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Article

The Effects of Green Innovations in Organizations: Influence of Stakeholders

by
Kalaivani Jayaraman
,
Sreenivasan Jayashree
* and
Magiswary Dorasamy
Faculty of Management, Multimedia University, Cyberjaya 63100, Malaysia
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(2), 1133; https://doi.org/10.3390/su15021133
Submission received: 27 October 2022 / Revised: 28 November 2022 / Accepted: 29 November 2022 / Published: 6 January 2023
(This article belongs to the Special Issue Competitive Advantage Establishment through Green Entrepreneurship and Sustainable Environmental Management)
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Abstract

:
Organizations moving towards adopting sustainable business development has become a necessity. As more and more stakeholders increasingly show interest in pollution and environmental degradation and the major impacts on the economic activities of organizations, it has become a necessity for organizations to move towards adopting sustainable business development. To achieve this goal, organizations need to invest in green innovations (GIs). Therefore, this paper examines the important influence of internal and external stakeholders on organizations that choose to pursue sustainable development with the help of implementing green innovations. It has certain theoretical and practical implications, but the following problems exist: (a) the usage of energy has increased in recent years and further creates a warning sign that precautionary measures need to be taken soon, and if not, the situation will impact the environment and organizations’ sustainable performance; (b) stakeholders’ raise concerns about pollution and environmental deterioration and urge industrialists to incorporate green innovation into all aspects of production and processes. A positivist research paradigm is applied, and the hypotheses will be tested using Structural Equation Modelling (SEM). This study analyzes how green innovation interacts with the linkage between stakeholders and organizational sustainable performance. The contribution hopes to benefit the growth of the economy, promote a cleaner environment, and enhance the wellbeing of the country. This study will further help to enlighten the importance of embracing green innovation in industries to policy makers and manufacturers, which is currently lacking. This initiative is in line with Malaysia’s 12th plan, which aims to promote green innovation to boost the Gross Domestic Product (GDP) and push the country above the high-income barrier.

1. Introduction

Small and medium-sized firms (SMEs), which today account for up to 95% of the sector, dominate Malaysia’s manufacturing industry. A great deal of initiative has been taken to introduce green aspects into the industry by emphasizing energy efficiency and the adoption of greener manufacturing processes to minimize air pollution, solid waste, and wastewater generation. The 12th Malaysia Plan features several initiatives to support a more environmentally friendly outlook via a sustainable environment. Based on the Green Technology Master Plan 2017–2025, research (Figure 1), has shown an increase in the expected number of manufacturers that will move to green manufacturing by 2030 [1].
The recent excessive growth in the economy has caused concerns in the global environment and has heightened the challenges for government regulators, industry, and society to find an immediate solution. The impact on the corporate environment has received increasing attention in recent decades, with a particular emphasis on climate impacts and greenhouse gas emissions [2]. For years, these issues were thought to be unimportant for businesses, which generated only profits. The manufacturing industry was held responsible for the occurrence of an environmental disaster, which resulted in global warming [3]. Furthermore, the exponential rise in greenhouse gas (GHG) emissions since the pre-industrial era has had a significant impact not only on nature but also on the global human system. Figure 2 shows an increasing trend in CO2 emission by sector in Malaysia from 1990–2030 [4]. The trend shows an increase in CO2 emissions due to electricity generation, transportation, and industry. According to the Climate Change Index Performance (CCIP) 2021, Malaysia is one of the low-rated countries, ranking 56th in 2021 [5]. Malaysia has also increased its energy usage in recent years. These red flags indicate that Malaysia must take significant action to save the environment and advance in sustainable development. One of the basic pillars of the 11th and 12th Malaysia plans is to build productivity and innovation. As the country moves towards the vision 2030 journey, it is important to adhere to seven strategic goals and continue striving for green evolution for sustainability and resilience [6].
The route to success for businesses is tougher than ever in today’s economic environment, and the ability to adapt to rapid changes is required to compete in the market [7,8]. Stakeholders are becoming increasingly concerned about pollution and environmental deterioration, as well as the cost of goods and services provided because of environmental and social factors [9]. Stakeholders have strongly criticized companies regarding environmental issues [10,11] and want companies to embed environmental regulations and sustainable development into their corporate culture [12]. Businesses have therefore been forced to consider their operational management from the perspective of long-term growth. To address the concerns of stakeholders, businesses have taken steps to pursue sustainable growth. The pressure causes a relative increase in the number of companies stressing green innovation to develop the sustainable process [10] in an ecologically sustainable manner [13,14,15] in order to remain competitive in the markets.
Environmental degradation has become a threat to human survival in the future, which has caused industries to take initiative to protect the environment and improve economic growth through the implementation of green innovation [16]. The implementation of green innovation is believed to reduce environmental pollution and the negative impact of resources, hence promoting sustainable development [17]. The following questions have been raised: (i) Can green innovation contribute to sustainable development? (ii) Do stakeholders play an important role in companies imposing green innovation? There are inconsistent results, which indicate government regulation and customer pressure drive green innovation. However, the research is still largely unclear [16].
By adopting sustainable development, companies are required to implement innovation and environmentally friendly methods in production that enable them to reduce any impact in the firm’s external context. Managers face complex challenges daily because of fierce market competition and rising customer demands [7,8]. The implementation of environmental management systems is very much dependent on the internal competencies and capabilities of an organization. However, implementation encounters challenges as employees lack the abilities and motivation to address these issues [18]. In addition, human resource management is also involved in developing the organization’s internal competencies and capabilities, which is important in every manufacturing industry [19]. Further study should be examining the impacts of stakeholder pressures, dynamic capacities, green innovation, and firm performance [20]. Green human resource management is necessary to advance internal capacities for environmental innovation and achieve environmental performance [21,22,23,24].
The purpose of this study was established based on the problems, and the following objectives were developed:
1.
To gain a better understanding of the influence of Green Innovation in achieving sustainable development.
2.
To investigate stakeholders’ importance in pursuing Green Innovation.
The remainder of the paper is organized as follows:
Section 2 outlines the theoretical framework and hypotheses developed based on previous studies related to this research. In addition, the material and methods are explained in Section 3. In Section 4, the discussion of the study are presented together with managerial and practical implications. In Section 5, ends with conclusions.

2. Theoretical Framework and Hypothesis Development

2.1. Resource-Based View Theory and Stakeholders Theory

By establishing new capabilities that are valued, unusual, special, and irreplaceable, the Resource-Based View (RBV) fosters organizational success [25,26,27].
According to the RBV theory, the primary contributors to an organization’s determination for success and competitive advantage are capabilities and resources [28]. The skills of a corporation are crucial [29], and the environmental changes in which enterprises operate have a significant impact on them. Internal and external pressures on businesses to implement and adapt environmentally friendly organizational actions stymie their progress toward green growth [30].
To gain a competitive edge using rare materials and competencies, RBV adopts the VRIN (Valuable, Rare, Inimitable, non-substitutable) technique to focus largely on strategic resources [26,31,32,33]. These methods are used to analyze resources and core competencies to achieve a competitive advantage and reach higher long-term performance.
The Stanford Research Institute first used the word “stakeholders” in 1963 to refer to the groups without whom an organization could not function [34]. The notion of stakeholders, which distinguishes them from shareholders in cooperatives and the effects of diverse stakeholders on businesses’ decision-making processes, was introduced to the strategic discipline for the first time by Freeman in 1984 [35,36]. Stakeholder theory, which was founded based on four academic disciplines—strategic planning, system theory, corporate social responsibility, and organizational theory—brought several perspectives to a firm and provided multiple explanations for its organizational structure and daily operations [37].
According to the stakeholder theory, organizations should prioritize meeting the demands and expectations of all constituencies rather than just those of shareholders who have financial stakes in them [38]. Freeman (1984) [39] stated that stakeholder theory can affect either individuals or groups or even affect the impact of an organization’s actions and decisions.
The creation of trust-based collaboration among a diverse group of stakeholders is a crucial aspect of organizational decision-making in areas including corporate strategy, corporate governance, and social and environmental management [39,40]. Several parties, such as governmental, commercial, and social entities, have been highlighted as potentially putting pressure on companies and influencing their environmental policies. Regulatory pressure, which includes legal requirements for firms to abide by environmental standards, is a factor, as suggested by previous research [41]. Additionally, market pressure develops as suppliers, household customers, and industrial clients become more environmentally conscious and learn how to use their power to persuade companies to embrace eco-friendly practices to reduce pollution. Social factors include, for instance, neighborhood associations, trade groups, labor unions, and environmental organizations. By mobilizing the public, this collection of players starts to exert pressure on corporations to decrease their environmental impact.

2.2. Green Innovation

Initially, the term “green innovation” (GI) referred to a type of invention whose primary goal was to lessen or stop environmental harm. Research on innovation and sustainability has increased in recent decades [42]. The words “eco-innovation,” “environmental innovation,” “green innovation,” and “sustainable innovation” have gained popularity [43]. The phrases eco-innovation, ecological innovation, green innovation, and environmental innovation have all been used interchangeably in previous research [44,45]. However, Franceschini et al.’s (2016) study on bibliometrics claimed that understanding the definition of sustainability is related to innovation. For instance, they claim that the terms “eco-innovation” and “environmental innovation” overlap when they both refer to reducing environmental impacts to operationalize sustainable development [46,47,48,49]. Both green processes and products were discussed in relation to “green innovation” [17,50]. These are issues regarding technology for trash recycling, green product design, energy conservation, pollution avoidance, and corporate environmental management [50]. Organizations must prioritize green innovation because it gives them a better opportunity to satisfy client requests while also reducing harm to the environment. Green innovation is expected to increase productivity while minimizing the resources used [40,51,52]. As a result, firms become more competitive and can maintain a competitive advantage by improving a company’s image and expanding into new markets while meeting ongoing environmental protection requirements [53]. Companies can help protect the environment by creating new products and processes that aim to improve the company’s efficiency or effectiveness [54]. In other words, green innovation is important for organizations to increase their competitiveness in the future by maintaining legitimacy [55].

2.3. Stakeholders

“Stakeholder engagement” is known as a process used by organizations to achieve what is agreed upon by the stakeholders toward certain outcomes [56]. Stakeholder engagement has become a crucial step in reporting sustainability and demonstrates ways that an organization takes into account stakeholders’ concerns [57]. Freeman (1984) mentioned that stakeholders are categorized as “any group or individual that may be affected or be affected by organizational achievement in objectives”. A previous author [36] proposed a typology of stakeholders based on several attributes. The researcher indicated that stakeholders are influenced by power over the organization, its legitimacy, and the claims of the organization.
Stakeholder pressure refers to the level of accountability that a company must bear in its actions and decisions on product design, raw resources, and manufacturing system usage [20]. Owners’ and managers’ environmental policies will assist the firm in responding to stakeholder claims while also determining long-term commercial viability [39,58,59]. The firm’s absorptive capacity has been found to be positively associated with stakeholder pressure [60,61]. This encourages businesses to advance in resource development and rejuvenation to align themselves with environmental standards and strengthen consumer relationships [62,63,64]. Consequently, it is crucial to obtain a comprehensive understanding of how stakeholders affect a firm’s green innovation practices and capabilities [65].

2.3.1. Customer Pressures

Customers can demand vendors follow environmental management practices or standard procedures to enhance environmental performance [66]. Customers may request that their suppliers prioritize the promotion of green innovation resources. Additionally, customers are a key force in encouraging innovation and supplier quality enhancement [67]. As a result, this puts pressure on a company to innovate and adopt environmentally sustainable practices [68]. Suppliers need to maintain customers’ demands to retain their reputation. As a result, researchers believe that customer pressure is a significant driving force behind green innovation [69]. According to a recent study, stakeholder pressure from customers is the most powerful driver of the adoption of green projects [70,71]. In this way, the organization would feel pressure from the clientele to adopt green innovation. A firm’s initiative in managing its green image would increase customer confidence and loyalty to the firm [72]. Stakeholders’ views on green innovation as a key driver are important. As a result, the attention of different stakeholders, both internally and externally, such as consumers’ and company owners’ preferences, suppliers, and governmental requirements, has an impact on the organization through its use of green capabilities and practices [65]. As a result, the relationship may be expressed as follows:
H1. 
There is a significant relationship between customer pressure and green innovation.

2.3.2. Government Regulations

As regulation changes, it affects companies’ decisions regarding environmental management and business [73]. Additionally, to safeguard the environment, businesses that intend to expand internationally need to abide by both local and international laws. The extent to which corporations implement environmental protection policies will depend on the intensity of the restrictions being set [65]. As environmental pressure has increased, various regulations have been implemented in recent decades to reduce environmental damage. Government restrictions may prevent businesses from using pollution-control methods and minimize their negative effects on the environment [74]. Strict enforcement of environmental laws and regulations is an indication that a government is seriously invested in protecting the environment [51]. The regulation pressure from governments pushes firms to further pursue green initiatives [74]. The introduction of green innovation into an organization is regarded as one of the best approaches to improving environmental management performance and meeting environmental regulations, as it is a means of generating business opportunities. Governments typically assess firms by setting environmental standards or compelling them to use pollution-control technology to reduce their harmful impacts on the environment. Laws emphasize environmental performance and competitiveness and indicate that a carefully drafted environmental restriction may bring profits to enterprises by further enhancing the competitiveness that is ignited by innovation [75]. Therefore, the hypothesis is developed as follows:
H2. 
There is a significant relationship between government regulation and green innovation.

2.3.3. Suppliers

Suppliers are crucial in supporting a greener environment because they can quickly assess the implications of cost, lead time, development risks, and market accessibility [54,76]. Suppliers’ main aim is to maintain satisfactory delivery to maintain major customers. Recently, environmental consequences have had a direct impact on suppliers’ quality, design, and competitiveness of a company’s goods, which affects a firm’s green innovation [54,77]. Suppliers will occasionally even refuse to provide their supplies to businesses they consider to be endangering the environment [54]. Regulations further demand that suppliers suggest sustainable solutions to comply with environmental regulations [9]. Suppliers can even ask their customer companies to make green innovation compatible with existing adoption or purchase environmental innovation that has been generated prior for customers. Studies have mentioned that suppliers’ pressure increases as other companies get involved in integration and cooperation in supporting innovation [78]. The following theory is put forth:
H3. 
Suppliers affect green innovation positively.

2.3.4. Employees

The opinions of employees on green innovation will influence their own companies. Employees are also known as customers, and they expect to enjoy a pleasant working environment. Companies need to be aware of employees’ expectations if they want to continuously boost enthusiasm and productivity. Managers understand the importance of involving employees together with strategic organization planning to manage the environment. Furthermore, the encouragement of the management team to employees regarding green initiatives will strongly determine the future of organizational performance [54,79,80]. It is also said that employees with higher environmental commitment have a higher tendency to be involved in solving environmental problems and developing new skills [81]. Furthermore, employees with higher environmental commitment will explore ways to maximize benefits for the natural environment [82]. In organizations, employees’ support of policies is important to achieve organizational environmental goals because employees are believed to be the initiators of environmental practices [63,83,84]. A closer link between employees and leaders facilitated innovation according to earlier studies, [85,86,87]. As a result, the hypothesis is:
H4. 
Employees affect green innovation positively.

2.4. The Relationship between Green Innovation and Social, Environmental, and Economic Performance

Eklington (1998) [88] proposed a triple bottom line in initiating sustainable research and decision making. Furthermore, this application keeps environmental, societal, and economic factors in balance so that organizations can move towards sustainable development [89]. All three dimensions are understood to be critical in establishing real sustainable innovation and are necessary to maintain sustainability for businesses [20]. These three dimensions were not only believed to be an important dimension for sustainability but also promote human wellbeing in general [90]. Most of the studies mentioned that organizations only emphasize economic performance [91,92]. However, this alone is not enough to maintain sustainability [91].
Different organizations will prioritize the three dimensions differently during the implementation of green innovation, and all these factors, of course, have an impact on the success of business operations [93]. Additionally, businesses can benefit from an advantage in dealing with environmental challenges, which leads to increased employee satisfaction and retention, improved communication with beneficiaries, and the development of a strong brand image [94]. Furthermore, the benefits may increase employee awareness of social responsibility, resulting in the recruitment and retention of qualified personnel in an organization [95]. Employees and consumers may be satisfied with an organization’s social performance if it is maintained at a high standard [30]. Consequently, the following hypothesis is presented:
H5a. 
Green innovation affects social performance positively.
Businesses that care about the environment will try to limit harmful emissions and waste materials that can prevent environmental accidents [96]. Many organizations have started to show initiative towards achieving organizational performance by adopting numerous environmental performance programs to gain better competitive benefits [97]. Governments’ strict regulations and the pressure from the market have alerted managers and the organization itself to the importance of environmental performance [98]. The adoption of environmental performance programs helps organizations to reduce the emission of greenhouse gas and other waste [99]. Previous research has shown that improving manufacturing processes increases productivity and improves the chances of promoting environmental performance [100]. Considering this, the following theory is put forth:
H5b. 
Green Innovation affects environmental performance positively.
An organization’s financial and marketing capabilities have increased, thanks to the adoption of a green strategy, which capitalizes on its industry position and indicates its economic performance [30]. This condition has an impact on the organization’s own economic system in which it operates [30]. As it is linked to other corporate entities such as the government, consumers, suppliers, financial entities, and employees, this has an even greater impact on the financial and economic performance of the organization.
Green innovation has the potential to be a major contributor to economic growth. To avoid any penalties, businesses should focus on green innovation, which will help them reduce energy usage as well as waste treatment and disposal costs [101]. Furthermore, the image and competitiveness of an organization can be improved through the process of green innovation [102]. Since green innovation has been associated with enhanced economic performance [103], the following hypothesis has been developed:
H5c. 
Green innovation affects economic performance positively.
We offer a conceptual research approach based on the literature evaluation and the development of the hypothesis.
Sustainability 15 01133 i001 Conceptual framework.

3. Materials and Methods

In this study, the positivist research paradigm was applied. Using theoretical stances, this study investigated the linkages between stakeholders, sustainable performance, and green innovation. The study’s primary focus was on customers, government regulators, suppliers, and workers to encourage green manufacturing in Malaysia. For this project, a quantitative survey approach was used to collect data from Malaysian manufacturers registered with the Federation of Malaysian Manufacturers (FMM) and SME Corporation Malaysia (SME Corp., Kuala Lumpur, Malaysia). The process started by developing a survey instrument based on 8 variables listed in the framework. The questionnaires went through reviews from 5 academicians and 5 industry experts. To determine the questionnaire’s adequacy, interviews with experts were conducted to gain their opinions, experiences, and attitudes towards stakeholders’ views and green innovation within organizations. The survey tool was pretested by requesting interviewees to review and answer the questionnaires to identify any ambiguities and suggestions to improve the questionnaires. Once feedback was received, the questionnaires were further refined to formulate the final version. All the variables were measured on multiple-item five-point Likert-type scales (1 = strongly disagree, 5 = strongly agree). Two steps were taken to ensure the accuracy and appropriateness of the items. First, considering the accuracy of the items, the items went through modification. Adjustments were made to overcome such discrepancies. Second, all items were examined for their relevance to the Malaysian Manufactory Industry. The sample size was calculated using G-power. Data were collected either face-to-face or online. The unit of analysis for this study was the organization. This study applied a probability sampling method to avoid bias by using a random sampling method through research randomizer number generator software. In the final stage, once data were collected, hypotheses were tested using Structural Equation Modelling (SEM) for confirmatory tests.

4. Discussions

The findings from this conceptual paper suggest that internal and external stakeholders (customers, government regulation, suppliers, and employees) have a significant effect on organizational sustainability performance, especially with green innovation initiatives. Stakeholders stand strongly regarding the implementation of green innovation and believe such an act could help at least in part in reducing environmental degradation.
There are some companies that show positive signs in the implementation of green innovation. For example, Daikin Europe has taken lead in the development of eco-friendliness and is now known as a center of excellence and leverage, transferring renewable energy to other subsidiary units in North America and Asia [104]. Denso has become one of the green pioneers in reducing waste to be sent to landfills, and Denso was awarded the Management Award for sustainable development in 2004 [41]. There are many other companies putting effort into introducing green innovation, even in different countries or cultures, hence providing contributions to organizational sustainable performance.
Previous studies have indicated that employees affect organizations’ decisions regarding green innovation as employees are also known as consumers and citizens that benefit from green innovation [9]. Furthermore, this situation creates informal ties with managers to encourage more sensitivity towards employees’ expectations [104]. Further study has supported that the influence of stakeholders does impact companies’ choices in adopting green innovation [9]. Achieving the principles of sustainable development with the initiation of green innovation is becoming a strategic orientation for all types of businesses. Adapting to the logic of SDGs promotes companies’ investment in green innovation to minimize the impact of production on the environment.

4.1. Practical Implications

This study aligned with the Malaysia 12th Plan, exploring green innovation able to create opportunities to continuously improve the GDP and exceed the minimum verge of a high-income economy. Introducing new green innovation products is expected to create job opportunities by 2030, with the goal of improving labor productivity through a continuous shift away from labor-intensive economic activities and towards knowledge- and innovation-based economic activities. Through the implementation of green innovation, all economic sectors will likely be able to witness strong growth in manufacturing industries.
In addition, the findings from this study would offer practical implications to policymakers and managers in developing countries, as stakeholders’ consciousness of green innovation is relatively weak. The combination of both internal and external stakeholders’ pressure is able to achieve dual effects on green innovation. In this sense, governments should introduce stricter regulations to stimulate companies to implement green innovation, and at the same time, society should play an important role by making every effort through the consumption of green products by the public. This effort will further create better opportunities for firms to expand their domestic green market demand.
The study contributes to the knowledge within manufacturing industries in terms of involvement in green innovation. Investing in green innovation as the main driver helps practitioners to capitalize on the increase in green innovation further with the help of Research and Development teams. These teams are able to develop attractive and efficient solutions. Hence, it can be also used as an educational resource to increase the awareness of their employees.

4.2. Managerial Implications

This study broadens managers’ comprehension of the influence of stakeholders’ roles and decisions on green innovation. The findings will serve as a reminder to business professionals of the benefits of green innovation. Managers should be aware of the many ways to respond to internal and external stakeholders given the varying nature of green product and process innovation. Customers’ demands and needs must be met by businesses by creating more environmentally friendly products. Businesses must take advantage of the opportunity to adopt ISO certification in accordance with legal requirements if they want to win over clients. Managers may teach staff members to raise awareness of green innovation and secure support in the process of attaining green innovation because staff members are also consumers. For suppliers to be able to deliver resources to assist a company’s drive towards green innovation, managers must communicate with them and establish positive relationships with them.
This result highlights the critical role that green innovation plays in promoting organizational sustainability. Managers need to be aware of how implementing green innovation will affect an organization’s sustainability and maintain its performance.

5. Conclusions

The contribution of green innovation helps organizations regarding the growth of the economy, a cleaner environment, and enhanced well-being. Governments aim to reach a 45% reduction in carbon, and this requires joining hands with the global community to achieve the SDGs. This study hopes to provide an understanding of how stakeholder pressure on the initiation of organizations pursuing Green Innovations can maintain sustainable development and, at the same time, improve organizations’ economic development. This knowledge gap will later assist researchers in future studies on Green Innovations in different fields of studies by providing critical solutions for environmental betterment, which needs further research.

Author Contributions

K.J.: Original draft, conceptualization, preparation, editing, visualization; S.J.: Original draft review, editing, supervision; M.D.: Original draft review, editing, supervision. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Not applicable.

Informed Consent Statement

Not applicable.

Data Availability Statement

Not applicable.

Acknowledgments

We would like to thank Multimedia University for the opportunity to write this paper and for sponsoring this publication.

Conflicts of Interest

The authors declare no conflict of interest.

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Figure 1. Adopted from Green Technology Master Plan 2017–2025.
Figure 1. Adopted from Green Technology Master Plan 2017–2025.
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Figure 2. CO2 emission by sector in Malaysia from 1990–2030.
Figure 2. CO2 emission by sector in Malaysia from 1990–2030.
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Jayaraman, K.; Jayashree, S.; Dorasamy, M. The Effects of Green Innovations in Organizations: Influence of Stakeholders. Sustainability 2023, 15, 1133. https://doi.org/10.3390/su15021133

AMA Style

Jayaraman K, Jayashree S, Dorasamy M. The Effects of Green Innovations in Organizations: Influence of Stakeholders. Sustainability. 2023; 15(2):1133. https://doi.org/10.3390/su15021133

Chicago/Turabian Style

Jayaraman, Kalaivani, Sreenivasan Jayashree, and Magiswary Dorasamy. 2023. "The Effects of Green Innovations in Organizations: Influence of Stakeholders" Sustainability 15, no. 2: 1133. https://doi.org/10.3390/su15021133

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