From a global perspective, there are several megatrends defining the crucial change in the world. Hajkowicz (2015) introduced seven patterns shaping the future: the ageing population, the rapid economic growth in Asia and developing countries, experience economy, digital technology and technological advancement as well as the resource scarcity and global climate.
European Environment Agency, EEA (2015, 4) determined 11 megatrends as Sitra, The Finn-ish Innovation Fund, determined five megatrends where the economic growth, ageing popula-tion and environmental pollupopula-tion and pressure on ecosystems as well as technological ad-vancement were introduced as the key factors defining the future. It is evident that the re-source scarcity and ecological reconstruction is a central theme in future-related research as it needs to be solved urgently and before any other social and environmental challenges can be settled. (Sitra; Hajkowicz 2015, 36-38.)
Scientists widely agree upon that global climate warming is inevitable. This most likely is the result of greenhouse gas emissions forming from human-related activities (Hajkowicz 2015, 71-72) and the consumption of fossil fuels, mainly coal and oil (Hirofumi 2003, 9). As these greenhouse gas emissions and burning of fossil fuels tie the heat from sun in the atmosphere and disturb the atmospheric balance, temperatures on the earth’s surface increase and extreme events get common around the world. (Hajkowicz 2015, 71-72; Hirofumi 2003, 9.) The Inter-governmental Panel on Climate Change (IPCC), created by United Nations Environment Pro-gramme (UNEP) and the World Meteorological Organization (WMO) in 1988, declared that global climate is currently warming by 0,2 degrees Celsius per decade due to current and past emissions (IPCC). For the crucial change, adapting to and mitigating global climate warming concerns all parties, politicians, organizations and common people.
Global climate warming, also known as climate change, is such commonly acknowledged is-sue changing the way we live, that it could be argued to be the most critical megatrend of the 21st century. Climate change as a key factor, has brought the concepts of sustainability, as well as environmental responsibility, into the common knowledge, as United Nations have de-fined them as crucial acts in sustainable development goals (United Nations). On a corporate level, these are understood to be the responsible activities in the mitigation of climate change as well as relevant future strategies as they affect corporate brand, image and reputation.
Economist Intelligence Unit (2009) even researched that brand enhancement was found to be the leading motivation of sustainable initiatives for sustainability leaders. The second most important initiative was revenue growth (Economist Intelligence Unit 2009) which leads the conversation to the direction where environmental responsible activities should provide finan-cial benefits for companies.
The relations between corporate financial performance and corporate social and environmen-tal responsibility have been researched for years by many scholars, such as Russo and Fouts (1997), Sullivan (2011) as well as Herold and Lee (2014) to name a few. Industries are shift-ing their interest towards environmental responsibility since consumers are gettshift-ing more envi-ronmentally sensible. Consumers are expecting envienvi-ronmentally responsible acts from corpo-rations and they are interested in investing in them. (White, Hardisty & Habib 2019.) As White et al (2019) stated, especially Millennials demand purpose and sustainability from brands they consume, but still it is evident that eco-friendly products are mainly purchased when the price is convenient. The expectations of consumers can be related to the megatrend of the experience economy. Experience economy generates from the rapid income and tech-nology growth, cultural change and educational development. It is based on the increasing consumer and societal expectations for services, experiences and social interaction. (Haj-kowicz 2015, 124-125.) Companies are willing to communicate about their environmentally or socially responsible activities, which may cause brand related benefits that tend to eventu-ally emerge to financial benefits. While a company may start an environmenteventu-ally focused pro-gram or project, the managers’ and stakeholders’ main interest is in the financial side of it.
Therefore, if corporate environmental responsibility can increase corporate financial perfor-mance directly or indirectly, a company should invest in it.
Another globally important megatrend defining the 21st century is digitalization and the accel-eration of technology. Technology has become an important part of our daily lives, it has changed the way we live, communicate, work and spent our free time. The technological de-velopment can be tracked down to researchers called Leavitt and Whisler (1958) who first in-troduced information technology. This new technology provided rapid information change and processing, as today the technological development is in a stage where businesses use flu-ently artificial intelligence, robotics and sharing economy platforms, and where Internet of Things enables smart managing of our living and well-being (Leavitt & Whisler 1958;
Kettrick 2019). The rise of digital world is a consequence of social and economic systems
adapting to virtual environments as well as the increasing power of computers. Many for-merly physical activities have found their way into the virtual world and the “ocean of infor-mation” is rapidly growing as more data is collected every single second. (Hajkowicz 2015, 107-108.) Tratler, Zilberman, Heikes, Dubois and Petiard (2018, 169-171) also claim that the Internet has even impacted on agriculture and food industry as the development of robotics and connectivity have created new kitchen technology, robots and a “socialization” of cook-ing. Technology is all over and adapting to the technological development may even cause fi-nancial benefits on corporate level as the acceleration of technology is inevitable.
As digital technologies and the concept of digitalization comprehend such a wide range of dif-ferent technological innovations, it is undesirable to examine the concept, as it is too broad.
Researchers, such as Bharadwaj, Sambamurthy and Zmud (1999), Bharadwaj (2000), Tippins and Sohi (2003), Carbonara (2005), Banker, Bardhan and Asdemir (2006), Desouza, Awazu, Jha, Dombrowski, Papagari, Baloh and Kim (2008), Webb and Schlemmer (2008) and Kmieciak, Michna and Meczynska (2012), have examined information technology in corpo-rate perspective and claim that information technology -based resources can help companies reaching their strategic missions, reducing costs and communicating with customers. These activities are commonly referred to as IT capability or IT competency. This concept is ac-cepted to the research as an indicator for companies’ performance on IT-based activities.
Based on the previous research, there’s some evidence that corporate environmental responsi-bility and IT caparesponsi-bility affect financial performance. Looking at the two independent subjects, it is desired to ask whether they may be related to one another. Could the evolving digital world help mitigate the risks of climate change? On a corporate level, this question should be reformed towards the financial benefits. What are the reasons for corporations to invest in en-vironmental protection measures? Do the information technologies in business change corpo-rate performance? Can the digital world of today accelecorpo-rate the environmental protection of companies?
These questions define the basis of this research. Next the key concepts as well as the objec-tives and research questions and the approach of the research will be introduced.
1.1 Key concepts
In this chapter, the key concepts of the research are introduced. These concepts are corporate environmental responsibility (CER), corporate financial performance (CFP), information technology (IT) and IT capability. First, to briefly explain the most commonly used term in this study, corporation is a ‘legal person’ owned by its shareholders. As a legal figure, a cor-poration is allowed to make contracts, do business, borrow and lend money, as well as sue and be sued. It is also obligated to pay taxes. (Brealey, Myers & Allen 2014, 5.)
Corporate environmental responsibility (CER)
Corporate social responsibility, commonly known as CSR, means the self-regulations of cor-porations to improve the well-being of people and the planet, as well as creating profit. The definition includes an understanding between the stakeholders, employees, customers, suppli-ers and other community membsuppli-ers concerned in the field of business. (Newell 2014.)
Roughly, CSR can be split into social, environmental, economic, stakeholder and voluntari-ness dimensions. The concept of corporate environmental responsibility, CER, is a sub-con-cept and one field of orientation of corporate social responsibility. Gunningham (2009) de-fined CER as activities that benefit the environment or aim to mitigate the environmentally disturbing impacts of business towards the environment. Auld, Bernstein and Cashore (2008) explained how environmental management systems (EMS) represent CER activities, and it is found out that implementing EMS causes indirect benefits of acting positively towards the so-ciety. The concept of EMS is used to measure CER in this research.
Corporate financial performance (CFP)
Bourne and Bourne (2011) stated, that performance is relative not absolute, it can only be compared inside the industry or the organization. In the conversation concerning corporate performance, corporate financial performance is the most commonly used measurement of the economic performance and an important dependent variable in strategic management
(Brealey, Myers & Allen 2014; Webb & Schlemmer 2008, 15). A corporate finance can be split into two subjects: investments to generate income and financing of those investments (Brealey et al 2014). Brealey et al (2014) suggest that these subjects form the concept of cor-porate finance, and they should be called investment decision (purchase of real assets) and
financial decision (sale of financial assets). Accounting measures of performance have been traditionally used in quantitative approaches (Neely 2002, 3). Ray, Barney and Muhanna (2004) stated that financial performance depends on the net effect of its different processes, as a firm may perform well in in some areas and not in others.
Information technology (IT)
As Leavitt and Whisler (1958) first introduced this new technology in Harvard Business Re-view, they called it information technology, since it could process an enormous amount of in-formation rapidly and it could do mathematical programing. Webb and Schlemmer (2008, 118) claimed that IT is not heterogeneous or inimitable, while Mata, Fuerst and Barney (1995) stated that managerial IT skills are rare and company specific which makes them sources of sustainable competitive advantage. McAfee (2005) divided IT to raw materials (hardware, software and networks) and finished goods (technology used in a productive way to add value). In the early 21st century, information technology was predicted to only change working environment (Webb & Schlemmer 2008) but as for now, IT has changed altogether the everyday life of people.
IT capability
Tippins and Sohi (2003) explained how companies develop strategies where they invest in in-formation technology in order to increase their performance. Tippins and Sohi (2003) intro-duced the concept as IT competency based on resource theory and IT literature whereas for example Bharadwaj et al (1999), Bharadwaj (2000), Kmieciak, Michna and Meczynska (2012) all referred to IT capability and Webb and Schlemmer (2008) to IT assets as a corpora-tion’s IT-related innovations and business performance. Whereas increased corporate perfor-mance can result from competitive advantage in resources or capabilities (Newbert 2007), Webb and Schlemmer (2008) measured internet performance as a result of IT capability in companies.
1.2 Objectives and research questions
In this study, the interest is to examine the relationships of activities related to the two glob-ally acknowledged megatrends - global climate and advancing digital technology from
corporate perspective. Does the environmental responsibility of companies help them gain fi-nancial benefits while the IT capability affects this relationship? The secondary interest is to investigate the relationship of corporate environmental responsibility and corporate financial performance; what kind of causality can be found between the two subjects in this research.
The output of the thesis is a moderation effect - whether IT capabilities moderate the relation-ship of corporate environmental responsibility (CER) and corporate financial performance (CFP). This study is produced, since there are relatively little research concerning the influ-ence of IT capabilities to corporate financial performance as well as contradictory results con-cerning the effect of CER towards CFP. There are no previous research concon-cerning the mod-eration effect of IT capabilities towards corporate environmental responsibility and financial performance. The research problem is whether IT capabilities affect corporate environmental responsibility and corporate financial performance in a way where the sign or size of it changes the direction or supports the effect (Hayes 2018, 220-223) of CER and CFP. Based on this problem, an initial research question will be:
RQ1. Does corporate environmental responsibility affect corporate financial performance?
The main interest of the study is formed in the second research question:
RQ2. Do IT capabilities moderate corporate environmental responsibility and financial per-formance?