Fall 2007 
Value Creation through 
Voluntary Sustainability 
Initiatives 
Case Study Research on Strategies for Sustainable 
Competitive Advantage 
 
Bachelor Thesis, Fall 2007 
Industrial and Financial Management 
School of Business, Economics and Law 
Author: 
Peter Beckman (1983) 
 
 
Summary: 
Through mapping how firms create value with CSR in general and inter-organizational 
voluntary sustainability initiatives in particular, the author creates a strategy matrix that  
links CSR-strategy to firm strategy and gives clear recommendations to managers on 
which out of four generic CSR-strategies to pursue. 
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I would like to send a few words of gratitude to my former boss and colleague at 
the University of St. Gallen, Nils Peters. I thank him for putting so much effort 
into this project, for believing in my theories, and especially for questioning 
them. 
Peter Beckman, Göteborg 
2008-01-14 
  
 3 
1. INTRODUCTION 4 
1.1 BACKGROUND 4 
1.2 PROBLEM DISCUSSION 5 
1.3 PURPOSE 8 
2. METHODOLOGY 9 
2.1 CHOOSING METHODOLOGY 9 
2.1 CASE SELECTION 11 
2.2 DATA GATHERING 14 
3. THEORETICAL FRAMEWORK 16 
3.1 ALTRUISM VS. CAPITALISM 16 
3.2 THE RESOURCE BASED VIEW 17 
3.3 INSTITUTIONAL THEORY 18 
3.4 HOW SOCIAL/ENVIRONMENTAL PERFORMANCE LEADS TO COMPETITIVE ADVANTAGE 18 
4. A VALUE CREATION FRAMEWORK FOR VSIS 23 
4.1 THE MODEL 23 
4.2 THE MIGROS – PALM OIL  – CASE 28 
5. DISCUSSION - A CSR-POSITIONING MATRIX 35 
5.1 COMBINING THE INTERNAL AND EXTERNAL VIEWS 37 
6. REFLECTIONS/FUTURE RESEARCH 42 
7. BIBLIOGRAPHY 43 
7.1 INTERVIEWS 48 
8. APPENDIX – CASE STUDY SUMMARIES 49 
8.1 CASE STUDY SUMMARY: THE BETTER COTTON INITIATIVE 49 
8.2 CASE STUDY SUMMARY: THE DRESSCODE 50 
 
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1.  INTRODUCTION  
1.1  BACKGROUND  
The process leading up to this document started in the spring of 2007. It was in 
the office of Dr. Joerg S. Hofstetter at the University of St. Gallen in Switzerland. 
A little earlier that spring he and Nils Peters, a researcher and Ph. D. student, 
had invited me to join their research project 1 on voluntary sustainability 
initiatives (VSIs). VSIs are inter-organizational, collaborative, processes in which 
firms cooperate with non-governmental organizations (NGOs) and other 
stakeholders to jointly address some social and/or environmental issue. 
Working as a research assistant, in parallel to my business studies, my first task 
was gathering data on a large number of VSIs, in order to find suitable cases that 
we could study more thoroughly. Some weeks after I joined the project we were 
just about to start conducting case studies and I was getting more and more 
involved in the project. We were approaching the interview phase and Joerg 
was explaining the stakeholder perspective to me. With a major in corporate 
finance I was not ready to accept that the stakeholder perspective was 
something other than just putting fancy words on the fundamental idea of 
shareholder value maximization. We had a long and interesting discussion on 
the subject. After the discussion I still did not fully agree with the concept so 
when I left Joerg’s office my mind was set on understanding how firms use VSIs 
to fulfill that overriding target, value creation. I had to understand the strategic 
choices of whether and how to invest in voluntary sustainability initiatives, in 
order to show that it is not just pure kindness on behalf of a firm’s owners that 
causes firms to start or join a VSI. 
 
 
                                                          
1
 The research project is called Inter-organizational design of voluntary sustainability initiatives. More information can be found under: 
http://www.logistik.unisg.ch/org/logm/web.nsf/wwwPubInhalteGer/Interorganizational+design+of+voluntary+sustainability+initiatives?opendocumen
t 
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1.2  PROBLEM DISCUSSION  
Currently, most large firms have special corporate social responsibility (CSR) 
reports besides their normal financial reports. Most also have special CSR pages 
on their websites. Instead of arguing with NGOs, many firms now cooperate 
with NGOs to jointly address social or environmental issues. Observers of this 
development naturally ask themselves why. While studying a large amount of 
corporate communication on the issue, I observed that improved social and 
environmental performance was rarely communicated as a major profit driver. 
Therefore I asked myself if firms around the world were struck by lightning and 
like the creature of Dr. Frankenstein came alive with a newly grown conscience. 
Instead of making profits, were they now thinking that they should be doing 
“good”? Interestingly, many researchers have found that there is not necessarily 
a mutually exclusive choice between the two targets and many have even found 
that more often than not, doing good is connected to doing well (Dowell, Hart, 
& Yeung, 2000). There does not, however, seem to be a direct, mechanical, 
relation between CSR and financial performance. In general, one can say that 
most executives, one way or another, addresses CSR as an issue when 
formulating corporate or firm strategy. Simultaneously, there is little logical 
structure or theories to assist those executives in formulating a CSR-strategy 
that adds value. The issue is therefore interesting to study, especially from a 
practical perspective and in relation to overall firm strategy. 
In parallel to the developments in CSR, another global trend has been evolving. 
Power has been shifting from national governments to multi-national 
enterprises and the scope of regulation has been changing from national to 
global (Egels-Zandén & Hyllman, 2007). Therefore, non-governmental 
organizations (NGOs) are getting an increasingly important role in the regulative 
process (ibid) and firms are often cooperating directly with NGOs in their 
corporate social responsibility (CSR) work. Firms’ social conduct is being 
regulated on a market basis rather than by governments and this is one reason 
why voluntary sustainability initiatives, as one form of CSR, are so interesting to 
study. 
 6 
Many firms source an increasing share of their products from suppliers in 
developing countries, where legal requirements often are more relaxed than in 
Europe or North America. To deal with the many social and environmental 
challenges connected to this sourcing, an increasing number of firms, especially 
in Europe and North America, establish VSIs in collaboration with different 
stakeholders (Schaltegger & Petersen, 2000). An example of this is Unilever, 
which cooperated with the World Wide Fund (WWF) to establish the Marine 
Stewardship Council, an initiative aimed at ensuring a sustainable supply of fish 
(Hamprecht J. , 2006b). A second example is the large number of firms, for 
example IKEA, Adidas, and Gap Inc., that are, participating in the Better Cotton 
Initiative, an initiative intended to create a new commodity-cotton, produced 
according to higher social and environmental standards (bettercotton.org) 
(Bexell, 2008). Suppliers, competitors, advocacy nongovernmental associations, 
and governmental agencies increasingly consider participating in this type of 
initiatives. 
If it is the case that CSR efforts are intended to create value, such investments 
occur in a wide range of industries, and it is uncertain whether it creates value 
or not, the issue does not differ from other issues of corporate strategy. It also 
means that treating the issue as a matter of whether CSR creates value or not, 
as many researchers have previously done, is simplistic and offers little advice to 
managers who think about whether or not to invest in improving the CSR of 
their firms. A strategy that is good for one firm is not necessarily good for 
another. To be able to draw conclusions that are valuable to managers it is 
therefore necessary to start developing an improved understanding of the 
diverse issue of corporate social responsibility and its relation to corporate 
strategy. 
The purpose of corporate strategy is value creation (Collis & Montgomery, 
2005). The core problem for this thesis is therefore to understand how value is 
created through corporate social responsibility. On one hand, improving social 
or environmental performance is costly. On the other hand, if customers prefer 
responsible firms, customer value is created when corporate social 
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responsibility is improved. To create shareholder value, the customer value 
must be transformed into a positive effect on profits, or a risk reduction. When 
faced with a decision about whether or not to invest in a VSI, as one type of CSR 
activity, the problem for managers is to, ex ante, decide on if the revenue side is 
larger than the cost side, at least in the simple case. 
Many researchers have studied the tradeoff between CSR and profit (Burke & 
Logsdon, 1996) and in many cases they have been able to identify mechanisms 
of how CSR can lead to economic benefits for firms (e.g. ibid). These findings are 
valuable for understanding the issue. For developing competitive strategy, 
however, they offer little advice, since they do not deal with the issue of relative 
competitive advantage. If competitors can imitate an initially profitable strategy, 
the strategy is of little value, unless it makes the entire industry more profitable. 
Otherwise, the excess profits will be competed away. 
Taking a more theoretical view, profitability is the product of on one hand the 
efficiency with which a firm produces customer value, and on the other hand 
the share of this customer value that the firm can capture. The efficiency of 
customer value creation is probably best explained by the resource based view 
(RBV) (Barney, 1991). The level of customer value capturing is a matter of 
competition and is probably best explained with Porter’s five competitive forces 
(Porter, 2008). 
An interesting dimension of CSR–strategy that makes it different from other 
areas of competitive strategy is the indirect relation between CSR and firm-
value.  One may argue that customers prefer sustainable products to other 
products and that producing sustainability in an efficient manner therefore is 
the way to go for increasing profits through CSR. This is not different from any 
other type of differentiation and is probably a good explanation to a lot of the 
current CSR activities. Still, the amount of firms engaging in CSR vastly exceeds 
the amount of firms using CSR for differentiation so some additional explanation 
seems necessary. The fact that so many firms engage in CSR activities suggests 
that firms feel forced to engage in these activities and therefore institutional 
theory might offer some explanatory power. 
 8 
There are many formats for working with CSR. I have found voluntary 
sustainability initiatives (VSI) particularly interesting since they add another 
dimension to CSR; collaboration between NGOs and business. The objectives of 
firms and NGOs appear to be different, or sometimes even contrary, to each 
other. Firms are generally trying to maximize shareholder value while NGOs are 
trying to minimize the problems related to some social or environmental issue. 
If improving social and environmental performance does not enhance firm-
value there is no incentive for firms to voluntarily work together with NGOs in 
VSIs. Simultaneously, if VSIs do not help NGOs with their target of improving 
social and environmental standards it is not meaningful for NGOs to cooperate 
with companies in such initiatives. The fact that firms and NGOs do cooperate 
suggests that the two targets are not contrary, but rather that both firms and 
NGOs can pursue their targets more efficiently if they cooperate. VSIs must, 
therefore, be expected to create value and create social or environmental 
benefits. This relation is the final reason why I have chosen to study VSIs. It 
could, of course, be the case that managers take their businesses into such 
initiatives for personal reasons and thus create agency cost. The sheer amount 
of VSIs and general CSR activities does, however, suggest otherwise. 
 
1.3  PURPOSE  
Up to this point, research on CSR strategy has often focused on if social and 
environmental investments add value to firms. With this thesis I have tried to 
start developing an understanding on the question of for which firms social and 
environmental investment makes sense.  
MANAGERS ARE FREQUENTLY PUZZLED WITH THE QUESTION OF WHETHER 
AND HOW THEY SHOULD ESTABLISH A VOLUNTARY SUSTAINABILITY 
INITIATIVE. MY RESEARCH AIMS TO SUPPORT THEIR DECISION-MAKING.   
 9 
 
2.  METHODOLOGY  
This chapter will describe the choice of methodology and how the research 
project has been carried out. 
For several reasons I have chosen to focus on voluntary sustainability initiatives. 
Firstly, such initiatives deal with one issue at a time and therefore offer a 
comprehensible unit of analysis. Secondly, the fact that NGOs participate in the 
initiatives means that it is reasonable to expect that the initiatives actually do 
improve corporate social and environmental performance. Thirdly, the multi-
stakeholder aspect of VSIs makes sure that I, as a researcher, can get different 
views on the issue. 
 
2.1  CHOOSING METHODOLOGY  
As voluntary initiatives constitute a relatively new research field, I argue that 
the concepts will need to be developed in exploratory research. To date, the 
number of firms that have established talks on voluntary sustainability 
initiatives is not large enough yet to allow for a large-scale quantitative research 
approach. Much can be learned from studying previous research on corporate 
social responsibility but additionally some cases must be studied more carefully.  
The reason foremost to be able to understand the value-creating process more 
thoroughly and partly because VSIs have not been the normal research object in 
previous studies on how CSR add shareholder value. The qualitative nature of 
the problem at hand, understanding how firms use VSI to create value, also 
motivates the chosen research approach. Yin (2003) claims that when ”a ‘how’ 
or ‘why’ question is being asked about a contemporary set of events, over which 
the investigator has little or no control, case study research has a distinctive 
advantage over other methodology strategies.” Cleary, this is the case here. 
My data analysis method has been that of constant comparison (Glaser & 
Strauss, 1967). The constant comparison method can be described as a process 
 10 
where data is collected, hypotheses are made, more literature is studied, 
additional data is collected, new hypotheses and themes are identified and so 
on. This method was chosen because it is well suited for developing rather than 
testing theories (Glaser & Strauss, 1967, p.103 - 105), as is the objective of this 
thesis. The main tools I used for the analysis were process sheets, describing the 
initiatives as they developed over time; tables of interesting quotes; and also a 
large amount of notes on different observations and reflections. All these were 
developed over time as I found new information and suggested new concepts 
and theories. 
It is important to clearly state that I have been trying to develop, rather than 
test, theories. It is important because the choice between testing and creating 
theory greatly affects the decision on what type of methodology to use. Glaser 
& Strauss (1967), the fathers of the grounded theory methodology, states that: 
“conflict is created when sociologists do not clearly and consciously choose 
which will receive relative emphasis [testing or creating theory] in given 
researches because of too great an adherence to verification as the chief 
mandate for excellent research.” 
The grounded theory methodology calls for an open mindset and therefore I 
started the process without conducting a preparatory literature review. Instead 
I started by gathering data on a large number of VSIs. These were found by 
browsing the websites of firms and NGOs, and by searching in databases for 
both scientific and news articles. After this initial scan of the VSI-universe I 
started to conduct case studies. As the case studies developed over time and as 
I saw a need of new angles of observation, more literature was added. The most 
important parts of this theory are described in the theoretical framework 
section. Most of the theory was added very late in the process. The two most 
important separate concepts for this thesis are the resource based view and the 
concept of institutional theory. The largest part of the theoretical framework 
section is, however, devoted to a literature review over suggested mechanisms 
for how CSR adds value. Most of the presented theory is used for giving support 
to logically explained relationships.  
 11 
 
2.1  CASE SELECTION  
Considerate case selection is vital for ensuring the construct validity as well as 
the internal validity of the case studies. In quantitative research, construct 
validity examines the degree to which a scale measures what it claims to 
measure (Churchill, 1979). In case study research construct validity is 
determined throughout two research phases: the case selection and the data 
analysis. Throughout the case selection, I determine construct validity by 
selecting cases that are suited for verifying the studied phenomena. The main 
problem to overcome in order to fulfill the purpose of this thesis is to 
understand the value creating logic of CSR. That means that for the construct 
validity it is important that I study initiatives that are truly intended to create 
value and are also expected to create social and/or environmental benefits. The 
participation of both firms and NGOs in the studied, voluntary, initiatives is the 
primary argument for sound construct validity. As was mentioned earlier, those 
are the overriding objectives of firms and NGOs respectively and their joint and 
voluntary participation implies an intention to fulfill both objectives. 
There are a large variety of different types of voluntary sustainability initiatives. 
Because of this, in combination with the limited time available for the study, the 
scope of the different types of initiatives to study must be limited. For two 
reasons I chose to examine voluntary sustainability initiatives that are including 
multiple stakeholders: First, these roundtables enjoy a greater societal support 
(Peters et al. 2007). Second, the study of roundtables involving several 
stakeholders allowed me to gain access to multiple sources of evidence. 
Through being able to gain data from multiple and diverse parties, I could  even 
more firmly ensure the construct validity of the case studies (Yin, 2003). For 
reasons of credibility I also focused on initiatives that are externally monitored. I 
also focused on initiatives that mainly affect firms’ supply chains. By studying 
supply-chain affecting initiatives the study was limited to initiatives that 
demand firms to change its business activities. Therefore it was possible avoid 
so called “green-washing” initiatives. “Green-washing” refers to firms trying to 
 12 
improve their social and/or environmental performance through philanthropic 
activities such as for example donations, i.e. activities that eases a firm’s bad 
conscience but does nothing to change the business itself. 
To identify a broad range of initiatives, partly to get an overview of the universe 
of VSIs and partly to identify potential case studies, I searched the Internet and 
consulted researchers with more experience in the area. I then gathered more 
information on 78 initiatives in an excel sheet with brief but structured 
descriptions, a long-list. I then applied the previously mentioned criteria to the 
long-list in order to narrow down the amount of potential case study initiatives. 
I then had a short-list of initiatives that I studied closer individually to decide on 
the most suitable initiatives. 
The purpose of this study is, as was stated in the introduction, to draw 
conclusions that are valuable to corporate strategy decisions. To do that, my 
approach has been that understanding how competitive advantage is created 
for a firm within a voluntary sustainability initiative is of outmost importance. A 
firm could of course pursue the same targets without cooperating with further 
stakeholders and therefore it has been my emphasis throughout the process to 
try to understand how firms use other parties of the initiative for value creation. 
The first case I studied, DressCode, was devoted especially to this end. 
DressCode, also known as the Swedish Clean Clothes Campaign, was an 
ambitious attempt to create a system for external monitoring of the supply 
chains of the Swedish apparel industry. The initiative did, however, fail before it 
was implemented in the the participating firms. The focus of the DressCode case 
analysis was at understanding the roles of the different participants and the 
bargaining of resources during the initiative creation. The fact that the 
DressCode initiative failed made it especially interesting to include in the study 
since it offers a clear contrast to more successful cases. The fact that it failed 
also implies that there was some inherent friction in the initiative. Because of 
this friction I expected to be able to more clearly be able to observe the 
bargaining between the different participants. 
 13 
The second case I studied was the Roundtable on Sustainable Palm Oil (RSPO). It 
is an initiative that was started by the major Swiss retailer Migros in 
collaboration with the World Wide Fund (WWF) and it is addressing the social 
and environmental issues regarding palm oil production. The reason for 
choosing this initiative was firstly that it fulfills the criteria that I set up earlier, 
namely: NGO involvement, external monitoring and supply chain impact. 
Further, it has been a highly successful initiative with clear proof of institutional 
change. Since VSIs normally aim at setting a new social or environmental 
standard I was looking for a successful case that had received the support of a 
large number of competitors. This case was probably one of the most successful 
cases of all the 78 in the long list. The initiative had been scientifically studied 
before which was advantageous for two reasons. First, the screening of 
initiatives can only be brief and there is a risk of choosing initiatives that later 
turns out to be less suitable than they initially appear. Choosing a previously 
studied initiative made me certain of getting at least one that met my criteria 
also after a thorough investigation. This of course does not make the initiative 
more interesting per se but due to the large amount of time it takes to conduct 
a case study it was important to make sure that at least one had been 
successful. Naturally, choosing an already studied initiative also reduces the 
amount of time that is necessary for conducting the case study  
I have further on studied the Better Cotton Initiative (BCI), an initiative by the 
International Finance Corporation (IFC) and WWF. The IFC is the corporate 
branch of the World Bank. Even though it has not yet defined a standard for 
what better cotton is, the initiative has gained the support of many important 
cotton purchasers around the world such as IKEA, Adidas and Wal-Mart. At the 
time of writing this thesis the BCI is collaborating with different stakeholders, 
such as cotton farmers, in cotton producing areas around the world. The BCI 
aims at setting the global standard for a new class of cotton that is meant to 
substitute the current commodity-cotton with a more sustainable one. 
 14 
The RSPO-case is used extensively in chapter 4, to explain the value creating 
logic of VSIs. DressCode and the Better Cotton Initiative are briefly summarized 
in the appendix. 
 
2.2  DATA GATHERING  
I structured the data collection process for each case study in four steps. First, 
to get a general understanding of the case I studied easily accessible sources 
such as the web pages of the different participants and newspaper articles. This 
step was done for each of the 78 initiatives in the previously mentioned long-list 
and it was then done more thoroughly for the initiatives in the short-list. 
The second step was to construct process sheets for the three case study 
initiatives in order to get a better overview, to identify sequential gaps that 
needed to be addressed in the interviews and to help me in the interviews. 
Researchers had previously studied two of the chosen cases; DressCode and the 
Roundtable on Sustainable Palm Oil, so studying their reports started the 
second step. For the Better Cotton Initiative I used the web pages of the 
different participating organizations to get a simple process sheet that was then 
developed during the interviews that followed. 
Step three was to conduct interviews with the involved firms. For the DressCode 
case, interviews were done with Ann-Marie Heinonen, Information Manager of 
KappAhl and Ingrid Schullström, CSR Manager of H&M. Both KappAhl and H&M 
are Swedish clothing retailers that were founding members of the DressCode 
initiative. For the Roundtable on Sustainable Palm Oil I interviewed Johann 
Züblin, Head of Standards and Social Compliance at Migros Switzerland and Dr. 
Marcus Rehm, Director for Sustainability Management at the board office of the 
German bank West LB. The Swiss retailer Migros was the initiator of the RSPO 
and West LB is a member of the RSPO. For the Better Cotton Initiative, 
interviews were conducted with Lise Melvin, the initiative manager of the BCI; 
Henrik Lampa from H&M; Anna Bexell from IKEA; Dr. Jason Clay from the WWF 
US; and Mark Eckstein of the IFC. All interviews except the one with Johann 
 15 
Züblin were conducted as telephone interviews. Johann Züblin I met in the 
MIGROS headquarters in Zürich, Switzerland. That interview and one of the two 
interviews with Anna Bexell were conducted together with Nils Peters, a 
researcher at the University of St. Gallen; I conducted all other interviews. Anna 
Bexell was the only interviewee who took part in two interviews. The reason for 
not interviewing NGO representatives in the DressCode and RSPO initiatives 
were that I was not able to get any replies on my interview invitations to NGO 
and trade union representatives in the DressCode and in the RSPO I was not 
able to fit NGO interviews into my time schedule. Both the DressCode and the 
RSPO have, as was previously mentioned, been studied before, why I deem the 
amount of data on the views on NGOs to be satisfactory. 
After each interview the interviewee was given the opportunity to read a 
transcript of the interview and correct any misunderstandings. The length of the 
interviews varied between a half and two and a half hours, with the vast 
majority lasting two hours. In order not to steer the respondents, the interviews 
were not structured in any specific way other than that they tried to cover all 
phases of the initiatives. 
The last step was to compare the data that was gathered in the first three steps. 
Critically comparing the different data sources helped me to come up with a 
reliable description of the different events of the cases as well as their 
relationships (Pentland, 1999).  
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3.  THEORETICAL FRAMEWORK  
3.1  ALTRUISM VS .  CAPITALISM  
Many authors, corporate executives, journalists, and others claim that firms 
have responsibilities that go beyond their basic responsibilities to society and 
their responsibility to their owners. The basic responsibilities to society include, 
beyond the legal requirements, to also adhere to the basic ethical norms in 
society. Such ethical norms are similar to what one might refer to as common 
decency. There are some things that you just do not do, no matter what the law 
says. Further-going social and environmental responsibilities would mean that 
firms should do more than is necessary, according to the basic societal norms, 
and therefore sacrifice part of the owners’ economic profit to this end. On this 
matter, this thesis took its starting point in the view of Friedman (1970) who 
states that the social responsibility of business is to increase its profits. If 
corporate executives would be pursuing these further-going targets they would 
in fact be taking someone else’s (the owners’) money and spend it on issues of 
their own choice. This can hardly be justified and even less, be seen as a 
responsibility. Firms can of course have other objectives than maximizing profits 
but this is the choice of the owners, not their employees in form of executives. 
Even more important, the shareholder wealth maximizing view does not 
exclude investment in social and environmental performance, it only excludes 
such investment that shows an ex ante negative net present value. Therefore 
my analysis will be based upon the assumption that the initiative participants 
are trying to add value with their efforts. 
This thesis mainly draws on the literature of the resource-based view. The 
resource-based view argues that a firm’s competitive advantage can be derived 
from strategic resources that the firm controls. Secondly, the thesis draws on 
the literature on institutional entrepreneurship. Institutional entrepreneurship 
examines how different actors, such as firms, behave in order to set new 
societal norms. 
 
 17 
3.2  THE RESOURCE BASED VIEW  
The resource-based view (RBV) is a theoretical concept that tries to explain a 
firm’s competitive advantage through the resources it controls. In a frequently 
cited article, Barney (1991) defines resources as “all assets, capabilities, 
organizational processes, firm attributes, information, knowledge etc. controlled 
by the firm that enable the firm to conceive of and implement strategies that 
improve its efficiency and effectiveness”. He identifies value, rareness, 
limitability and substitutability as important characteristics of resources for 
sustainable competitive advantage. 
Important to notice is that the RBV is intended for a specific firm and not for a 
representative sample of firms (Hamprecht J. , 2006b), meaning that resources 
are not valuable per se, rather they are valuable to specific strategies. 
Wernerfelt (1984) explained that resources and products are two sides of the 
same coin and that observing the resource profile of a firm it would be possible 
to say what product-market the firm should be in and vice versa. 
One specific group of resources that is of a special interest to this thesis is 
network resources. They are not specifically controlled by the firm but can be 
used by the firm to create and implement its strategies (Gulati, 1999). Since 
voluntary sustainability initiatives are alliances it is relevant to incorporate 
network theory in the analysis of them. A number of researchers have shown 
that the resources of alliance partners of a firm (network resources) can be 
transferred through inter-firm interactions and can add value to the focal firm 
(Lavie, 2006). The larger amount of such resources a firm has, the larger is the 
opportunity set of that firm (Gulati, 1999). 
Lavie (2006) extends the resource-based view to incorporate the network 
resources of interconnected firms. Lavie looks at how the firm creates value in 
an alliance by looking at alliances as either pooling alliances (scale) or a 
complimentary alliance (scope). He sees the alliance formation as a trading of 
resources where the “internal rent from the focal firm’s own resources will 
 18 
depend on positive and negative complementarities with the shared and non-
shared resources of its alliance partners”. 
 
3.3  INSTITUTIONAL THEORY  
Institutional theory tries to explain firm behavior through the societal context in 
which it operates. A firm must comply with institutional norms to keep its 
legitimacy (Bansal P. , 2005). A firm can also influence its societal context, a 
behavior called institutional entrepreneurship (Powell, 1988). This can be done 
through, for example, spreading or withholding information from its 
environmental policy (Bansal & Clelland, 2004). Because it is a target of NGOs, 
changing societal norms is an inherent target of voluntary sustainability 
initiatives. Therefore I believe institutional entrepreneurship to be a part of the 
value creating process that is being studied in this thesis. For example, if firms 
communicate that they are successful in one field of their environmental policy, 
they can draw media and NGO attention to this issue and therefore put 
pressure on their competitors to follow their lead. 
 
3.4  HOW SOCIAL/ENVIRONMENTAL PERFORMANCE LEADS TO 
COMPETITIVE ADVANTAGE  
The idea of profit maximizing firms does not mean that firms should never do 
better than the basic societal norms. In fact, a large stream of research has 
shown that investing in social and environmental performance can indeed add 
value to firms, for example directly through reduced risk (Feldman, Soyka, & 
Ameer, 1996; Godfrey, 2005) and through positive reputation, brand, effects 
(Gardberg & Fombrun, 2006).  
The basic societal demands are changing over time and it has been shown that a 
proactive environmental strategy can pay off. For example Nehrt (1996) shows 
first-mover advantages for pollution prevention in the pulp and paper industry. I 
will here provide a summary of five different ways in which corporate social 
 19 
responsibility activities add value to a firm. Later on, these findings, in 
combination with findings from the case studies, will be used in the next 
chapter for creating a framework model of how firms use VSIs to create value. 
GAINS FROM RISK MANAGEMENT 
Godfrey (2005) explains that firms engaging in philanthropic activities will gain 
insurance-like benefits in two ways: "(1) the degradation of relationship-based 
intangible assets will be tempered by positive moral capital (less trust is violated, 
reputation is not tarnished as much, loyalty suffers but remains, etc.) and (2) 
punishments and sanctions by stakeholders will be mitigated (stakeholders may 
forego sanctions altogether or they will impose less severe sanctions than in the 
absence of positive moral capital)." Feldman et al. (1996) analyze a sample of 
300 large public firms in the United States to see if investments in 
environmental management lead to risk reduction, and if financial markets 
value such risk reduction. Their findings suggest that investments in 
environmental management lead to substantial reduction in the perceived risk 
of a firm, with an accompanying increase in a public firm’s stock price, of 
perhaps five percent (Dowell, Hart, & Yeung, 2000). 
Argenti (2004) argues that firms that are highly visible in the market place and 
firms that are socially responsible are more likely to be attacked by NGOs. This 
observation is also supported by Bansall & Bogner (2002). Following this 
argumentation, highly visible firms should have larger potential gains from risk 
reduction through CSR. Werther & Chandler (2005) state what they call the 
“branding law of corporate social responsibility”. They define the law as: “the 
importance of CSR to any organization is directly related, and rises in proportion, 
to the value of the firm’s global brand.” 
GAINS FROM INTANGIBLE STRATEGIC ASSET BUILDING 
Fombrun, Gardeberg, & Barnett (2001) argue that “a citizenship portfolio helps a 
company build reputational capital and so enhances its ability to negotiate more 
attractive contracts with suppliers and governments, to charge premium prices 
for its products, and to reduce its cost of capital.” In the same article they 
 20 
introduce the concept of reputational risk, which they define as “the range of 
possible gains and losses in reputational capital for a given firm.” This is a 
merging of the insurance concept and the concept of reputational gains which 
gives a risk/return relationship that is analogue to the risk/return relationship of 
corporate finance, where the higher the expected return is, the higher is the 
risk. 
Building up a firm’s legitimacy is also building up a resource for competitive 
advantage since, among other things; it helps the firm with acquiring other 
valuable resources such as top managers, quality employees, financial 
resources, technology, and government support (Zimmermann & Zeitz, 2002). 
FIRST MOVER ADVANTAGES 
For example Barney (1991) explains that the first firm in an industry to 
implement a new strategy can obtain a sustained competitive advantage 
through gaining “access to distribution channels, developing goodwill with 
customers, or developing a positive reputation.” This cannot be the case, 
however, if the resources are homogenous across the industry. To be able to 
realize first mover advantages a firm must have information about the 
opportunity that its competitors do not have, otherwise other firms in the 
industry would implement the same strategy in parallel (Barney, 1991).  
Dowell, Hart & Yeung (2000) suggest that “Interest groups and 
nongovernmental organizations expose unsound corporate environmental 
practices, raise consumer awareness, and put pressure on governments to 
discipline polluters even if the pollution is in overseas locations. Through these 
means poor environmental performance is translated into bad public image, 
lower consumer goodwill, and ultimately, lower firm value. Aware of this 
disciplinary effect, far-sighted managers conscious of firm value opt to maintain 
a high level of environmental practice, even where regulations do not require it.” 
Lieberman & Montgomery (1988) explains that even though firms can gain first 
mover advantages through for example technological leadership or preemption 
 21 
of scarce assets, the advantages can be mitigated by for example free-riding by 
competitors. 
GAINS FROM INSTITUTIONAL CHANGE 
What can a firm do if it does not have a relative information advantage and 
cannot see opportunities before its competitors?  The answer is of course to 
create opportunities, or as Powell (1988) calls it, institutional entrepreneurship. 
If the idea of first mover advantages is combined with the idea of firms as 
institutional entrepreneurs that are affecting societal demands (institutional 
diffusion) we can see that firms can create relative competitive advantage 
through being first movers. It has for example been shown that firms acting 
early upon trends in sustainability can realize first mover advantages through 
affecting the direction of the trends (Falck & Heblich, 2007). If a firm can identify 
an issue, improve its social and/or environmental performance concerning that 
issue, and then work together with for example NGOs to raise public awareness 
on that issue, firms will force their competitors to follow their example through 
affecting the basic societal demands that all firms must comply with (see e.g. 
Friedman, 1970). Since the public accepts NGO statements as the truth (Argenti, 
2004), collaborating with NGOs will boost the legitimacy of an initiative and 
therefore also boost first mover advantages. From a resource perspective the 
value of the resources of the different firms are changing due to changes in the 
industry structure (Barney, 1991). By being an institutional entrepreneur a firm 
can try to change the societal demands and the industry structure in a favorable 
way. 
GAINS FROM RELATIONAL RESOURCES 
 Since there is more knowledge about sustainability in a firm’s stakeholder 
network than only within the firm, a firm’s relational resources are valuable for 
identifying the possibilities for action (Sharma, 2005). To use a financial 
expression it expands a firm’s investment opportunity set. 
Lavie (2006) defines a firm’s ability to “identify, evaluate, assimilate and exploit 
external knowledge” as absorptive capacity. This resource is valuable to firms 
 22 
since it allows them to learn from the other parties of the initiative. If a firm 
engages in a Voluntary Sustainability initiative and have strong relational 
resources it may be able to build up new valuable resources or reinforce existing 
ones. 
The new or strengthened resources can be used in the initiative itself, they can 
be leveraged across the firm to be valuable in other business activities and they 
may be valuable in future business activities. In the future business activities 
they can be valuable both because they can help the firm in doing these 
activities better and because they may allow firms to be able to undertake 
activities that would have been impossible or non-profitable without the new 
resources. 
Another interesting benefit of good relational resources is that when firms build 
relations to stakeholders and comply with their demands, the stakeholders, 
such as NGOs, give support to, or at least avoid criticizing, them (Bansal & 
Bogner, 2002). 
TO SUM UP, A FIRM CAN USE VOLUNTARY SUSTAINABILITY INITIATIVES TO 
HEDGE SOCIAL & ENVIRONMENTAL RISKS, TO IMPROVE THE FIRM’S 
REPUTATION (BRANDING), TO AFFECT THE SOCIETAL DEMANDS ON 
BUSINESSES IN A FAVORABLE WAY, AND TO ACQUIRE NEW AND VALUABLE 
RESOURCES. 
  
 23 
 
4.  A  VALUE CREATION FRAMEWORK FOR VSIS  
The following model is a meant to be a framework that schematically 
summarizes the value creating process of voluntary sustainability initiatives. It 
was created during the process of this thesis, from literature studies, from 
reading about a large number of initiatives and while conducting the case 
studies. In the next section of this chapter, the Migros – palm oil – case will be 
used to demonstrate the framework. 
What makes this framework different from the previously described value 
creating mechanisms is that it is (1) created with voluntary sustainability 
initiatives in mind, (2) intended to describe the whole value creating picture, 
and (3) entirely based on the logic of competitive advantage. 
 
4.1  THE MODEL  
Figure 1 is meant to show how firms use VSIs to achieve a sustained competitive 
advantage. Each arrow shows a close to mechanical relation where one box 
leads to another. For example, the identification of issue step is not only a 
prerequisite for the initiative creation to take place but it also leads to it since if 
a value adding strategy is identified, it will be pursued. The underlying idea is 
that managers, in pursuit of value maximization, are rational and therefore only 
implement strategies that are expected to add value. 
Further, initiative creation leads to implementation since NGOs otherwise would 
not have any incentive to participate. 
The implementation of a strategy is what directly leads to competitive 
advantage, which in turn leads to one of two things. Either the competitors are 
unable duplicate the strategy, which means that a sustained competitive 
advantage has been achieved, or competitors can, and therefore will, duplicate 
the strategy, which per definition leads to institutional diffusion. This 
 24 
institutional diffusion will, because it is anticipated in a valuable strategy, lead 
to a sustained competitive advantage, through for example first mover 
advantages. The exception to this is cases where resource acquisition is the 
anticipated source of sustained competitive advantage. 
The participation in a VSI can lead to the acquisition of intangible strategic 
assets, such as knowledge and reputational assets. Because such assets are 
valuable and because they are acquired throughout the process, they lead 
directly to competitive advantage and are therefore placed beside the central 
process in Figure 1. In this arrow I also include the acquisition of relational 
resources, since they are also built up as the firm collaborates with the NGO. 
 
FIGURE 1:  ILLUSTRATING THE LOGICAL MECHANISMS OF VSIS LEADING TO COMPETITIVE ADVANTAGE  
ISSUE IDENTIFICATION 
The process starts with the identification of the issue, for example the negative 
social and environmental effects of palm oil production in developing countries. 
The reasons for choosing a specific issue are: 
1. Threat (Feldman, Soyka, & Ameer, 1996; Godfrey, 2005) 
2. Opportunity (Gardberg & Fombrun, 2006) 
According to Sharma (2005) "the company needs gatekeepers to monitor the 
objectives and influences of stakeholders and translate this information for the 
Sustained competitive advantage
Institutional diffusion
Competitive advantage
Implementation
Initiative creation
Issue identification
R
e
s
o
u
r
c
e
 
a
c
q
u
i
s
i
t
i
o
n
 25 
internal constituents of the firm." Having good gatekeepers is an absorptive 
capacity resource that expands the investment opportunity set of the firm. As 
previously mentioned a good stakeholder network is also a resource that 
expands the investment opportunity set and also, through helping a firm to 
identify an issue earlier than its competitors, it helps a firm with realizing first 
mover advantages. If a firm is able to, before its competitors, identify an issue 
with potential for a successful VSI and if successful VSIs create value, it would be 
a source of competitive advantage, following the logic of Barney (1991). 
Therefore, the successful identification of an issue leads to the creation of an 
initiative. 
INITIATIVE CREATION 
The initiative creation phase is when the firm engages external parties to join 
the initiative, negotiates with the external parties and then jointly develops the 
initiative, i.e. decides on how, when, and what to do. 
Lavie (2006) proposes that: "the internal rent derived from the focal firm's 
resources will depend on positive and negative complementarities with the 
shared and non-shared resources of its alliance partners."  Finding the right 
partners is therefore of importance. 
Lavie also proposes that: "at the time of alliance formation, the more favorable 
the contractual agreement, the smaller the relative scale and scope of resources, 
the more attenuated the relative opportunistic behavior, and the stronger the 
bargaining power of the focal firm relative to its alliance partners, the greater 
the firm’s ex ante appropriated relational rent will be." This means that the 
initiative creation phase to a large extent is a bargaining of resources. If a firm 
wishes to gain the support of external stakeholders it must intend to implement 
the measures decided upon in the initiative creation phase and therefore this 
phase leads to implementation. 
IMPLEMENTATION 
This stage is where the firm/firms will implement the measures that came out of 
the initiative creation phase. Here the firm/firms/partners need different 
 26 
resources, for example supply chain management capabilities, to efficiently and 
effectively implement the chosen measures. 
In the implementation phase the firm executes the intended measures and 
therefore improves its social and/or environmental performance. If the 
customers within the industry (or other stakeholders such as financers or 
suppliers) appreciate this improvement, it creates competitive advantage and 
therefore forces the competitors of the firm to also implement similar 
measures. 
COMPETITIVE ADVANTAGE 
If the firm has been able to successfully identify an opportunity or threat, 
develop a strategy, and implement it, the firm should realize above normal 
returns due to reduced risk or higher expected profits. This should put pressure 
on competitors to follow a similar strategy in order to, for example, hedge the 
same risks. This is a first step of institutional diffusion. If the competitors can 
copy the strategy and realize the same returns the focal firm has only found 
short-term competitive advantage (Collis & Montgomery, 2005).  
NGO support is valuable for a number of different reasons. Especially important 
is that NGOs are trusted so their statements are accepted as true (Argenti, 
2004). If the initiative is successful in implementing its strategy and NGOs 
support it, this should have a boosting effect on competitive advantage. For 
example banks and other investors can believe in the risk reducing effects of the 
initiative and thus reduce the cost of capital; customers will probably appreciate 
the sustainability improvements more if they trust them and strong stakeholder 
support should also put more pressure on competitors to change as well. If 
NGOs have valuable knowledge their participation can allow firms to learn and 
to create better strategies through an extended investment opportunity set 
(Sharma, 2005; Lavie, 2006). Finally, NGOs can help firms communicate their 
efforts (Hamprecht J. , 2006b). 
 
 27 
INSTITUTIONAL DIFFUSION 
When the partners accept the initiative and when the amount and size of 
participating organizations reach a critical mass, the initiative becomes the 
industry norm. The norm, according to institutional theory, will make other, 
non-participating, organizations comply with the norm. The norm will be the 
new minimum level requirement for societal acceptance, that is, a level that all 
firms within an industry must comply with. 
An important aspect of VSIs’ institutional diffusion is that competitors are 
allowed to join the initiative. If this was not the case, NGOs would not see the 
initiative as credible. This means that being part of the initiative and adopting to 
its requirements will not create a sustained competitive advantage. This further 
implies that institutional diffusion and asset building are the ways to sustainable 
competitive advantage. 
SUSTAINED COMPETITIVE ADVANTAGE 
At this stage, after setting the new standard, all competitors should have an 
equally good performance regarding the issue of the initiative and therefore the 
short-term advantages of the participating firms should have disappeared. 
However, through institutional entrepreneurship, the initiating and the 
participating firms have jointly been able to affect societal demands in a way 
that suits their particular resources, creating a sustainable competitive 
advantage.  
RESOURCE ACQUISITION 
The resource acquisition effects of participating in the initiative are taken out of 
the central process since these effects happen throughout the process and lead 
directly to sustainable competitive advantage. Resource acquisition includes 
things such as organizational learning and brand building. Depending on its 
absorptive capacity, a firm will be able to learn throughout the initiative 
process. The knowledge, relationships etc. that have been accumulated 
throughout the process will allow the firm to more efficiently and effectively 
 28 
carry out other initiatives. In other words, learning is building resources for 
sustainable competitive advantage. If a firm’s pioneering efforts are observed 
and appreciated by the society, these efforts will lead to a reputational gain, 
which also is a resource for competitive advantage. 
 
4.2  THE MIGROS –  PALM OIL –  CASE  
As we moved into the new millennium in the winter of 1999/2000 Migros, a 
major Swiss food retailer, identified palm oil as an upcoming issue on the ever-
changing sustainability agenda. Palm oil is the world's second most important oil 
crop after soy oil. Oil palms are grown in tropical areas of Asia, Africa and South 
America. Due to its high productivity and a globally increasing demand for 
edible oils as well as for bio fuels, palm oil production has increased rapidly over 
the last decades, often at the cost of sensitive biotopes such as tropical rain 
forests. Migros, just as most other food retailers, uses palm oil in many of its 
products, ranging from margarine to cosmetics. To address the issue, Migros 
teamed up with the WWF in an initiative to promote sustainable palm oil. 
Starting with changing its own supply chain and its in-house production, Migros 
was able to initiate the Round Table on Sustainable Palm Oil (RSPO), the globally 
largest initiative of the WWF with some 209 ordinary members in January 2008 
(RSPO.org, 2008). The RSPO is constantly growing and sustainable palm oil has 
become an international de facto standard. 
The case will now be more thoroughly presented, following the same steps as 
the value-creating framework. 
IDENTIFICATION 
For Migros, it was Dr. Robert Keller, the head of R&D at Migros' fats and 
detergents manufacturing subsidiary MIFA AG who identified the issue 
(Hamprecht J. , 2006b). On the 10 November 1999, Dr. Keller read an article 
about the deforestation of Borneo in the Swiss Newspaper Tages Anzeiger. The 
article was written by Andreas Bänziger and was called: Instead of tropical 
wood, Borneo delivers margarine. Robert Keller realized that this issue didn't 
 29 
only affect Mifa, but the entire Migros since palm oil is used in so many 
different products. Keller’s first reaction was to write a letter to the editor of the 
newspaper where he described the relatively small role of European vegetable 
oil consumption. At the same time he admitted that there was a problem and 
that new production methods for palm oil had to be established. Dr. Keller now 
contacted Mr. Johann Züblin at Migros to jointly address the issue. This was a 
good move since Mr. Züblin had both experience and a personal network 
concerning rainforest issues. 
Mr. Züblin at Migros explains that there are numerous ways for the firm to 
identify relevant issues. They are getting ideas from inside (like MIFA) and 
outside (suppliers, “weak-ties” to stakeholders) via email, meetings, etc. It is 
clear that specific individuals are playing an important role “depending on 
specific people and their personal network inside and outside MIGROS”. 
 
INITIATIVE CREATION 
Internally, Migros created a cross-functional working group to deal with the 
issue. At Mifa, the R&D department tried to reduce Migros' dependence on 
palm oil through substituting it with sunflower oil. Additionally, Bruno Manser, 
the founder of the NGO Bruno Manser Fonds, was contacted to get external 
input on how to solve the problems surrounding palm oil. Bruno Manser had 
profound knowledge on working with similar issues in the affected regions; he 
had even been living with the Penan people of Borneo. “After the first 
discussions with Mr. Keller we jointly discussed the issue with Bruno Manser. We 
knew that he lived in Indonesia and therefore had long experience in working 
with the political and environmental issues in the regions that were affected. In 
these discussions we tried to use his profound knowledge of this region for 
jointly developing first attempts of a solution for the problem.” 
The contact with Bruno Manser did not lead to long-term collaboration so 
shortly thereafter Migros contacted WWF Switzerland. Migros had previous 
experience in working together with WWF. Since 1997 the two organizations 
 30 
had been cooperating around sustainable wood purchasing and Migros knew 
WWF as a pragmatic and solution oriented partner. In May 2000 a first meeting 
was held between Migros and WWF. The first meeting was successful and 
throughout the rest of the year the two organizations collaboratively developed 
a list of criteria for sustainable palm oil purchasing. 
When discussing what is necessary to get NGOs on board an initiative it 
becomes clear that the participating firm must have both credibility and also 
something to offer the participating NGOs: “Since we [Migros] are the largest 
grocery retailer in Switzerland we have the sufficient capital and human 
resources to finance and manage such an initiative”. Besides the human and 
financial resources, trust and a good track record in sustainability issues are 
important: “Since ethical, social and environmental responsibilities are central 
corporate values at MIGROS we already had a very similar general attitude to 
the palm oil issue as the WWF”. “We think WWF believed in our good will and 
our ability to reliably engage in the project since most of our products are 
produced in our own facilities, which also commit themselves to the MIGROS 
values to be an environmentally friendly and responsible business.” For getting 
NGOs on board, additionally, influence over the supply chain seems valuable: 
“We believe that our ability to produce products fulfilling the new criteria was 
supporting WWF’s trust and commitment to the project.”  
IMPLEMENTATION 
In June 2001 Migros decided to adapt to the new criteria (Robert Keller, 2006). 
The plan was to do it in three steps. First, Migros would switch its margarine 
production to sustainable palm oil. Second, Migros would switch the entire 
purchasing of its factories to sustainable palm oil. Third, Migros would demand 
of external suppliers to only process sustainable palm oil in their products. 
Throughout the year Migros started to look for palm oil suppliers who were 
willing to fulfill the new criteria. Purchasing sustainable palm oil would naturally 
be more expensive than normal palm oil but through negotiating with several 
suppliers simultaneously it was possible to keep the expected cost-increase at 
 31 
moderate levels. Substituting some of the palm oil with sunflower oil also 
helped Migros with mitigating a potential cost-jump. Migros managed to reduce 
its palm oil purchasing volume by a third (Hamprecht J. , 2006b). 
WWF wanted a third party to join the initiative. They felt that to get sufficient 
credibility it was necessary to include an organization with experience from 
similar issues that could help in fine-tuning the criteria and auditing the 
compliance of them at the plantations. WWF found the Oxford-based firm 
ProForest. Now Migros had established criteria for and a supply of sustainable 
palm oil as well as external monitoring and could start implementing their 
three-step plan. 
Johann Züblin thinks that their integrated supply chain was valuable for Migros 
to effectively put the initiative into action: “As we have the control over the 
production of nearly 60% of the products that are sold in our supermarkets we 
have direct access to the supply-network of palm oil. This allowed us to really 
implement the new criteria in our products.” 
COMPETITIVE ADVANTAGE 
If the initiative has been successful in the first four phases, the firm should be 
able to realize competitive advantage and therefore add value. This is simply 
what was already mentioned in the theoretical framework section where 
reference was made to Dowell, Hart and Yeung (2000) who showed that firms 
adopting a single stringent global environmental standard have much higher 
market values. I argue that this effect is boosted by the acceptance of the 
initiative by normative stakeholders. The mechanism behind this, I argue, works 
through the lower perceived risk that Feldman et al. (1996) claims to be the 
reason for the added value of the firm. If, for example, an NGO accepts the 
initiative, the capital market should see this as a guarantor for the success of the 
initiative and therefore it should lower the perceived risk and hence add value. 
An example of how this works practically is the German bank West LB, which 
sometimes even put RSPO participation in the covenants of lending agreements 
(Rehm, 2007). 
 32 
For the same reason, external monitoring should boost the value-adding effect 
of the initiative. Migros understood this effect and they addressed the issue at 
an early stage: “already in the design phase we wanted to see which of our new 
criteria really could be measured afterwards.” My reason for categorizing the 
risk hedging effect as short-termed is that the competitors of the initiating firm 
could take similar measures and also hedge the risk. There are surely also 
sustainable competitive advantages to be realized from a voluntary 
sustainability initiative even without institutional diffusion, most notably the 
reputational gain from leading the way in the sustainability area. 
INSTITUTIONAL DIFFUSION 
The final step of the initiative was to expand it to include further partners and to 
try to make it become a global standard.  This has allowed Migros to enjoy a 
much more passive role and has forced competitors to also buy the more 
expensive sustainable palm oil. 
Institutional diffusion is a result of both efforts directed hereto by the firm as 
well as a more or less mechanical effect from the success of the initiative. When 
the initiating firm realizes gains, such as reduced risk, that the competitors also 
can realize, the competitors will have strong incentive to pursue these gains 
through duplicating the strategy. Therefore, success of an initiative leads to 
institutional diffusion. In the theoretical framework I argue why it makes sense 
for firms to actively pursue institutional change. Take for example investors such 
as banks. If banks observe risk reduction for firms taking part in the initiative, 
they can offer the participating firms relatively cheaper capital. 
For Migros, communicating with the banks was one channel of putting pressure 
on other stakeholders to join the RSPO. They did this by explaining to the banks 
the risks of ignoring the societal demand for sustainable palm oil and by 
explaining the importance of palm oil in the food industry (Hamprecht J. , 
2006b). This raised the awareness of some banks such as West LB, which has 
now joined the RSPO. In an interview Dr Markus Rehm of West LB explains that 
they have understood that this is an issue of increasing importance. "First of all, 
 33 
we are an important player in financing many parties in the palm oil supply 
chain and therefore we want to join the initiative to learn more about this issue 
and how it affects us." He also explains that the RSPO works as a tool for them 
when they are trying to convince their clients in working with these issues. 
Therefore it is important that the RSPO can offer a ready solution that can be 
presented to clients. Another very important aspect is that the RSPO can offer 
information and insight into the sustainability performance of current and 
potential clients. Dr Rehm says that through their participation West LB wants 
to strengthen the RSPO through lobbying for very clear criteria so that they can 
be sure whether a client is living up to the expectations or not. Now West LB can 
even put RSPO participation in the covenants when acquiring new clients. 
Migros used several different channels for communicating the RSPO to 
stakeholders. They used their member magazine, a marketing campaign, and 
their annual report (Hamprecht J. , 2006b). Another example of how 
stakeholders contribute to institutional diffusion was when the British NGO 
Friends of the Earth persuaded Tesco and other supermarkets to work with 
RSPO.  Their basic message to consumers was that a retailer kills orangutans 
(Smith D. , 2007)2. WWF also contributed separately through using the initiative 
as a showcase in a campaign against rainforest deforestation that they did 
together with Greenpeace. In August 2002, Migros received a price from the 
United Nations for their efforts. 
 The RSPO has been highly successful in achieving institutional diffusion, which is 
supported by the following statements by Mr. Züblin at Migros: “As we now 
have 40 % of the world’s demand for palm oil bundled in the RSPO we now have 
the broad acceptance and purchasing power to simply demand the new criteria 
for new suppliers of palm oil where we formerly had to convince those suppliers 
of the benefits of the new approach” 
"It feels as if we have reached a critical mass where new entrants join the 
initiative by themselves. We can now take a much more passive role. For 
                                                          
2
 http://www.guardian.co.uk/environment/2007/mar/25/conservation.theobserver 
 34 
Issue 
identification
Initiative
creation
Implemen-
tation
Competitive 
advantage
Institutional 
diffusion
Sustained 
competitive 
advantage
example, one retailer that had experienced a lot of pressure from the media 
called us and asked how to join. We just said that there is the homepage, just 
read through the information and fill in the form." 
CLOSING THE CIRCLE 
At this stage of the VSI process a 
firm can enjoy a rather passive 
role. The initiative has been 
institutionalized and competitive 
advantage achieved. Further, 
existing resources for institutional 
entrepreneurship have been 
strengthened and new have been 
built. These resources can now be 
used for creating new 
initiatives. Mr Züblin: "We 
learned very much from this process. A lot of the things we can just copy-paste 
into new projects. For example: When we want to do this for coffee, the people 
in the purchasing department just say: Ok, we have done this before, it's no 
problem to do it for coffee as well." The learning is also actively managed in 
order to draw as many advantages as possible from the initiative: "The problem 
is that what we've learned is dependent on only a few persons. We are now 
trying to institutionalize the knowledge. For example, we have created a new 
position called issue management." 
  
FIGURE 2:  THE VALUE CREATING PR OCESS BECOMES CONTINUOUS 
 35 
5.  DISCUSSION -  A  CSR-POSITIONING MATRIX  
So far, the value-creating logic and process of voluntary sustainability initiatives 
has been investigated, described and supported. Those findings are interesting 
per se but far from revolutionizing. In a practically oriented thesis the important 
thing is discussing the implications of the findings and therefore the last chapter 
of the thesis is devoted to developing a strategy matrix that is based on the 
findings in the earlier chapters. The matrix will have two axes, one representing 
an internal view and one representing an external view on competitive strategy.  
THE EXTERNAL VIEW 
The literature review showed that sustainability improvements, in the short run, 
can add value through improving the reputation of a firm and through hedging 
the risks concerning social and environmental issues. Remembering that the 
value of a firm is the present value of all its expected future cash flows, (with 
the larger the cash flows and lower the risk-the higher the value of the firm), 
this implies that a firm which cash flows are dependent on its reputation, such 
as a branded consumer goods firm, is more sensitive to its sustainability 
performance than is a firm which cash flows depend to a greater extent on the 
traditional price and quality aspects of their products or services, such as 
utilities or original equipment manufacturers (Werther & Chandler, 2005).  
To break down the risk hedging function I suggest that the sustainability risk is 
the product of the probability of being criticized and the cost of being criticized. 
Also, the more visible a firm is in the market place the higher is the probability 
of being controlled by media and NGOs (Argenti, 2004). Summing up the 
external view, a firm’s brand should be a good proxy for the leverage of the 
risk/return relationship of voluntary sustainability initiatives since firms which 
cash flows are highly depending on their brand can realize more gains from a 
proactive strategy than for example utilities or OEMs due to (1) larger potential 
loss in brand value, (2) higher probability of being reviewed by media or NGOs 
because of a higher profile and (3) larger potential gains from brand 
diversification. 
 36 
From an external point of view, the incentives for differentiating, branded firms 
to actively engage in CSR are much stronger. Compared to other firms, these 
firms appear to have much more to win from good sustainability performance 
and more to lose from poor. The relationship offers valuable insight but does 
not explain the frequent CSR programs among energy firms or other non-
differentiated businesses in cost focused industries. Analyzing the issue from a 
firm-internal perspective offers some further understanding. 
THE INTERNAL VIEW 
In the case studies I found that the specific resources of a firm are important for 
the success of an initiative, for bargaining with the other participants, for 
implementing the strategy and for affecting societal demands. Hence resources 
related to those issues are important for creating competitive advantage 
through voluntary sustainability initiatives. 
In the studied cases I observed that NGOs join voluntary sustainability initiatives 
together with firms in order to efficiently and effectively execute their 
objectives of improving social and environmental conditions in firms and their 
supply chains. NGOs can have a similar impact by investigating firms and raising 
public awareness on different issues to force firms to change their conduct. 
Doing this, however, means that they must spend resources. If the NGOs 
instead cooperate with firms, the firms can finance the process so that the 
NGOs can improve corporate social and environmental performance without 
raising cost and thereby getting much impact from little effort (cost). To 
maximize their impact, NGOs want as many and as large firms as possible to join 
and to have as high improvement requirements as possible on the participating 
firms. This means that what they want is access to firm resources such as firm 
size, purchasing power, number of employees, etc. in combination with the 
necessary firm resources to successfully implement strict standards. 
From a firm’s perspective their resources are assets that they can use in 
bargaining with NGOs for their acceptance and support. A firm with large 
resources should therefore be able to get more exclusivity i.e. a leading role in 
 37 
the initiatives in which they participate, which consequently should lead to 
improved relative competitive advantage towards their competitors. Other 
authors have found the specific knowledge of NGOs to be a particularly 
important factor (Economist, 2008). The case studies also show that NGO 
participation can boost the value creation of the initiative in several steps of the 
value creating model and therefore it can be valuable even for firms with very 
large market power resources to have NGOs join. 
 
5.1  COMBINING THE INTERNAL AND EXTERNAL VIEWS  
Following the previous two sections there seems to be two distinct firm 
characteristics affecting a firm’s choice of a suitable CSR-strategy, the relative 
importance of a firm’s brand, and its resources for institutional 
entrepreneurship within corporate social and environmental performance. The 
latter can be boiled down to market power (accumulated good NGO relations 
are obviously also of great importance but in the long run also these can be 
boiled down to market power). 
Because the two views, the internal and the external, appear to be independent 
of each other (there are certainly highly influential firms in non-branded 
industries and vice versa) the two can be put together into a matrix outlining 
four general CSR-strategies. The four different strategies apply to different firms 
depending on their resources and their brand values. 
For managers the decision on which strategy to follow boils down to two 
questions: (1) do we have the resources to successfully lead an initiative? (2) 
Would attention and public praise following our efforts add value to our 
products or services? 
 38 
 
FIGURE 3:  A CSR-STRATEGY MATRIX SHOW ING FOUR GENERAL CSR-STRATEGIES  
 
FOLLOW THE RULES 
The first strategy is the most passive one. Firms that don’t have the ability to 
affect the societal demands or the ability to charge premium prices for superior 
social or environmental reputation will simply not find it worthwhile to go 
beyond minimum requirements. An example would be an original equipment 
manufacturer (OEM), for which customers specify a required quality level and 
then buy from the manufacturer with the lowest price. For such a firm the most 
efficient strategy appears to be to follow the basic societal demands and the 
demands of their customers. Going beyond minimum requirements would not 
be a differentiating factor since customers specify what they are willing to pay 
for. A differentiating factor would instead be the ability to produce in a 
sustainable manner. This would, however, be customer segmentation, not CSR.  
SET THE RULES 
A firm with much market power is in a completely different situation. A firm 
that have the resources to affect the basic societal demands but cannot charge 
premium prices because of superior social or environmental performance could 
benefit from using its power to change the minimum requirements for itself and 
 39 
for its competitors. Take for example a large energy producer. It might be 
interested in tight CO2 regulation if it can use a superior R&D resource to more 
efficiently than its competitors change its production system to lower emission 
levels. Such regulation could also be beneficial if the firm already possesses over 
hydropower plants with low CO2 emissions. The point of this strategy is not that 
customers will be willing to pay more because of higher moral standards. The 
point is that the costs associated with an improved conduct will have a more 
severe impact on the profitability of competitors. Since minimum standards 
affect all competitors, prices will go up, causing increased profits to the firms 
with low relative cost increases. 
JOIN INITIATIVE 
This strategy is well exemplified by many of the firms that have joined the RSPO 
after MIGROS or the three smaller firms in the DressCode initiative (see 
appendix). They did not have the resources to drive an initiative on their own 
but had, in many cases, strong brands that exposed them to the risk of external 
critique. Joining an initiative will help hedging the risks but will give them less 
positive attention and less influence over the initiative than if they would have 
been driving the initiative themselves. 
Staying out of initiatives will expose a firm to risk of being criticized when it does 
not live up to the new standard.  Therefore a firm that stays out of the initiative 
will be at a disadvantage when it must live up to a standard that it has not been 
able to affect or even anticipate as efficiently as its competitors in the initiative. 
Creating a separate initiative will probably not be a successful strategy either, 
since such an initiative will be outcompeted by the initiative with relatively 
larger market power and credibility. 
LEAD THE WAY 
Firms that in addition to strong resources for institutional entrepreneurship also 
sell branded products or services, for example large consumer goods multi-
nationals, will be able to leverage these characteristics through shaping the 
competitive environment and simultaneously add reputational value. This 
 40 
strategy is well exemplified by Migros, which initiated and lead the RSPO 
initiative. Migros had the necessary resources and it was also able to charge 
premium prices for its products. Even though other firms joined the RSPO later 
on, Migros is still associated with driving the issue. Through leading the way 
beyond the rules, Migros was able to both gain reputational advantages and 
affect the rules in a favorable way. 
The difference between branded firms with and branded firms without market 
power can be made clear when thinking about the way to use so called eco-
branding. In Sweden, the major eco-brand in the dairy sector is called KRAV. 
Smaller competitors in the industry, such as Milko, Skånemejerier, and 
Falköpings mejeri (falkopingsmejeri.se; milko.se; skanemejerier.se), all use the 
KRAV label for their eco-products. The Danish dairy giant, Arla, which dominates 
the Swedish dairy-market, does not, however, brand its eco-products with the 
KRAV label, even though it sources its ecological milk from KRAV-certified farms. 
For the smaller players, buying KRAV-milk and adding the label to some 
products, is an easy way to exploit a market segment, but it will not give rise to 
competitive advantage, since the strategy is easily duplicated. Arla, on the other 
hand, can build its own eco-brand, that it controls, and thus gains relative power 
over the KRAV organization. 
THE LOGIC OF THE EXCEPTIONS 
It must certainly be possible to find exceptions to the four strategies. There is 
however some logic that argues that such exceptions would tend to destroy 
rather than create value.  A firm that invests more into its social/environmental 
performance than its customers are willing to pay for is wasting money since the 
firm is not paid for its efforts. A firm that is moving to the right in the matrix is 
building its brand and should take advantage of it in order to sustain or improve 
profitability. This shift is, however, not necessarily easy. Porter (1998), for 
example, argued that a firm’s positioning involves “a firm’s total approach to 
competing”. Simultaneously, a firm that wishes to move up in the matrix must 
acquire the necessary resources to be successful and will otherwise be 
outperformed by competitors with stronger resources. Take for example first-
 41 
mover advantages: Leading the way can create many advantages (e.g. Barney, 
1991 and Dowell, Hart, & Yeung, 2000) but being a follower also has its 
upsides, for example through free-riding (Lieberman & Montgomery, 1988). 
Note finally that one strategy is not generally better than the other. It’s all about 
choosing the appropriate strategy for each firm in order to maximize 
shareholder wealth. 
A FIRM THAT HAS STRONG MARKET POWER AND IS NOT USING IT IS NOT 
MAXIMIZING ITS VALUE. A FIRM THAT HAS A LARGE BRAND VALUE BUT IS NOT 
SECURING ITS SOCIAL/ENVIRONMENTAL PERFORMANCE IS TAKING 
UNNECESSARY RISK.  
 42 
6.  REFLECTIONS/FUTURE RESEARCH  
 
This thesis took an ambitious leap from the current state of research to 
developing a strategy matrix while studying only three cases. Therefore the 
possibility to generalize the findings is limited. At the current state of research, 
there is strong logic supporting the model. In order to be able to generalize it 
into other parts of CSR it is, however, necessary to study it in relation to a 
broader range of CSR activities. Even though the value-creating model is built on 
scientific findings from well renowned literature, more cases should be studied 
in order to find out alternative processes, and for identifying more resources for 
institutional entrepreneurship. I suggest that task to be the starting point for 
further on developing the area of CSR strategy. 
The contribution of this thesis to strategy science and practice is that it shows 
that CSR-strategy is an integrated part of business strategy generally and should 
not be treated as a separate issue. The most appropriate CSR-strategy is 
determined by positioning and resources. 
The creation of this thesis was triggered by a discussion on the logic of the 
stakeholder perspective and at this point it might be a good idea to refer back to 
that discussion. I found that CSR is not contrary to shareholder value 
maximization, a finding that should come as no surprise. Already in 1776 the 
famous economist Adam Smith (1776) stated: 
“It is not from the benevolence of the butcher, the brewer, or the baker that we 
expect our dinner, but from their regard to their own interest.” 
Remembering that people, i.e. customers, generally prefer good social and 
environmental performance over bad, of course companies fulfilling the wishes 
of their customers create more value. The same thing goes for other 
stakeholders, such as investors or regulators. The framework that is outlined in 
this thesis will hopefully help managers structure their thinking on how that 
value can be captured.  
 43 
 
 
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7.1  INTERVIEWS  
DR ES SCODE :  
– Ann-Marie Heinonen - Information Manager, KappAhl 
– Ingrid Schullström - CSR Manager, H&M 
THE RO UN DT ABLE ON  SUST AIN ABLE PALM O I L :  
– Johann A. Züblin – Head of Standards and Social Compliance, Migros 
Switzerland 
– Dr. Marcus Rehm - Director for Sustainability Management at the board 
office, West LB 
THE BETT ER  COTTON  INITIATI VE :  
– Lise Melvin - Initiative manager of the BCI 
– Henrik Lampa – Environmental Coordinator, H&M 
– Anna Bexell – Global Cotton Coordinator, IKEA 
– Dr. Jason Clay - Senior Vice President Market Transformation, WWF US 
– Mark Eckstein – Senior Environmental Specialist & Social Development 
Department, International Finance Corporation (IFC)  
  
 49 
8.  APPENDIX –  CASE STUDY SUMMARIES  
 
8.1  CASE STUDY SUMMARY:  THE BETTER COTTON 
INITIATIVE  
The Better Cotton Initiative (BCI) is a VSI aimed at improving the social and 
environmental impact of producing cotton.  Rather than creating a new brand of 
organic cotton it is focusing on improving the bulk of cotton production, 
commodity cotton. The initiative was jointly started by the International Finance 
Corporation (IFC) and the World Wide Fund (WWF). 
Mark Eckstein of the IFC and Jason Clay of WWF were both working with 
agribusiness and commodities in their respective organizations. The two 
developed a memorandum of understanding between the IFC and WWF, which 
basically said that they would work jointly on the development of better 
management practices in selected commodities. The two organizations 
commissioned research on ten commodities and then decided to move further 
with four; sugar, palm oil, soy, and cotton. They then initiated a two-day 
stakeholder meeting around cotton in November 2004 (the four commodities 
had separate initiatives). In the meeting there were representatives from 
research, NGOs and private companies. The companies were H&M, Adidas, the 
Gap, Nike and IKEA and from the financial sector ABN-Amro and Rabobank were 
represented. The companies all had a relation to IFC and/or WWF prior to the 
meeting. 
When I conducted interviews with the BCI participants in the summer and fall of 
2007, the BCI had held a number of stakeholder meetings. The first meet was 
mainly a two day brainstorming session around what the problems and 
potential solutions were. The second meeting, in June 2005, focused more on 
defining the scope of the initiative and also identified organizational needs of 
the initiative, such as hiring a manager and having a budget. In the third 
meeting, several new NGOs and companies joined in. In the fourth meeting, in 
March 2006, the discussions were much more about governance than issues. 
 50 
This was a turning point in the process since the BCI became institutionalized, in 
the sense that the ownership of the process shifted away from the initiators to 
becoming a multi-stakeholder owned initiative. 
 After appointing an initiative manager, Lise Melvin, in September 2006 and 
sorting out some of the governance issues, the process picked up speed. It was 
not until after the fall of 2006 that the governance system of the BCI and the 
vision and mission was decided. Since then, the number of participants has been 
growing and approaching its initial target at an accelerating pace. 
KEY FINDINGS IN THE BCI CASE: 
The BCI gave several interesting findings. It showed the value of NGO relations 
for firms. All of the firms who have had the most influence over the initiative 
had relations to the initiating organizations prior to the initiative. The case was 
also important for understanding the bargaining of influence over the initiative.  
An interesting observation over how the initiative has developed is that there 
seems to be a lot of path dependency in setting up the initiative. The firms who 
had previously been working with tracking, tracing and auditing their supply 
chains with regard to codes of conduct were very reluctant to use other forms 
of systems, which the NGOs would have preferred. This has been a significant 
obstacle for the process and also shows the importance of learning. 
Speaking to Mark Eckstein and Jason Clay was additionally very valuable 
because of their vast experience from VSIs. Their input made it clear that risk 
reduction is the main driver behind corporate involvement in VSIs. 
 
8.2  CASE STUDY SUMMARY:  THE DRESSCODE  
DressCode was a voluntary sustainability initiative in the Swedish apparel 
industry. Its purpose was to improve the working conditions in the supply chain 
of the participating Swedish clothing retailers, especially in developing 
countries. It was a cooperation between four of the largest clothing retailers in 
the country, H&M, KappAhl, Lindex and Indiska, together with several NGOs, 
 51 
most notably the young Fair Trade Centre which was a main driving force and 
finally several trade union representatives. To improve the social standards in 
the supply chains of the firms the project aimed at formulating a harmonized 
code of conduct and to put in place a monitoring system for the code. 
The project led to proposal of a code of conduct for the suppliers with specified 
demands for the retailers. The proposal was named DressCode. (The name was 
never ratified by all parties of the project but is publicly recognized and used in 
the two articles about the project). The code was based on UN human rights 
and central ILO conventions but went even further in its demands. Among other 
things it contained demands of "reasonable salary", "reasonable working 
hours", "a safe and healthy working environment" and "a demand for the 
suppliers to primarily offer permanent employment". 
The four firms together with the NGOs initiated a number of discussions on how 
one common code of conduct should look and how to implement independent 
monitoring of the compliance to it. These discussions constituted the basis for 
the project that I, and several other authors, call the DressCode initiative.  
To evaluate different independent monitoring methods, pilot studies were 
initiated within DressCode at the suppliers of the four firms in India, Bangladesh 
and China. Four audits were made by the NGOs and trade unions in cooperation 
with local organizations (H&M b). 
In spite of three years of intense work with significant investments of both time 
and money from all parties the initiative was never put into action. A long way 
into the project, all parties were agreeing on the general principles but in 2002 
when it was time to put the plan into action the unions suddenly rejected the 
proposed code of conduct and the monitoring system. The trade unions’ 
withdrawal from the DressCode led to a failure of the entire initiative. The four 
firms, however, still believed in codes of conduct but they all went their 
separate ways to perform the audits themselves. In 2005 H&M joined the Fair 
Wear foundation (H&M b), an initiative that is similar to the DressCode project. 
H&M also has an own organization of around 50 factory auditors (H&M a). 
 52 
KappAhl started working with a Norwegian ethical trading initiative (Initiativ for 
Etisk Handel) and did SA8000 audits through external parties. Later they joined 
the Business Social Compliance Initiative (BSCI) which has gained strong support 
with over 80 participating firms, mainly European retailers. KappAhl has been 
active in developing the BSCI (bsci-eu.org). Also Lindex joined the BSCI and was 
one of the main driving forces to develop that initiative (bsci-eu.org). Indiska is 
still conducting its own audits without external monitoring. 
KEY FINDINGS IN THE DREDDCODE CASE: 
The DressCode case added much value to my understanding of the very 
important role of credibility in VSIs. It is probably the most important driver for 
firms to join with NGOs. At the same time, when credibility is at risk for any of 
the involved parties, it can jeopardize the entire initiative. 
The interviews and studied texts showed the de facto bargaining of resources 
that take place in setting up an initiative. In the larger picture there is also 
competition between different initiatives, adding an important dimension to the 
subject. 
Ingrid Schullström of H&M mentioned that the initiative enabled firms to work 
together, which she thinks would have felt unnatural without external parties. 
This points both in the direction that VSIs create a “neutral ground” and that 
this allows for collaboration, which in turn is an efficient way for competitors to 
handle a common threat.