Why Should Companies Implement Environmental and Social Policies?

Following the publication of the Report of the World Commission on Environment and Development in 1987, many managers, researchers, and investors have questioned how and why companies should address environmental and social concerns. This article empirically investigates how environmental and social policies strengthen organizational capabilities, and how organizational capabilities subsequently affect competitive benefits. In the energy and utilities industry, we found that social policies have significant positive relations with investments in one particular organizational capability. In the manufacturing and non-manufacturing industries, however, we could not find significant positive relations between environmental and social policies and investments in organizational capabilities, indicating that managers are not implementing these policies in a way that strengthens organizational capabilities. We also found that the pathways that connect organizational capabilities and competitive benefits differ across industries. This study suggests that managers should consider industry characteristics carefully while investing in organizational capabilities in order to make effective use of these investments.