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“Environmental capabilities, proactive environmental strategy and competitive

advantage: A natural-resource-based view of firms operating in India”

Poornima Mishra, Manamohan Yadav

PII: S0959-6526(20)35293-8
DOI: https://doi.org/10.1016/j.jclepro.2020.125249
Reference: JCLP 125249

To appear in: Journal of Cleaner Production

Received Date: 16 July 2020

Revised Date: 23 October 2020
Accepted Date: 21 November 2020

Please cite this article as: Mishra P, Yadav M, “Environmental capabilities, proactive environmental
strategy and competitive advantage: A natural-resource-based view of firms operating in India”, Journal
of Cleaner Production, https://doi.org/10.1016/j.jclepro.2020.125249.

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27 November 2020
Jiří Jaromír Klemeš
Editor, Journal of Cleaner Production

We are extremely grateful to the editorial support and the unanimous reviewers for their
valuable comments and suggestions on our original manuscript, taking time to review the
revised version leading to the acceptance of revised manuscript entitled “Environmental
capabilities, proactive environmental strategy and competitive advantage: A natural-
resource-based view of firms operating in India” in your prestigious journal “Journal of
Cleaner Production”.

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Kindly find below mentioned the Credit Author Statement for the above manuscript.

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Poornima Mishra: Conceptualization, Methodology, Software, Investigation, Formal
Analysis, Data curation, writing initial draft, Visualisation.
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Dr. Manmohan Yadav: Conceptualization, Methodology, Investigation, Validation, Formal
Analysis, Writing-review & editing, Supervision and Project administration.
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Thanks & Regards,

Dr. Manmohan Yadav

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Associate Professor,
Indian Institute of Forest Management, INDIA
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manmohanly@gmail.com

Poornima Mishra
Assistant Professor
Jagran Lakecity University, INDIA
Poornimamishra1502@gmail.com
 Title page

1. Title:

“Environmental capabilities, proactive environmental strategy and competitive advantage: A

natural-resource-based view of firms operating in India”

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2. Authors’ details:

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First author: Poornima Mishra, Assistant Professor, Jagran Lakecity University
Poornimamishra1502@gmail.com
Phone No. 8720010222
206 A/2 Sector AN Raj Harsh colony
Lalita Nagar, Kolar Road,
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Bhopal – 462042
Madhya Pradesh, INDIA
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Second author: Dr. Manamohan Yadav, Associate Professor, Indian Institute of

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Forest Management
manmohanly@gmail.com.
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Phone No: 9424413670

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3. The full contact details of the corresponding author:

Dr. Manamohan Yadav: manmohanly@gmail.com.

Phone No: 9424413670
D5, Vanika, IIFM Residential Colony
Kotra, BHOPAL - 462003
Madhya Pradesh
INDIA
 “Environmental capabilities, proactive environmental strategy and
competitive advantage: A natural-resource-based view of firms operating
in India”

Abstract

Drawing on the natural resource-based theory, the study examines the relationship of specific
environmental capabilities, proactive environmental strategy (PES), and competitive
advantage. In addition, it explores how perceived uncertainty and hostility in the general
business environment moderate the deployment of strategic proactivity capability in

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formulating proactive environmental strategy. Accordingly, hypotheses were formulated,

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which were then tested using multiple hierarchical regression and bootstrapping mediation
analysis on the survey data collected from 162 firms operating in India. The results indicate
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that the capabilities of shared vision, strategic proactivity, and continuous innovation are pre-
requisites to formulate a PES. Furthermore, the findings confirm that PES mediates the
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relationship between environmental capabilities and competitive advantage. Moderation
results reveal that perceived uncertainty positively moderates the relationship between
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strategic proactivity and a PES. However, the moderating impact of perceived hostility was
found to be insignificant. The study contributes to the understanding of natural-resource-
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based view and contingent influence of external variables in designing PES by firms in the
Indian business context. These findings provide important managerial implications for the
deployment of environmental capabilities to pursue PES in gaining a competitive advantage.
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Keywords: Proactive environmental strategy, natural-resource-based view, shared

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vision, strategic proactivity, continuous innovation, competitive advantage, perceived

environmental uncertainty and hostility.

1. Introduction

Early literature on corporate environmentalism focused intensively on the developed

countries due to their unsustainable consumption, significant greenhouse gas emissions
(GHG), stringent environmental regulations, and stakeholder pressures (Jayanti and Godwa,
2014). However, during the last three decades, the global GHG emissions trend shifted
towards developing countries. Previous studies stated that the policies and regulations in
developing countries often focussed on economic growth at the cost of environmental issues
(Economy and Lieberthal, 2007; Özen and Küskü, 2008).
Thus, increasing evidence of emissions from developing countries signify their contribution
to environmental problems (Bawa et al., 2010; Sangle, 2010). Developing countries such as
India and China experienced significant economic growth since the last two decades. As a
result, the absolute GHG emissions of these economies have reached close to the level of
developed countries (World Energy Outlook Special Report, 2015). India emerged as the
third-largest emitter of carbon dioxides emissions in the world, behind only to China and the
United States (Energy Efficiency Outlook for India, 2017).
Such an evolving scenario attracted researchers’ inclination towards the role of firms
operating in developing countries in addressing environmental issues. An increasing number
of studies examined the emergence of corporate environmentalism in developing countries

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(Sandhu et al., 2012; Wyeth and Nulkar, 2014). The extant literature examining corporate

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environmentalism in developing countries may be categorized into three different streams.
The first stream represented earlier studies supporting the pollution-havens hypothesis. These
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studies stated that MNCs (Multinational Corporations) exploit lax environmental regulations
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in developing countries (Pearson, 1987) by extracting resources, transferring obsolete and
environmentally harmful technologies (Leonard, 1979) and relocating their dirty operations
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(Clapp, 2002).
On the contrary, second stream offered an optimistic view explaining that the environmental
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advancement occurring in developing countries was primarily attributed to MNCs. The

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proponents of this view criticized pollution-haven hypotheses as narrow-minded articulation.

They suggested the role of MNCs as leaders in pioneering advanced environmental practices
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and promoters of stringent regulations in host countries (Hoffmann et al., 2005; Jeppesen and
Hansen, 2004; Rudd, 2002). However, both streams of researchers did not examine the role
of domestic firms in addressing environmental issues in developing country context, though a
few studies reported only the degree to which the environmental practices of MNCs
influenced the domestic firms (Pulver, 2007). Thus, a third perspective emerged, that focused
on the role of domestic firms in solving environmental problems. Researchers have labelled
domestic firms from being environmental laggards and pessimistic agents of sustainability to
being potential agents of environmental sustainability (Pulver, 2007). Other studies suggested
that some companies proactively implemented environmental practices, whereas, others made
slow or no progress in pursuing the same (Perkins, 2007; Mitra et al., 2008; Wyeth and
Nulkar, 2014). Thus, firms differed in their environmental practices (Nishant et al., 2015). A
few studies examined drivers of these proactive environmental responses such as, pressure
exerted by regulatory institutions (Shubham et al., 2018; Sangle, 2010), stakeholders and
market (Pulver, 2007), and international customers (Sandhu et al. 2012; Jeppesen and
Hansen, 2004). While these extrinsic drivers offered promising insights on the emergence of
corporate environmentalism in developing countries, but lacked in capturing the role of
firms’ internal capabilities in shaping their strategic environmental choices. Salim et al.,
(2019) and Amui et al., (2017) highlighted the need for examining the role of capabilities in
shaping proactive environmental responses from a developing country perspective. Our study
examines this research gap.

The resource-based view of firms argued that corporate strategies, choices and responses are
influenced by its internal strategic capabilities, which in-turn provides the basis for firms’
competitive advantage (Peterlaf, 1993; Barney, 1991). Drawing insights from the resource-

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based view, Hart (1995) proposed the “Natural-Resource-Based view of firms” (NRBV) to

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explain the influence of organizational capabilities on the firms’ environmental strategy.
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NRBV literature contended that the firms with well-developed organisational capabilities are
more likely to adopt a proactive environmental strategy (PES). Present study refers these
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organisational capabilities as “environmental capabilities” (Albertini, 2019; Journeault,
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2016). The proponent of this view also claimed that a PES has the potential to offer cost and
differentiation competitive advantage by reducing emissions, encouraging resource
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productivity and innovation, and providing social legitimacy and reputational advantage (Fraj
et al., 2015; Miles and Covin, 2000). Various studies validated these arguments in developed
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countries context (da Cunha Bezerra et al., 2020; Sambasian 2013). However, similar
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research in developing countries like India is lacking.

Thus, our research attempts to examine the relationship of environmental capabilities-PES-
competitive advantage in the developing countries context, such as India, for the following
reasons. (1) India is one of the fastest growing economies and a key political superpower in
the Asia region with very rich natural resources endowment (Battacharya, 2019). (2)
Increasing deterioration of natural environment due to rapid economic development and as a
consequence increasing stakeholders’ pressures on the companies to adopt sustainable
practices (Rajesh, 2019; Chopra, 2016; Gupta and Gupta, 2020). (3) Developing countries are
fundamentally different from developed countries due to the cultural and socio-economic
conditions (Aguinis and Glavas, 2019), level of technological development (Battacharya,
2019), resources availability (Roy et al., 2020), management practices (Nielson 2013), and
institutional and stakeholders pressure (Sardana et al., 2020). Also, these factors significantly
affect corporate environmental practices (Sardana et al., 2020; Williams 1999). India is still
struggling with many social problems (Xiao et al., 2018) and given the preference to cater to
primary needs, society may prioritise economic issues over environmental issues. Further,
Indian environmental compliance lags far behind than developed countries (Battacharya,
2019). All these facts may affect managers’ attitude towards environmental responsibility
(Betts et al, 2018). Considering all these aspects, we examine the argument that the
knowledge from developed countries may not apply to the Indian, developing country
context. Hence, the present study is rational, contextual, timely and important.
The findings of our study are based on the survey of 162 senior executives from the firms
operating in India. The study contributes to the environmental literature by corroborating and
extending prior findings in several ways. First, the novelty of the study lies in the choice of

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the context. The study offers a unique opportunity to understand weather western theory

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about corporate environmentalism, environmental capabilities, and competitive advantage
hold in the distinct economic, political, and cultural context of developing countries. To the
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best of our knowledge, this is the first study, which empirically validates the relationship of
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environmental capabilities, PES, and competitive advantage in the context of firms operating
in India. Second, based on NRBV perspective, the study provides empirical evidence
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suggesting the crucial role of environmental capabilities (shared vision, strategic proactivity
and continuous innovation) in pursuing PES. Third, by supporting a positive relationship
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between a PES and a firm’s competitive advantage, it contributes to the long-debated

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relationship “whether it pays to be green”. Further, the literature suggests that environmental
capabilities themselves do not generate competitive advantage; instead they have indirect
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effect on competitive advantage via PES (Torugsa et al., 2012). Consistent to this theoretical
preposition, our study confirms the mediating role of PES in the linkage between
environmental capabilities and competitive advantage and, thus provides insights into “how
to be strategically green”. Hence, the study offers an insight to environmentally reactive
Indian firms to embed sustainability into their strategic planning via deploying pre-requisite
capabilities. This may also simultaneously improve their competitiveness. Fourth, prior
studies stated that capabilities deployment for strategy formulation does not happen in a
vacuum rather this mechanism is contingent upon the characteristics of the general business
environment (Aragón Correa and Sharma, 2003). In view of this, we also examine the
moderating impact of perceived environmental uncertainty and hostility. It may enhance our
understanding on the deployment of strategic proactivity capability to formulate a proactive
environmental strategy. Therefore, it may be concluded that the study findings offer insights
on antecedents, underlying mechanism, and outcomes of a proactive environmental strategy
from business sustainability perspective.

The research paper proceeds as follows: theoretical foundation and research hypotheses,
research methodology, data analysis, discussion, and conclusion & implications. The overall
organisation of the study is presented in figure1.
2. Literature Review

The theoretical framework of the study has been drawn on the natural-resource–based view
(Hart, 1995) and contingent-natural-resource–based view (Aragon-Correa and Sharma,
2003). Natural-resource–based view, an extended form of resource-based view (Barney,

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1991; Wernerfelt, 1984) to incorporate environmental constraints into strategic decisions,

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argues that the development and deployment of strategically valuable environmental
capabilities are a pre-requisite to gain competitive advantage from a proactive environmental
strategy (Hart, 1995).
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2.1. Proactive Environmental Strategy: PES is defined as a systematic pattern of voluntary
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practices that go beyond regulatory requirements to reduce the environmental impact of a

firm (Aragón-Correa and Rubio-López, 2007). NRBV explained three interrelated
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dimensions of PES, namely, pollution prevention, product stewardship and clean technology.
Pollution prevention focuses on achieving zero emissions and wastes by removing pollutants
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from the production processes rather than relying on conventional end-of-pipe techniques to
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control emissions and wastes. Thereby, it offers cost savings by better utilizing inputs,
simplifying processes, and reducing compliance cost and adverse outcomes of non-
compliance and environmental accidents ((Plouffe et al., 2011; Borchardt et al., 2011).
Product stewardship extends the scope of pollution prevention by incorporating
environmental issues into product design and production process (Dangelico and Pujari,
2010). It aims to minimize product environmental impacts at any stage of its life cycle by
performing life cycle assessment (LCA), selecting less hazardous materials, adopting design
for the environment (DfE) approach and other similar approaches. Resultantly, product
stewardship provides differentiation advantage as it improves product environmental
performance and enhances social legitimacy and reputation in the society (Delmas et al.,
2011; Walsh and Dodds, 2017). Finally, clean technology, a subsequent move toward
sustainability, depends on radical innovations to reorient energy use and pioneer future
industrial technologies.
2.2. Environmental capabilities: The PES is multifaceted and built on specific, identifiable
and path-dependent processes (Aragon and Sharma, 2003). Further it requires the
reconfiguring of organizational physical resources, thus necessitating the deployment of
complex environmental capabilities (Sharma et al., 2007). These capabilities lay the
foundation for PES that enables firms to gain a competitive advantage (Leonidou et al.,
2017). NRBV literature explored various environmental capabilities such as shared vision
(Alt et al., 2015; Aragón-Correa et al., 2008), strategic proactivity (Sharma et al., 2007),
continuous innovation (Sharma and Vredenburg, 1998), cross-functional integration,
stakeholder engagement, organizational learning and others (Yang et al., 2019). These
capabilities are valuable, inimitable, and with unique characteristics of causally ambiguous,

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path-dependent, and embeddedness (Hart and Dowell, 2011). While all these capabilities vary

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in terms of their strategic importance, the present study examines the role of shared vision,
strategic proactivity, and continuous innovation in pursuing a PES.
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Shared vision is defined as the members’ collective value and beliefs regarding a firm’s
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objectives and mission (Oswald et al., 1994). PES entails organisational members’ support,
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involvement and commitment in attaining sustainability goals of an organisation (Albertini,

2019; Journeault 2016). Thereby, shared vision is critical in fostering employees’
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participation and commitment in environmental decision making and actions (Aragón-Correa

et al., 2013; García-Morales et al., 2011). It facilitates effective communication of
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sustainability-integrated goals, strategies, practices and technologies among organisational

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members (Johnson, 2017) and develops a sense of collectivism and a sustainability-driven

working culture (Ketprapakorn and Kantabutra, 2019). In addition, it provides goal clarity
and strategic directions by mitigating ambiguities and conflicting interests (Alt et al., 2015).
Strategic proactivity is another significant environmental capability, which is defined as a
firm’s ability to develop entrepreneurial, engineering, and administrative routines and
processes in order to actively seize and capitalize on new opportunities rather than merely
react to change (Aragón-Correa, 1998; Miles et al., 1978). This capability facilitates the early
identification and prompt response to environmental opportunities and threats. Further, it
supports the alignment of administrative routines, structures and processes to embrace newly
adopted proactive environmental practices (Sharma et al., 2007). Continuous innovation is
defined as the ability to continuously generate innovations to successfully implement new
ideas, products, processes and technologies that contribute to a firm’s maintaining its lead (Li
and Atuahene-Gima, 2001). This capability supports PES via generating inimitable and
sustained environmental innovations that allow a firm to remain ahead of its competitors
(Journeault, 2016).

Above all, capabilities demonstrate the ability to transform, redesign and support firms’
resources and processes to ensure the alignment with PES. Considering the strategic
influence of these environmental capabilities in pursuing PES, our study makes an attempt to
examine the role of these capabilities in the context of firms operating in India.

2.3. Competitive Advantage: The extant literature on the relationship between PES and
competitiveness is based on two diverse perspectives. The traditional perspective suggests
that environmental management requires enormous investments and complex transformation.

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Such investments reduce cash inflows and competitive advantage and in turn hinder

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economic growth (Cordeiro and Sarkis, 1997; Gollop and Roberts, 1983; Christainsen and
Haveman, 1981; Jaffe et al., 1995; Walley and Whitehead, 1994). However, these studies
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were criticized for being anecdotal and lacking in rigor and theoretical foundations (Surroca
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et al., 2010; Ambec and Lanoie, 2008). Another perspective explains that environmental
practices can enhance competitiveness by reducing emissions, and encouraging resource
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productivity and innovation (López-Gamero et al., 2016; Leonidou et al., 2017). Corporate
environmental postures can be either reactive (compliance model) or proactive (strategic
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approach) (Aragón-Correa et al., 2008). The reactive stance is intended to merely comply
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with regulations usually by installing end-of-pipe technologies, which do not require

modification in production processes (Cleff and Rennings, 1999; Russo and Fount, 1997). It
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is considered as a cost burden to the firm with adverse economic outcomes. While a PES
prevents environmental inefficiencies via pollution prevention and product stewardship
approaches and requires the deployment of environmental capabilities. The deployment of
capabilities makes it difficult for competitors to replicate proactive environmental practices.
Thus, the inimitable characteristic of PES offers an opportunity to improve competitiveness.
Porter (1985) defines competitive advantage as an outcome of a strategy that leads to superior
performance relative to competitors in the same industry. However, in the context of PES, the
study refers to the definition of Christmann (2000) and defines competitive advantage as the
part of the overall competitiveness of a firm, which could be influenced by proactive
environmental practices. Various terms have been used in literature to explain the benefits
derived from PES such as ‘eco-advantage’ (Esty and Winston, 2009), ‘environmental
competitiveness’ (Wagner and Schaltegger, 2004) or ‘eco-competitiveness’ (Hart and Dowell,
2011). The environmental competitive advantage can be further categorised into cost and
differentiation advantage (López-Gamero et al., 2016). Cost advantage is defined as the
internally-driven tangible results of PES that provide cost saving opportunities (Pereira-
Moliner et al., 2015) such as reduced materials requirement, efficient production process,
reduced liability and compliance cost. In addition, PES also has a potential to provide
intangible and externally-driven differentiation advantage via seeking social legitimacy and
reputational advantage in the society (Melo and Garrido-Morgado, 2012; Walsh and Dodds,
2017). Reputational advantage and social legitimacy are the strategic sources of competitive
advantage with the potential to enhance a corporation's long-term ability to create value
(Miles and Covin, 2000). In view of above arguments, our study aims to examine the
relationship of environmental capability-PES-competitive advantage.

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2.4. Perceived environmental uncertainty and hostility

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NRBV imparts thorough understanding on how capabilities are associated with a PES and in
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turn, provide competitive advantage. Nevertheless, it ignores the influence of external
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business environment in the formulation of a PES. To overcome this limitation, Aragón
Correa and Sharma (2003) offered the contingent resource-based view of natural environment
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(an extended form of NRBV). This view elucidates conceptually as to how the characteristics
of general business environment moderate the deployment of environmental capability in
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formulating a PES. The characteristics of general business environment are usually referred
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as perceived uncertainty/instability/dynamism and perceived hostility/ munificence (Tan and

Litschert, 1994; Mcarthur and Nystrom, 1991). In literature, various expressions such as
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perceived uncertainty, dynamism, volatility, and high-velocity are used to refer to the notion
of unpredictability in the external environment (Goll and Rasheed, 2004). Environmental
uncertainty occurs when managers perceive their business environment or one of its
components to be unpredictable (Milliken, 1987; Miller and Shamsie, 1999). A business
environment is said to be unstable when its product or service updates quickly; prediction of
the changing customer preferences and acts of customers is difficult (Lewis and Harvey,
2001); regulations change frequently; and the technology progresses quickly (Sharma et al.,
2007; Rueda-Manzanares et al., 2008). Likewise, perceived hostility in the general business
environment can be explained as “the degree of threat to the firm posed by the
multifacetedness, vigour, and intensity of the competition and the downswings and upswings
of the firm’s principal industry” (Miller and Friesen, 1983). Hostility exists when managers
perceive that the survival of their firm is threatened by the scarce supply of labour and
materials (Lindelöf and Löfsten, 2006) and fierce competition on price and quality (Slevin
and Covin, 1997). A hostile business environment may imply a proliferation of competitors,
dynamic regulations, and aggressive competitor moves (Dess and Beard, 1984).

A few studies analysed the moderating role of environmental uncertainty between capabilities
and PES (Sharma et al., 2007) and between social responsibility and financial performance
(Goll and Rasheed, 2004). Even so, the empirical investigation of moderating role of
environmental uncertainty and hostility on the adoption of PES is scant. Accordingly, some
researchers highlighted the need to explore the linkage between capabilities and PES under
different contingent conditions (Fraj et al. 2015; Qi et al., 2014; Hart and Dowell 2011;
Aguilera-Caracuel et al., 2012). Thus, in the absence of recent evidences a new research
enquiry is needed. Drawing from these studies, we attempt to study the moderating effect of

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perceived uncertainty and hostility on the deployment of strategic proactivity capability to

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formulate a PES.

2.5. Indian context and research questions

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India is the second-largest and fastest-growing economy in emerging and developing Asia
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(World Economic Outlook, 2020). Given the fact that India is the third-largest emitter of
GHG emissions in the world, the literature on corporate environmentalism in India is still in
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its nascent stage. There are some studies examining environmental practices of firms
operating in India (Mitra et al., 2008; Wyeth and Nulkar 2014; Shah, 2014). Few of them
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compared the environmental practices of Indian firms with the practices of advanced
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countries’ firms, and suggested that environmental proactivity is evident in a growing number
of companies (Betts et al., 2018; Bhattacharyya, 2019) which is positively associated with
their financial performance (Sen et al., 2015; Sardana et al., 2020; Gupta and Gupta, 2020).
These studies are helpful but do not shed light on underlying mechanism which enables firms
to realise benefits from environmental proactivity. Others applied institutional and
stakeholder theories to identify the drivers of corporate environmentalism in India. They
stated that external factors such as pressure exerted by regulatory institutions (Shubham et al.,
2018; Sangle, 2010; Singh et al., 2014), stakeholders (Vishwakarma et al., 2019) and
international customers (Sandhu et al., 2012; Kumar and Shetty, 2018) influence the
environmental practices. However, diverse environmental responses from firms in India
signify that firms’ internal capabilities may also influence their environmental practices
thereby, provide a rationale to investigate the role of environmental capabilities (Shubham et
al., 2018). There is hardly any study examining the role of environmental capabilities in
supporting the adoption of PES except by Mishra and Yadav (2019) and Khurana et al.,
(2019). They suggested the importance of collaborative and stakeholder integration
capabilities in environmental proactivity. Similarly, a few studies suggested that firm
resources like organisational culture (Sandhu et al., 2012) and capability (Vishwakarma et al,
2019) are significant in the adoption of PES. However, they applied case study methodology
and limited to single industry (Indian cement industry). None of them attempted to examine
the relationship of environmental capabilities-PES-competitive advantages, thereby
substantial gaps exist and further investigation is needed. Consistent with the above identified
gaps, the study aims to address the following research questions in the context of firms
operating in India:

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RQ 1: What is the role of firm specific environmental capabilities––shared vision, strategic
proactivity, and continuous innovation in the formulation of proactive environmental
strategy?
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RQ 2: What is the impact of proactive environmental strategy on firms’ competitive
advantage?
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RQ 3: Does PES mediate the relationship between environmental capabilities and

competitive advantage?
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RQ 4: Does perceived environmental uncertainty and hostility in the general business

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environment moderate the deployment of strategic proactivity in formulation of PES?

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3. Hypothesis Development
The hypothesized model, linking environmental capabilities-PES-competitive advantage and
perceived uncertainty and hostility, is presented in Figure 2. This section presents research
hypotheses.

3.1. Relationship between shared vision and PES

The shared vision encourages organisational members to embrace newly adopted strategies,
technologies and practices (Eldor, 2019). Various studies highlighted the importance of
employees’ commitment and involvement in the adoption of advanced environmental
practices (Darnall et al., 2008; Ramus and Steger, 2000; Zutshi and Sohal, 2004) such as eco-
friendly design, waste reduction programmes, and sustainability practices (Kitazawa and
Sarkis, 2000; Sharma and Henriques, 2005). Studies have also shown that employees’
support and involvement is critical for PES (Anderson and Bateman, 2000; Buysse and
Verbeke, 2003) as they possess unique knowledge about their firms (Boiral, 2002; Sarkis et
al., 2010). PES requires reconfiguration and recombination of existing resources in order to
facilitate organizational fit to the natural environment (González-Benito and González-
Benito, 2005). Such realignment might not be easy for employees to follow (Alt et al., 2015).
Some members may not even have consensus on firms’ environmental objectives and actions
(Delgado-Ceballos et al., 2012; Fineman and Clarke, 1996) in view of their varied aspirations
(Calantone et al., 2002) which may act as barrier to the success of PES (Delgado-Ceballos et
al., 2012). In such situations, shared vision can vitalize a common understanding and
coordinated actions by mitigating ambiguities and conflicting interests (Jansen et al., 2008;
Lindley and Wheeler, 2000). Thus, literature based on developed countries argued that shared

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vision is one of the pre-requisites of PES (Aragón-Correa et al. 2008; Leonidou et al., 2013;

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Torugsa et al., 2012). Accordingly, we propose the following hypothesis to investigate this
relationship in the context of developing country.
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Hypothesis1: A shared vision capability has a significant positive impact on the firm’s
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proactive environmental strategy.
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3.2. Relationship between strategic proactivity and PES

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Previous studies argued that environmental advancements are positively associated with a
firm’s strategic proactivity and its interrelated dimensions–entrepreneurial, engineering, and
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administrative (Aragón-Correa, 1998; Aragón-Correa et al., 2008). The entrepreneurial

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dimension of this capability facilitates the early identification and exploitation of

opportunities and threats inflicted by the natural environment such as the possibility of
developing eco-friendly products, changes in future regulations and others (Rueda-
Manzanares et al., 2008; Torugsa et al., 2012). The engineering dimension complements the
entrepreneurial dimension by searching for technological solutions to seize environmental
opportunities and manage threats (Marcus and Geffen, 1998; Hanna et al., 2000). Similarly,
the administrative dimension aligns the organizational routines, structures and processes to
support the implementation of PES (Aragón-Correa, 1998). Accordingly, the present study
empirically examines whether strategically proactive firms operating in India differ in their
response to the environmental sustainability in comparison to the firms not possessing such
capability. We propose the following hypothesis for such investigation:

Hypothesis 2: A capability of strategic proactivity has a significant positive impact on the

firm’s proactive environmental strategy.
3.3. Relationship between continuous innovation and PES

Continuous innovation is one of the imperative strategic sources of competitive advantage in

the era of the knowledge economy as it allows companies to promptly respond to market
opportunities and threats (Forsman, 2013; Prajogo and Ahmed, 2006; Stieglitz and Heine,
2007; Surroca et al., 2010). It offers long-term advantage by making innovations harder to
imitate (García-Morales et al., 2007). Previous studies argued that continuous innovation is
instrumental in pursuing PES (Sharma et al., 2007). Continuous innovation supports PES via
allowing firms to continuously conform to changing environmental legislation (Fraj, et al.,
2015), modify and innovate production processes, develop green products and services
(Pujari, 2006; Yang et al., 2019), and build sustainable business models (Ziegler &

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Nogareda, 2009). Companies with continuous innovation capability are more likely to find

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out new ways to exploit and reconfigure their resources to pursue environmental
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advancements (Sharma et al., 2007; Clarkson et al., 2011). Such innovations may range from
incremental improvements such as improvements in processes to radical innovations to
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disruptive business models (Dangelico and Pujari, 2017). Christmann (2000) defined this
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capability as an ‘environmental technology innovation’. Similarly, Klassen and Whybark

(1999) called it as an ‘environmental technology portfolio’. Some researchers termed this
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capability as ‘green innovation’ including green product and process innovation (Dangelico
& Pujari, 2017; Chen, Lai, & Wen, 2006). These studies demonstrated a positive relationship
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between firms deploying their continuous innovation capability to formulate PES (Fraj et al.,
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2015; Russo and Fouts, 1997; Sharma et al., 2007). Accordingly, we propose the following
hypothesis:

Hypothesis 3: A capability of continuous innovation has a significant positive impact on

the firm’s proactive environmental strategy.

3.4. PES and Competitive advantage

Earlier studies argued that environmental proactivity enables a firm to realise cost savings
(Delmas et al., 2011) from the better utilization of materials (Orsato, 2006), efficient
production process (Bohdanowicz at al., 2011; Bonilla et al. 2011; Hockerts, 2015), reuse and
recycling of materials and wastages, and avoiding the hefty investment in end-of-pipe
technologies (Sharma and Vredenburg, 1998). Additionally, cost advantage can be realised
by avoiding the adverse outcomes of non-compliance and environmental accidents, savings
from regulatory incentives, less frequent environmental inspections, and reduction in
insurance premiums (Godfrey et al., 2009; Lo et al., 2018). Similarly, other studies confirmed
that employee morale and productivity could be improved by adopting proactive
environmental practices which in turn result into low cost of recruitment, low turnover and
absenteeism (Klassen and Whybark, 1999; Ambec and Lanoie, 2008). Furthermore, PES has
a potential to develop eco-friendly offerings and thereby offers differentiation advantage by
enabling access to untapped markets (Menguc et al., 2010); improving customer retention,
loyalty; and corporate image, and fostering greater credibility in the society; (Maas et al.,
2014; Melo and Garrido-Morgado, 2012 ). Furthermore, it facilitates strategic collaborations,
preferential or exclusive treatment by the customers, suppliers, and other stakeholders. Thus,
firms that are pioneer in dealing with the environmental problems can foster differentiation

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advantages by addressing various environmental competitive arguments such as offering eco-

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friendly and innovative solutions. Resultantly, it offers an opportunity to charge premium
price from environmentally conscious customers (Esty and Winston, 2009; Reinhardt, 1998;
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Chen, 2008). Thus, we propose our next hypothesis as:
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Hypothesis 4a: Proactive environmental strategy has a significant positive impact on
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organization’s ability to gain competitive advantage.

3.5. Mediating Role of PES between capabilities and competitive advantage

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Further, the literature reveals that firms differ in their ability to gain a competitive advantage
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from strategy because of the deployment of their organizational capabilities (Barney, 1991;
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Grant, 1991). Firms with a higher level of deployment of organizational capabilities are more
likely to gain competitive advantage as compared to the firms’ without capabilities (Zahra
and George, 2002). Such arguments suggest for an indirect influence of environmental
capabilities on gaining competitive advantage via PES (Torugsa et al., 2012; Fraj et al.,
2015). Therefore, we argue that PES mediates the relationship between organizational
capabilities of shared vision, strategic proactivity, and continuous innovation and competitive
advantage. From this, we state our mediating hypothesis as:

Hypothesis 4b: A firm’s proactive environmental strategy mediates the relationship

between shared vision, strategic proactivity, and continuous innovation capabilities and
competitive advantage.

3.6. Moderating role of perceived environmental uncertainty and hostility

Researchers suggested that managers perceiving high uncertainty are more likely to be
proactive (Chan 2010, Desarbo et al., 2005; Miles et al., 2000), greater risk taker, search for
new products and processes (Buchko, 1994; Miller and Friesen, 1983), and reshape
administrative processes in order to ensure better alignment with the dynamic business
environment (López-Gamero et al., 2011; Rueda-Manzanares et al., 2008). Strategic
proactivity capability may assist a firm to seek new environmental opportunities; to search
for innovative environmental technologies; and accordingly reshape administrative structures
and processes to cope with unpredictable events (Sharma et al., 2007; Moreno and Reyes
2003). Consequently, firms operating in a highly uncertain environment tend to deploy a
strategic proactivity capability to adjust to dynamic external environment. However, the

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empirical studies supporting the moderating effect of the environmental uncertainty on the

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relationship between PES and strategic proactivity are limited (Sharma et al., 2007).
Therefore, we hypothesize the following:
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Hypothesis 5a: Perceived uncertainty in the general business environment moderates the
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deployment of strategic proactivity capability to formulate a proactive environmental
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strategy.

Several studies stated that a munificence environment provides abundant resources (McEvily
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and Zaheer, 1999), enhances the ability to survive and prosper (Castrogiovanni, 1991),
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encourages firms to engage more in socially responsible behaviour (Goll and Rasheed, 2004)
and facilitates experimentation with innovative environmental technologies or products
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(Rueda-Manzanares et al., 2008; Russo and Fouts, 1997). Thus, building on the arguments
made by Sharma et al. (2004) and (Zhang et al., 2020), the present study argues that though a
munificent business environment is likely to lead the deployment of capabilities, a hostile
environment may not necessarily be threatening for strategically proactive firms. Hostility
may encourage prospective firms to deploy strategic proactivity capability to develop
innovative environmental solutions (Stopford and Baden-Fuller 1994); identify
environmental opportunities and technologies; reshape its systems, structures, and processes
in order to better alignment with proactive environmental practices (Sharma et al., 2004) in a
search of favourable environment (Ambec and Lanoie, 2008). Therefore, our study proposes
the following hypothesis.
Hypothesis 5b: Perceived hostility in the general business environment moderates the
deployment of strategic proactivity capability to formulate a proactive environmental
strategy.

5. Research methodology

5.1. Sample and data collection

The study used a quantitative research design. A commercially available Directory of Industrial
Products and Services compiled by the Indian Product Promotion Centre database (Singh et
al., 2015) provided the sampling frame. The database included more than 65,000
manufacturing and service firms from a wide range of industries located in India. It provided

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information such as industry, year of establishment, nature of business, contact details, capital

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invested etc. The present study sampled only large-scale companies for three reasons. First,
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experience from the developed countries suggests that large companies are more likely to
adopt proactive environmental practices due to their strong visibility among stakeholders
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(Clarkson et al. 2011; Sandhu et al., 2012; Singh et al., 2015). Second, large firms have
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adequate resources to invest in various initiatives of improving their environmental

performance (Bansal 2005; Darnall et al., 2009; Etzion 2007). Finally, it is difficult to collect
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data from Small and Medium Enterprises (SMEs) operating in India. For these reasons,
following the key criteria of classification of industries in India as per the Micro, Small, and
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Medium Enterprises Development Act, 2006, only large-scale companies with more than
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₹100 million-capital cost were filtered and selected as our initial study sample (3,249 firms).

Due to the unavailability of published data on corporate environmental strategy,

environmental capabilities and competitive advantage, majority of empirical studies often
measured these constructs via a survey of managerial perceptions (Aguilera-Caracuel et al.,
2012; Aragón-Correa et al., 2013; Fraj et al., 2015; Moreno and Reyes, 2013). Accordingly,
primary data was collected from the managers from the firms, which, agreed to participate in
this study survey. The data was collected using an online survey. Using validated scales
obtained from the review of extant literature, a survey questionnaire was developed. All
sampled organisations (3249 firms) were emailed to seek their consent for participation in the
survey and provide contact details of relevant managers/respondents. Six hundred and forty-
seven (647) companies expressed their willingness to participate in the survey and shared the
details of respondents from their firm. Typically, the respondents’ so identified were the
environmental managers (Sustainability Officers and Environmental, Health and Safety
managers), CSR managers (Corporate Social Responsibility Managers), and general
managers.

Subsequently, the questionnaire with a short description was emailed to all 647 identified
respondents along with the weblink for their reply. Only a few managers responded in
response to the first email request. However, after repeated follow-up emails 221 responses
were received registering response rate of 34% (6.68 percent of the original sample size of
3249 firms). This response rate is consistent with similar earlier studies on organizations’
environmental practices (Aragón-Correa et al., 2013; Bhattacharyya, 2019; Sen et al., 205).
After an initial data exploration, 59 responses were eliminated due to excessive missing
values. Thus, 162 complete responses were analysed and results discussed.

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The non-response bias was assessed by comparing the responses of early and late
respondents (Armstrong and Overton, 1977). The responses received within four weeks of the
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first mailing were classified as early, while those received after four weeks as late responses
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(Mishra and Spreitzer, 1998). The ANOVA statistics showed no significant differences
between the respondents’ demographics and their response time. Thus, there is no evidence
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of non-response bias in the dataset. Since the data on different constructs was collected from
a single respondent from each firm, common method bias could influence the observed
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relationship between variables. Therefore, we employed statistical techniques to reduce and

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control for this possibility (MacKenzie and Podsakoff, 2012). First, we changed the sequence
of questions in the questionnaire and reversed some items so that the respondents would not
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be able to establish a cause-effect relationship between dependent and independent variables.

Second, we assured the anonymity of the respondents to reduce possible social desirability
bias. Finally, Harman’s single-factor test through an exploratory factor was applied to
determine whether a single factor explained a majority of the covariance than multi-
constructs model (Podsakoff and Organ, 1986). Results revealed 13 factors accounted for the
majority (76 %) of the variance in the variables, confirming common method bias not to be a
problem in our observed data.

5.2. Measures

We designed a multi-items questionnaire by adopting previously validated scales from the

relevant literature on a five-point Likert scale for ensuring a high degree of reliability and
validity. The next section discusses the details of the measures.
5.2.1. Proactive Environmental strategy

The PES was measured on the scale drawn from Aragón-Correa (1998), which has been
validated in several studies (Aragón-Correa et al., 2008; Aguilera-Caracuel et al., 2012;
Martin-Tapia et al., 2008). The scale encompasses of 18 items that capture a wide range of
proactive environmental initiatives such as eco-efficiency measures, environmental audits,
recycling of residues and waste, environmental seminars and trainings, total quality program,
environmental analysis of the product life-cycle, eco-design etc. Examples of items included
in this scale are: “We conduct environmental analysis of the product life-cycle”, and “We
provide environmental training to our employees”. Using a five-point Likert scale (“1 = we
have not considered this issue at all” to “5 = we are leaders in this practice in our sector”),

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respondents were asked to rate the extent to which their firms adopted proactive

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environmental practices mentioned on 18 items. Cumulative value of PES of a firm was
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calculated by summation of scores on these 18 items. The high score on this scale indicated
high proactivity in environmental strategy. To triangulate responses, we referred to
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organizational websites, annual reports, environmental or sustainability reports, and
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environmental awards of the respondent firms to substantiate the information provided by the
respondents. Though, we did not find any significant differences between the score results
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and the firm’s formal disclosures.

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5.2.2. Environmental capabilities: shared vision, strategic proactivity, and continuous

innovation
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We used four items drawn from the study by Sharma et al. (2004) to measure the shared
vision capability. The respondents rated the extent to which they perceive that employees in
their organization have a shared understanding, and play a significant role in defining and
achieving environmental policy, objectives, and goals.

For measuring strategic proactivity, our study used three items from Aragón-Correa’s (1998)
scale representing entrepreneurial, engineering, and administrative dimensions as suggested
by Miles et al. (1978). One example of items included in this scale is: “Our planning systems
are very open and flexible to seize new environmental opportunities.” Continuous innovation
capability was measured by using three items drawn from Sharma et al. (2007). Respondents
evaluated their firms’ ability to continuously generate innovations in products, services, and
processes to minimize environmental problems. All these scales were measured on a five-
point Likert scale (1 = “strongly disagree,” 5 = “strongly agree”). A high score indicated a
high level of capability while a low value indicated a poorly developed capability.

5.2.3. Competitive advantage

The impact of PES on competitive advantage was measured by drawing nine items from
Christmann (2000) study. The respondents rated the extent to which their company’s
environmental practices led to competitive benefits on 5-point Likert scales (“1” strongly
disagree to “5” strongly agree). It included four items on cost competitive advantage
(competitive benefits such as a reduction in compliance costs and insurance premium, and
savings associated with recycling and reuse) and five items on differentiation competitive

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advantage (such as the attraction of new customers, improved brand image and product

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quality, greater credibility and others).

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5.2.4. Perceived environmental uncertainty and hostility
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The perceived uncertainty and hostility were measured using the instrument developed by
Teo and King (1997) and Newkirk and Lederer (2006). The respondents were asked to
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evaluate uncertainty and hostility facing their firms on a five-point scale (1= “strongly
disagree,” 5 = “strongly agree”). One example of the items included in the uncertainty is: “In
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our industry, product or service updates very quickly” and for the hostility: “The survival of
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our firm is currently threatened by tough competition in product/service quality”. A high

score indicated a high degree of uncertainty and hostility in the general business environment.
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4.3. Control variables

Since the data collection was from a diverse set of organizations operating within multiple
industries, it was important to provide for control of potential heterogeneities. Literature
suggests that high polluting firms (such as oil, chemical, mining, steel etc.) are more likely to
adopt advanced environmental practices than the less polluting firms (such as service firms)
(Leonidou et al., 2017; Singh et al. 2015). Therefore, we introduced control measures for the
influence of industry heterogeneity. For this purpose, our study used the widely accepted
Hutchinson (1996) classification to categorize firms into high, moderate, and low polluting
industries (López-Gamero et al., 2009). In regression analysis, industry variable was treated
as a dummy-coded variable with low pollution category as a reference category. Literature
also suggests the potential influence of a firm's age on adopting proactive environmental
practices, developing organizational capabilities and gaining competitive advantage.
Therefore, we also included a control measure for firms’ age variability. This measure
included the number of years since the firm was established.

4.4. Validity testing

The confirmatory factor analysis (CFA) was conducted to assess the instrument validity and
reliability via using AMOS 20 software. The standardized factor loadings and average
variance extracted (AVE) by CFA is found to be above 0.5 (Table-1). This demonstrates the
evidence of convergent validity, as has been suggested by Hair et al., (2015). Discriminant
validity was also established by comparing the AVE values with the squared correlations
between variables (Barclay et al., 1995). The higher AVE values than the squared

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correlations (Table-2) confirm the presence of discriminant validity. Further, Cronbach’s

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alpha test (Table-1) values exceed the threshold value of 0.7 recommended by Nunally
(1978) and hence the internal reliability of the instrument is confirmed.

5. Data analysis
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5.1. Sample characteristics
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The profile of sample firms (162) is presented in Table 3.The study sample consists of eighty-
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four domestic firms (51 percent), fifty Indian MNCs (31 percent) and twenty-eight foreign
MNCs (17.4 percent). The sample covers a range of industries including automobiles, energy,
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food and beverage, pharmaceuticals etc. Further, ninety-eight companies belong to the high
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polluting (60.5 percent), twenty-four companies belong to the moderate polluting (14.8
percent), and remaining forty companies belong to low polluting industries (24.7 percent). Of
the respondents representing these sample firms, ninety-seven were general managers (60
percent), fifty-three were (32 percent) environmental managers (sustainability,
environmental, health and safety officers), and eight were corporate social responsibility
managers (11 percent).

5.2. Results

We performed moderated hierarchical regression (Cohen, Cohen, West, & Aiken, 2003) and
bootstrapping mediation test (Preacher & Hayes, 2008) using SPSS 24 software to examine
the hypothesized relationship among variables. Table 4 displays the descriptive statistics and
correlations matrix for all the variables.

5.2.1. Results of moderated hierarchical regression for predicting PES

The moderated hierarchical regression model tested the direct effects of environmental
capabilities (Hypotheses 1, 2, 3) and moderating effect of perceived uncertainty (Hypothesis
5a) and hostility (Hypothesis 5b) on the PES. Following the Aiken and West (1991) method,
the interaction terms were computed by multiplying the mean-centred scores of moderating
variables (perceived uncertainty and hostility) with mean-centred score of the independent
variable (strategic proactivity capability). The scatter plots and Kolmogorov–Smirnov test
confirmed that the dataset follows the normal distribution assumption. The multicollinearity
was diagnosed through variance inflation factors (VIFs) and tolerance statistics. The observed
values of VIFs are below the threshold value of 10.0 (Hair et al., 2015) suggesting the
absence of multicollinearity problem among independent variables.

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The variables were introduced in six steps in the model. Table 5 describes the results

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including un-standardized regression coefficients, standard errors and change in R2 for each
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step. In the first step; we entered firms’ age and industry type as control variables. Both the
variables were found to be significant in explaining PES for the sampled firms. Firms’ age
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(B= 0.091, t=2.189, p<.0.05) is found to be positively related to the adoption of a PES. In
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case of industry type, the results (B=5.44, t=2.321, p<0.05) show that the firms falling in high
polluting industries are more environmentally proactive than firms in the low polluting
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industry category. In the second step, we introduced three independent variables–– shared
vision, strategic proactivity and continuous innovation capabilities. Results show that
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capabilities of continuous innovation (B=1.632, t=3.781, p<0.01), strategic proactivity

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(B=1.596, t=3.553, p<0.01), and shared vision (B=1.848, t=5.081, p<0.01) were positively
associated with PES. Thus, Hypotheses 1, 2, and 3 are supported for our sampled firms.

In the third and fourth steps, we added the direct effect of perceived environmental
uncertainty and its interaction effect with strategic proactivity capability. A statistically
significant increase in adjusted R square (.008) from the model without interaction terms
(step 3) to model with interaction terms (step 4) suggested the moderating impact of
perceived environmental uncertainty. Further, to understand the nature of moderation scatter
plot (Cohen et al., 2003) was created. We examined the effects of strategic proactivity
capability on the PES for low (one standard deviation below the mean), medium (mean), and
high (one standard deviation above the mean) levels of perceived environmental uncertainty.
The measure of PES was taken along the vertical axis, while the strategic proactivity along
the horizontal axis. The plot (Figure 3) suggests that the positive influence of strategic
proactivity on PES is stronger for the firms perceiving high uncertainty in the general
business environment than the low uncertainty. Thus, the moderation results (B= 0.206,
t=2.666, p<0.01) support the hypothesis 5a.

Finally, in the fifth and sixth steps, we added the direct effect of perceived hostility and its
interaction effect with strategic proactivity capability. The results (B=-0.077, t=1.306,
p>0.05) indicate that the interaction terms between perceived hostility and strategic
proactivity on PES was not significant, thereby failing to support Hypothesis 5b. However,
the direct effect of perceived hostility on the PES was significant (B=1.35, P<0.01).

5.2.2. Regression results for predicting effect of PES on Competitive Advantage

Subsequently, we tested hypothesis 4a using regression analysis to examine the relationship

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between PES and competitive advantage. The results (Table 6) provide a significant

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regression coefficient (B=0.455, p<0.05) indicating a direct and positive effect of PES on the
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firm gaining competitive advantage, thereby confirming hypothesis 4a.
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5.2.3. Bootstrapping results for mediation analysis
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Finally, we performed a bootstrapping mediation test (Preacher & Hayes, 2008) to examine
the mediating effect of PES between environmental capabilities and competitive advantage
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(hypothesis 4b). Bootstrapping procedure examines the indirect effect of an independent

variable on a dependent variable through a mediating variable via calculating a confidence
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interval (Preacher & Hayes, 2008). In case of shared vision (Table 7), the results show that
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the indirect effect of shared vision on competitive advantage was significant (B=1.63, 95%
bootstrapping confidence interval=1.3––2.01) whereas non-significant direct effect (B = 0.33,
bootstrapping confidence interval = -0.547 –- 0.7166), supporting a full mediation effect.
Further, results (Table 7) demonstrate that the indirect effects of strategic proactivity (B=
1.55, CI= 1.2––1.9) and continuous innovation (B= 1.4, CI= 1.09––1.84) on competitive
advantage were significant. However, their direct effects were also significant, suggesting a
partial mediating role of PES in the relationship between strategic proactivity and continuous
innovation on gaining competitive advantage. Thus, the sample results support hypothesis 4b
that PES fully mediates the relationship between shared vision capability and competitive
advantage and partially mediates the deployment of strategic proactivity and continuous
innovation to gain competitive advantage.

6. Discussion of the findings

The findings of the study are discussed in terms of– the direct effect of environmental
capabilities (shared vision, strategic proactivity, and continuous innovation) on the PES; the
indirect influence of environmental capabilities on competitive advantage via PES; and the
moderating influence of perceived environmental uncertainty and hostility on the relationship
between strategic proactivity capability and PES.
Consistent with the NRBV of a firm, the study hypothesized that the environmental
capabilities of shared vision, strategic proactivity, and continuous innovation have a
significant and positive impact on the adoption of PES. Our results suggest that
environmentally proactive firms in India certainly acknowledge the role of their employees in
adoption of PES. Managers in India have started appreciating the fact that employees’

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common understanding about firms’ environmental objectives and their support and

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contribution in achieving those objectives are vital to pursue environmental benign practices.
Likewise, Indian firms’ strategic focus on environmental opportunities, continuous
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investment in environmental technologies, and flexible administrative structures must have
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capacitated them to pursue proactive environmental practices such as eco-design, LCA, green
marketing and others. These findings complement the results of earlier studies from
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developed countries that support a positive relationship between environmental capabilities

and PES (Leonidou et al., 2013; Aragón-Correa et al., 2008; Sharma et al. 2007; Fraj et al.
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2015). Thus, our study substantiates the argument that there is no underlying difference in the
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application of the NRBV of a firm in a developing country context.

Next, the results showed that firms operating in India pursue proactive environmental
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practices such as input substitution; process modification, prevention systems to

environmental accidents and emergencies; eco-design; LCA; and systematic control of
energy consumptions. These practices are considered as a means to cost savings from better
compliance; reduced insurance premium; gains from recycling, reuse, and simplified
processes. This implies that firms in India consider PES as a source of achieving cost
competitiveness. Further, the study results showed that proactive environmental practices
such as eco-design; sponsoring environmental events; eco-friendly purchasing; green
marketing; environmental trainings and workshops for distributors and suppliers; and others
allow firms in India to attract environmental sensitive consumers; improve their product
quality; enhance firms’ credibility and reputation; and enjoy preferential relationships with
value chain partners. This provides evidence that PES is considered as a source of
differentiation advantage. Hence, it can be concluded that the firms in India gain competitive
advantage (both cost reduction and differentiation) via pursuing PES. Thus, our study results
are in conformity with earlier studies (Moreno and Reyes, 2013; López-Gamero et al., 2016;
Delmas et al., 2011; Pereira-Moliner et al., 2015). Further the findings of recent studies in the
Indian context concluded that environmental sustainability is positively associated with
improved profitability (Gupta and Gupta, 2020; Kumar and Shetty, 2018 Mitra et al., 2014;
Sardana et al., 2020;), which is reinforced by our study as competitive advantage ultimately
improves financial performance (Yadav et al., 2017; Leonidou et al., 2013). However, our
findings differ from the results of Panwar et al., (2016) that differentiation and cost advantage
are not associated with small firms’ engagement in environmental management in U.S. This
can be explained by the fact that our study sample was drawn from the large firms only. But,
these findings are similar to our assumption in sample selection that SMEs may not have the

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required resources and capabilities to pursue PES as well as PES may not be associated with

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differentiation and cost advantage. A similar future study with sample drawn from SME firms
in Indian context may examine such a relationship.
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We further examined the direct and indirect effects of deployment of environmental
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capabilities for gaining competitive advantage. Interestingly, mediating analysis indicated
that PES plays a mediating role between environmental capabilities and competitive
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advantage. It indicated that firms in India with well-developed capabilities of shared vision,
continuous innovation, and strategic proactivity are likely to gain a competitive advantage
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through PES. These results are consistent with the findings of studies by Torugsa et al.
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(2012), and Fraj et al. (2015).

The two control variables used in our data analysis, firm’s age and industry type were found
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to be significant in explaining PES for the sampled firms. Firms’ age was found to be
positively related to the adoption of a PES, indicating that experienced firms are more
environmentally proactive and able to gain a competitive advantage as compared to the
younger firms. This can be explained by the fact that the experienced firms are ahead of
younger firms in their learning curve. We further studied the differences in PES approach of
firms by types of industries. The results showed that the firms falling in high polluting
industries (such as chemicals, materials, capital goods, and energy industries) are likely to be
more environmental proactive than the firms operating in low polluting industry (service
industries). The findings support the argument that the firms from high polluting industry
follow environmental practices proactively to offset the negative environmental impacts of
their operations (Singh et al., 2015; Leonidou et al., 2017).
We also studied the moderation impact of perceived uncertainty and hostility in external
environment on firms’ ability to pursue PES in the Indian context. The moderation results
suggested that a perceived environmental uncertainty strengthens the effect of strategic
proactivity on PES. This implies that a perceived uncertain business environment induces
managers to be strategically proactive in exploring new environmental opportunities and
technologies, and shaping administrative structures to support PES. These findings provide
empirical evidence to the argument proposed by Aragón Correa & Sharma (2003). The nature
and strength of the moderation effect revealed that higher the managers’ perceived
uncertainty in the general business environment, the higher is the likelihood that they deploy
strategic proactivity capability in pursuing PES.
Our regression results suggested a positive and significant impact of perceived hostility on
the adoption of PES. This implies that firms pursue environmentally proactive posture when

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they perceive high hostility in their business environment. This is in conformity with earlier

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study by Sharma et al. (2004). However, the results showed an insignificant moderation
effect of hostility on the firm’s deployment of strategic proactive capability in pursuing PES.
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This finding is not in conformity with the study results of Sharma et al., (2004). The future
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studies can examine the moderation impact of perceived hostility on the relationship between
strategic proactivity and PES.
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7. Conclusion
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The natural-resource-based view has provided useful strategic insights in the area of
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corporate environmentalism. In view of that, our study examined the complex relationships
between PES, environmental capabilities and competitive advantage based on the data
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obtained from 162 large-scale firms operating in India. Contrary to the conventional notion in
the extant literature, the study results showed that the firms operating in India are
strategically proactive in addressing environmental issues. The summary of our study results
is as follows. First, the results provide empirical evidence that shared vision, strategic
proactivity, and continuous innovation capabilities have a positive significant impact on the
firms’ ability in pursuance of PES in the Indian context. Second, the study results prove that
deployment of environmental capabilities enable firms in India to gain competitive advantage
of cost reduction and differentiation through PES. Third, our results support the argument
that the perceived uncertainty in external environment moderates the relationship between
strategic proactivity and PES in the Indian context. Finally, the results suggest that the firms
in India operating in highly polluting industries are more likely to be environmentally
proactive than the firms operating in low polluting industries.
7.1. Implications of the Study
The study contributes to the theory in following ways. First, our study contributes
substantially to the emerging stream of literature on corporate environmentalism in the
context of developing countries like India. Second, the study corroborates the theoretical
perspective of NRBV. The study provides empirical evidence that continuous innovation,
shared vision, and strategic proactivity are positively associated with PES which in turn
provides competitive advantage. Further, our study offers the underlying mechanism by
which the relationship between environmental capabilities and competitive advantage is
established. In this regard, the study confirms the role of PES as a mediator between
environmental capabilities and competitive advantage. The study thus untangles the
relationship of environmental capabilities-PES-competitive advantage in a developing

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country context. Third, the study supports the argument that the deployment of environmental

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capabilities is contingent on the characteristics of external environment. Our study provides
comprehensive empirical analysis based on survey data from multiple industries. Finally, the
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study contributes from a methodological perspective as majority of the existing studies
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focused on theoretical models, case studies and single industry analysis with limited
statistical generalizability. In summary, our findings contribute by answering the question
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“whether it pays to be green” and “how to be strategically green” from the perspective of
firms operating in India.
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The findings of the study have strategic implications for the managers in India to pursue PES
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to enable their firms to improve both environmental performance as well as competitiveness.

The study suggests that the firm’s in India are gradually appreciating the strategic role of
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environmental proactiveness in gaining competitive advantage. The study suggests that the
environmental capabilities such as shared vision, strategic proactivity, and continuous
innovation lay a strong foundation to pursue PES. The study highlights that the shared vision
help in seeking employees’ contribution and support in defining environmental objectives
and implementing PES. Similarly, strategic proactivity is imperative in sensing, seizing, and
responding environmental opportunities and threats, whereas continuous innovation supports
design-for-environment. This implies that managers, who are embarking the path to embed
sustainability at strategic level, should invest in developing and deploying these
environmental capabilities in order to overcome the emerging sustainability challenges and
simultaneously realise competitiveness.
7.2. Limitations and avenues for future research
With all the novelty and merits of the study, few limitations also exist, opening avenues for
future research. For example, the study includes only large-scale companies. Future research
could extend the examination as to how SMEs deal with environmental issues, and whether
they can gain cost reduction and/or differentiation advantage by pursuing PES in Indian
context. In addition, the results are obtained employing the cross-sectional data for a specific
period. In future, longitudinal studies could provide more robust insights into the relationship
of environmental capabilities-PES-competitive advantage. Following the contingent-
resource-based view of the firm, future studies could also include other variables such as
munificence and complexity to explore the contingent effects of the business environment on
various environmental capabilities. Also, an in-depth qualitative enquiry like case studies
may provide deeper understanding on contingent conditions. Finally, the present study
examines the combined responses from multiple industries. Therefore, future studies can

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provide a comparative analysis of firms from different industries to get the insights about the

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industries effect in pursuing PES.

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Table 1 Summary of measurement scales (confirmatory factor analysis results).

Construct Measurement Items Item Cronbach’s Average

Loading alpha Variance
Extracted
PES PES1: Consider environmental aspects in 0.708 0.931 0.560
administrative work.
PES2: Periodic environmental audits. 0.707
PES3: Recycling of residues and waste 0.524
PES4: Purchase manual with ecological 0.592
guidelines.
PES5: Conduct environmental seminars for 0.824
executives.
PES6: Conduct environmental training for 0.825

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employees.
PES8: Total quality program included 0.717

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environmental aspects.
PES7 Prevention systems to cover possible 0.763
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environmental accidents and emergencies.
PES9: Environmental management manual for 0.767
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internal use.
PES10: Sponsor environmental events. 0.737
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PES11: Environmental arguments in marketing. 0.792

PES12: Environmental information in training 0.769
programs for distributors and customers.
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PES13: Filters and controls for emissions and 0.708

discharges.
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PES14: Perform systematic control of energy 0.663

consumption
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PES15: Environmental analysis of the product 0.777

life-cycle (LCA).
PES16: Design products and services according 0.855
to ecological criteria (Eco-design).
PES17: Recycling of the water 0.859
PES18: Use of ecological ingredients 0.807
Shared Vision SV1: All our employees have a very clear idea 0.947 0.94 0.829
about the firm’s objectives.
SV2: All our employees make significant 0.964
efforts to reach the firm’s objectives.
SV3: Managers and employees always agree on 0.877
the right procedures for the firm.
SV4: Employees often offer valuable ideas for 0.849
improving the firm’s abilities to achieve its
objectives
Strategic SP1: Products and services are many and very 0.787 0.78 0.764
Proactivity different. We always look for new
environmental opportunities.
SP2: We strategically focus and invest in
0.938
 developing flexible and innovative
environmental technologies.
SP3: Our planning system is very open and 0.892
flexible to seize new environmental
opportunities.
Continuous CI1: We pay substantial attention to satisfy 0.767 0.83 0.736
Innovation demands for eco-friendly offerings.
CI2: Our practices have often led to continuous
improvements in processes, and
0.915
product/services quality.
CI3: We have an advanced environmental
certification system. 0.885
Competitive CA1: Reduction in regulation compliance costs 0.701 0.84 0.712
Advantage CA2: Reduction in insurance premium costs. 0.800
CA3: Reduction of costs associated with 0.928
recycling and reuse.

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CA4: Cost reduction by simplifying
administrative and/or technical processes 0.926

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CA5; Increase attraction of new customers and 0.881
loyalty of existing customers
CA6: Gaining brand image -p
CA7: Achieving greater credibility before the
society.
0.953
0.881
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0.952
CA8: Enjoying preferential relationships with
0.924
value chain partners
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CA9: Increasing product quality.

Perceived PEU1: In our industry, product or service 0.914 0.86 0.746
Environmental updates very quickly.
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Uncertainty PEU2: In our industry, to predict the change of 0.927

customer preferences is difficult.
PEU3: In our industry, the acts of competitors
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0.777
are difficult to predict.
PEU4: In our industry, the technology
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progresses quickly. 0.828

Perceived PEH1: The survival of our firm is currently 0.847 0.94 0.771
Environmental threatened by scarce supply of labor.
Hostility PEH2: The survival of our firm is currently 0.949
threatened by scarce supply of materials.
PEH3: The survival of our firm is currently 0.847
threatened by tough price competition.
PEH4: The survival of our firm is currently
threatened by tough competition in 0.894
product/service quality.
PEH5: The survival of our firm is currently 0.849
threatened by tough competition in
product/service differentiation.

*Estimated standardized factor loading significant at P<0.05.

Source: Estimated Standard factor loadings of constructs calculated by running CFA analysis of 162
respondent’s data on SPSS AMOS software version 6
Table 2 Discriminant validity.

Variables ES SV SP CI CA PEU PEH

PES 0.56
Shared Vision 0.49 0.83

Strategic Proactivity 0.50 0.40 0.75

Continuous Innovation 0.50 0.50 0.04 0.74
Competitive Advantage 0.62 0.39 0.40 0.46 0.71
Perceived Environmental 0.62 0.29 0.31 0.30 0.20 0.75
Uncertainty

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Perceived Environmental Hostility 0.67 0.37 0.04 0.24 0.11 0.03 0.78

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Discriminant validity: Diagonal figures present the AVE values. Off-diagonal figures represent the
constructs' squared correlations
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Table 3 Sample characteristics (n=162).
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Industry Frequency (percentage)
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High Pollution 98 (60.5 %)

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Moderate Pollution 24 (14.8 %)

Low Pollution 40 (24.7 %)
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Country Origin of Firms

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Domestic Indian Companies 84 (51.6%)

Indian MNCs 50 (31.3 %)
Foreign MNCs operating in India 28 (17.4 %)
Respondents by Designation

General Manager 97 (60%)

Environmental Manager 53 (32 %)
CSR Manager 11 (8%)
Table 4 Descriptive statistics and correlation coefficients.

Variables Mean SD 1 2 3 4 5 6 7

1 PES 50.83 12.51 1

2 Shared 9.33 2.23 0.70* 1

Vision *
3 Strategic 9.45 2.09 0.71* 0.64** 1
Proactivity *
4 Continuous 9.38 2.16 0.71* 0.639* 0.756* 1
Innovation * *
5Competitive 25.11 6.90 0.82* 0.63* 0.704** 0.719 1
Advantage * **
6 Perceived 11.97 3.32 0.56* 0.43* 0.365* 0.39* 0.52* 1

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Environmental *
Uncertainty

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7 Perceived 14.47 4.33 0.82* 0.57** 0.562* 0.59* 0.698* 0.55 1
Environmental *
Hostility
N = 106; *p < 0.05; **p < 0.01.
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Source: SPSS Output of descriptive statistics of sample data (162) analyzed under the study.
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Table 5 Results of moderated hierarchical regression for predicting PES.

Step 1 Step 2 Step 3 Step 4 Step 5 Step 6

Intercept 43.362* 14.902** 21.624** 23.607** 32.616*** 33.81***

** * (4.564) * (4.227) * (4.212) (3.387) (3.502)
(2.105)
Firm’s Age 0.091** 0.015 0.002 0.001 0.000 -0.003
(0.042) (0.026) (0.023) (0.23) (0.018) (0.018)
High Polluting Industry 5.446** 4.005*** 5.197*** 5.42*** 5.55*** 5.55***
(2.34) (1.447) (1.310) (1.287) (0.99) (0.99)
Medium Polluting Industry 6.96** 3.023 1.88 1.88 1.34 1.25

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(3.18) (1.99) (1.79) (1.75) (1.36) (1.36)
Shared Vision 1.84*** 1.404*** 1.208 *** 0.906*** 0.876***

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(0.364) (0.33) (0.335) (0.26) (0.26)
Strategic Proactivity 1.59*** -p 1.45*** 1.713*** 1.13*** 1.13***
(0.449) (0.403) (0.407) (0.32) (0.32)
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Continuous Innovation 1.632*** 1.35*** 1.270*** 0.66** 0.594*
(0.432) (0.389) ( 0.383) (0.30) (0.30)
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Perceived Environmental 1.15*** 1.224*** 0.605*** 0.654***

Uncertainty (0.185) (0.183) (0.155) (0.159)
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Perceived Environmental 0.206*** 0.066 0.105

Uncertainty X Strategic (0.077) (0.062) (0.068)
Proactivity
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Perceived Environmental 1.35*** 1.37***

Hostility (0.135) (0.135)
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Perceived Environmental -0.07

Hostility X Strategic (0.059)
Proactivity
F 5.544** 51.225** 60.292** 55.75*** 93.652*** 84.851
* * *
Adjusted R2 0.079** 0.653*** 0.722*** 0.732*** 0.839*** 0.840
*
Change in Adjusted R2 - 0.574 0.069 0.01 0.107 0.001

Proactive corporate environmental strategy is the dependent variable. Values are un-standardized regression
coefficients, with standard errors in parentheses. * p < .10 ** p < .05 *** p < .01.
Table 6 Regression results for predicting impact of PES on competitive advantage.

Step 1 Step 2

Intercept 22.08*** 2.359*

(1.177) (1.32)
Firm’s Age 0.062*** 0.020
(0.023) (0.014)
High Polluting Industry 0.0912 (1.312) -1.565 **
(0.779)
Medium Polluting Industry 2.152 (1.78) -1.0515
(1.056)
PES 0.455***
(0.026)
F 3.766*** 84.566***

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Adjusted R2 0.049*** 0.676***

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Change in Adjusted R2 - 0.627
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Competitive Advantage is the dependent variable. Values are un-standardized regression coefficients, with
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standard errors in parentheses. * p < .10 ** p < .05 *** p < .01.
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Table 7 Bootstrapping results for mediation analysis.

.
Coefficient T P LICI ULCI
(Standard value (95%) (95%)
error)

Shared Vision

Direct effect of Shared Vision on 0.33 (0.19) 1.69 0.09 -0.547 0.7166
Competitive advantage

PES 0.41(0.034) 11.83 0.00 0.3436 0.4842

Indirect effect of Shared Vision 1.6328 (0.1791) 0.00 1.3011 2.0163

on Competitive advantage

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Strategic Proactivity

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Direct effect of strategic 0.76 (0.20) 3.74 0.00 0.3614 1.1697
proactivity on Competitive advantage -p
PES 0.36 (0.034) 10.55 0.00 0.2942 0.4296
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Indirect effect of strategic 1.55 (0.1835) 0.00 1.2034 1.9177
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proactivity on Competitive advantage

Continuous Innovation
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Direct effect of continuous 0.85 (0.19) 4.40 0.00 0.4710 1.2367

innovation on Competitive advantage
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PES 0.34 (0.03) 10.377 0.000 0.2821 0.4147

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Indirect effect of continuous 1.43 (0.1870) 0.00 1.0965 1.8411

innovation on Competitive advantage
Bootstrap samples = 5000. LLCI = Lower Limit Confidence Interval; UPCI= Upper Limit confidence
interval
 PHASE 1: THEORETICAL
FOUNDATION

Literature review, theory exploration,

research gaps and research questions

Conceptual development and research

hypotheses development

PHASE 2: RESEARCH

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METHODOLOGY

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Sampling Frame (Directory of Industrial
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Products and Services by the Indian
Product Promotion Centre)
3,249 large-scale firms filtered and
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selected as study sample
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Questionnaire development, pilot study

and face validity (experts)
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Data collection through online survey

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Survey participation consent received

from 647 companies
221 filled questionnaire received with
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6.68 percent response rate

Finally, 162 complete responses were
analysed due to excessive missing values

Reliability, validity, common method

bias and non-response bias assessment

Data analysis and hypotheses testing

Moderated hierarchical regression and
bootstrapping mediation test

PHASE 3: DISCUSSION,
CONCLUSION, IMPLICATIONS

Figure 1 Flow diagram for research procedures and phases.

 Perceived Uncertainty
Perceived Hostility

(H5a, H5b)

Strategic
Proactivity
(H2) Proactive
Environmental
Shared Strategy Competitive
Vision (H1) Advantage

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(H4b) (H4a)

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Continuous (H3)
Innovation
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Figure 2: Hypothesized model to examine the relationship of environmental capabilities-PES-
competitive advantage and moderating impact of perceived uncertainty and hostility.
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Low strategic proactivity High strategic proactivity

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Source: SPSS output, scatter plot created using scores on relationship between strategic proactivity and PES for
the low, medium, and high levels of perceived environmental uncertainty.
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Figure 3: The moderating effect of the perceived environmental uncertainty on the relationship
between PES and strategic proactivity.
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23 October 2020
Jiří Jaromír Klemeš
Editor, Journal of Cleaner Production

We hereby submit the revised manuscript entitled “Environmental capabilities, proactive

environmental strategy and competitive advantage: A natural-resource-based view of
firms operating in India” to be considered for publication as original article in your
prestigious journal “Journal of Cleaner Production”.

We hereby declare that there are no conflicts of interest to disclose.

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Thanks & Regards,
Dr. Manmohan Yadav
Associate Professor,
Indian Institute of Forest Management, INDIA
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manmohanly@gmail.com
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Poornima Mishra
Assistant Professor
Jagran Lakecity University, INDIA
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Poornimamishra1502@gmail.com
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