Salome Zimmermann
Banking for the Climate: Activation Mechanisms of the Sustainable Logic
Working Paper
Fakultät für
Wirtschafts-
wissenschaft
Banking for the Climate: Activation Mechanisms of the Sustainable Logic
This is a work in progress. Please do not cite without permission of the author.
Salome Zimmermann
FernUniversität in Hagen, Universitätsstr. 41, 58097 Hagen, Germany
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Banking for the Climate: Activation Mechanisms of the Sustainable Logic
Abstract
This research is aimed at acquiring an understanding of how and why the sustainable logic gets activated in an organisation. In order to address this research question, a multiple case-study design was applied in the banking industry. Six pathways for sustainable logic were identified each of which is a) crossing different additional institutional logics, b) is characterised by a critical trigger event, or not and c) is paved by an internal sustainability advocate, or not. Discussing the findings against the literature on institutional complexity, this paper theorises on the circumstances under which sustainable logic is activated in an organisation. It also adds to our understanding of how different forms of institutional complexity emerge and how this affects the implementation of sustainable practices. Overall, this paper contributes to a more fine- tuned understanding of how and why a new field-level logic takes shape inside organisations.
1. Introduction
Organisations implement sustainable practices to different degrees. Understanding why they do so differently is a research question that has increasingly gained attention by researchers from many different perspectives. Recently, this question was also approached from an institutional logics perspective (Friedland & Alford, 1991; Thornton, Ocasio, &
Lounsbury, 2012). Institutional logics, understood as “cultural structures that bring order to domains of practice” (Ocasio, Loewenstein, & Nigam, 2015: 28), define both the means and the ends of organisational behaviour (Thornton et al., 2012). Particularly, what is referred to as sustainable logic has been shown to be related with sustainable practices (Corbett, Webster, & Jenkin, 2018; Kok, Bakker, & Groenewegen, 2017; Lee & Lounsbury, 2015; Reddy & Hamann, 2018; Rousseau, Berrone, & Walls, 2014; Westermann-Behaylo, Berman, & van Buren, 2014). This particular logic gives “legitimacy to reducing environmental impacts for the benefit of the entire natural ecosystem” (Corbett et al.,
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2018: 262). The mere availability of the sustainable logic, however, is not sufficient to make companies integrate environmental aspects into their decisions as numerous examples of unsustainable behaviour and decoupling have shown repeatedly (Eriksson &
Svensson, 2016; MacLean, Litzky, & Holderness, 2015). Rather, logic might be available at the level of the field or of the geographical community, but they must also be activated in an organisation in order to actually evoke the implementation of practices advocated by that logic (Thornton et al., 2012).
The literature on institutional complexity argues that organisational attributes function as filters for institutional logics (Greenwood, Raynard, Kodeih, Micelotta, & Lounsbury, 2011). It therefore depends on the “situational fit between the institutional logics and the characteristics of the situation” (Thornton et al., 2012: 92) whether a certain logic is only available and accessible for an organisation or also activated so that an organisation implements the practices under that logic. However, we have only rudimentary knowledge about what constitutes such “fit” that enables the sustainable logic to be activated in an organisation. Additionally, since previous studies do not explicitly deal with multiple levels of analysis, knowledge about the potential differences between the sustainable logic originating from the field, community or organisational level, has remained elusive so far. Consequently, this research focuses on the following question:
How and why is the sustainable logic activated in an organisation?
In order to answer this research question, I conducted multiple case studies (Eisenhardt, 1989; Yin, 2018) involving German banks. The banking sector represents a particularly interesting research setting because of its high relevance for meeting the 1.5 degrees Celsius threshold (Campiglio, 2016). Six pathways for sustainable logic were identified each of which is a) crossing different additional institutional logics, b) is characterised by a critical trigger event, or not and c) is paved by an internal sustainability advocate, or not.
Specifically, the findings show that banks steeped in an organisational-level community, state and market logic do not automatically support the activation of the sustainability logic. Such organisations additionally need both the experience of a critical trigger event, such as a reputational threat, and an internal sustainability advocate in top management.
In contrast, in ethical and church banks, the sustainable logic is activated without these additional activation drivers. It was also found that once activated, sustainable logic does not lead to the same patterns of sustainable practices. Such differences can be explained
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by the specific nature of institutional complexity (Besharov & Smith, 2014) banks face.
Particularly, whether the sustainable logic is perceived to be compatible with the organisational-level market logic of a bank or not and which logic is prioritised affects how banks implement sustainable practices in their core business.
Discussing the findings against the literature on institutional complexity (Besharov &
Smith, 2014; Raynard, 2016), this paper not only theorises on the circumstances under which the sustainable logic becomes material in the practices of an organisation but also on how different forms of institutional complexity emerge when the sustainability logic enters an institutional field. This paper thus makes three primary contributions. First, it proposes pathways through which sustainable logic is activated in an organisation.
Specifically, it shows how the combination of different logics, specific situational circumstances (i.e., critical trigger events) and the presence of an internal sustainability advocate affect how and why organisations adopt a new field-level logic. Second, it offers a more nuanced picture of the relationships between different forms of institutional complexity and patterns in sustainable practices. Third, it refines the understanding of institutional complexity. Previous research has not made an explicit distinction regarding the level of analysis at which the complexity emerges. The findings of this study, however, suggest that considering the level at which logics cross their pathways is crucial as it affects if and how the complexity is perceived and responded to by an organisation.
Overall, this study allows the sustainable behaviour of organisations to be explained in more detail than what has been achieved so far.
The article proceeds as follows. I start by introducing the institutional logics perspective before I review the literature, showing that there is a lack of knowledge about what specifically constitutes the “situational fit” which enables sustainable logic to be activated and thus to affect an organisation’s practices. This is followed by the details of the conducted case study. Subsequently, the findings are presented. Discussing them against the background of the broader literature on institutional logics, propositions are derived which theorise how different constellations of logics need to be complemented by different situational attributes to activate the sustainable logic at the organisational level.
Finally, I draw conclusions and suggest both managerial implications and directions for future research.
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2. Theoretical Background
2.1 The Institutional Logics Perspective
At the societal level Thornton et al. distinguish seven ideal types of institutional orders within contemporary Western societies: the market, the corporation, the profession, the state, the religion, the family and the community. Each of them and their surrounding logics shape interests, categories and options of action. They differ regarding their sources of legitimacy, authority, identity, basis of norms, attention, strategy and the economic system (Thornton et al., 2012). Logics provide actors with a taken-for-granted understanding of both means and ends of socially acceptable organisational behaviour (Friedland & Alford, 1991; Thornton et al., 2012). Therefore, they can be deconstructed in an intangible (values, motivations, goals) and a material dimension (practices, resources, experiences) (Yan, Ferraro, & Almandoz, 2018). As cultural toolkits, logics guide managerial attention and provide actors with vocabularies of motive, defined as socially accepted intentions for present, past or future practices (Loewenstein, Ocasio, & Jones, 2012; Mills, 1940; Ocasio et al., 2015). In different logics therefore different vocabularies of motives and related practices are deemed appropriate (Tilba & Wilson, 2017).
Institutional logics are said to operate at multiple levels – of the individual, the organisation, community, the field and the society leading to cross-level effects (Thornton et al., 2012). The individual level concerns the individual manager, while the organisational level relates to the entire organisation. The community level can be either shaped by a geographical region (e.g., a city or a county) or a resource community such as stakeholders of an organisation (Freeman & Audia, 2006). Finally, the field level tends to correspond to an industry (e.g., the French wine industry) and the societal level represents an entire group of societies (e.g., contemporary Western societies). On each of these levels, a logic can be available and accessible. Additionally, it must also be activated in an organisation to actually elicit a certain behaviour. This implies that a logic is activated when an organisation actually incorporates the means and objectives described by this logic (Thornton et al., 2012).
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2.2 Institutional Complexity
It is commonly acknowledged that institutional logics can, and mostly do, co-exist within organisations. Such situations, in which “divergent prescriptions from multiple institutional logics collide” (Smets & Jarzabkowski, 2013: 1283), are described as institutional complexity. Conflicting institutional demands can arise both within different and the same institutional order (Meyer & Höllerer, 2016). However, institutional complexity does not automatically imply conflict. Instead, the degree to which two logics are compatible and whether both belong to the core of an organisation affect the intensity of conflicts, thereby leading to different forms of institutional complexity (Besharov & Smith, 2014). Additionally, Raynard theorises that by clearly prioritising one logic and conceding a certain “jurisdictional space” (2016: 315) to each logic, the overall institutional complexity can be reduced. Moreover, it makes a difference if two logics stand for different goals or for different means to actually achieve the same goals (Pache
& Santos, 2010; Yan et al., 2018). Finally, the degree to which a logic specifies its prescribed practices is also significant (Greenwood, Díaz, Li, & Lorente, 2010).
Generally, four different ways how organisations respond to institutional complexity are distinguished (Kraatz & Block, 2010). First, the less dominant and weaker logic is ignored so that its practices are not implemented. Second, organisations can decouple conflicting logics. This approach has also been referred to as compartmentalising (Binder, 2007) and describes situations in which conflicting logics are split and assigned to different domains of practice. Consequently, gaps between symbolically adopted policies and actual organisational behaviour arise, as was the case, for instance, with incidents of greenwashing (Kim & Dibrell, 2017). The third strategy encompasses forms of compromise which aim at balancing incongruent demands in order to devise cooperative solutions. For instance, organisations can neutralise conflicting expectations by creating ambiguity (Meyer & Höllerer, 2016). Finally, the fourth strategy is the integration of competing logics through which an identity of its own is forged. Competing logics are balanced using practices of both logics, constantly reinterpreting identity and experimenting with practices (Battilana & Dorado, 2010; Gümüsay, Smets, & Morris, in press; Smith & Besharov, 2019). In this case, the organisation emerges “as institutions in [its] own right” (Kraatz & Block, 2010: 541) and becomes a vehicle through which the organisation pursues its ideals.
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These four strategies “form the repertoires of organisational actions” (Durand &
Thornton, 2018: 635) and they equally represent different degrees of activation of a logic.
While suppressing and decoupling a given logic implies that the logic does not succeed to be activated, it is activated in the compromising and integration approach. The literature on institutional complexity argues that it is due to different organisational attributes, such as field position, structure, ownership and identity, that organisations respond differently to institutional pressures (Greenwood et al., 2011). Additionally, the level of practices also significantly depend on the type of institutional complexity, and particularly the degree of compatibility and centrality of two logics (Besharov & Smith, 2014; Smith & Besharov, 2019). The compatibility of two alternative logics, in turn, results from the complementarity of their specific means and ends (Yan et al., 2018).
2.3 The Sustainable Logic
Although the natural environment originally has not been considered one of the core institutional orders (Thornton et al., 2012), recent studies have argued that an additional logic, labelled as “sustainability logic” (De Clercq & Voronov, 2011; Kok et al., 2017),
“pro-environmental logic” (Lee & Lounsbury, 2015; Rousseau et al., 2014) or “eco-system logic” (Corbett et al., 2018), particularly affects sustainable practices of organisations.
This logic describes a shared belief system that attaches high value to the natural ecosystem and thus guides behaviour characterised by the motive to preserve the environment (Corbett et al., 2018; Lee & Lounsbury, 2015). The overall aim of “reducing environmental impacts for the benefit of the entire natural ecosystem” (Corbett et al., 2018: 262) is given legitimacy by the sustainable logic promoting greener businesses (Rousseau et al., 2014). The primary concern of sustainable logic, however, is not to reduce unsustainability, as is usually the case in instrumental approaches that link sustainable practices to profit goals, but rather to actually create sustainability. Practices evoked by the sustainable logic predominantly depend on the industry. For instance, it has been shown how environmental policies and the adoption of socially responsible investments by financial service providers (Kok et al., 2017; Risi, 2018), striving for carbon neutrality or zero-waste endeavours in information system projects (Corbett et al., 2018), food sustainability initiatives of universities (Sayed, Hendry, & Zorzini Bell, 2017) or toxic
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waste reduction practices in the petroleum industry (Lee & Lounsbury, 2015) were driven by the sustainable logic.
However, managers do not always perceive sustainable practices as leading to higher financial outcomes even though they can (Ameer & Othman, 2012), particularly in the long run (Ortiz-de-Mandojana & Bansal, 2016). Consequently, conflict arises if the sustainable logic clashes with the market logic which particularly focuses on improving efficiency and maximising profits (Yan et al., 2018). Although not as strong, there are significant differences between sustainable, state and community logic. The state logic is oriented towards ensuring political and social order and achieving social welfare goals (Arena, Azzone, & Mapelli, 2018; Goodrick & Reay, 2011). Proximity, social cohesion and reciprocity are central in the community logic (Almandoz, 2014). Differences among these logics are summarised in Table 1.
Availability and accessibility of the sustainable logic, however, does not automatically lead to the implementation of sustainable practices; the same needs to be activated in an organisation. For individuals, it has been posited that the “the situational fit between the institutional logic and the characteristics of the situation will be a factor in which particular identities, goals, and schemas are activated” (Thornton et al., 2012: 92). Furthermore, the matter of fit has been focused upon within the literature stream labelled as configurational institutional approach (Ansari, Fiss, & Zajac, 2010; Haxhi & Aguilera, 2017;
Jackson & Apostolakou, 2010). This literature posits that multinational enterprises’
strategy choices are influenced by “complementary institutions whose effect and influence cannot be understood in isolation from each other” (Ahmadjian, 2016: 14).
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Building block Sustainable logic Market logic State logic Community logic Religion logic Root metaphor Natural ecosystem Transaction Redistribution
mechanism Common boundary Temple as a bank Basis of norms Membership in
humanity Self-interest Citizenship in nation Group membership Membership in congregation
Basis of strategy Increase positive ecological impacts
Increase efficiency profit
Increase community good
Increase status and honour of members and practices
Increase religious symbolism of natural events
Sources of
legitimacy Basic human needs Share price Democratic participation
Unity of will, and belief in trust and reciprocity
Importance of faith and sacredness in economy & society
Sources of identity Environmental
championship Faceless Social & economic class
Emotion of connection, ego- satisfaction and reputation
Association with deities
Sources of authority Ecosystem Shareholder activism Bureaucratic domination
Commitment to community values and ideology
Priesthood charisma
Basis of attention Sustainable
development Status in market Status of interest group
Personal investment in group
Relation to supernatural Economic system Sustainable capitalism Market capitalism Welfare capitalism Cooperative capitalism Occidental capitalism Table 1: Building Blocks of the Sustainable Logic in Comparison to the Market, State, Community and Religion Logic
(Adaptation from Thornton et al., 2012; Corbett et al., 2018)
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Consistent with this line of reasoning, previous studies on sustainable logic have argued that depending on the context, the fit might be achieved and the sustainable logic can be activated. Once activated, it will serve as an explanation for a certain pattern of sustainable practices. For instance, Lee and Lounsbury (2015) conclude that it is the interplay of institutional logics at the field and the community levels which explains the toxic waste practices of facilities. Similarly, recent case studies indicate that the sustainability strategy of a firm depends on the combination of different logics and the coherence among them (Arena et al., 2018; George, Siti-Nabiha, & Jalaludin, 2018). Furthermore, research has identified field-imposed preferences (De Clercq & Voronov, 2011), the organisational identity (Corbett et al., 2018), the presence of subcultures (Kok et al., 2017) as well as organisational characteristics such as size, the geographic extent and the breadth of operations (Herremans, Herschovis, & Bertels, 2009) or the position in the supply chain (Sayed et al., 2017) as important factors which can support the activation of sustainable logic and thus encourage sustainable practices.
While these studies provide many important insights, they devote scarce attention to the effects of constellations of more than two logics. As institutional plurality is the rule rather than the exception, the predominant juxtaposition of market and sustainable logic in previous studies constitutes a conceptual shortcoming. Specifically, I argue that the differences in organisations’ sustainable practices occur depending on the complementarity between sustainable logic and additional logics (such as e.g., religion or state logic). To put it differently, deviations in the practices prescribed by the sustainable logic are a matter of fit (Ansari et al., 2010). Complementarity thereby implies that one logic amplifies or attenuates the effects of another.
Additionally, we lack knowledge on the role of the level from which sustainable logic originates as most studies do not explicitly state at what level the sustainable logic is located (see Lee & Lounsbury, 2015). It is argued, however, that depending on whether sustainable logic originates at the field, community or organisational level, different mechanisms might be effective, which enable the activation of sustainable logic in an organisation. Although it has been stated that “these levels are nested, and thus attention to multiple levels is crucial” (Herremans et al., 2009: 452), such cross-level effects have been insufficiently investigated in the context of sustainable logic.
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Addressing these shortcomings, however, is crucial because taking them into account potentially helps develop an in-depth understanding of the emerging forms of institutional complexity in the context of sustainable logic. Such understanding, in turn, provides insights which enable the business and society field to better explain organisational sustainable behaviour than before.
3. Methods
3.1 Research Design and Data Collection
I selected the research aim to deepen the understanding of how and why the sustainable logic is activated in an organisation. Given its explorative nature, I approached this aim by conducting a multiple case study which is particularly apt to explore complex causal relationships, i.e., relationships characterised by equifinality (Gehman, Glaser, Eisenhardt, Gioia, Langley, & Corley, 2018; Yin, 2018). Studying multiple cases implies a replication logic (Eisenhardt, 1989: 542). Therefore, I compared the cases in a structured and focused manner (George & Bennett, 2005: 67), which allowed enlightening the cross-level interplay of institutional logics and how this interplay relates to different patterns of sustainable practices.
In order to answer the research question, an institutional field as the research setting was required in which sustainable logic is available and accessible but simultaneously has not been activated in all its member organisations. The banking industry is such a field as sustainable logic started being considered with the beginning of the financial crisis (Kok et al., 2017) and has become increasingly prominent ever since. The logic also reflected in the growing divestment movement (Ayling & Gunningham, 2015; Hunt & Weber, 2019) in numerous non-governmental organisations (NGOs), such as BankTrack, Share Action or Bankwatch, that have explicitly committed themselves to the goal of promoting sustainable behaviour among financial service providers and in the voluntary codes of conduct such as the Equator Principles (Eisenbach et al., 2014) or the principles for responsible banking proposed by the United Nations Environment Programme Finance Initiative (UNEP FI). Substantive environmental strategies related to sustainable logic primarily imply for banks the integration of environmental criteria into their business and governance structures (Furrer, Hamprecht, & Hoffmann, 2012). This integration can be
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pursued through best-in-class approaches, norm-based screening and application of negative and positive criteria to investment decisions (Busch, Bauer, & Orlitzky, 2016;
Louche, Busch, Crifo, & Marcus, 2019; Shrivastava et al., 2019; Zimmermann, 2019).
Similarly, environmental criteria can be integrated into credit policies, particularly for lending decisions for or against financing larger infrastructure projects (Wörsdorfer, 2015). Typical negative criteria are, for instance, nuclear energy, fossil fuels, animal experiments, genetic engineering or diverse forms of environmentally controversial behaviour. Renewable energy, organic farming and reforestation projects in contrast are exemplary positive criteria. Banks can either completely rule out sectors, that is they can divest from a sector (e.g., the nuclear power sector), or focus on an engagement and voting approach with their borrowers “to improve their environmental performance and mitigate harm” (Coulson, 2009: 155). In addition, environmentally compatible investment and saving products such as thematic funds and impact investing can be offered to customers (Eurosif, 2016).
As the country environment has been shown to have an impact on the adoption of sustainability strategies (Marano & Kostova, 2016), the case studies were conducted within one national industry – the German banking industry –to reduce contextual factors and thus to “control environmental variation” (Eisenhardt, 1989: 537). Particularly, Germany provides a highly data-rich setting for researchers investigating institutional pluralism in which more than two logics collide as it has only a threefold structure of private, public and cooperative banks (Brämer, Gischer, & Richter, 2010) but also ethical and church banks. Private banks have legal forms under private law. Public banks, known as Sparkassen, are owned by local authorities such as municipalities or towns while cooperatives are owned by their members, i.e., the shares purchased by the members form the equity capital of a cooperative. Church banks are cooperatives that operate exclusively for churches and faith-based organisations, and ethical banks centre their business model on sustainable finance. They exclusively lend to and invest in socially or environmentally healthy projects such as renewable energy projects (Paulet, Parnaudeau,
& Relano, 2015). Given their different purposes, I assume that the different banks operate within different institutional logics. This assumption is also confirmed by the following analysis.
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Cases were purposefully selected (Patton, 2002) with respect to two criteria. First, based on a preliminary analysis of sustainability reports and websites, I selected both banks in which sustainable logic had been activated and banks in which it was not, i.e., banks that seemed to integrate environmental criteria into their core business and banks which had not done the same. Second, by including private, public, cooperative, church and ethical banks, a variance among cases with respect to their institutional logic was achieved. If a bank met these criteria, I contacted it by e-mail. As data collection and analysis proceeded, sampling criteria were refined to replicate, refine or falsify gradually emerging patterns.
In other words, as the study progressed, cases enabling cross-case comparison were selected. Data collection and analysis was therefore carried out iteratively. Cases were added until no additional and relevant data were found. Accordingly, sample size was not determined at the beginning of data collection but instead when theoretical saturation was reached (Eisenhardt, 1989). Consequently, the overall sample consists of 26 cases (for details see Table 2).
Data were triangulated to improve the validity of the analysis (Golafshani, 2003). I included publicly available sources such as sustainability reports, banks’ websites, press releases, mission statements and codes of conduct. However, in-depth interviews with employees of the banks were the central source for the analysis. One interview was conducted with each bank. Where available, sustainability managers were my key informants (Kumar, Stern, & Anderson, 1993). In banks without people in such a position, I spoke to the person who was responsible for sustainability-related activities. The interviews were semi-structured to ensure gathering similar data for each case while also opening the interviews for further topics to emerge. The focus was on the question as to which sustainable practices the banks implement, why they do the same, how the practices came about and what triggered the strategy. Conversely, interviewees were also asked why certain practices were not integrated and what was required for them to be integrated. By granting anonymity to the interview partners, biased responses were reduced. Finally, I discussed the emerging patterns with three of my interview partners to validate findings. I conducted all the interviews either by telephone or onsite (i.e., at a bank). The recorded sessions lasted between 45 and 88 minutes and were transcribed afterwards to ensure systematic analysis.
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Case ID N° of
Employees Interviewee’s function Data Sources
Private banks
PrB 1 < 5 000 Sustainability Manager I; W; SR PrB 2 < 5 000 Sustainability Manager I; W; AR
PrB 3 < 500 PR Manager I; W; CoC; CB, AR
PrB 4 < 5 000 PR Manager I; W; SR, BF
PrB 5 < 500 Head of Private Banking I; W
PrB 6 < 500 Head of Strategic Corporate Development I; W; AR; CM
Public banks
PuB 1 < 10 000 PR Manager I; W; St
PuB 2 < 1 000 Project Lead for Sustainability Reporting I; W; SBL, St
PuB 3 < 5 000 Sustainability Manager I; St; SBL; SR; CoC, W PuB 4 < 10 000 Sustainability Manager I; SR; W; SBL; ER
Cooperatives
CoB 1 < 5 000 Project Lead for Sustainability Reporting I; St, W, CoC CoB 2 < 100 Head of Private Banking I; W; St CoB 3 < 500 Head of Private Customer Business I; W; St
CoB 4 < 500 PR Manager I; W; CoC
CoB 5 < 500 Head of Private Customer Business I; W; St CoB 6 < 100 Sustainability Manager I; W; CoC CoB 7 < 500 Head of Private Customer Business I; W; St
CoB 8 < 5000 PR Manager I; SR; W; AR; St
Church bank ChB1 < 500 Sustainability Manager I; SR; W; St, MS
ChB2 < 500 PR Manager I; SP; W; AR
ChB3 < 500 Sustainability Manager I; W; ER; St, CoC ChB4 < 500 Sustainability Manager I; W; SR; CoC; St
Ethical banks EB1 < 1000 Overall Banking Manager I; SR; St, W
EB 2 < 500 PR Manager I; ER; SR; W
EB 3 < 5000 Marketing Manager I; SR; W, IP
EB 4 < 100 CEO I; W; IP; CoC
Table 2: Sample Structure (Banking Type and Size) and Data Sources
Legend: AR = Annual report, BF = Business flyer; CM = Customer magazine; CB = Company brochure;
CoC = Code of Conduct; ER = Environmental Report; I = Interview; IP = Investment Policy; MS = Mission Statement; W = Website; SBL = Savings Bank Law; SP = Sustainability Policy; SR = Sustainability report; St
= Statute
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3.2 Data Analysis
Data analysis was performed in MaxQDA, leveraging the existing literature on institutional logics while equally allowing for emergent insights and concepts. Such an integrative approach, characterised by both deductive and inductive elements, has the advantage that the strengths of both analytical strategies are combined (Yin, 2018). The analysis proceeded in four steps (see Figure 1), each of which used different coding techniques (Saldaña, 2013).
1) I first examined each individual case and its embeddedness in institutional logics at the organisational level. Guided by the ideal types of institutions as described by Thornton et al. (2012), I identified the logics by considering the type of bank, mission statements and, if available, statutes. Applying causation coding (Saldaña, 2013: 163), the “reasoning schemas” (Thornton et al., 2012: 89) behind the sustainable practices reported by interviewees and found in corporate documents were analysed which allowed insight into the institutional embedding of banks. That is, when there was an implicit causal assumption about a specific practice (i.e., means) related to a specific goal (end) associated with a given logic, the corresponding paragraph was classified as belonging to that logic.
For instance, I coded references to profit maximisation as belonging to the market logic (Almandoz, 2012, 2014), any reference to Christian values (charity, mercy, stewardship for God’s creation) as belonging to the religion logic (Louche, Arenas, & van Cranenburgh, 2012), references to environmental values to sustainable logic (Corbett et al., 2018) and so on. In this way, the institutional background was mapped for each case which could be characterised by two to four logics of which, in all cases, one is always the market logic (see Table 3 for exemplary quotes).
2) Applying action coding (Saldaña, 2013: 96), the sustainable practices implemented by the cases were identified. Thereafter, I grouped all cases that showed similar patterns in their sustainable practices by applying classification techniques (Bailey, 1994; Doty &
Glick, 1994; Kluge, 2000). Three different groups of banks resulted from this analysis step. Each of them shows a different pattern with respect to the sustainable practices (see Table 4). Drawing on the institutional complexity literature (Kraatz & Block, 2010), I label the three groups as ignorance, compromising and integration.
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Logic Main purpose of the bank
Exemplary quote from
interviews Cases
Market Maximising profits
The bank is programmed for growth (PrB2-AR); We are a bank;
so, making money matters most (PuB4-I); Our board clearly thinks in terms of numbers (CoB5-I)
All cases
State
Providing financial infrastructure across all levels of the
population
We were born from the idea of ensuring asset accumulation within broader levels of the population. (PuB1-I); Our aspiration is not to maximise profits but to enable access to financial services to everyone, to all citizens, from all classes (PuB2-I)
PuB1-4
Community
Enabling economic growth of the cooperative members
We are a cooperative institution;
so many aspects of sustainability are part of our DNA – in particular partnership and circularity (CoB1- I); “It is the immanent mission of a cooperative bank to support and foster the region” (Pub4-SR)
CoB1-8, ChB1-4, EB1
Religion
Enabling church and social welfare work
Our self-conception [comes] from a Christian perspective – how do you treat each other, the
responsibility for others, for God’s creation, for the environment – that’s where we come from (ChB2-I)
ChB1-4
Sustainability
Enabling sustainable development
Our purpose is to conserve our livelihood (EB1-I); We only exist to achieve environmental
sustainability (EB3-I)
EB1-4
Table 3: Quotes Representing the Institutional Logics of Banks and Case Classification
3) Considering the institutional background of each case, I proceeded with structural coding (Saldaña, 2013: 84) and analysed the activation drivers that had (or had not) led to the implementation of the sustainable practices, i.e., that had (or had not) activated the sustainable logic at the organisational level. Particularly, I sought for specific situations in which sustainable logic had become material. This step of analysis revealed that sustainable logic became manifest at different levels of analysis, i.e., the field, community and organisational levels. In addition to the manifestation of the logic, different critical triggers (e.g., reputational threat) emerged which interviewees reported to have
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prompted the activation of sustainable logic. Finally, I found differences how the cases perceived institutional complexity (see Figure 2).
4) In step four, I compiled a summary sheet of each case which outlined the previously coded elements (institutional logics, sustainable practices, activation drivers and perceived institutional complexity). These summary sheets facilitated the identification of “patterns of within-group similarity and across group differences” (Eisenhardt, 1989: 540). Using the previously coded elements as building blocks in different configurations, I was able to detect patterns within and across groups. Specifically, by continuously contrasting the three groups of banks (see Step 2) in terms of the manifestation level of the sustainable logic, critical trigger events and the perceived institutional complexity, six pathways emerged through which the sustainable logic had (or had not) been activated. This is the fit between different logics on the one hand and specific situational circumstances on the other which affects the activation of sustainable logic.
Although these four steps are presented sequentially, they alternated with data collection and interpretation (iterative approach). For instance, when a specific pattern emerged during data analysis, I sought to replicate the pattern by adding a case with the same characteristics. This implies that each pattern (or pathway) uncovered was only considered valid if at least a second case confirmed the pathway the sustainable logic had taken. If the pattern could not be replicated, the differences between the respective cases were used to further refine the emerging theory.
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Figure 1: Cross-Case Comparison
4. Findings
Empirically, I reveal three groups of banks with varying degrees of sustainable practice according to which I label them as ignorance, compromising and integration. The following section first describes the patterns of sustainable practices which banks implement in each group (Table 4) and then continues by presenting the identified pathways through which the sustainable logic had (or had not) been activated Figure 3.
4.4.1 Ignorance Pathways: Inactive Sustainable Logic
In six cooperative and two public banks, sustainable logic has not yet been activated.
Though these banks report being aware of sustainable logic, for instance due to requests from NGOs or conversations with colleagues from other banks, environmental issues are not focused upon in the core business. A few sustainable investment products have been launched recently “upon request of the customer” (PuB1-I). However, such products are not highlighted adequately; “[…] we included [a sustainable fund] into the product range but we did not promote it in advertising because other topics were more important”
(CoB5-I).
Institutional background
Causation coding
Market State Religion
Community Sustainability
Activation drivers
Structural coding
Perceiv. inst.
complexity
Critical trigger events
Manifestation level
Sustainable practices
Action coding
Integration No
integration
Compromising
Constant iterationbetweendatacollection anddataanalysis
Summary sheets and comparison of previously coded elements
Identification of paths of the sustainable logic
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No integration Compromising Integration
Sustainable logic Not Activated Sustainable practices attached to
the market logic Activated
Sustainable practices
Few sustainable products “upon request”
Several sustainable products, environmental criteria in lending &
investment decision, engagement approach
Range of sustainable products, strict environmental criteria in lending and investment decisions, divestment, exercising voting rights
Manifestation level of the sustainable logic
Field level Community level and field level Organisational level
Organisational- level logics
Cooperative banks Public banks
Cooperative banks, public banks,
private banks Church banks, ethical banks
Activation
driver –
Financial crisis, reputational crisis, order by the supervisory board, internal sustainability advocate
Echoed by the religion logic, mission-driven
Perceived Institut.
complexity
Logics perceived as incompatible;
market logic prioritised and central
Logics perceived as compatible; both logics are central; market logic is prioritised
Logics perceived as compatible; both logics are central; sustainable logic is prioritised
Cases CoB1, CoB2, CoB3, CoB5, CoB7, CoB8; PuB1, PuB2
CoB6; Pub3, Pub4;
PrB1, PrB2, PrB3, PrB4, PrB5, PrB6
ChB1, ChB2, ChB3, ChB4;
EB1, EB2, EB3, EB4 Table 4: Contrasting the Cases
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In addition, it is rather assumed than actually ensured that a bank does not invest in environmentally critical companies or grant loans to controversial companies as there are no official guidelines nor are such things recorded and monitored: “We have not defined any concrete negative criteria […]. There is no working instruction which tells us which tells us what to do and what not to do” (CoB2-I).
The sustainable logic has been found inactive in six cooperative and two public banks (see P1 in Figure 3). Given their public as well as their community background, these banks not only operate within the market but also within the state and/or community logic (see Table 3). Several interviewees explained that they felt the pressure to maximise profits as alleviated due to their non-private organisational form. “We are there for ourselves and we don't always have to make so much profit now, we have to promote ourselves […], but not more” (CoB1-I). However, when it comes to environmental issues in their core business, these banks do not associate them with the state or community logic but only with the market logic. Community and state logic affect practices in the periphery of banks’ businesses, e.g., sponsoring and donation practices. However, the results of causal coding (step 1) reveal that none of the eight cases links sustainable practices affecting the core business to anything other than the market logic.
This is particularly reflected in their reasoning schemes, i.e., in the way they argue why they implement no or very little sustainable practices in the core business. For instance, they state that sustainability “currently is not an issue” (CoB2-I) and that “the economic relevance is missing” (PuB2-I), primarily because the customer demand for sustainable finance products is very low: “it is negligibly rare that customers asked for such products”
(CoB-I). Such offerings are thus “not a topic which helps to differentiate” (CoB3-I).
Consequently, the sustainable logic is considered incompatible with the market logic which is, however, the central and prioritised logic in these cases. The sustainable logic has thus become manifest at the field level but neither at the community nor the organisation level. Therefore, it does not succeed to be activated in these cases.
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Figure 2: Data Structure
• Sustainable products only available upon request
• No environmental criteria for investment and lending decisions
• Wide range of sustainable products from which costumers can choose
• Environmental criteria are considered in investment and lending decisions
• Active engagement approach
Integrating Compromising No integration
Sustainable practices
Activation drivers Manifestation level of
the sustainable logic
• Sustainable products are offered exclusively
• Strict environmental criteria are a prerequisite in investment and lending decisions
• Exercising of voting rights
• Field-level manifestation of the sustainable logic
• Community-level manifestation of the sustainable logic
• Organizational-level manifestation of the sustainable logic
• Compatibility
• Priorization
• Centrality
• Mitigation of the market logic by further logics
• Reinforcement of the sustainable logic by further logics
Perceived institutional complexity
Critical triggers drivers of attention
• Analyzing customer survey
• Strategic reorientation due to financial difficulties
• Reputational threat
• Change in the composition of the Supervisory Board following political elections
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4.4.2 Compromising Pathways: Detaching practices
Banks in this group, which includes two cooperative, six private, and two public banks, implement a similar pattern of sustainable practices. They offer an extensive range of sustainable products which are also focused on in the advisory process. “We have one savings book named ‘human’; one named ‘environment’ and one named ‘economy’
which is the normal savings book. Our customers can decide in which sector they want to invest” (CoB6-I). In addition, customers might benefit from interest rebates if they meet positive criteria, e.g., when they buy an electric car instead of a conventional car.
Ecologically responsible investments are also offered; however, customer preferences are decisive: “Our portfolio does not include companies which have nuclear plants or arms manufacturer […]. But if a customer wants it, he will get it” (PuB2-I). In addition, environmental criteria are integrated into investment and lending decisions, for instance, banks exclude certain forms of coal production and check the environmental regulation compliance of their customers. Furthermore, they actively engage with their customers if there are any environmental inconsistencies:
“If a customer receives negative attention from an NGO, we get in touch with the company and discuss the issues raised and how they want to handle it. […]. We engage in dialogues with our customers and try to support a positive development”
(PuB4-I).
Three activation pathways were identified in these cases each of which, in contrast to cases within the ignorance group, share two activation drivers –experience of critical trigger events and, in each case, the existence of an internal sustainability advocate.
Critical trigger events are characterised by the fact that they are surprising or unexpected, e.g., criticism by an NGO or surprising results of a market analysis, thereby causing a rupture in the continuity of an organisation. An internal sustainability advocate is a top manager in the bank who has the power and will to actively advocate the topic.
The first pathway (see P2 in Figure 3) is represented by a public bank (PuB3). Here, the sustainable logic became manifest at the community level when local elections led to a majority of the Green party. As the composition of the supervisory board of public banks depends on the distribution of votes between the parties, the elections were a critical event:
“Our Board of Directors in the savings banks is politically dominated. And when the Green party joined the board, they said: ‘Okay, we want you to do something
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sustainable’. They basically wrote that into our strategy. Then we did nothing for two years. And then the Greens asked again. And then we set up a preliminary project. (Pub3-I).”
As the quote indicates, the first critical trigger alone was not enough. It was only the repeated demands on the part of politicians that made it possible for sustainable logic to become material. This was particularly supported by an internal sustainability advocate:
And then the Chairman of the Board directly took care of [the sustainability strategy], he was also directly responsible for the project, and I also worked with him for two years. And he really pushed this forward. Without him, one simply has to say, we wouldn't have got this far [...] Well, that was really due to the initiative of a few people or almost one person (PuB3-I).
On the second pathways of this group (P3 in Figure 3) the sustainable logic also becomes manifest at the community level, but this time in the form of a growing customer demand for sustainable products. This change in customer preferences also functions as a critical trigger. For instance, one interviewee reported: “We did a survey last year and we asked investors and results have shown that 80% of investors are interested in climate-friendly investments. […] And that is a reason to say, ok – let’s make a sustainable bond” (PrB2- I). Consequently, if a bank notes a growing customer demand not only for sustainable products but also for revised decision criteria for lending and investment decisions, it also opens itself to sustainable logic. “It is already the case that something like this [participation in the United Nations Environment Finance Initiative] is increasingly requested in the context of pitches and contests. And this is also a criterion for mandates”
(PrB4-I). Banks then understand the broader product range as a strategy of differentiation.
“We have to differentiate from our competitors” (CoB6-I).
Similarly, a difficult financial situation has been found to be a critical trigger. Case PrB6 reported that when they reformulated the strategy of the bank, they felt that the positioning as sustainable might provide additional business opportunities:
“The new regulations and the low interest rate environment confronted us with major challenges. In our search for additional revenue opportunities and as the result of an advisory process, we came up with the idea of focusing more on sustainability in our investment strategy (PrB6-I).”
Similar to pathway 2, the interview partners reported receiving support from an internal sustainability advocate.
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Furthermore, sustainable practices are implemented in both public and private banks when banks operate internationally (see P4 in Figure 3). An expansive geographical scope of business activities leads to banks perceiving greater pressure from secondary stakeholders, that is, sustainable logic becomes manifest at the field level in the form of NGO criticism. These banks consistently reported that they have already been contacted frequently by NGOs and criticised for certain transactions. This criticism also functions as a critical trigger and entails the concern of loss of reputation. “If something happened, it would be huge reputational risks” (PuB4a). In some cases, financing for controversial projects that lead to protests is discontinued or no new contracts are concluded. “I can imagine that [the contract] would have been extended if it had not have negative consequences in terms of reputation” (PuB4). The primary reasoning for these practices thus originates from a risk perspective. “I wouldn't say it's altruistic, but it comes from a reputational risk aspect” (PrB1-I). However, this pathway also ultimately activates the sustainable logic only if an internal sustainability advocate is present. “So it is also personal or owed to the CEO who expressed the wish to do so” (PrB2-I).
Contrary to the ignorance group, market and sustainable logic are perceived as compatible as sustainable practices are considered means to achieve business ends belonging to the market logic. Based on the practices, sustainable logic seems activated.
However, despite their implementation, the sustainability logic is not reflected in the reasoning schemes. Instead, the justification for sustainable practices essentially refers to the market logic. Banks therefore borrow the practice of the sustainable logic they are confronted with at the community or field level by NGOs, customers or politicians, but they do not incorporate its vocabularies of motives. Sustainable practices thus are detached from their original ends and instead attached to the ends of the market logic which results in a compromising approach towards sustainable practices. Finally, the internal sustainability advocate is crucial for all three pathways. This top manager captures the sustainable logic from the community level (P2 and P3) or from the field level (P4) and transfers it to the organisational level by appropriating it and its practices, encasing them into the market logic.
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4.4.3 Integration Pathways: Active Sustainable Logic
In the third group comprising four ethical and four church cases, sustainable logic has been activated as reflected in both the practices of these banks and their reasoning schemes for these practices. Therefore, these eight banks follow an exclusive approach which means that they only finance environmentally healthy projects and organisations (e.g., organic farming, renewable energy, carbon-neutral buildings). “In line with our statutes we only finance environmentally compatible projects” (EB2-I). An extensive range of positive criteria such as biodiversity in forestry and agriculture, resource efficiency, renewable energy, circular economy or pollutant reduction and negative criteria, e.g., nuclear and coal power, animal testing or genetic engineering in agriculture, are applied to every investment decision be it a proprietary investment, within security business or credit granting. “We very, very strictly select sectors, and industries within which we operate and simultaneously we have a very, very long list of exclusion criteria of several sectors” (EB3-I). Consequently, deals can be rejected because they do not completely comply with all criteria. “If there is a conventional farm which asks us to finance a photovoltaic system, we will not do so before it does not switch to sustainable agriculture” (EB3-I). Furthermore, customers are not offered any conventional financial products. The product range consists exclusively of sustainable products.
Active shareholder engagement is also a part of the strategy. However, different from the compromising group, this practice is less prominent here as customers and invested companies are selected more carefully because the stricter exclusion criteria are more far- reaching. They therefore tend to be less involved in controversies. The exercise of voting rights, in contrast, is very conscious, often in conjunction with other institutional investors.
Two pathways were identified through which sustainable logic becomes activated and integrated in an organisation. In the case of ethical banks (see P5 in Figure 3), environmental concerns belong to the identity of the bank. The overall motive to ensure
“that future generations can do well or even better than we” (EB2-I) was anchored in the banks’ mission when founded. Sustainable practices are no longer a means to an end but an end in themselves which is achieved through the banking business. “We want to achieve certain effects on society by means of banking business” (EB1-I). Consequently, sustainable practices are implemented bottom-up. “That's how the company lives and works and that's how it developed. What I want to say is that it is not as if such a
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sustainability approach was flanged on top of it.” (EB1-I). To put it differently, it has been active from the very beginning in the organisation.
The other pathway is represented by church banks (see P6 in Figure 3). These banks are also facing growing demands from the field level. These environmental concerns resonate with the Christian value of stewardship for God’s creation. Consequently, sustainable logic is adopted at the organisational level, as the following quotes shows:
The topic of climate change and CO2 is of course a very virulent one. For us, however, because of the Christian basis, the keyword is the preservation of God’s Creation, it is an important issue that we also contribute here. And not only by reducing our own consumption, but also by acting on the market. In other words, it is actually a logical consequence that we try to achieve the sustainability goals of the UN, with the SDGs, and make our contribution through our business conduct to ensuring that future generations also find a world worth living in (ChB4-I).
Similar to the compromising group, market and sustainable logics are considered compatible here. What is different, however, is that the latter is given priority. In the case of church banks, the activation succeeds by the fact that the sustainable logic resonates with the religious logic and thus gains strength against the market logic. In case of ethical banks, environmental concerns have been the drivers ever since the sustainable logic was taken to the forefront. In both church and ethical banks, sustainable logic is therefore activated directly at the organisational level which is why further activation drivers are not necessary.
5. Discussion
I opened this article by addressing the question of how and why sustainable logic is activated in an organisation. The analysis of multiple case studies in the German banking industry reveals that there are different pathways via which sustainable logic can be activated. The primary difference between some pathways activating and others not activating sustainable logic is whether banks perceive it as compatible with the market logic. If they identify sustainable practices as means towards their dominant logic’s ends, they implement them. For instance, a bank steeped in the market, state or cooperative logic, is likely to implement sustainable practices if they are seem to be means to reduce financial risks.
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Figure 3: Conceptual Model on the Activation Pathways of the Sustainable Logic and Related Organisational Practices
However, in order to make sense of sustainable practices in such ways, organisations need to experience a critical trigger event first, such as a reputational threat. Due to such critical trigger events, organisational attention is drawn to sustainable logic and strategic adjustment becomes an option (Ocasio & Joseph, 2005). A recent case study on environmental practices in IT projects has shown that in case of conflicts, which is a type of critical event, in project environments, windows of opportunity open up (Corbett et al., 2018). The critical events that emerged in the interviews had a function similar to the project environment, as they allowed the organisation to engage in a discussion about sustainable logic. This argument is supported by the well-established view among organisational scholars “that change generally is motivated by events in an organisation's environment—some problem or surprise such as a shortfall in expected performance, unexpected moves by competitors, shifts in technology, or new customer demands triggers a change” (Staudenmeyer, Tyre, & Perlow, 2002: 584). I therefore derive the following proposition:
Proposition 1: Critical triggers open up windows of opportunity that enable decision makers to recognise and cognitively process sustainable logic.
Compro mising
Inte- grating Local politics
Customer demand
Sustainable Logic at the Community Level
Perceived Compatibility,
Market Logic Prioritized
Perceived Compatibility,
Sustainable Logic Prioritized
Echoed by Christian Values Sustainable Logic at the Organizational Level Mission-driven
Fit between Institutional Logics
and Situational Attributes Institutional Complexity Sustainable Practices NGO Pressure Int. Sust.
Advocate P3
P2 P1
P4
P5
P6
Perceived Incompatibility,
Market Logic Prioritized
Igno- rance
Int. Sust.
Advocate Int. Sust.
Advocate
Sustainable Logic at the Field Level
