Multinationals: three strategies for responsible management of natural resources
10/10/2023
5 min
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A recent review by McKinsey highlights that while Fortune Global 500 companies increasingly recognize the importance of nature, few companies have established nature-related commitments outside of carbon. A recent paper* by professors from IÉSEG and Ivey Business School in Canada, published in the Journal of International Business Studies, calls on multinational companies and researchers working on topics related to international business to consider more explicitly the role of natural resources in their activities. They suggested that multinational enterprises (MNEs) have contributed disproportionately to the environmental crises and proposed a sustainable approach incorporating three potential strategies for MNEs.
“Since the end of World War II, international business has played a crucial role in promoting economic growth and improving the quality of life for many people around the world. However, this wealth creation and distribution has come at a significant environmental cost,” outlines Haitao YU, a professor at IÉSEG and co-authors of the article.
“International businesses, with their global reach and scale, have been shown to have a greater impact on the environment than their domestic counterparts. By extracting resources in one location, manufacturing products in another, and selling them in yet another, international businesses create and dispose of waste along their supply chain. Unfortunately, at present there is little economic incentive for these companies to address their environmental impact beyond the bare minimum required by local regulations.”
In their paper the authors refine the existing conceptualization of country-specific resources, a key idea in international business studies, by focusing on the unique attributes of natural resources. “Unlike financial, social, and intellectual capitals, natural resources are limited in supply. There is a finite amount of minerals, forestry products, and agriculture. Once the resources are extracted, the country will lose income-earning potential. For example, the fisheries off the coast of Eastern Canada harvested cod beyond their ability to regenerate, which led to the collapse of fisheries and related businesses in the 1990s”, explains Professor YU. The authoring team then considers the implication for MNEs. They propose three strategies incorporating three ‘Rs’: reducing, replacing and regenerating natural resources.
1: Reducing use of natural resources
The researchers propose that MNEs should use natural resources more efficiently by extracting fewer natural resources or by decreasing waste for the volume of products produced or sold.
“There needs to be a threshold amount of natural resources for the natural environment to regenerate or to absorb waste. A ‘reducing’ strategy ensures that the natural resource extraction rate does not exceed the rate needed for natural resource regeneration and that waste does not accumulate too rapidly to be absorbed,” explains Professor YU.
The paper argues that such a strategy can also boost MNEs’ profitability by lowering financial costs related to raw materials and waste management. The paper cites the example of Dow Chemicals. During the 1990s, it pursued its first 10-year sustainability strategy, the Footprint Initiative, designed to reduce the company’s overall environmental footprint. Professor YU notes that investments it made in innovative processes and technologies were largely outweighed by the cost savings made over the following decade.
2: Replacing natural resources
The researchers also propose that MNEs should look to replace natural resources with more abundant, regenerative, less toxic, or persistent alternatives. “By replacing natural resources with less toxic or persistent alternatives, the natural environment gains higher capacity to regenerate necessary resources to supply needs. As well, the waste generated can be absorbed back into the natural environment at greater speed.”
The paper argues that a replacement strategy can enable MNEs to create more customer value by offering a long-term solution that anticipates the supply issues and costs associated with extracting natural resources. It acknowledges that this often requires companies to innovate but underlines this has the potential to boost future sales and market growth.
Professor YU cites the example of Syngenta, an agribusiness company, that has been searching for sources of abundant resources through the Thought for Food (TFF) initiative, a next-generation innovation platform. Professor YU notes that TFF has facilitated founding start-ups focusing on alternative resources citing the example of Aeropowder, that seeks to turn surplus ‘waste’ chicken feathers into insulation materials to replace conventional Styrofoam.
3: Regenerating natural resources
Finally, the researchers also argue that MNEs can look to work with the natural environment’s biophysical rhythm to maintain natural resource cycles within their existing thresholds.
“Companies can look to extract resources or dispose of products at rates that do not disrupt these cycles” Professor YU argues.
The study refers to example of Norlha Textiles, a luxury enterprise designing and producing yak wool textiles from a nomadic community on the Tibetan Plateau and selling them to the global luxury market. Professor YU explains that Norlha adjusts its production to accommodate the land’s capacity for the yaks. The enterprise also applies a price premium to ensure sufficient profits, given the limited production levels. It also employs local nomads, who understand yak behavior and can ensure that the ecological grasslands and animals are sustained.
He argues that a regenerating strategy ensures that the natural resource extraction rate is within the dynamic range of the natural environment and waste is absorbed through circularity. Consequently, the environmental changes induced by natural resource extraction are reduced and waste does not accumulate.
This strategy can also be a source of competitiveness for MNEs as it enables them “to eliminate waste and even help regenerate degraded ecosystems by giving back more than they take from the natural environment”.
Applications for MNEs and future research
By recognizing the unique attributes of natural resources, MNEs could gain greater insight into their impact on the natural environment and opportunities to build firm-specific resources and capabilities that are consistent with sustainable development.
”In this article, we use different examples to highlight the mechanisms in the three strategies for natural resources,” explains Professor YU. “While these cases are illustrative, more in-depth work is needed to fully uncover the underlying mechanisms. This research thus opens an avenue for business researchers to delineate MNE extraction strategies aligned with the principles of natural resources systems.”
Additional information
The full article is available online here:
More information on the examples cited above can be found in the following case studies co-authored by Professor YU:
- Dow Greater China: Localizing the Corporate Sustainability Strategy, Harvard Business Publishing (Haitao Yu & Lydia Price)
- Norlha: Scaling Up Sustainable Luxury on the Tibetan Plateau, Ivey Publishing 9B19M027/8B19M027 (Haitao Yu & Diane-Laure Arjalies)
- Syngenta and Thought for Food: A Food-Security Innovation Platform, Ivey Publishing 9B18M197/8B18M197 (Haitao Yu & Lydia Price)
January 2024: Please note that Haitao YU, no longer works at IESEG. This article was published during his time at the School.
