementation, data and its limitation. 11

The early continuum model regarding business responses to climate change had been developed by Kolk (2000) to classify the levels of climate change strategies of multinational corporations since the mid-1990s. With a view that is very difficult to distinguish two last categories, "accommodative" and "proactive", in the context of climate change in the SDAP model of Clarkson (1995), Kolk (2000) have proposed a three-stage continuum model namely "defensive", "opportunistic/hesitant" and "offensive". Multinationals choose the defensive strategy express opposition to the global climate change agreements and stress the financial burden to reduce emissions and argue that the scientific evidence on global warming is not convincing. In the opportunistic/hesitant strategy, companies show not necessary to do proactive and not need to take risks but have prepared for themselves regulations and market changes to meet requirements if necessary. Finally, companies follow the offensive strategy express their responsibility on environmental issues and actively offer market opportunities and increase their image within stakeholders. The highlight of this model is inclusive of the elements of environmental management, comprises the perception of environmental influence and its scientific evidence (Roome, 1992), the risks’ involvement (Rondinelli and Vastag, 1996) and market opportunities formed through the implementation of environmental protection activities (Steger, 1993). This model had its value in the period that the issue of climate change had emerged. Many companies had vigorously pursued through defensive strategic by lobbying against regulations measure emissions. When the climate change issue has converted more mature, strategic choices of companies have become more diverse; this model consequently has been no longer appropriate to cover climate change strategies of business. Within six strategic options in Kolk and Pinkse’s model (cf. figure 3.2), companies can also pursue some options concurrently. From cluster analysis of 139 multinational corporations in the Financial Times Global 500 list, Carbon Disclosure Project2002 (CDP 2002), Kolk and Pinkse (2005) proposed six groups of companies with different characteristics: cautious planners (31%, have low score in all of six strategic options, preparing for action and not much activity); emergent planners (36%, established a process to develop a comprehensive climate strategy in coming years, focused internally in internal transfer of emission reductions strategy in box 2); internal explorers (14%, having strong internal focus, combining targets and improvements into manufacturing process, involving boxes 1, 2, 4 and 6); vertical explorers (10%, focusing on emissions reductions within the supply chain through product development and supply chain measures, box 3 and 4); horizontal explorers (5%, exploring in markets outside industry and cooperating with partners by development new product and/or market combination, box 5); emissions traders (4%, engaging in emissions trading markets by buying or selling emission credits, box 2 and 6). Jeswani et al. (2008) categorized companies to four groups as indifferent, beginner, emerging and active. Companies those are classified as indifferent are apathetic or concentered with issues and regulations regarding 12

environment. Management is not aware of environmental issues and impacts of climate change. These companies do not have environmental management systems as well as environmental certification. The initial activities related to climate change, such as measurement, monitoring and inventory of emissions has not been prepared. Beginners are companies that have begum some operations regarding environmental management but they are just in the early stage. These companies tend to focus on increasing energy efficiency through environmental projects with low investment and high return. The third groups, emerging, include companies with more diverse activities than beginner but are not yet demonstrated the commitment of an active company. Although not the pioneer organizations, these companies are aware of their energy efficiency and the impacts of climate change to business and society, but their operations have still limited and not met requirements. The companies operate a variety of activities related to reducing greenhouse gas emissions and prepare inventory of greenhouse gases, setting emission reduction targets, preparing response policy. They also collaborate with other organizations to sign agreements reducing emissions and participating in emissions trading. The ‘active’ companies actively carry out activities related to environmental management with a complete environmental management system integrated with their other business strategies. These companies perform a variety of activities from changing production processes, improving existing products or develop new products for consuming energy efficiently, to using renewable energy sources. With respect to greenhouse gases emissions, the ‘active’ companies have not only prepare inventories, measured and planned to mitigate emissions, but also actively involved with outside stakeholders to participate in the voluntary programs to study the impacts and engaged in emission markets (Jeswani et al., 2008). The classifications of Kolk and Pinkse (2005) and Jeswani et al. (2008) have significant differences in the nature of the business. Kolk and Pinkse (2005) focused on the Financial Times Global 500 list of CDP 2002 to classify the levels of response to climate change of business. In fact, the companies had replied to the request for information of the Carbon Disclosure Project and voluntarily provided requested information relating to their climate change activities. Lowest level in the model of Kolk and Pinkse (2005) therefore is 'cautious planners’ that the companies are prepared to act but not much activity. In contrast, the classification of Jeswani et al. (2008) was developed based on random companies with different degrees from ‘indifferent’ to the ‘active’. The classification of Jeswani et al. (2008)’s model, hence, can be used to refer to classifying the levels of business responses regarding climate change in developing countries.

3. Model Development 3.1. Rationales and purposes for development

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Recent researches indicate that responses of firms to climate change in developed countries, both multinational corporations and local companies, may be different between countries and different from those developing countries (Kolk and Pinkse, 2004). Climate change strategies of firms, therefore, will be different between developed and developing countries. This suggests that a model of GGE strategies that developed from firms in developed countries will be not fully present for those in developing countries. In fact, from literature review, the existing models are not fully represented for GGE strategies of firms in developing countries in some ways. First of all, while the model of Kolk (2000) is no longer appropriate to cover climate change strategies of firms, some of others include strategies that don’t happen in developing countries such as changing expert opinion strategy, and establishment of emissions trading schemes strategy in the model of Kolk and Pinske (2007), and acquisition of emission credits in the model of Kolk and Pinkse (2004). Additionally, model of Levy and Kolk (2002) focuses only on publicity strategies rather than actual climate change strategies that undertaken by companies. Moreover, five per six models have been developed based on data of developed countries and three of them used voluntary disclosures of MNCs in Carbon Disclosure Project. Data of these models were not covered firms in developing countries and these models have not been tested in context of developing countries. However, some of other strategies of these models can happen in businesses in developing countries. The main purpose for developing the instrument is help to identify various types of activity and assess the levels of implementation of these activities of companies operating in developing countries. The instrument comprises GGE activities can applied in developing countries that selected from existing models and will reject activities that can only happen in developed countries or in some specific countries. For activities can be applied for both developed and developing countries, its will be re-described in developing countries context.

3.2. Justification of elements of the new framework The instrument will be developed relied on the existing models regarding to business responses to climate change and questionnaires of Carbon Disclosure Project (CDP) that have developed since 2002. Together with the clarifying strategies, climate change activities of these strategies will be indicated. These activities will be then compared with activities in the CDP’s questionnaires in order to determine its suitability. The CDP questionnaire was first used in 2002 and has been updated over the years to meet growing demands for climate change information. Up to 2012, CDP has developed ten questionnaires. Because of constant changes and updates, the CDP questionnaires might not be a proper instrument to measure the climate change activities of business. These changes and updates over the years, however, have led to climate change activities in each questionnaire were updated. Therefore these questionnaires are suitable to use as a benchmark for this step. Based on the defined strategies and its activities on

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climate change, a questionnaire will proposed to measure the climate change activities of businesses in developing countries. To formulate the instrument, all existing models regarding to business responses to climate change have been reviewed and summarized in table 2 and 3 (cf. appendix). The result this step is gathered eight appropriate GGE strategies, and one classification model for classifying levels of implementation. The eight GGE strategies include six market strategies (named process improvement, product development, new product/market

combinations, internal transfer of emission reductions, supply-chain measures and emission credit trading) and two non-market strategies (information strategy and self-regulation strategy). And the classification is Jeswani et al. (2008)’s model with four levels of implementation namely indifferent, beginner, emerging and active. Descriptions of these strategies and levels are illustrated in table 3 (in the appendix). Based on descriptions of the eight strategies and (as presented in table 3), climate change activities corresponding to each strategy are also identified and then examined whether these activities appear in the CDP’s questionnaires or not. Table 4 (cf. appendix) describes emergence of these climate change activities in the CDP’s questionnaires. All of nine CDP’s questionnaires were assessed carefully and if there is at least one activity or a strategies’ characteristic the conclusion is “yes”, otherwise is “no”. In fact, although there are four strategies did not appear in CDP1 (2002) (the first year CDP sent information request to companies), and there is also one strategy that is not mentioned in CDP’s questionnaires in 2005, 2006 and 2007; from 2008 to 2011 all of eight strategies are mentioned in the questionnaires. Considering the frequency, while “Information Strategy” is the highest frequency that did not appear in questionnaires in three years (2002, 2005 and 2007), “Internal Transfer of Emission Reductions” did not appear in the CDP 2002 and CDP 2006, and two other strategies, “Process improvement” and “New Product / Market Combinations” was not mentioned in 2002; all of four remaining strategies comprise “Self-Regulation strategy”, “Product Development”, “Supply-Chain Measures” and “Emission Credits Trading” were mentioned in all CDP’s questionnaires. These give us a proof that the eight strategies and its activities on climate change was mentioned in the questionnaires that CDP has done for years by firms. Consequently, these strategies and its activities perfectly suited to develop the instrument. Furthermore, through carefully reviewing the CDP’s questionnaires, questions corresponding to the activities are collected to develop questions of the instrument. The questions of the instrument are then grouped into related strategies.

3.3. The instrument Table 5 (cf. appendix) illustrates the questions were developed based on the above principles and it serves the instrument for identifying the various types activities adopted by companies to reduce GGE in developing countries and 15

help to measure the levels of implementation of these strategies. The instrument comprises thirty GGE activities (thirty questions) in eight strategies. In order to reduce the impact on respondents as well as to be not bound to the strategies, name of strategies are translated to name of activities’ groups and when conducting empirical study, its will be removed from the questionnaire. The instrument then will be used to ask respondents to identify the extent of implementation for each GGE activities on a five-point scale with 1 = "don't have any plan", 2 = "have a/some plan(s) but not yet implemented", 3 = "are beginning to implement", 4 = "ongoing implementation but not yet evaluated", 5 = "has implemented and evaluated results".

4. Conclusion This instrument is first introduced to help explore business response to climate change in developing countries. The instrument then will be applied to an empirical study. Adjustments if any will help to complete the instrument and can be applied in other developing countries. Right after this stage, based on literature review we will develop hypotheses and then conduct the empirical research in Vietnam5. Drawing on primary data from the survey, this study will be conducted through the statistical approach. Survey design, analysis methods and data collection procedure will be also developed before carrying out data collection. The questionnaire and the measurements are used to determine the appropriate statistical analysis techniques to analyze the survey results later. A pilot testing then is conducted to verify the questionnaire and concepts before the data collection happen. Finally, the analysis phase of the research will be conducted to testing hypotheses.

5

United Nations Framework Convention on Climate Change (UNFCCC) has divided countries into broad groups: developed countries (also known as Annex I) and developing countries (non-Annex I). In this classification, Vietnam belongs to group of developing countries and is selected as case to gather empirical data for this study. Although Vietnam along cannot represent all developing countries, this country could be seen as indicative of their UNFCCC group as sharing key characteristics with other countries in the same group. Vietnam itself is a developing country with GDP growth on average 7.02% in 5 years from 2006 to 2010 (GSO, 2010) and present a full range of business sectors. Firms those operating in Vietnam are quite diverse and are divided into three categories of ownership to meet the needs of the information collected in this study: state-owner, private and FDI companies.

16

Appendix Table 1: Brief Summary of Climate Change Strategy Classification Literature: The Climate Change Strategies Table 2: Brief Summary of Climate Change Strategy Classification Literature: The Levels of Implementation Table 3: Description of Strategies Table 4: Comparison Strategies and Its Activities with CDP's Questionnaire Table 5: The Instrument for Measuring Climate Change Strategies of Firms in Developing Countries

17

Table 1: Brief Summary of Climate Change Strategy Classification Literature: The Climate Change Strategies Type of Classification Typology

Type of Climate Change Strategy Market strategy

Climate Change Strategies Resistant; Compliant; Avoidant; and proactive

Kolk and Pinkse (2004)

Typology

Market strategy

Kolk and Pinkse (2007)

Typology

Nonmarket/political strategy

Source Levy and Kolk (2002)

Data

Countries

Limitations

Multinationals in oil industry: BP, Exxon, Shell and Texaco

Europe and US

Focus only on the publicity strategies in climate change of companies rather than actual climate change strategies that undertaken by companies

Process improvement, Internal transfer of emission reductions; Product Development; SupplyChain Measures; New Product/Market Combinations; Acquisition of Emission Credits

CDP data: the 2002 Financial Times Global list, 136 companies

Developed countries

Based on CDP2002 data of FT500 list so it can fully confirm that this model is representative of multinational corporations in developed countries rather businesses in developing countries.

Information strategy; Changing expert opinion strategy and; Selfregulation strategy

Financial Times Global 500 list, Carbon Disclosure Project 2007, 117 firms

Developed countries

Changing expert opinion strategy is the specific strategy of firms from the U.S. and Australia (Kolk and Pinkse, 2007); the establishment of emissions trading schemes, and the emissions policy greenhouse gases are not too strict at developing countries

18

Table 2: Brief Summary of Climate Change Strategy Classification Literature: The Levels of Implementation Type of Classification Continuum

Type of Climate Levels of Change Strategy Implementation NA Defensive; Opportunistic/Hesitant and; Offensive

Kolk and Pinkse (2005)

Continuum

NA

Jeswani et al. (2008)

Continuum

NA

Source Kolk (2000)

Data

Countries

Limitations

Case study

Developed countries

When the climate change issue has converted more mature, strategic choices of companies have become more diverse, this model consequently has been no longer appropriate to cover climate change strategies of business

Cautious planners; Emergent planners; Internal explorers; Vertical explorers; Horizontal explorers; Emissions traders

Financial Times Global 500 list, Carbon Disclosure Project 2002, 136 companies

Developed countries

The companies had replied to the request for information of the Carbon Disclosure Project and voluntarily provided requested information relating to their climate change activities. Lowest level in the model of Kolk and Pinkse (2005) therefore is 'cautious planners’ that the companies are prepared to act but not much activity.

Indifferent; Beginner; Emerging, and; Active

Questionnaires were sent by mail, 180 companies responded (72/450 from Pakistan and 108/1028 from the UK) in nine major sectors, i.e. cement, chemical, pulp & paper, food & drink, automotive, power stations, oil & gas installations, steel and textile.

UK and Pakistan

Have not yet considered type of emergent climate change strategies to reduce GGE that business has adopted as well as explore country of origin effect, and home-host country effect on selection GGE strategies of business in developing countries

19

Table 3: Description of Strategies

Non-market strategies (political strategies)

Strategies

Hilman & Hitt (1999)

Financial incentive strategy

x

Constituency building strategy

x

Information strategy

x

Levy & Kolk (2002)

Kolk & Pinkse (2004)

Kolk & Pinkse (2007)

Description A financial incentive strategy uses financial incentives to persuade policy makers to support the company's position. Companies those choose the financial incentive strategy often contribute finance to a political party or a particular policy maker. Constituency-building strategy influence policy makers by acquiring support of individual voters. Companies can use the media, public relations to persuade voters to support their activities, with the aim then the voters will express their political opinion to policy maker

x

For information strategy, companies seek to impact public policy by providing policy makers specific information about their views. The tactics used in this strategy includes lobbying, report the results of surveys and research, providing technical reports and use the think-tank to provide research reports to policy makers (Hilman and Hitt, 1999). With an information strategy in climate change contest, companies try to influence policy makers to build policies that they preferred. The well-known activities include involving with governments to build and launch emissions trading schemes, or lobbying their governments (Kolk and Pinkse, 2007); educating the public about climate change or informing to shareholders about their efforts to meet the guidelines of the Kyoto Protocol.

Be selected to the instrument?

Why/why not?

No

Climate change is a volunteer activity and polices of emissions greenhouse gases are not too strict at developing countries. Therefor these strategies are expected do not occur explicitly in these countries

No

Activities of firms such as educating the public about climate change or informing to shareholders about their efforts to meet the guidelines of the Kyoto Protocol may be the main activities in the information strategy of firms in developing countries Yes

(To be continued in the next page)

20

Table 3: Description of Strategies (cont.)

Market strategies

Non-market strategies (political strategies)

Strategies

Hilman & Hitt (1999)

Levy & Kolk (2002)

Changing expert opinion strategy

Self-regulation strategy

Resistant

x

Proactive

x

Compliant

x

Avoidant

x

Kolk & Pinkse (2004)

Kolk & Pinkse (2007)

Description

x

Changing expert opinion strategy stand on argument that firms (from the U.S. and Australia) have found the existence of political uncertainty on the impact of climate change in their home countries, therefore these companies attempt to influence the opinions of experts and political activists through their research activities or support researches on the effects of climate change to business and society.

x

Self-regulation strategy is implemented through the establishment of voluntary targets to reduce greenhouse gas emissions and measures to achieve them. There are wide ranges of activities of self-regulation from voluntary membership of business group to participating in international organizations such as IETA or UN’s Global Compact or working at firms themselves to set voluntary targets to reduce the emissions. Companies with resistant strategy are uncooperative but assertive. These companies opposed and for mandatory emissions controls and investment in renewable energy technologies Companies with proactive strategy are cooperative and assertive. These companies they pioneer in climate change mitigation activities support for mandatory emissions controls and investment in renewable energy technologies. Companies with compliant is cooperative but unassertive. Companies with avoidant are unassertive and uncooperative.

Be selected to the instrument?

No

Why/why not? This is the specific strategy of firms in the U.S. and Australia to influence the opinions of experts and political activists because their home countries have the existence of political uncertainty on the impact of climate change Without pressures of regulations, self-regulation strategy is expected to be the most widely implemented by firms in developed countries.

Yes

No

No

This model had its value in the period that the issue of climate change had emerged. When the climate change issue has converted more mature, strategic choices of companies have become more diverse; this model consequently has been no longer appropriate to cover climate change strategies of business.

No No

(To be continued in the next page)

21

Table 3: Description of Strategies (cont.) Strategies

Process improvement

Internal transfer of emission reductions

Market strategies

Product Development

Supply-Chain Measures

New Product/ Market Combinations

(Acquisition of Emission Credits) Emission Credits Trading

Hilman & Hitt (1999)

Levy & Kolk (2002)

Kolk & Pinkse (2004)

x

x

x

x

x

x

Kolk & Pinkse (2007)

Description In process improvement strategy, companies can reduce energy, use higher energy efficiency, and measure to reduce greenhouse gases emissions by developing and implementing new energyefficient technologies. Companies can select internal transfer of emission reductions strategies by transferring intensiveemission activities to locations where pressure to reduce emission are not yet stringent. Pursuing product development strategy, companies can reduce emission of current products and/or developing new energy-efficient products. Companies may use supply-chain measure strategies that replacing inputs with lower emissions (e.g. purchasing electricity from renewable energy sources) or transferring highemission activities to partners by subcontracting (e.g. subcontracting transportation). Companies those choose new product/market combinations strategy can archive the emission target by entering new markets though strategic alliance and other forms of cooperation with other companies. Companies can archive reductions by using acquisition of emission credits strategies. By applying these strategies, companies interact with other to reduce emission either by buying emission credits or by other forms of offsets, through mechanisms such as Joint Implementation or Clean Development Mechanism.

Be selected to the instrument?

Yes

Yes

Yes

Why/why not? Major strategy for business both developed and developing countries

MNC transfers intensive-emission activities to developing countries

Major strategy for business both developed and developing countries Developing countries are chains in supply-chain of MNC

Yes

Yes

Yes but need to be adjusted as "Emission Credits Trading"

Major strategy for business both developed and developing countries

In context of developing countries, domestic companies can choose this strategy as a sellers those will receive investment from multinationals and multinationals will be the buyers those want to archive the target credits.

22

Table 4: Comparison Strategies and Its Activities with CDP's Questionnaire Strategies

Information strategy

Self-regulation strategy

Process improvement Internal transfer of emission reductions Product Development

Supply-Chain Measures New Product/Market Combinations (Acquisition of Emission Credits) Emission credits trading

Typical Activities Policy input; lobby practices; educating the public on climate change Membership of international climate change institution (such as UN's Global Compact or IETA); Voluntary participation in business groups initiated by NGOs, trade associations, government (agencies), or companies; Setting voluntary targets to reduce emissions or measures to archive them. Reducing energy, using higher energy efficiency, and measuring to reduce greenhouse gases emissions by developing and implementing new energy-efficient technologies Transferring intensive-emission activities to locations where pressure to reduce emission are not yet stringent Reducing emission of current products and/or developing new energy-efficient products Replacing inputs with lower emissions (purchasing energy from renewable energy sources) or transferring highemission activities to partners by subcontracting (subcontracting transportation). Entering new markets by strategic alliance and other forms of cooperation with other companies. Interacting with other to reduce emission by buying/selling emission credits or other forms of offsets, through mechanisms such as Joint Implementation or Clean Development Mechanism

CDP1 2002

CDP2 2003

CDP3 2005

CDP4 2006

CDP5 2007

CDP6 2008

CDP7 2009

CDP8 2010

CDP9 2011

No

Yes

No

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Note: "No" means CDP's questionnaire did not mention activity or activities of respective strategy "Yes" means CDP's questionnaire mentioned activity or activities of respective strategy

23

Table 5: The Instrument for Measuring Climate Change Strategies of Firms in Developing Countries Information related 1. Engaging with policy makers to encourage further action on mitigation and/or adaptation. 2. Engaging with policy makers on possible responses to climate change including taxation, regulation and carbon trading. 3. Launching education and awareness programs for consumers to reduce impacts from products. 4. Publishing information about your company’s response to climate change/GHG emissions via reports such as the company’s Annual Report or Corporate Social Responsibility report. Self-regulation 5. Membership of international climate change institution (such as UN's Global Compact or IETA) 6. Participation in climate change business groups initiated by NGOs, trade associations, government (agencies), or companies 7. Having an emissions and/or energy reduction target(s) that was active (ongoing or reached completion) 8. Measuring the emission associated with the use of the products and services produced by your company 9. Measuring the emission associated with the disposal of the products and services produced by your company 10. Measuring the emission of your products generated along the supply chain Process related

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

17. Transferring intensive-emission activities to locations (across borders) where pressures to reduce emission are not yet stringent.

1

2

3

4

5

18. Transferring emission credits among business units.

1

2

3

4

5

19. Integrating targets for emissions into investment decisions for new projects.

1

2

3

4

5

1

2

3

4

5

11. Investment in low-carbon or renewable energy 12. Reducing energy by developing and implementing new energyefficient equipment 13. Reducing energy by change in process technology or process modifications 14. Getting any certificates, e.g. Renewable Energy Certificates, associated with zero or low carbon electricity 15. Changing in behavior of employees designed to reduce greenhouse gases emissions (e.g. double-sided printing, reduction in travelling, recycling waste) 16. Evaluating new projects and their alternative on the basis of the net increase of GHG emissions Internal transfer of emission

Product related 20. Reducing emission of current products by change in product specifications

24

Product related (cont.) 21. Reducing emission of current products by change in specification of input materials

1

2

3

4

5

22. Developing new energy-efficient products

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

1

2

3

4

5

Supply-Chain Measures 23. Establishing technology and research alliance with other companies in your supply-chain system 24. Make agreement with other companies in your supply-chain system to use waste as a gas 25. Replacing inputs with lower emissions (e.g. purchasing energy from renewable energy sources) 26. Transferring high-emission activities to partners by subcontracting (e.g. subcontracting transportation). New Product/Market Combinations 27. Entering new markets by strategic alliance and other forms of cooperation with other companies to develop low-carbon emission products (e.g. the cooperation between oil and automobile companies on fuel cells) 28. Trading or a broker in the upcoming emission markets where companies buy/sell or arrange the sale of emission credits between companies. Emission credits trading 29. Buying emission credits or other forms of offsets, through mechanisms such as Joint Implementation/Clean Development Mechanism (JI/CDM) or EU Emissions Trading Scheme (EU ETS) 30. Selling emission credits or other forms of offsets, through mechanisms such as Joint Implementation/Clean Development Mechanism (JI/CDM) or EU Emissions Trading Scheme (EU ETS)

25

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