THE BUSINESS NEED OF CSR

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THE CASE OF ØRSTED A/S

Copenhagen Business School

MSc in Business and Development Studies Master’s Thesis (CCBDO2000E)

Elena Mugnos

Student Number: 111410 August 2nd, 2021

Total number of pages: 107 Number of normal pages: 80 STUs: 132.848

Image sourced from(Ørsted A/S, n.d.)

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Abstract

In recent years, business organizations have been increasingly judged, on top of their financial performance, for their sustainability performance. The implementation of CSR relies on firms’ self-regulation, as it is voluntary to incorporate sustainability in the business model. As a result, CSR is often utilized as a tool to advance business interests, such as a marketing tool to increase a firm’s reputation. A successful implementation of CSR, which has sustainability at the core of the business model, has been carried out by Ørsted A/S, the leading power company in Denmark and a global leader in the production of clean energy. In this regard, in 2020, Ørsted ranked first among all companies in the Corporate Knight’s Global 100 Index of the most sustainable companies worldwide.

Keywords: Ørsted A/S, Wind Power, Sustainability, Strategic CSR, Strategy Tripod, Global 100 Index

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Table of Figures

Figure 1: The Strategy Tripod ... 35

Figure 2: Institutions, Organizations, and Strategic Choices ... 23

Figure 3: Dimensions of Institutions ... 24

Figure 4: Forces governing competition in an industry ... 29

Figure 5: VRIO Framework ... 35

Figure 6: The Triple Bottom Line ... 35

Figure 7: The Threefold Fit ... 40

Figure 8: American Wind Turbine ... 47

Figure 9: A Danish Offshore Wind Farm ... 49

Figure 10: Average turbine nameplate capacity, rotor diameter, and hub height installed during period ... 64

Figure 11: Project Costs per MW, £m/MW ... 67

Figure 12: Global LCOEs from newly commissioned, utility-scale renewable power generation technologies, 2010-2020 ... 75

Figure 13: Porter's Five Forces - Ørsted Overview ... 76

Figure 14: Wind speed (m/s), onshore wind farms ... 76

Figure 15: Wind Speed (m/s), offshore wind farms ... 80

Figure 16: Orsted's total assets from financial year 2011 to 2020 ... 80

Figure 17: Overview of VRIO’s Application to Ørsted ... 83

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1. Introduction

1.2 Context & Key Issue

Over the past half century business organizations have been increasingly judged not only by their economic performance, but also by their social contribution. Businesses possess several of the resources of the society, and it is now increasingly expected from them that they take responsibility for major social and environmental issues.

The implementation of CSR has for most part remained voluntary and relies on firms’ self- regulation through codes of conducts and their willingness to comply with such codes. The fact that companies can have a flexible implementation and evaluation of the codes of conduct according to their choices, led CSR to often represent a tool utilized to merely advance strategic business interests; companies can easily avoid social responsibility if they see no “business case” for a CSR implementation. Thus, voluntarism led to CSR initiatives resulting in misleading perceptions of responsibility, while rising doubts regarding the effectiveness of CSR practices. (Tamvada, 2020).

The main argument against CSR is that resources spent on goals that are not of an economic nature are illegitimate, as they are in contradiction with the firm’s responsibility towards its shareholders and thus against the very function of business (Shreck, 2009). As a matter of fact, business organizations have traditionally been perpetuating “short- termism”, that is the orientation towards generating short-term profit; however, CSR investments are strategic investments for the firm’s long-term profitability and survival. In the wake of the global financial crisis of 2008 and of corporate scandals such as the Enron’s scandal in 2001 and Volkswagen in 2015, the “invisible hand” concept that can secure

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Page 10 of 107 positive returns for the society does not seem credible; we have reached a point in which it is not a matter of whether a company has to engage in CSR, but only of how a company is to engage. (Vallentin & Spence, 2017)

A successful CSR implementation is not simple, but a few businesses have shown that it is possible. Ørsted A/S is the largest energy company in Denmark and is a global leader within clean energy. The firm develops, builds and operates offshore and onshore wind farms, energy storage facilities, solar farms, and bioenergy plants. (Ørsted, 2021). Ørsted was ranked by Corporate Knights' 2020 index of the Global 100 most sustainable corporations as the most sustainable company in the world, becoming the first energy company to top the index. However, just over a decade ago, the firm’s core business was based on fossil fuels. Since 2006 the company, then named DONG Energy, has reduced its carbon emissions from energy generation by 83 percent, and has as target to be carbon-neutral by 2025. The firm has significantly grown its business, while substantially reducing its carbon emissions, with the vision “to have a world that runs entirely on green energy”. (Ørsted, 2020). The green power generated by Ørsted’s offshore wind farms serves more than 13 million people, and the firm aspires to grow this number to 50 million people by 2030. In financial terms, already in 2017 Ørsted had shifted greatly its capital base from fossil fuels to renewable energy sources, that accounted for over 83 percent of capital employed, 62 percent more compared to 2006. During the same range of years, the firm has more than doubled its operating profit (EBITDA) up to DKK 22.5 billion, and more than quadrupled its ROCE, from 6 to 25 percent. (Baungaard & Jørgensen, 2018).

1.3 Research Question & Motivation

The main research question of the paper is:

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Page 11 of 107 What are the elements that made Ørsted become the most sustainable company in

the world?

I will answer the research question by utilizing the following three research sub-questions:

• What role do institutions play in the CSR topic in Denmark?

• What are the features of Ørsted’s competitive arena?

• What are Ørsted’s Resources which create competitive advantages?

I have decided the topic of my master’s thesis in accordance with the core of my master’s degree, namely Master of Science in Business and Development Studies. The latter focuses on the relation between different international businesses and economic development and a vast part of the curriculum revolves around subjects such as CSR, sustainability and governance. I am also pursuing the CEMS Master in International Management, that has as objective to prepare responsible leaders that can contribute towards a more open, inclusive and sustainable world; for this reason every subject we have in the curriculum gives a solid attention to sustainability and we even had a week-long block seminar regarding CSR and sustainability.

Moreover, the motivation for choosing this topic derives from its high relevance on social, economic and environmental levels on a global scale. As a matter of fact, global warming over the next decade cannot be avoided; the only way to reduce the impacts of climate change is to strongly reduce the emissions of carbon dioxide from our economies. With the Paris agreement in 2016, 174 states and the EU committed to halve their carbon footprint by 2030 and to eliminate it totally by 2050 (Pinner, 2020). Companies have the unique possibility of driving major positive changes through sustainability principles and CSR initiatives, reducing the risks of running into the worst socioeconomic and environmental

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Page 12 of 107 effects. Ørsted A/S represents an exemplum in the sustainability journey, as, since the change from black to green energy, the firm has been thriving in growing its business while benefitting the planet, demonstrating that a positive change is a reality rather than an aspiration.

1.4 Delimitations

The purpose of this paper is to analyze Ørsted’s case to understand what are the elements that made the firm become the most sustainable worldwide; thus, the study’s scope is delimited with only this firm taken into consideration.

Moreover, even if Ørsted has different businesses, the focus, in particular regarding the competitive arena, will be on the renewable energy deriving from the wind power.

1.5 Definitions

CSR: In spite of a growing body of CSR literature, there exist no definition of CSR that is universally accepted (Matten & Moon, 2008). CSR is thus an umbrella term, which is generally regarded to as the way in which businesses integrate economic, social and environmental concerns with their strategy and operations, thereby promoting the social and economic development and environmental safeguard (Afrin, 2013).

Strategic CSR: CSR initiatives are often part of companies’ marketing strategies, merely aimed at building a positive brand reputation among consumers (Vallentin & Spence, Strategic CSR: Ambitions and Critiques, 2017). When CSR initiatives are included in the core of a firm’s business model, they are regarded to as “strategic CSR” initiatives; in fact, they are key to the company’s strategy of achieving economic success while contributing to the whole society. (Afrin, 2013).

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Page 13 of 107 Proactive CSR: CSR practices that are voluntarily initiated by firms without external pressures given by consumers, NGOs or governments; thus, such practices go beyond the regulatory requirements imposed by law (Torugsa, O’Donohue, & Hecker, 2012).

Reactive CSR: When companies engage in CSR activities in response to external pressures, as for example from governments, NGOs or consumers. It is considered more costly for companies to wait and respond to external pressures rather than to plan anticipate (proactive CSR). (Carroll & Shabana, 2010).

2. Methodology

2.1 Research philosophy

Research philosophy is of pivotal importance when conducting a research. The term comprises a set of beliefs and assumptions which are made at every step in a research.

These assumptions unavoidably shape the manner in which the research question is understood, that will underpin the research strategy, methodological choices, data collection techniques and approach to the analysis. (Saunders, Lewis, Thornhill, & Bristow, 2019).

According to Alvesson & Sköldberg (2018) there have emerged three different paradigms in social sciences: positivism, critical realism and social constructionism. Positivism recognizes only that which can be scientifically proven, or which can be verified logically or mathematically. According to critical realism, there exists a world independent of human beings, that is characterized by structures explained though scientific theories. Social constructionism asserts that reality is socially constructed and that human beings give meaning to it. (Alvesson & Sköldberg, 2018).

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Page 14 of 107 When identifying the most suitable research philosophy, there are three sets of research assumptions that are particularly important to consider: ontology, epistemology and axiology. Ontology refers to a set of assumptions regarding the nature of reality, and thus determines the choices regarding what to research in the thesis. Epistemology refers to assumptions regarding human knowledge: when knowledge is valid, acceptable, legitimate, and how knowledge is communicated among different parties. While ontology may seem rather abstract in the beginning, the significance of epistemology is more obvious. The diverse world of business and management considers legitimate different kinds of knowledge, ranging from numerical data to visual images, texts etc. Ontological research aims to describe the real state of things allowing to achieve an outcome regarding a particular area of knowledge, while epistemological research seeks to critically analyze the already existing knowledge, to open new perspective within the same area of knowledge (Korsgaard, 2007). Lastly, axiology concerns the role of ethics and values that are proper to the researcher. Values represent the driver for all human action; while it is inevitable that these will affect the research, it is of pivotal importance to identify, acknowledge and reflect on them in a research. (Saunders, Lewis, Thornhill, & Bristow, 2019).

2.1.1 My Ontological Position

Throughout this project I utilize a social constructionist ontological position, as I see part of world as being socially constructed. In fact, social constructionists question the existence of an objective reality and argue instead that reality arises from processes related to interest, ideology, and power (Alvesson & Sköldberg, 2018).

I take this position as I believe that the concept of CSR is not objective nor measurable, as in this case a positivist approach would be more suitable. Before the 1970s companies did not consider CSR as important as today, but nowadays CSR importance is widely

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Page 15 of 107 recognized. In this frame, Dahlsrud (2008) argues that since there is no universal definition of CSR, the latter has to be understood as something that is in constant change and development, and that it can be defined just as socially constructed in a specific context.

This view of CSR, defined by a specific context, explains why there exist multiple similar concepts, e.g. Corporate Social Responsiveness, Triple Bottom Line, Corporate Sustainability etc. (Dahlsrud, 2008).

2.1.2 My Epistemological Position

Similarly to my ontological position, the epistemological position of this paper is grounded in social constructionism. In a social constructionist design, the researcher picks evidence out of the mass of data to support a particular initial assumption. The results of a social constructionist research is considered believable and valuable if such results are reached through transparent methods. For example, it is important that the researcher explains why a particular case study and research question are chosen, and how and why certain data are collected. Thus, it is clear that the researcher’s selective perceptions and interests are fundamental for understanding the research process and outcomes (Easterby-Smith, Thorpe, & Jackson, 2015). As a matter of fact, in this paper I will actively affect the outcome of the research by means of choosing an integration of specific theories and a case study that suits the expected research outcome.

According to Burr (2015) social constructionism makes four main assumptions. The first assumption is that social constructionism has a critical viewpoint towards taking knowledge for granted. Second, knowledge is dependent on historical and cultural contexts. I will use this assumption in my paper, for example, it can be affirmed that the concept of CSR has significantly changed over time, from belonging exclusively to philanthropy, to becoming more strategic in nature. The importance of the culture and history contexts can be observed

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Page 16 of 107 throughout the paper, as the company of the case study chosen for this project, namely Ørsted A/S, is Danish. Moreover, we are at a critical moment in history in which several parties worldwide are giving an increasing attention to matters of sustainability and climate change. Third, knowledge is gained and fostered through social interactions and language.

Throughout the paper I will examine the Ørsted case study; thus, it is crucial to analyze the company’s language utilized in Ørsted’s reports and publications. The fourth assumption is that action and knowledge are two faces of the same coin, and for this reason there exist several possible social constructions. Therefore, within social constructionism it is not possible to explain causality in a phenomenon, as it can be instead carried out following a positivist position, by explaining causality through the lenses of statistical probability. (Burr, 2015). The purpose of a social constructionist research is to support a “moral-sacred”

philosophy by taking sides, increasing awareness and opening spaces for reflection (Easterby-Smith, Thorpe, & Jackson, 2015). In this paper, the objective is to show through the case of Ørsted that strategic CSR, other than advantaging the society, can have strategic benefits. In this regard, I choose a social constructionist epistemological position as it is mostly concerned with providing a thorough depiction of behaviors in groups or organizations, and less concerned with the issues of validity (Easterby-Smith, Thorpe, &

Jackson, 2015).

2.1.3 My Axiological Position

According to Bell, Winchester & Wray-Bliss (2020) a business research axiological position is inevitably influenced by the ontological and epistemological assumptions that shape the field of inquiry. Thus, in this research, it is recognized that the axiological position is a result of social interactions and cannot be understood independently of the social actors involved.

Saunders, Lewis, Thornhill & Bristow (2019) suggest that in these cases, the researcher has

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Page 17 of 107 to recognize the socio-cultural background that may influence the research and try to minimize such biases utilizing quantitative data to support final findings. This research attempts to identify the elements that benefitted Ørsted in becoming profitable and regarded to as the most sustainable company in the world; thus, to reduce biases that can result in unreliable research outcomes, quantitative data will be utilized to support the research outcome.

2.2 Research Design

2.2.1 Research Outline

The structure of the paper will be built as follows. In the theoretical framework I will present the CSR perspective and the strategy tripod, which comprises the IBV, CBV and the RBV.

Each part of the theoretical framework will be discussed by examining the arguments of the main proponents, followed by the main critiques regarding each theoretical perspective.

In the descriptive part, Ørsted’s history, business lines, and in particular the wind power business line will be presented. In the analysis the theoretical frameworks will be applied to Ørsted’s case. The analysis will answer the three research sub-questions, namely “What role do institutions play in the CSR topic in Denmark?”, “What are the features of Ørsted’s competitive arena?”, and “What are Ørsted’s Resources which create competitive advantages?”. The discussion of the main findings will help summarizing the most relevant outcomes of the research and provide an answer the main research question of the thesis, namely “What are the elements that made Ørsted become the most sustainable company in the world?”, which will be presented in the conclusion.

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2.2.2 Research Approach

The lack of knowledge regarding the specific elements that contributed to Ørsted’s success, did not allow me from the beginning to formulate a hypothesis. Therefore, I consider a hybrid approach, which combines inductive and deductive approaches, as the most suitable to conduct the research. In fact, the case study approach often suggests that the abductive method is the most appropriate, that is a reasoning in which the researchers continuously move between empirical observations, theories and hypotheses. Therefore, an abductive approach allows to capture the systematic character of both the empirical world and theoretical models. (Dubois & Gadde, 2002). In an abductive approach, a case study is observed, patterns are identified, and conclusively a new theoretical perspective, combining already existing theories, allows the generalization as a result of the interactions between the specific and the general (Saunders, Lewis, Thornhill, & Bristow, 2019).

The reason behind choosing a hybrid approach for this project lies in the nature of the chosen field. There is no theoretical perspective that has been formulated to analyze the elements that made Ørsted’s successful green transition possible, therefore, it is required to build an integrated framework of different theoretical perspectives. Moreover, the chosen explorative approach, utilizing a case study and an integrated theoretical framework, allows to establish the relationships between the research findings and chosen theories (Saunders, Lewis, Thornhill, & Bristow, 2019).

2.2.3 Case Studies

I choose to use a case study because, as Flyvbjerg (2006) argues, researches based on context-independent knowledge do not promote any learnings. In fact, if people were trained solely in context-independent knowledge, that is the basis of textbooks, they would certainly

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Page 19 of 107 remain at the basic level in the learning process. Nonetheless, the use of rule-based knowledge, as for example theoretical frameworks, cannot be neglected. Therefore, to increase validity, a valuable research must comprise both approaches. (Flyvbjerg, 2006). In this regard, in this project I utilize both a context-independent approach (an integrated theoretical framework) and a context-dependent approach (the case study of Ørsted).

According to Gerring (2004), a case study is “an intensive study of a single unit for the purpose of understanding a larger class of (similar) units”. In this view, I analyze several units of the case study (allowing to understand thoroughly Ørsted’s strategy from different angles), with the objective of understanding the larger class of units, which together form the comprehensive case study. In this frame, I utilize what Flyvbjerg (2006) calls a “critical case”, that is a case that has strategic importance in relation to the general problem. The purpose of a critical case is to get information that allows logical deductions, as for example

“If this is valid for this case, then it applies almost to all cases” (Flyvbjerg, 2006). The selection of materials for this project (in particular the different angles under which I analyze Ørsted’s strategy), allows me to conduct a thorough analysis of the elements that contributed the firm’s successful CSR implementation.

According to Yin (2002), case study researches can include both single- and multiple-case studies. Single-case studies cover one unit of analysis, as for example a business organization, whereas multiple-case studies present more than one unit of analysis (Yin, 2002). As beforementioned, this research project follows a single-case study approach, namely the case of Ørsted A/S. The advantages of increasing the number of case studies in a research are countered by several disadvantages. A multiple-case study research is often preferred because it is believed that by raising the number of case studies, the

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Page 20 of 107 explanatory power of the research increases. However, increasing the number of case studies most often means “more breadth, but less depth”. (Dubois & Gadde, 2002).

2.3 Research Process

2.3.1 Data Collection

Part one, two and three of this master’s thesis are based on a previous paper, that is the CEMS Research Project, within the CEMS Master in International Management.

The data which will be utilized in the paper are secondary data gathered from CBS Library, journal articles, textbooks, academic papers, as well as websites and reports, including Ørsted’s official website. In the process of selecting the different sources, I strive to utilize material from my university curriculum, comprising peer-reviewed books and articles.

However, when no relevant peer-reviewed articles or academic publishing are encountered, in particular concerning the most recent political and economic events, I will utilize journals that are commonly considered reliable, e.g. Reuters.

Qualitative data are used as means for exploring and comprehending the meaning that groups or individuals ascribe to a human or social problem. Quantitative data are utilized for testing theories which are considered objective by taking into examination the relationships among different variables. Mixed methods research is a type of research that combines both qualitative and quantitative data. Such research analyzes the different kinds of data in tandem, so that the overall strength of the research is greater compared to a research that utilizes either qualitative or quantitative data. In this light, qualitative and quantitative data are not dichotomies, but they rather represent different ends on a continuum. (Creswell &

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Page 21 of 107 Creswell, 2017). The data utilized in this research project are both qualitative and quantitative, and thus, the mixed methods approach is applied. as Flyvbjerg (2006) argues, a good research is problem driven and not methodology driven; in other words, a good research seeks to find the best possible answer to the questions at hand, and empirical evidence shows that, more often than not, both qualitative and quantitative data have to be combined in order to find the best answer (Flyvbjerg, 2006).

2.3.2 Validity

Yin (2002) argues that a case study is likely to have a high validity, thus tending to be convincing and accurate, if it is based on different sources of information that support a common conclusion. The combination of different sources of evidence and the shift between analysis and interpretation is denoted by Yin (2002) as triangulation. In this research project I use multiple data sources as well as multiple theoretical perspectives, allowing to make the findings of the project more convincing and accurate (Yin, 2002). It is important to note that the epistemological position of this project follows social constructionism, thus, it is more concerned with providing a rich picture of life and behavior in organizations or groups rather than with matters of validity (more typical of a positivist approach) (Easterby-Smith, Thorpe,

& Jackson, 2015).

3. Theoretical Framework

3.1 Integration of theories

The strategy tripod, the integration of the IBV, CBV and RBV, allows to analyze thoroughly Ørsted’s external and internal environments. The analysis will move from a macro level of

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Page 22 of 107 analysis with the IBV to the meso level of analysis with the CBV and lastly to the micro level of analysis with the RBV. The whole analysis will be supported by elements of the CSR perspective, such as the CSV of Porter and Kramer and the Triple Bottom Line.

3.2 The strategy tripod: an integration of the Institution- , Competition- and Resource-based view

With an approximate age of forty years, strategic management is a relatively young academic discipline. In 1979 Porter introduced the industry-based view or CBV, affirming that firm performance is in large part a reflection of the industrial conditions in which a firm competes. Subsequently, Barney (1991) established the RBV, suggesting that firm’s performance is widely attributed to the features of its resources and how they are managed.

Lastly, Peng et al. (2009) added a third view, the IBV. The latter advocates that firm’s performance is determined depending on the features of the institutional framework in which a firm operates. The introduction of the IBV as a “third leg” to the so-called strategy tripod (Figure 1) enables to overcome the main critique against the CBV and RBV, claiming that the views do not consider the

contexts in which business organizations are. In fact, the analysis of the competition, the institutions and the resources, affect a firm’s

strategy, which consequently influences firm’s performance. Moreover, the strategy tripod allows to analyze the interactions between the three research views, and thus, to Figure 1: The Strategy Tripod (Peng, Li, Pinkham, & Chen, 2009)

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Page 23 of 107 comprehend how the value of a particular resource changes according to alterations in the institutional and industrial setting. (Peng, Li, Pinkham, & Chen, 2009).

3.2.1 Institution-based View

The analysis of the CSR topic through the lenses of the IBV allows to go beyond considering CSR as being influenced solely by the voluntary behavior of companies, and to understand the wider historical and political determinant factors of whether and how companies take on CSR (Brammer, Jackson, & Matten, 2012).

The IBV has its roots in both the economic and sociological literature; irrespective of the disciplinary roots there exist a wide consensus on the proposition that institutions matter in understanding why firms differ in terms of competitive advantage (Garrido, Gomez, Maicas,

& Orcos, 2014); due to their importance they are often referred to as “the rules of the games”

(Peng, Li, Pinkham, & Chen, 2009).

Institutions are considered as independent variables that interact with different actors in an economy: firms’

strategic choices are the result of the dynamic interaction between the institutions and the different

organizations (Figure 2) (Peng, Li, Pinkham, & Chen, 2009).

As defined by North (1991), institutions are “humanly devised constraints that structure political, economic and social interaction”. Such constraints can be formal, e.g. constitutions, Figure 2: Institutions, Organizations, and Strategic Choices (Peng, Li, Pinkham, & Chen, 2009)

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Page 24 of 107 property rights, policies, laws etc., or informal, such as traditions, codes of conduct, taboos, customs etc. (North, 1991). Where formal institutions are weak, unclear or fail, informal institutions play a more relevant role in reducing uncertainty, for example they can provide guidance for managers and business organizations. Specifically, when formal institutions are inadequate or absent, there exist a significant reliance on network strategies based on informal relationships. Peng et al. (2009) suggest that a firm can beat the competition in the non-market arena where informal relationships have great importance, even when the competitors have better costs, product differentiation or quality. (Peng, Li, Pinkham, & Chen, 2009).

Within the literature regarding institutions, economists have traditionally focused on formal institutions, whereas sociologists on informal institutions (Peng, Li, Pinkham, & Chen, 2009).

The economist Douglass C. North’s division between formal and informal institutions (1991) is complementary to the sociologist W. Richard Scott’s idea of the three supportive pillars:

regulative, normative and cultural-cognitive (Figure 3).

The regulative pillar represents the regulative aspect of institutions: behavior is constrained and regularized by the institutions. The regulative pillar, thus, includes regulatory processes

Figure 3: Dimensions of Institutions (Peng, Li, Pinkham, & Chen, 2009)

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Page 25 of 107 such as rule-setting, controlling and sanctioning activities. These processes are generally highly formalized and assigned to governmental entities, e.g. courts and police. Repression and force are pivotal in the regulatory pillar, but these elements are generally balanced by formal rules and laws. Notwithstanding that the concept of regulation is usually linked to ideas of constraint and sanction, regulatory processes bear positive actions, as for example conferring licenses and special powers. The normative pillar comprises values and norms.

Values represent what is felt to be preferred or desired in accordance with the standards constructed based on existing structures and behaviors. Norms are informal rules that lead behaviors of individuals, groups and societies. Lastly, the cultural-cognitive pillar represents people’s heritage and how the surroundings are perceived and understood. This pillar possesses an affective dimension that can be observed in positive affect, such as confidence, or negative affect, such and confusion and disagreement. Those who agree with the prevailing cultural beliefs will feel confident and competent, whereas the ones that disagree will be considered odd or bizarre. It is important to underline that the three pillars are present at the same time in varying combinations. In many situations, however, one pillar may assume primacy, creating confusion and opening up space for conflict and institutional change (Scott W. R., 1995).

3.2.1.1 Critique of Institution-based View

Much of the critique of the IBV is concerned with the fact that the theory is clear in explaining institutions and institutional processes, especially in the area of organizations, but it fails to explain and analyze organizations themselves, how they are structured and managed.

Moreover, the IBV considers organizations equal, or as if the differences among the different organizations were negligible. (Greenwood, Hinings, & Whetten, 2014). Moreover, Munir (2019) argues that the IBV is a simplification of an overly complex phenomenon; even when

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Page 26 of 107 institutional theorists deal with major challenges, they tend to overlook the larger structure in favor of matters that are simpler to deal with. Another critique is that the rapid expansion of the institutional literature made it highly fragmented. This resulted in the term “institution”

being extremely vague. As a matter of fact, each scholar presented a different definition of institutions, with some focusing on cultural and cognitive aspects, while others emphasize the structural and behavioral features. (Alvesson & Spicer, 2019). In this regard, Alvesson and Spicer (2019) argue that while many constructs of the IBV may seem remarkable, the analytical explanation is generally not, as key concepts are utilized vaguely and with little clarity.

3.2.2 Competition-based View

In 1979 Michael Porter, with the HBR article How Competitive Forces Shape Strategy, started a revolution in the strategy field that continues to influence academic thinking and business practices nowadays (Harvard Business School, 2019). According to Porter (1979) the essence of strategy formulation lies in the dynamics of the competition.

The state of the competition does not depend merely on the force exerted by the direct competitors, but also on other four competitive forces. The five forces are (Figure 4) (Porter M. , 1979):

• Threat of entry. New firms entering an industry bring desire to gain market share. If entry barriers are high new entrants will not represent a serious threat. There exist six major factors that can raise the entry barriers to an industry:

o Economies of scale. Firms that have reached economies of scale will deter new entrants by forcing the latter to enter in large scale or to accept cost disadvantages.

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Page 27 of 107 o Product differentiation. Being the industry leader, customer services and product differentiation represent some of the elements that promote customer loyalty.

o Capital requirements. Large capital requirements to compete in an industry deter new entrants, especially when significant up-front unrecoverable financial resources are needed.

o Cost disadvantages independent of size. Some firms may have cost advantages regardless of economies of scale and financial capacity. Such advantages are a result of different elements, e.g. access to raw materials, government subsidies, favorable location, patents and the influence of the experience curve. According to this concept, the unit costs decline as a result of several factors, e.g. economies of scale and the labor’s learning curve (referring to the efficiency reached over time by workers that perform repetitive tasks).

o Access to distribution channels. When new firms enter an industry they have to enter the distribution channels to sell their products or services. It can occur that a particular distribution channel is so fiercely contented by the competitors that a new entrant has to create its own distribution channel.

o Government policy. Through policies, regulations, and controls such as licenses, the government can limit or even prevent new companies to enter an industry.

• Bargaining power of suppliers. Suppliers can exert power in an industry by either reducing quality of the supplies or raising prices. A supplier group is considered strong if:

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Page 28 of 107 o There are not several companies to supply and the suppliers are more

concentrated than the firms they sell to.

o The product is unique and has significant switching costs, in other words, firms would face high costs when switching supplier.

o The profit of the supplier group is not highly dependent on the income from the industry.

• Bargaining power of buyers. Similarly to suppliers, customers can also drive prices down by demanding better quality and extra services, ultimately squeezing out an industry’s profitability. A buyer group is considered to be powerful when:

o It buys in large volumes and it is concentrated. This factor is particularly relevant for companies that have high fixed costs.

o The products that are purchased from the industry are a component of another product, and the cost of the products purchased is small compared to the price of the final product.

o It has low profits. If the buyer group has a high profit and the product they are purchasing from the industry is not a large part of its costs, they are generally less price sensitive.

o The quality of the product is irrelevant. When the buyers’ products’ quality is affected by the quality of the product purchased from the industry, then the buyer group is less price sensitive.

• Substitute products. The better the trade-off of the substitute products’ price- performance, the more the industry’s profitability will suffer. The substitute products that are the most important to consider are those that:

o Show positive trends of price-performance trade-off.

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Page 29 of 107 o Derive from highly profitable industries.

• Jockeying for position. Direct rivals compete utilizing several strategies, such as product differentiation, price competition and advertising campaigns. A strong rivalry depends on the following factors:

o There exist numerous competitors and they are almost equal in size and market share.

o The industry’s growth is slow, thus, to gain market share superior skills are required, so that creative strategies can be formulated.

o The product is undifferentiated, therefore, customers are locked in with one firm.

o The fixed costs are high, which creates intense competition based on cutting prices.

o Barriers to exit the industry are high, that keeps companies competing even when they are not being profitable.

The joint strength of the five forces can ultimately promote or damage an industry’s profitability. After having assessed the strength of the five forces, strategists have to formulate a plan of action which can comprise:

- A defensive reaction. This approach considers the industry structure as given and it tries to match it to the firm’s strengths and weaknesses. A

Figure 4: Forces governing competition in an industry (Porter M. , 1979)

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Page 30 of 107 thorough knowledge of the forces will highlight the areas in which the firm will face strong competition and thus where to avoid it.

- An offensive reaction. This type of strategy is aimed at not merely coping with the forces, but rather influencing to alter them.

- Anticipating future factors that underly in the forces and creating strategies that can respond adequately before the competition.

3.2.2.1 The Long-standing Idea of Incompatibility between Competition and CSR

The mainstream CSR literature pays little attention to the notion of competition and its effects on the CSR concept and implementation strategies. Strong global competition decreases labor costs, causes major losses of natural resources, closures of small local businesses in favor of cheaper products, outsourcing to countries with less restrictions on social and environmental protection, and several other negative impacts in terms of socio- environmental sustainability. Thus, MNCs’ operations generally discredit the CSR discourse. Traditionally, competitiveness’ scope is to secure that, while firms maximize their values, the social welfare also increases. In this frame, CSR principles are considered by many as a constraint to a free market economy. In other words, economists are unlikely to see compatibility between CSR and competition. The convergence hypothesis between the two spheres becomes more present when it is proven that a CSR implementation is profitable. In this light, a CSR implementation is considered as a source of competitive advantage, as it creates value for the stakeholders, serves the social interest and at the same time promotes innovation in operations and management practices, which overall contributes to the company’s improved results. (Quairel-Lanoizele´, 2011). Under these conditions, CSR creates a business case” as a source of improved efficiency and increased profitability (Carroll & Shabana, 2010)

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Page 31 of 107 3.2.2.2 Critique of Competition-based View

One of the main critiques of the competition-based view as described by Porter is that the theory places too much attention on the external environment rather than on more specific aspects at a micro-level (Goyal, 2020). As Barney (1991) argues Porter’s five forces model does not place enough emphasis on the influence of idiosyncratic firm features on a firm’s competitive positioning.

Grundy (2006) underlines how Porter’s industry analysis seems “frozen in time”. The reason of the critique is that the theory has not developed since the early 1980s, but the concept has shifted towards a more macro-level analysis, e.g. the competitive advantages of countries, rather than towards microeconomic analysis. Grundy (2006) further argues that Porter’s industry view is highly abstract and explained through the language of microeconomics, and not through practicalities. For this reason, its applicability is rather narrow, with only a small percentage of strategy formulators applying it to “real-life” cases.

Porter affirms that the structure of an industry is the main driver of profitability, but does not differentiate between emerging and mature countries, high-tech and low-tech etc. (Grundy, 2006).

Another common critique of Porter’s industry analysis is that the model is a static one.

(Grundy, 2006). In this regard, Downes (1997) argues that with the advent of internet economic conditions have significantly changed and that, thus, Porter’s model has a limited applicability. Downes (1997) proposes three new forces that influence the current business world:

• Digitalization. With technological advances completely new business models are emerging, and even players from another industry can greatly change the nature of

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Page 32 of 107 the competition, as for example the electronic shopping malls operated by telco companies.

• Globalization. Today’s infrastructure allows nearly all business organizations to buy and sell worldwide, and at the same time customers can shop globally. Thus, to build competitive advantages, firms need to be able to adapt to more mobile buyers and to have a far reach.

• Deregulation. A great shrinking of governmental influence has occurred in several industries, e.g. in airlines and banking. Thanks to the opportunities presented by IT, firms in these industries completely rebuilt their business models. The world of Porter’s forces utilized IT as a tool for implementing change, while the world of the

“new forces” considers IT as the main driver of change.

Downes (1997) further argues that to formulate a good strategy it is not possible to consider solely one model, but it is rather necessary to consider an integration of theories.

3.2.3 Resource-Based View

The increased attention that businesses and researchers have towards CSR has led to the development of different theories and approaches that have the scope of understanding how CSR can effectively contribute to the creation of successful strategies. One of the most common of these approaches is represented by the RBV of the firm. As a matter of fact, in today’s world, businesses face increasing pressures pushing them to actively promote CSR initiatives and recognize their responsibilities toward society; as a consequence, a growing interest arose questioning how the adoption by firms of CSR strategies can support the creation of competitive advantages and superior performances.

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Page 33 of 107 The discussion of the RBV was initiated by Edith Penrose (1959), that suggested to view the firm as “a pool of resources”. According to Penrose (1959), a firm can be defined as the sum of productive resources which are combined in different manners with the purpose of producing and selling goods and services. A specific combination of resources identifies a firm as unique. Moreover, the firm represents a learning environment, so that resources are continuously improved leading to expansion and growth possibilities. Possibilities of growth can be limited due to unuse or misuse of resources, and lack of managerial capabilities. In this frame, Wernerfelt (1984) asserts that within a firm products and resources represent two sides of the same coin that characterize a firm for a relatively long period of time. In order to create a sustainable competitive advantage vis-à-vis rivals, a firm’s resources have to be combined in a manner that makes it difficult for the competitors to catch up. Wernerfelt (1984) wanted to provide an alternative perspective to Porter’s CBV and, thus, he is the first one to use the term “RBV”. According to Grant (1991) resources are not productive on their own, but rather represent inputs to the production process. Consequently, resources have to be combined together through capabilities, which represent a firm’s ability to combine and exploit its resources. Therefore, an effective link between resources and capabilities is necessary in order to ensure the creation of a sustainable competitive advantage. Due to the different abilities of firms to combine and exploit resources, some firms outperform the competition. (Grant, 1991).

Barney (1991) defines resources as strengths which are utilized by firms to formulate and implement strategy that ultimately improve firms’ performance and profitability. Barney further argues that resources are heterogeneous, meaning that they can be used in different combinations for different purposes, and the value of the resources may differ depending on the combination. Moreover, resources are imperfectly mobile, meaning that firms have

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Page 34 of 107 idiosyncratic differences in resources that allow them to create and capture value.

Resources generally fall into one of the following three categories (Barney J. , 1991):

• Human capital resources: the acumen and experience of the firm’s managers and workers.

• Physical capital resources: physical technology utilized by a firm, its equipment, plant, the geographic location and access to raw materials.

• Organizational capital resources: the reporting structure of a firm, its formal and informal planning and informal relations among groups within the firm.

Not all aspects of a firm’s physical, human and organizational capital resources represent resources that have a strategic relevance. In fact, some of these attributes may reduce the effectiveness and efficiency of valuable strategies (Barney J. , 1991). In order to advantage the most a firm’s strategy, resources have to be valuable, rare, difficult to imitate and the firm has to be organized to capture the resources’ value. Barney (1995) has categorized the four different characteristics into the so-called VRIO framework (Figure 5):

• Valuable? One of the most important responsibilities that managers have is to ensure that resources respond to external opportunities by adding value. The fact that resources have been valuable in the past, does not ensure that they are valuable today; therefore, the value has to be reassessed every time when a change in the competitive environment occurs.

• Rare? Valuable resources can represent a source of competitive advantage only if there are not several firms that own such resources. Therefore, before the formulation of a strategy, managers should investigate how many competing firms already possess similar valuable resources.

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Page 35 of 107

• Difficult to imitate? A firm that has valuable and rare resources has a temporary competitive advantage. To sustain such advantage, the firm has to ensure that the competitors do not have these resources and that they would face cost disadvantages at creating them.

• Is the firm organized to capture value? A firm may have valuable, rare, and difficult to imitate resources; however, the firm must be organized in a manner that allows the exploitation of the full competitive potential of its resources. The components of a firm required to answer this question are called “complementary resources”, as they do not generate a competitive advantage on their own, they include for example compensation policies and management control systems.

When the four criteria of the VRIO framework are met, resources and capabilities become

“core competencies”. (Hitt, Ireland, & Hoskisson, 2007). Depending on the attributes that are met, a resource can be a competitive disadvantage, competitive parity, temporary competitive advantage, sustained or sustainable competitive advantage, as it can be observed in the figure below (Rockwell, 2018):

Figure 5: VRIO Framework (Rockwell, 2018)

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Page 36 of 107 The RBV theory is advantageous when investigating the field of CSR: as Porter & Kramer (2011) suggest, it is important to leverage firm’s resources when selecting social, environmental and economic issues to address. Moreover, the RBV will also provide insights regarding the benefits of strategic CSR, e.g. in relation to the creation of new resources and capabilities. RBV presents an internal perspective within the strategic management field, allowing to identify Ørsted’s internal resources that promote the furtherance of CSR, and thus answering the third sub-research question. The RBV and CSR are closely connected:

a strategic approach to CSR allows to utilize a firm’s resources and capabilities to gain a sustainable competitive advantage. (Branco & Rodrigues, 2006).

3.2.3.1 Critique of Resource-Based View

Due to its immediate face validity, the RBV’s core message is easy to teach, understand and apply. However, the RBV has also been widely criticized for its limitations. One of the main critiques is that the RBV lacks “operational validity”: the theory tells managers to develop and obtain core competencies, but it is silent regarding how the process should be done. Another common critique is that RBV implies an infinite regress. In fact, according to RBV, a firm that has superior capabilities to develop structures that can better innovate products will overtake the firms that have the best product innovation capabilities today. As these second-order capabilities will in due course be more valuable than today’s existing first-order capabilities, the RBV suggests firms to strive in obtaining second-order capabilities. This characteristic leads firms to an endless search for ever better capabilities.

(Kraaijenbrink, Spender, & Groen, 2010).

Connor (2002) further affirms that RBV’s applicability is too limited. He argues that the RBV applies only to large firms, as smaller firms cannot base their competitive advantages on their static resources. As a consequence, the RBV applies solely to firms striving to obtain

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Page 37 of 107 competitive advantages, while the theory does not bring much insight for firms that are satisfied with the competitive advantages they already have. (Connor, 2002). Jensen (2012) highlights that the VRIO framework is predominantly centered on matters of protection and exploitation of resources that the firm already has. Nonetheless, today’s business organizations have to adapt to a dynamic world in which new resources have to be continuously created, since the “boundaries of the firms become more permeable”. (Jensen, 2012).

3.3 The CSR Perspective

3.3.1 Strategic CSR

The phrase “CSR” can be discerned into three words, namely corporate, social, and responsibility. The term covers the relationships between corporations (or other for-profit activities) and the societies they interact with. CSR includes also the responsibilities that concern both sides of these relationships. CSR defines society in a wide sense, including different stakeholder groups, e.g. customers, employees, suppliers, authorities, local communities and the natural environment. A firm that, in addition to the goal of profit maximization, pursue goals that benefit different stakeholders in the society, it is said to promote strategic CSR. Strategic CSR is what Sjåfjell (2018) calls a “strong sustainability approach”. Business organizations are at the center of the current unsustainable economic system: in fact, neoclassical economic theories affirm that a firm’s purpose is to maximize profit, which is supported by the “single-use” lifestyle of the mass society and policy makers that wish to see their economy prosper. CSR initiatives started to emerge in terms of “weak sustainability”, in accordance with the mainstream economic approach. (Sjåfjell, 2018).

Sjåfjell (2018) further argues that in order to meet the great challenges of our time, CSR has

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Page 38 of 107 to be led through a strong sustainability approach: all human activities must happen within non-negotiable planetary boundaries.

The strategic management field strives to identify sources of sustainable competitive advantages. According to Chandler & Werther (2014) in order to sustain any competitive advantage in the long term, a business strategy must be acceptable for the wider environment in which the firm competes. In other words, CSR is a key element of business strategy. (Chandler & Werther, 2014). In this light, Carrol and Shabana (2010) contribute by asserting that a business that wishes to secure its long-term self-interest has to be socially responsible. As a matter of fact, if a business wishes to have a healthy future, it will necessarily require a healthy society in which to operate, and therefore it has to take concrete actions now towards the future. (Carroll & Shabana, 2010). In this view, firms and communities are interdependent, in fact, firms need communities that create a demand for their products and communities need firms to create job opportunities and wealth (Porter &

Kramer, 2011).

3.3.2 The Triple Bottom Line

The concept of CSR is also often linked to the so-called “triple bottom line” (see Figure 6):

the incorporation of the financial, environmental and social performance parameters in a firm’s annual report (Chandler & Werther, 2014). Epstein & Buhovac (2014) argue that a

Figure 6: The Triple Bottom Line (Chandler & Werther, 2014)

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Page 39 of 107 balance between economic

progress, social responsibility and environmental protection can lead to competitive advantage.

The financial payoff can be substantial, but it is often difficult for managers to find the right balance between the free factors of the triple bottom line. (Epstein

& Buhovac, 2014).

3.3.3 The Concept of Creating Shared Value

CSR initiatives are often utilized by companies to avoid potential threats to the brands, representing temporary add-ons that can be cut off if necessary. This fact arises from neoclassical economic theories, which do not provide a wider view of the business environment, since they are concerned with an outdated approach of value creation, that is industry specific, short-term focused, and does not consider opportunities that arise from the needs of the society (Vallentin & Spence, 2017). Porter and Kramer (2011) offer a solution to this issue which lies in the principle of creating shared value: the creation of value for both businesses and societies. Therefore, shared value represents a new method to achieve economic success and is at the core of a company’s business model. A firm has to identify a social issue which offers an opportunity to create shared value, and which the firm can effectively address by leveraging its resources and capabilities. (Porter & Kramer, 2011).

Moreover, by being socially responsible, firms can avoid government pressures, as they would have standards that are self-disciplined and that meet the society’s expectations. In

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Page 40 of 107 this regard, proacting is considered better than reacting, as it is more economically convenient for firms to anticipate and plan rather than wait and respond to external pressures. (Carroll & Shabana, 2010).

3.3.4 The Threefold Fit

Implementing strategic CSR initiatives can be complex and risky, as managers have to respond to pressures exerted from both internal and external stakeholders, and at the same time they have to evaluate whether CSR initiatives will fit into the current business practices.

(Yuan, Bao, & Verbeke, 2011). The evaluation of the threefold fit (see Figure 7) will ultimately determine the effectiveness of new CSR initiatives (Yuan, Bao, & Verbeke, 2011):

• The fit between CSR initiatives and societal stakeholder demands.

• The internal fit of new CSR practices.

• The fit between new and already existing CSR practices.

Yuan, Bao, & Verbeke (2011) focus on the internal consistency challenge, as it addresses the relationships between new CSR initiative and the core of the firm’s business model. If a firm focuses only on satisfying the external stakeholder demands, CSR will not be actually strategic. There exist a large Figure 7: The Threefold Fit (Yuan, Bao, & Verbeke,

2011)

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Page 41 of 107 body of literature that focuses on how firms respond to external stakeholder demands, while there is not much work regarding how firms integrate CSR initiative and thus achieve an internal fit. Most of the CSR literature has been focused on the external consistency and responding to stakeholder demands, and there have been little focus on how firms attempt to integrate CSR initiatives in business and achieve internal fit. The effective implementation of CSR initiatives is possible only if there exists a close coordination across different stakeholder within the firm, otherwise conflicts may arise and cause a weak performance. If the internal fit is inconsistent, the credibility of CSR initiatives and company performance will ultimately result in a decline over the long term. (Yuan, Bao, & Verbeke, 2011).

3.3.5 Critique of the CSR perspective

Despite the rising attention and implementation of CSR, the recognition of its potential is still at the beginning and thus presents several limitations. In fact, the transformation towards a new way of creating economic value requires firms to change their business thinking by addressing societal needs and looking beyond the boundaries of profit. (Porter & Kramer, 2011). One of the main critiques of CSR is that business managers do not possess the skillset to handle societal issues, as they are exclusively oriented towards finance and business operations (2010). Neoclassical theories suggest that companies’ purpose is to maximize profit, therefore, requirements of social improvement, e.g. hiring people with disabilities, represent a constraint. Another limitation is that, since the implementation of CSR is still at an early stage, it lacks clearly defined measures of CSP. As a matter of fact, CSP usually does not include specific CSR metrics, but rather a holistic view of corporate responsibilities. (2017). Negative externalities originating from business operations, e.g.

pollution, have traditionally been sanctioned by governments; thus, firms have adjusted their strategies to fit the broader context in which they operate. In this frame, companies have

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Page 42 of 107 considered such implementations as necessary expenses. However, following Porter &

Kramer’s perspective (2011), strategic CSR has to be led by instrumental motives rather than being implemented as a response to external pressures.

4. Descriptive Section

4.1 Ørsted’s History

4.1.1 The Establishment of DONG

In the 1960s Western countries had the common feature of a growing oil consumption.

Denmark at that time did not have a national energy resource and thus had to import all energy, coal and then oil. (Rüdiger, 2014). Following the imposition of the embargo on oil by the members of the OPEC, oil prices became 400 percent higher overnight, which caused the country’s return to coal – less likely to be affected by geopolitical matters (Reguly, 2019).

Denmark consequently established a fully state-owned natural gas company, DNG A/S, then renamed as DONG. Thus, the oil crisis of the 1970s provoked a shift in the energy system, from a market-driven to a policy-driven model. The Danish government was considering diversifying the energy supply with nuclear power, plan which was later abandoned due to the strong opposition against nuclear waste storage and its related problematics. (Rüdiger, 2014).

4.1.2 Denmark’s interest in Wind Power

The plan for diversification did not leave many alternatives, and only four percent of renewable resources was supposed to be available in the 1990s. However, the Danish government had in its energy program to invest more in R&D for renewables, especially