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Investigating the role of Strategic Corporate Social Responsibility in the adoption of sustainability oriented innovation Nicolas Poussing LISER CREM 3, Avenue de la Fonte 4364 Esch-sur-Alzette Luxembourg [email protected] Abstract This contribution explores the role of Corporate Social Responsibility (CSR) on the adoption on Sustainability Oriented Innovation. To analyse this relationship we adopt an empirical approach. We use a survey carried on in Luxembourg in 2008 on firms’ CSR practices jointly with the Community Innovation Survey 2010. With a dichotomous model (logit), we estimate the effect of different CSR strategies. We contribute to the literature by taking into account two types of CSR strategies: strategic CSR versus responsive CSR. The results shown that CSR has a positive impact on the adoption of Sustainability Oriented Innovation. Keywords: Strategic CSR, Sustainability oriented innovation, empirical approach, Community Innovation Survey. 1. Introduction In the global warming context, an increasing number of firms are taking into account their impacts on the environment (Porter and Reinhardt, 2007) and numerous academic papers focus on environmental innovation like the contribution of Rennings (2000). Over the past decade, environmental issue remains an important subject but is more often associated with social concerns. The concept of sustainable development has emerged (Faucheux et al., 2010) and sustainable innovations and sustainability oriented innovation become major subjects in the literature (Ketata et al., 2014). A literature review shows that many articles focus on firms’ environmental practices while sustainable innovation is more challenging than other types of innovation activities by introducing different layers of complexity (Hall and Vredenburg, 2003). In particular, a little attention is given to what drives firms to adopt sustainable innovation (Gilley et al., 2000; Paramanathan et al., 2004). Because more and more firms declare to adopt Corporate Social Responsibility, in other words, integrate social and environmental concerns to their business operations and their interactions with stakeholder on a voluntary basis (Commission of the European Communities, 2001), we hypothesise that Corporate Social

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Page 1: Investigating the role of Strategic Corporate Social ......in the adoption of sustainability oriented innovation Nicolas Poussing LISER – CREM 3, Avenue de la Fonte 4364 Esch-sur-Alzette

Investigating the role of Strategic Corporate Social Responsibility

in the adoption of sustainability oriented innovation

Nicolas Poussing

LISER – CREM

3, Avenue de la Fonte

4364 Esch-sur-Alzette

Luxembourg

[email protected]

Abstract

This contribution explores the role of Corporate Social Responsibility (CSR) on the

adoption on Sustainability Oriented Innovation. To analyse this relationship we adopt

an empirical approach. We use a survey carried on in Luxembourg in 2008 on firms’

CSR practices jointly with the Community Innovation Survey 2010. With a

dichotomous model (logit), we estimate the effect of different CSR strategies. We

contribute to the literature by taking into account two types of CSR strategies:

strategic CSR versus responsive CSR. The results shown that CSR has a positive

impact on the adoption of Sustainability Oriented Innovation.

Keywords: Strategic CSR, Sustainability oriented innovation, empirical approach,

Community Innovation Survey.

1. Introduction

In the global warming context, an increasing number of firms are taking into account

their impacts on the environment (Porter and Reinhardt, 2007) and numerous

academic papers focus on environmental innovation like the contribution of Rennings

(2000). Over the past decade, environmental issue remains an important subject but

is more often associated with social concerns. The concept of sustainable

development has emerged (Faucheux et al., 2010) and sustainable innovations and

sustainability oriented innovation become major subjects in the literature (Ketata et

al., 2014). A literature review shows that many articles focus on firms’ environmental

practices while sustainable innovation is more challenging than other types of

innovation activities by introducing different layers of complexity (Hall and

Vredenburg, 2003). In particular, a little attention is given to what drives firms to

adopt sustainable innovation (Gilley et al., 2000; Paramanathan et al., 2004).

Because more and more firms declare to adopt Corporate Social Responsibility, in

other words, integrate social and environmental concerns to their business

operations and their interactions with stakeholder on a voluntary basis (Commission

of the European Communities, 2001), we hypothesise that Corporate Social

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Responsibility could be a driver of sustainable innovation or sustainability oriented

innovation. In order to test this hypothesise, we are going to take into account two

types of CSR policies in accordance with Porter and Kramer (2006): strategic CSR

versus responsive CSR. We hypothesise that a higher level of maturity of CSR policy

(strategic CSR) drives organisations to adopt sustainable innovation. The question

that arises is: Does Corporate Social Responsibility drive Sustainability innovation

and do different CSR strategies have the same effect on the adoption of sustainable

innovation?

The main objective of this paper is to contribute to this literature by investigating the

drivers of sustainable innovation, in particular sustainability oriented innovation. The

value added of this contribution is threefold. We will investigate the role of strategic

CSR. We will provide empirical evidence from a sample of more than 280 firms and

we will be able to provide managerial and policy implications in that it finds under

which conditions a firm addresses sustainable issue through innovation. This paper

is structured as follows. The concepts used, such sustainable terms and strategic

Corporate Social Responsibility, and the corresponding hypothesis will be described

in section 2. An overview of the empirical strategy will be presented in section 3

(data, variables, method). Section 4 will summarise the findings. Section 5 concludes

by presenting the policy implications, the limitations, and the future prospects.

2. Concepts and hypothesis

In recent years, the importance of sustainable development stimulates research and

many terms emerge in this field. A review made by Glavič and Lukman (2007)

provides definitions of different concepts which include the words ‘sustainable’ or

‘sustainability’ (sustainable production, sustainable consumption, sustainable policy,

sustainable development, sustainability policy). Glavič and Lukman (2007) notice

that all these concepts refer to environmental protection, societal welfare and

economic performance. The definition of sustainable development illustrates this

fact. The Bruntland’s commission defines Sustainable development as “development

that meets the needs of the present without compromising the ability of the future

generations to meet their own needs” (WCED, 1987).

Simultaneously, the importance of innovation in the corporate commitment to

sustainable development is uncovered (Hart and Milstein, 2003; Hockert and

Morsing, 2008) and an increasing body of research address social innovation, eco-

innovation, sustainable innovation and sustainability oriented innovation.

Social innovations are “Innovative activities and services that are motivated by the goal

of meeting a social need and that are predominantly developed and diffused through

organizations whose primary purposes are social” (Mulgan, 2007). For OECD1, social

1 http://www.oecd.org/cfe/leed/Forum-Social-Innovations.htm

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innovation "can concern conceptual, process or product change, organisational

change and changes in financing, and can deal with new relationships with

stakeholders and territories”. Social innovation seeks new answers to social

problems by: identifying and delivering new services that improve the quality of life of

individuals and communities; identifying and implementing new labour market

integration processes, new competencies, new jobs, and new forms of participation,

as diverse elements that each contribute to improving the position of individuals in

the workforce (OECD, 2011).

Eco-innovation is related to environmental issue and is associated to the resolution

of environmental deterioration and degradation (Aghion et al., 2013; Veugelers,

2012; Ghisetti and Quatraro, 2014). For Schiederig et al. (2012), the concepts of

green innovation, ecological innovation and environmental innovation are quite

similar. Eco-innovation consist in the “production, assimilation or exploitation of

product, production process, service or management or business methods that is

novel to the organization (developing or adopting it) and which results, throughout its

life cycle, in a reduction of environmental risk, pollution and other negative impacts of

resources use (including energy use) compared to relevant alternatives” (Kemp and

Foxon, 2007). The Community Innovation Survey (CIS) which addresses eco-

innovation in 2008 adopts the same definition and specifies that “the environmental

benefits of an innovation can occur during the production of a good or service, or

during the after sales use of a good or service by the end user”2.

With sustainability innovation, we don’t consider one specific dimension. Social and

environmental issues are addressed simultaneously. Sustainable innovation is

broader than environmental innovation because sustainable innovation concept

includes a social dimension. To date, various definitions are available. McElroy

(2004) proposes three different definitions: “sustainability of innovation artifacts

relative to meeting financial or business goals… sustainability of innovation artifacts

relative to meeting social and/or environmental goals… and sustainability of

innovation processes relative to the validity of their outcomes and their internal

authenticity”. Knot (2003) focuses on the ability to support financial success or

business growth over a period of time. It is generally accepted that sustainability

innovation is related to innovations which contribute to the triple bottom line concept:

economic, ecological and social benefits (Yoon and Tello, 2009; Wheeler and

Elkington 2001). To resume, sustainability innovation refers to the definition of

innovation gives by Roger (1995) - “an idea, practice or object that is perceived as

new to an individual or another unit of adoption” - and the definition of sustainable

development. Sustainable innovation takes into account both the ecological and the

social dimension of innovation activities (Ketata at al., 2015).

2 http://ec.europa.eu/eurostat/documents/203647/203701/CIS_Survey_form_2008.pdf/e06a4c11-

7535-4003-8e00-143228e1b308

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In line with the concept of sustainable innovation, a growing body of literature in the

field of sustainability-oriented innovation (SOI) emerges. Hansen and Goße-Dunker,

(2012) underline that, in comparison with sustainable innovation, SOI consider the

risk associate with the social and environmental dimensions (Paech et al., 2007). For

Hansen et al. (2009), the market success and non-economic sustainability of SOI are

uncertain. To illustrate this argument, Hansen et al. (2009) mentioned the research

of Kölsch and Saling (2008) and Rennings and Zwick (2002) relative to the negative

societal impacts of bio-fuel. With SOI, sustainability is a direction; a goal of the firm

linked to a risk (Wagner and Llerena, 2008). “The concept of SOI expresses only an

individual declaration of intent. A priori, the direction of the actual effects of an

innovation to sustainable development is unknown” (Hansen et al., 2009, p. 687).

If technology-push and a market-pull models explain the adoption of technological

innovation, these models could be inappropriate to identify the determinant of

sustainable innovation, in particular because innovations which take into account

environmental concerns differ fundamentally from other types of innovation (Kemp

and Soete, 1992). To promote environmental practices, taxes, regulation and

incentives remain three important determinants (Acemogulu et al. 2012; Aghion et al.

2009, Veugelers 2012). In addition to these external factors, Demirel and Kesidou

(2011) find a positive influence of internal firms’ behaviours which are voluntary

implemented. As a consequence, in our point of view, Corporate Social

Responsibility, assimilated by Antonioli and Mazzanti (2009) to voluntary measures,

becomes a major determinant of the adoption of innovation when innovations pursue

an environmental objective.

This hypothesis is strongly supported by a significant body of literature which

analyzes the relation between CSR and innovation and try to better understand why,

as mentioned by the European Commission (2011), CSR drives innovation. Most of

these studies show a positive effect of CSR on innovation. Mcwilliams and Siegel

(2001) underlined the fact that CSR generates technological innovation. Nidumolu et

al. (2009) consider CSR as a one of the key drivers of innovation. For Bocquet et al.

(2013), CSR strategies lead to technological innovation. For Hart (1995), Jaffe and

Palmer (1997), Surroca et al. (2010) and Renning and Rammer (2011), the

implementation of environmental practices in the CSR context has an effect on

innovation. Moreover, Poussing and Le Bas (2013) and Bohas et al. (2014) shown

that Corporate Social Responsibility has a positive impact on business practices in

favour of the environment. Poussing and Le Bas (2013) adopt an empirical approach

with micro-data at the firms level to shown that CSR plays a positive role in the

adoption of environmental innovation. In the same vein, the work by Bohas et al.

(2014) underline the positive impact of CSR on the adoption of green IT.

Because in essence environmental practices are a part of Sustainable Innovation or

sustainability oriented innovation, CSR could be a determinant of this kind of

innovation. This effect should be reinforcing by the fact that social issues concern

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both CSR and sustainable Innovation (sustainable Innovation or sustainability

oriented innovation). In line with this framework, we could formulate a first

proposition:

Proposition 1: CSR has a positive impact on the adoption of sustainability oriented

innovation by firms.

CSR can take many forms (Brammer et al., 2007). CSR practices are related the

social, environmental and economic dimensions, so called the triple bottom line

principle (Elkington, 1997). CSR is not characterized by a single activity, but by a set

of very different activities (Lindgreen et al., 2008). CSR activities could be described

along a continuum of actions between do nothing to do much (Carroll, 1979). In

consequence, CSR is measured in different ways (Wolfe and Aupperle, 1991). Some

measures come from firms’ publication, other measures from case studies, survey,

reputation indices or perceptional scales (Waddock and Graves, 1997). The

conceptualization of Carroll (1979) includes four dimensions: economic

responsibilities, legal responsibilities, ethical responsibilities and discretionary

responsibilities. Economic responsibilities are related to the obligation for businesses

to make profit and produce services and goods. Legal responsibilities refer to the

respect of the law. Ethical responsibilities expects that organizations adopt moral

rules. Discretionary responsibilities refer to voluntary and charitable activities. For

each of the dimensions of Carroll’s conception, Maignan and Ferrell (2000) develop

measures. They also elaborate a typology of measure in three categories: expert

evaluations, single- and multiple-issue indicators, and surveys of managers

(Maignan and Ferrell, 2000). Other researchers proposed to distinguish two types of

CSR practices: environmental practices and social practices (Baden et al., 2009;

Fernando, 2010). It is also possible to investigate the reason why firms deploy CSR

practices. In line with this point of view, Sethi (1979) propose a typology in four

categories: reactive, defensive, responsive, and proactive. Other researches

distinguish only two types of CSR initiative: proactive vs reactive (Groza et al., 2011;

Du el al., 2007). Reactive strategy permits to protect the image after irresponsible

actions occur. Proactive CSR consist in deploying CSR practices to prevent

irresponsible actions. In most cases, the effects of CSR are not clear cut because

the effect depends on which CSR practices are taking into account (Lankoski, 2009).

When Brammer and Milligton (2008) or Barcos et al. (2013) analyse the link between

CSR and firm performance, they show that some CSR practices have a positive

impact on firm performance while other are not.

In recent years, growing literature considers CSR as value-driven (Porter and

Kramer, 2006; Vilanova et al., 2009). Some authors distinguish two kinds of CSR:

CSR driven by pure altruism versus strategic CSR which is profitable (Lyon and

Maxwell, 2008; Baron, 2001). For Porter and Kramer (2006), CSR creates a

competitive advantage when firms integrate CSR into their strategic visions. Porter

and Kramer (2006) distinguish strategic CSR, which is part of the business strategy

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and ties in with the highest level of commitment, to responsive CSR which is a

limited level of commitment in the firms. Burke and Logsdon (1996, 497) propose

differentiating strategic CSR from responsive CSR through five strategy dimensions:

(1) centrality (the ‘closeness of fit to the firm’s mission and objectives’); (2) proactivity

(the ‘degree to which the programme is planned in anticipation of emerging social

trends and in the absence of crisis’); (3) voluntarism (‘the scope for discretionary

decision-making and the lack of externally imposed compliance requirements’); (4)

visibility (‘observable, recognizable credit by internal and/or external stakeholders for

the firm’); (5) specificity (the ‘ability to capture private benefits by the firm’)3.

Because strategic Corporate Social Responsibility and sustainability oriented

innovation contribute to the improvement of firms’ performance (Porter and Kramer,

2006; Maletič et al., 2015), we could hypothesis that the firms are going to implement

both. Strategic Corporate Social Responsibility and sustainability oriented innovation

are positively linked. Strategic Corporate Social Responsibility which is a more

general strategy could be a driver of sustainable oriented innovation. According to

these considerations we could improve our first proposition by formulating a more

detailed one:

To the best of our knowledge, no previous research investigates the role of Strategic

Corporate Social Responsibility in the adoption of sustainable oriented innovation.

To complete the strategic CSR framework, we could improve our first proposition by

formulating a more detailed one:

Proposition 2: strategic CSR has a positive impact on the adoption of sustainability

oriented innovation.

3. Empirical strategy

3.1. The data

To assess the effect of strategic CSR on the adoption of sustainability oriented

innovation, we used two Luxembourgish data sets. The first data set comes from a

survey of CSR practices by firms. The second data set comes from the Community

Innovation Survey (CIS 2010) which is a commonly used data source for measuring

private sector innovations (Veugelers, 2012).

The CSR survey was conducted by Luxembourg Institute of Socio-Economic

Research (LISER)4 in 2008. This survey included firms, with 10 employees and

more, belonging to all economic sectors. This survey gives details about the CSR

activities of firms in 2008. Among a population of 3.296 firms, we built a sample of

3 Husted and Allen (2007) propose measures for each dimension of Burke and Logsdon’s conceptual

framework (1996). 4 Luxembourg Institute of Socio-Economic Research, formerly CEPS/INSTEAD, http://www.liser.lu

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2.511 firms. With a questionnaire in French, German and English, we obtain 1.114

responses. The survey provides details about CSR activities of the firms; in particular

on the implementation of their CSR activities: the existence of a CSR department,

allocation of a CSR budget, definition of measurable objectives, creation of a

reporting system, training of the staff, etc5.

The Community Innovation Survey was conducted by LISER in 2012, on behalf of

STATEC (the National Statistics Institute of Luxembourg) with financial support from

the European Commission (EUROSTAT). The target population of the CIS 2010 is

the total population of enterprises, with 10 employees or more, in NACE Rev. 2

(these sections include most market activities). From a sample of 958 firms, we

obtain 652 responses with face-to-face interviews. Many of the CIS questions have

been used in prior versions of the survey6. The survey describes firms’ innovation

behaviour in terms of product, process or organizational innovation for the period

2008-2010. In CIS 2010 a specific part of the survey is dedicated to innovation

objectives. The ten questions introduced in this specific part of the questionnaire

allow us to know if the firms implement sustainability or non sustainability oriented

innovation.

These two surveys followed exactly the same methodology for the sampling process:

a stratified random sample of firms from the national database of companies located

in Luxembourg, available from STATEC. In consequence, using the identification

number for the firms, we merge the two data sets and solve an important limitation of

the CIS data: the impossibility to assess path dependency (CSR survey gives a

description of the CSR practices in 2008 and CIS covers the period 2008-2010).

Our final dataset contain 286 firms. To obtain representative results of the studied

population, we use a weighting system based on the sampling probability and the

rate of response.

In our sample, the proportion of large firms (with 250 employees and more)

represents 4.0% of the sample. The proportion of industrial firms is 12.3%. Around

one firm in four (27.0%) adopts CSR practices. Concerning innovation practices,

44.6% of firms implement a product innovation; 39.1% a process innovation and

55.8% implement an organizational innovation.

5 Appendix 1 provides the questionnaire items of the CSR survey used in our paper.

6 The harmonized survey questionnaire is available (Last access: July 2015) at:

http://ec.europa.eu/eurostat/documents/203647/203701/CIS_Survey_form_2010.pdf/b9f2c70e-0c46-

4f82-abeb-c7661f1f2166

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3.2. Sustainability oriented innovation variables

In our database, a question concern the importance gives by the firms for ten

different objectives for their activities to develop product or process innovations

during the three years 2008 to 2010. Among these objectives, sustainability oriented

innovations are captured by three items: two of them are relative to environmental

issue: Reduce material and energy costs per unit output (ENERGY), Reduce

environmental impacts (IMPACT) and one concern social issue: Improve health or

safety of your employees (HEALTH). The other objectives are more market oriented

innovation: Increase range of goods or services (LARGE), Replace outdated

products or processes (REPLACE), Enter new markets or increase market share

(MARKET), Improve quality of goods or services (QUALITY), Improve flexibility for

producing goods or services (FLEXIBILITY), Increase capacity for producing goods

or services (CAPACITY), Reduce labour costs per unit output (COST).

The analysis of the importance given to each objective (high or medium importance)

shows that the proportion of innovative firms is greater for non sustainability oriented

innovations than for sustainability oriented innovations (cf. Figure 1). Approximately

one quarter of firms innovate and consider important the objective to improve health

or safety of your employees (26.6%) or to reduce environmental impacts (25.5%).

Adopt an innovation with the objective to reduce material and energy costs per unit

output are considered important for 20.6% firms.

Figure 1: Objectives linked to product or process innovations during the three years

2008 to 2010 (% of firms)

50,7

44,741,6

36,732,5

29,026,6 25,5

20,6

0,0

10,0

20,0

30,0

40,0

50,0

60,0

We notice that 56.0% of innovative firms follow more than one objective at the same

time. They follow more frequently (9.4%) six objectives.

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It is important to see (cf. Table 1) that the firms never follow only sustainable

objectives: Sustainable objectives or sustainability oriented innovation are always

associated with non sustainability oriented innovation (32.9%). At the opposite,

24.1% follow only non sustainability oriented innovation.

Table 1. Distribution of enterprises by type of innovation’s objectives (number,

percentage in brackets)

Follow sustainability oriented innovation TOTAL

NO YES

Follow non sustainability

oriented innovation

NO 123

(43.0)

0

(0.0)

123

(43.0)

YES 69

(24.1)

94

(32.9)

163

(57.0)

TOTAL 192

(67.1)

94

(32.9)

286

(100.0)

Source: Community Innovation Survey 2010 and CSR 2008 survey (Luxembourg)

At this stage of our analysis, it seems relevant to analyse the probability to pursue

only non sustainability oriented innovation (NO_SUSTAIN) and to analyse the

probability to pursue both non sustainability oriented innovation and sustainability

oriented innovation (SUSTAIN_NO_SUSTAIN).

3.3. CSR variables

Strategic and responsive CSR (Porter and Kramer, 2006) are our main independent

variables. To identify these two types of CSR, we use the method of Bocquet et al.

(2013).

With a cluster analysis, they differentiate firms according to their CSR policy

(strategic versus responsive). They use questions, available in the CSR survey,

about the implementation of CSR policies according to the five strategy dimensions

mentioned by Burke and Logsdon (1996). The first dimension, ‘centrality’, is taking

into account with two items: a document exists that describes the firm’s values and

whether the firm communicates about its CSR commitment on the Web or in a

report. For the second dimension, ‘proactivity’, Bocquet et al. (2013) examine the

existence of a CSR action plan and the existence of an agenda. One item measure

‘Voluntarism’: the identification by the firm of its stakeholders. ‘Visibility’ is captured

through the existence of a communication plan. Three items linked to value creation

for the firm measure ‘Specificity’: the capacity to attract clients, the capacity to

improve the firm’s image and the level of differentiation from the competition.

With the items presented above, Bocquet et al. (2013) conduct a principal

component analysis (PCA). The PCA identifies the uncorrelated factors which best

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summarise the information contained in the theoretical dimensions. Next, a non-

hierarchical cluster analysis determines the final number of clusters.

Among our population of 286 firms, 8.7% adopt a strategic CSR policy

(STRATEGIC), whereas 24.8% have a responsive one (RESPONSIVE). We find that

the proportion of sustainability oriented innovation firms is higher among firms with a

strategic CSR policy (see Table 2): indeed, 40.0% of firms with strategic CSR have

adopted sustainability oriented innovation compared with 26.8% of firms with

responsive CSR7. A large proportion (65.8%) of firms without CSR policy doesn’t

adopt sustainability oriented innovation.

Table 2. Firms CSR and sustainability oriented innovation (number, percentage in

brackets)

Firms without

a CSR policy

Firms with a CSR policy Total

Strategic CSR Responsive CSR

Firms without

sustainability oriented

innovation

125

(65.8)

15

(60.0)

52

(73.2)

192

(67.1)

Firms with sustainability

oriented innovation

65

(34.2)

10

(40.0)

19

(26.8)

94

(32.9)

Total 190

(100.0)

25

(100.0)

71

(100.0)

286

(100.0)

Source: Community Innovation Survey 2010 and CSR 2008 survey (Luxembourg)

3.4. Other control variables

Due to the small number of observations in our final sample, we are unable to

introduce all the independent variables took into account in prior empirical research

like Nguyen Van et al. (2004); Tidd et al. (2005), Wagner and Schaltegger (2004) or

Ziegler and Rennings (2004). To identify the main factors we are going to include as

control variables in our empirical model, we referred to the evolutionary framework.

More specifically, because firm capabilities play a major role in innovative

performance (Teece and Pisano, 1994), we capture it by taking into account the

presence of employees with a higher education degree (dummy variable EMPHI).

The speed in which products and services become old-fashioned (dummy variable

PRODPER) measures technological opportunities which is another important

innovation driver (Dosi, 1997).

To take into account the effect of competitive intensity on firm innovation, we

included in our model a dummy variable (MARCONC), which takes the value 1 when

7 We obtain similar results with the weighted population.

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the competition of the market in which the firm is operating in is very intense, and

otherwise a value of 0.

As usual in previous research, the size, the sector of activity and belonging to group

are taking into account. We follow the Commission Regulation N°1450/2004 of the

European Parliament and of the Council concerning the production and development

of Community statistics on innovation to introduce the size of the firms with three

dummy variables: SMALL, from 10 to 49 employees; MEDIUM, from 50 to 249

employees; and LARGE, more than 249 employees. According to Wagner (2010),

the innovation performance of the firms is linked to their size. Because the resources

of large firms are bigger then small firms, the latter are less innovative, except in

high-technology sectors (Cohen, 1995). With the dummy variable INDUS, we

distinguish two sectors of activities: industry versus services (Gallego-Alvarez et al.,

2011; Husted and Allen, 2007). We introduce the dummy variable GROUP that

indicates whether the firm belongs to a group because Mairesse and Mohnen (2010)

show that belonging to a group has an effect on the expenditures of RD.

We also take into account three independent variables to assess the impact of the

implementation of different type of innovation on the probability to follow

sustainability oriented innovation. The dummy variable PRODUCT is equal to 1

when the firm implements a product innovation; PROCESS is equal to 1 when the

firm implements a process innovation and ORGA is equal to 1 when the firm

implements an organizational innovation.

Appendix 2 lists descriptive statistics regarding the set of variables introduced into

our econometric analysis.

3.5. Method

In order to analyse the effect of strategic CSR on the adoption of sustainability

oriented innovation, we adopt multivariate models. Because our dependent variable

is binary (e.g. equal 1 if the firm adopted non sustainability oriented innovation and 0

if not), dichotomous models, such as logit and probit, are appropriate. Appeared in

the 1920s (Thurstone, 1927), more generally used since the work on innovation

diffusion by Davies (1979), they are currently very widespread (Hoetker, 2007).

Considering that the probit and logit models give similar results (Davidson and

MacKinnon, 1984; Morimune, 1979) we perform logit model. In this model, the

decision to adopt sustainability oriented innovation or not is defined by yi, where yi =

1 when the company adopted this practice and yi = 0 when it did not. The probability

of adoption of sustainability oriented innovation is conditional upon a series of

exogenous variables:

Prob(yi = 1) = F(β’xi) (1)

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where F( ) indicates a cumulative distribution function, xi the explanatory variables

and β the vector of the parameters to be estimated.

4. Results and findings

With our estimations, we would like to know if strategic CSR conduct to adopt

sustainability oriented innovation. To test this idea, we build up two logit models.

Each model considers different innovative practices. In the first model (Model 1) we

analyze the probability for a firm to adopt only innovation without any sustainable

objective. Model 2 focuses on the probability for a firm to adopt innovation with both

sustainability objectives and non sustainability objectives. In each model, we

introduce the same independent variables.

The estimation results are set out in Table 3. To take into account the goodness of fit

of the models, we calculated the percentage of concordance and the Cox and Snell

pseudo R square. The results are rather similar and suggest that the models appear

to fit the data quite well.

Table 3. The determinants of sustainability oriented innovation (Logit model)

MODEL 1 MODEL 2

NO_SUSTAIN SUSTAIN_NO_SUSTAIN

Coefficient,

Standard error in

parentheses.

Odds ratio

Estimates

Coefficient,

Standard error in

parentheses.

Odds ratio

Estimates

CSR_STRA -1.2372***

(0.2833)

0.290 0.54948***

(0.1767)

1.732

CSR_RESPONS 0.0502

(0.1502)

1.052 -0.1582

(0.14884)

0.854

NO_CSR REF. / REF. /

PRODUCT 1.5949***

(0.1221)

4.928 1.8007***

(0.1098)

6.054

PROCESS 0.2021

(0.1247)

1.224 1.8220***

(0.1134)

6.184

ORGA -0.4604***

(0.1208)

0.631 0.5099***

(0.1166)

1.665

EMPHI 1.0314***

(0.1975)

2.805 -0.1333

(0.1582)

0.875

MARCONC 0.5311***

(0.1255)

1.701 -0.2588**

(0.1198)

0.772

PRODPER -0.3837*

(0.1988)

0.681 -0.2193

(0.2114)

0.803

SMALL -0.8060***

(0.1171)

0.447 0.3964***

(0.1117)

1.486

MEDIUM REF. / REF. /

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MODEL 1 MODEL 2

NO_SUSTAIN SUSTAIN_NO_SUSTAIN

Coefficient,

Standard error in

parentheses.

Odds ratio

Estimates

Coefficient,

Standard error in

parentheses.

Odds ratio

Estimates

LARGE -0.8050***

(0.2946)

0.447 -0.1800

(0.2977)

0.835

INDUS 0.5698***

(0.1633)

1.768 -0.2985*

(0.1616)

0.742

GROUP 0.0337

(0.1293)

1.034 -0.0287

(0.1252)

0.972

Intercept -2.6964***

(0.2110)

/ -2.4714***

(0.1706)

/

Nb. of Obs. 286 286

-2 Log L 2322.250 2483.423

% Concordant 76.8 84.9

R Square 0.8264 0.9763

* Coef. significant at the threshold of 10%, ** 5%, *** 1%.

Source: Community Innovation Survey 2010 and CSR Survey (Luxembourg)

Regarding the effect of CSR strategy, the estimations give crucial results. The

coefficients estimated from Model 1 tell us that adopt strategic CSR has a negative

impact on the probability to be an innovative firm which follow only non sustainability

objectives. When the firms introduce sustainability objectives in their innovative

practices, the results from Model 2 show that strategic CSR has a positive effect on

the probability to implement this kind of innovation. We could appreciate the effect of

strategic CSR with the odds ratios; which is the ratio of the expected number of time

that an event will occur to the expected number of times it will not occur (Allison,

1999). In Model 1, the odds ratio of 0.290 tells us that the predicted odds to innovate

without any sustainability objectives for firms with strategic CSR are 0.29 times the

odds for non strategic CSR firms. In other words, the odds ratio to innovative without

any sustainability objectives for CSR strategic firms are 71% less than the odds for

non strategic CSR firms. In Model 2, the odds ratio of 1.732 tells us that the odds

ratio to innovative with sustainability objectives for CSR strategic firms are 73%

higher than the odds for non strategic CSR firms. These results underline the

positive effect of strategic CSR on the adoption of sustainability oriented innovation.

Our findings show that responsive CSR has no impact on both the probability to

innovate with sustainability objectives and the probability to innovate without

sustainability objectives.

With regard to the impact of innovation behavior of firms, the two models indicate

that the firms which innovate in product have a higher probability to innovate with

sustainable objectives (odds ratio = 6.054) than to only innovate without any

sustainability objectives (odds ratio =4.928). The effect is more settled when the firm

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is a process innovator or an organizational innovator. We observe that a process

innovator has a higher probability to adopt sustainability oriented innovation and no

impact on the probability to adopt innovation without any sustainable objective.

Organizational innovator has a negative effect on the probability to innovate without

any sustainable objective on the one hand and on the other has significant and

positive effect on the implementation of sustainability oriented innovation.

In most cases, the signs of coefficients related to control variables clearly show

opposite effects, or at least different effects, when innovative firms follow sustainable

objectives or not.

Amazingly, the variable measuring firm technological capacity (EMPHI) has a

positive impact on the probability of undertaking innovation without sustainable

objectives and has no significant effect on the probability to adopt sustainability

oriented innovation.

The sign of coefficients of MARCONC is different in MODEL 1 and MODEL 2,

meaning that operate in a market where the competition is very intense increase the

propensity to adopt innovation without any sustainable objectives and impact

negatively the propensity to adopt both innovation without any sustainable objectives

and sustainability oriented innovation. The coefficient related to the speed in which

products and services become old-fashioned (PRODPER) is not significant in

MODEL 2 and significant at the threshold of 10% in Model 1. We could consider that

this feature has no effect on the adoption of innovation adoption whatever the

innovation’s objectives followed.

With respect to size impacts, in comparison with the medium firms, the coefficient of

the variable SMALL is negative in the MODEL 1 and positive in the MODEL 2. The

small firms have a lower propensity to adopt innovation without sustainable

objectives but they have a larger propensity to adopt sustainability oriented

innovation. As a consequence, the small firms appear to be more sustainable

friendly. Concerning large firms, we find a negative effect on the probability to

innovate without any sustainable innovation but no effect on the adoption of

sustainability oriented innovation. We cannot show evidence that large firms are

more sustainable friendly.

The variable INDUS has a significant positive coefficient in MODEL 1 and a negative

and weakly significant coefficient in MODEL 2 meaning that industrial firms have a

larger probability to implement innovation without sustainable objectives. Belonging

to a group (GROUP) does not improve its probability

To sum up, the decision to adopt sustainability oriented innovation is meanly driven

by small technological innovative firms which operate in a market where the

competition is not very intense and have implemented strategic CSR.

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5. Conclusions

To the best of our knowledge, no previous research investigates the role of Strategic

Corporate Social Responsibility in the adoption of sustainable oriented innovation.

Our contribution tries to fill this gap and complete the strategic CSR framework. With

an empirical approach based on two survey carried on in Luxembourg, we show that

strategic CSR is a determinant of Sustainability Oriented Innovation.

Our results have implications in terms of public policy. We suggest that motivated

firms to implement strategic CSR may contribute to increase the adoption of

sustainable objectives through technological innovations

The limitations of our research are summarized as follows. As we said in the

methodological section, our sample is quite small in consequence we are unable to

introduce all the independent variables took into account in prior empirical research.

In addition, our analysis is limited to one country. A comparative analysis should be

conducted. A comparison with French data could be the solution (the National

Institute of Statistic INSEE collected CSR8 and CIS data). In addition further must

take into account other divers of sustainable innovation (taxes, complying regulation,

incentives to invest in green projects) because the drivers of sustainable innovation

are interactive (Dinda, 2004).

8 http://www.insee.fr/fr/methodes/sources/pdf/questionnaire_unite_EnDD.pdf

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Appendix 1: Questionnaire items from the Corporate Social Responsibility Survey

used in the econometric model

Is your company active in the field of Corporate Social Responsibility (CSR)?

Yes No, but it is scheduled No

within less than 2 years End of

End of questionnaire questionnaire

Glossary: corporate social responsibility is the voluntary integration of companies' social and

ecological considerations into their business operations and relations with their stakeholders.

Being socially responsible means not only fully meeting the legal obligations applicable, but

going still further, and investing "even more" in the human capital, the environment and

relations with stakeholders (employees, customers, suppliers, non-governmental

organisations, local authorities and shareholders).

Where is your CSR policy described? (several replies possible)

In your activity report

In a report dedicated to CSR

On your Web site

Nowhere

Other (give details): ______________________________

Do you have a document describing the values and priority concerns and/or

motivations of your company in social and environmental terms?

Yes No

Have you identified the stakeholders targeted by your CSR policy?

Yes No

Before initiating your CSR policy, did you enter into contact with your stakeholders?

Yes No

What are the three main effects you wish to achieve with your CSR policy?

Attracting new employees |__|

Attracting investors |__|

Attracting new customers |__|

Improving the company's image |__|

Standing out from the competition |__|

Anticipating changes in legislation |__|

Reducing your costs |__|

Satisfying your stakeholders |__|

Reducing your impact on the environment |__|

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Increasing the well-being of your employees |__|

Other (give details): _______________________________

Before initiating your CSR policy, did you:

(several replies possible) Yes No

Make a list of the actions already carried out within your company □ □

Make a list of the actions that could be envisaged within your company □ □

Study the actions carried out by other companies □ □

Collect information from specialised bodies □ □

Collect information from the public authorities □ □

Find out about existing CSR standards and labels □ □

Assess the costs of implementing CSR □ □

Have you drawn up a schedule for the CSR actions you wish to carry out?

Yes No

Have you drawn up any communication plans on your CSR commitments?

In-house Yes No

External Yes No

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Appendix 2. Description and summary statistics of the variables

Variables Definition Means

(standard

deviation)

NO_SUSTAIN Firms with only non sustainability oriented innovation 0.2412

(0.4285)

SUSTAIN_NO_SUSTAIN Firms with both sustainability and non sustainability

oriented innovation

0.3286

(0.4705)

CSR_STRA Firms with a strategic CSR profile 0.0874

(0.2829)

CSR_RESPONS Firms with a responsive CSR profile 0.2482

(0.4327)

NO_CSR Firms don’t adopt CSR 0.6643

(0.4730)

PRODUCT Firm implements a product innovation that is a new or

significantly improved product (good or service)

0.4545

(0.4988)

PROCESS Firm implements a process innovation that is a new or

significantly improved process, organizational method or

marketing method

0.3671

(0.4828)

ORGA Firm implements an organizational method that is a new

organizational method in their enterprise’s business

practices (including knowledge management), workplace

organization or external relations that has not been

previously used by your enterprise

0.5734

(0.4954)

MARCONC The competition of the market in which the firm is

operating in is very intense

0.4160

(0.4937)

PRODPER Products and services become rapidly old-fashioned 0.0804

(0.2724)

EMPHI The firm has employees with higher education (who have

either completed a master’s degree in a graduate school,

or a university degree, or who hold a doctorate / PHD

degree)

0.8496

(0.3580)

SMALL Total number of employees is between 10 and 49 0.3496

(0.4776)

MEDIUM Total number of employees is between 50 and 249 0.3951

(0.4897)

LARGE Total number of employees is more than 249 0.2552

(0.4367)

INDUS Belongs to the manufacturing sector 0.4755

(0.5002)

GROUP Firm is part of a group 0.5349

(0.4996)

Note: All variables are dummies and related to the period 2008–2010 (except CSR variables related

to 2008). The main independent variables are in bold

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Appendix 3. Correlation matrix

Pearson Correlation Coefficients, N = 286

Prob > |r| under H0: Rho=0

NO_SUSTAIN SUSTAIN_NO_SUSTAIN CSR_STRA CSR_RESPONS NO_CSR

NO_SUSTAIN 100.000 -0.39456 -0.05878 -0.05920 0.08931

<.0001 0.3219 0.3184 0.1319

SUSTAIN_NO_SUSTAIN 100.000 0.04700 -0.07471 0.04023

0.4285 0.2078 0.4980

CSR_STRA 100.000 -0.17785 -0.43540

0.0025 <.0001

CSR_RESPONS 100.000 -0.80845

<.0001

NO_CSR 100.000

Pearson Correlation Coefficients, N = 286

Prob > |r| under H0: Rho=0

PRODUCT PROCESS ORGA PRODPER EMPHI MARCONC

NO_SUSTAIN 0.42076 0.13000 0.13935 0.01355 0.14575 0.17061

<.0001 0.0279 0.0184 0.8195 0.0136 0.0038

SUSTAIN_NO_SUSTAIN 0.40771 0.53260 0.25733 0.03943 0.08607 -0.00169

<.0001 <.0001 <.0001 0.5066 0.1465 0.9773

CSR_STRA -0.03390 -0.00458 -0.00840 -0.09152 -0.00836 -0.01010

0.5680 0.9385 0.8875 0.1225 0.8881 0.8650

CSR_RESPONS -0.03694 -0.05149 -0.01167 0.00864 -0.03001 -0.14026

0.5338 0.3857 0.8442 0.8844 0.6133 0.0176

NO_CSR 0.05407 0.04984 0.01570 0.04684 0.03245 0.13436

0.3622 0.4011 0.7914 0.4301 0.5847 0.0231

PRODUCT 100.000 0.33904 0.30461 0.11737 0.20719 0.18391

<.0001 <.0001 0.0474 0.0004 0.0018

PROCESS 100.000 0.33426 -0.06519 0.11744 0.12231

<.0001 0.2718 0.0472 0.0387

ORGA 100.000 0.04709 0.17124 -0.00341

0.4276 0.0037 0.9542

PRODPER 100.000 0.01648 0.03730

0.7814 0.5298

EMPHI 100.000 0.13678

0.0207

MARCONC 100.000

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Pearson Correlation Coefficients, N = 286

Prob > |r| under H0: Rho=0

SMALL MEDIUM LARGE INDUS GROUP

SMALL 100.000 -0.59260 -0.42925 -0.00811 0.02210

<.0001 <.0001 0.8914 0.7097

MEDIUM 100.000 -0.47314 -0.16805 0.02221

<.0001 0.0044 0.7084

LARGE 100.000 0.19730 -0.04908

0.0008 0.4083

INDUS 100.000 -0.02464

0.6782

GROUP 100.000

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