Drivers and Limitations for Incorporating Environmental Considerations into Investment Decision-Making

Society’s transition towards environmental sustainability seems inevitable from the perspective of limited resources and ecological degradation. Sustainability transition literature has addressed this need at the system level, but it has provided limited knowledge on enhancing sustainability at the company level and within individual businesses. This is unfortunate, as the transition requires forerunner actions that different companies and individuals can drive in practice. The literature has not thoroughly investigated the decision-making practices of companies and the role of environmental considerations in those processes. Therefore, the sustainability transition scholars have called for introducing management studies into the discussion. Acknowledging the need for more environmentally conscious business practices, management accounting literature has recently developed new investment assessment tools and reporting methods. They enable the consideration of both financial and environmental information in managerial decision-making. However, the availability of such methods does not imply that companies would incorporate environmental considerations into their decision-making processes in reality. Therefore, to enhance environmentally conscious decision-making practice, a more
thorough understanding is needed about the actual decision-making processes in situations in which companies are investing into cleaner technologies.
To address these needs, this dissertation studies the incorporation of
environmental considerations into investment decision-making processes. More
precisely, this dissertation identifies and elaborates on the external pressures that drive companies to consider environmental aspects of their technology investments, on the triggers that initiate the investments in actual decision-making situations, and on the limitations that hinder the incorporation of environmental considerations into investment decision-making processes.
To meet its research objective, this dissertation combines different in-depth
qualitative research approaches. It is built on a summary and five research articles (Articles I–V). The theoretical basis of the dissertation combines contingency- and actor-based approaches to decision-making, together with Switching Patch Analysis Technique as a critical incident technique for analysing decision-making processes. The individual articles employ conceptual analyses and in-depth case studies with some interventionist features. The case studies were conducted in the Finnish gas sector, involving central stakeholders from the gas providers and utilizers and the local authorities that foster local investments in biogas production systems. Overall, this dissertation uniquely combines analyses of the pressures for environmental sustainability at the system level and of the triggers and limitations in decision-making processes at the company level. It integrates and elaborates upon the current understanding of the decision-making practices of companies as presented in the literature on sustainability transitions, management accounting, and energy technology. The findings illustrate how cleaner technology investments of companies are the result of complex interactions between external situational pressures, influencers, internal process structures, and individual decision-makers.
These investments can be triggered externally by situational changes in a business environment or by active influencers. In contrast, internal triggers for these investments involve motivated individuals who possess supporting roles and values for initiating the investment. However, whether pressured externally or valued internally, the incorporation of environmental considerations can face challenges in practice. It can be hindered by limitations stemming from the investment decision-making process structure and the decision-makers involved. Therefore, achieving cleaner technology investments in an organization requires supportive situational factors in the external business environment, motivated external and internal influencers that foster changes in practice, and internal decision-making structures and interactions that allow the incorporation to take place in the organization. These findings are relevant for practitioners who wish to influence the decision-making processes of companies from the outside. Such practitioners include policy-makers, technology providers, and management that promote cleaner technology investments in companies. These practitioners can increase the impact of their work as influencers by identifying the triggers and practical limitations for incorporating environmental considerations into decision-making. In particular, the representatives selling cleaner technologies can understand better the decision-making processes of their existing and potential customer companies. Future studies are encouraged to investigate external pressures, triggers, and limitations in other
investment contexts. Furthermore, these studies could also address the roles,
intentions, and actions taken by key influencers when they promote the cleaner
technologies in their organisations.