The current study fills the gap of the literature by analyzing the contribution of intangible resources in affecting firm’s environmental performance. In doing so, the authors aim to examine the contribution of organization’s reputation in driving firm’s environmental performance. Furthermore, the contribution of the current study is extended to study the crucial role of green intellectual capital in influencing sustainable performance. In this regard, the study measures intellectual capital in the form of green human capital, green social capital and green relational capital in realizing their impact on firm’s environmental performance. Confronting the patterns of strict natural traditions and prominent ecological awareness, organizations ought not freeze or overcompensate from the existing ecological regulations as these natural patterns could be moved toward the green practice that may drive them to convey sustainable development and bring consensus in the environmental and organizational objectives. Unlike viewing ecological policies as hindrances of firm’s future improvement, the findings of the current study concentrate on finding the right assessment of intangible resources in carrying efficiency in firm’s course of sustainable practices by evaluating its impact on environmental performance. The results of PLS-SEM confirm that organizational reputation and green intellectual capital have positive and significantly influenced on environmental performance. The results of partial least square structural equation modelling confirm that a unit increase in green intellectual capital bring 0.449 unit increase in environmental performance of multinational firms in Indonesia. Moreover, a unit increase in organizational reputation also brings positive increase by 0.424 unit in environmental performance in Indonesia multinational firms.
The emergence of industrial revolution augmented the production processes all around the world through mass efficiencies but also caused numerous adverse effects in the form of extensive energy utilization, resources depletion and industrial pollution (Bohdanowicz et al., 2001). The growing awareness related to environmental condition as a result of expanded deterioration and global warming lead to increase the world-wide ecological regulations that have the tendency to impact global industries (Chen et al., 2006). Therefore, in the existing environmentalera, businesses are prone towards eco-friendly ways of meeting organizational goals to ensure the prospect of sustainability. In this regard, the notion of becoming ‘green’ has been witnessed to spread across many industries that altered the orthodox organizational practices and resources utilizations (Albort-Morant et al., 2016).
The inspiration of going green is instigated from several organizational motives. First, it can be recognized as a result of companies’ internal consciousness for reducing ecological pressures and taking responsibility to improve environmental conditions (Bird et al., 2007). Second, the green label of organizations can be aimed to adopt as the consequence of augmented ecological awareness and consumers rising demand for eco-friendly products that underlies the potential of providing the company a customerdriven positive image. Third, it can be accepted as the inevitable notion emerged from obligatory requirements from both local and international regularities driving the businesses towards sustainable corporate procedures (Albort-Morant et al., 2016).
Hence, in the presence of rigorous natural controls and mainstream ecological awareness of customers, there exist numerous progressions and effects for the guidelines and examples through which firms can influence their environmental performance and improve competitive position (Driessen et al., 2013). In this regard, the importance of green intellectual capital is noteworthy to supplement the prospect of sustainable development and improve firm performance and competitiveness (Chen, 2008). With the fear of the negative potential link between sustainable practices and financial performance of the firm (Rees, 2003; Jensen, 2010; Chen and Chang, 2013; Zomorrodi and Zhou, 2016; Danbaba et al., 2016; Ekpung, 2014; Marshal, 2017; Mušić, 2017; Elshamy and Ahmed, 2017; Chen et al., 2018), organizations often evade eco-investments considering their lack of profitability for the firm and hindering firm’s future progress. In this regard, Chen. (2008) established that intangible resources are widely recognized for granting competitive advantages and improve organizational performance. Unlike, Johnson (1999) that equate firm’s market value with its financial and intellectual capital, the vitality of intellectual capital in the prevailing era of ecological awareness is far greater than its financial capital (Joia, 2000). Furthermore, the extensive adoption of internet and service industries has enabled to augment the difference between firm’s market value and book value leading to bring ambiguity in firm’s real value reflected in its financial statements (Pew-Tan et al., 2007; Meiryani et al, 2017; Leitão, 2013; Al-Mashailie and Al-Karraz, 2015; Muñoz, 2017).
Thus, the motivation of organizations in realizing the importance of intellectual capital underlies the potential to improve their environmental performance. In addition, the aspirations for environmental conditions strengthen organizational image for being responsive, adaptive and responsible for instigating, improving and supporting sustainable development. Consequently, the strive for improved organizational reputation instigate organization’s green image that motivate green culture with enhanced concerns for environmental condition that drives improvements in performance (Linnenluecke and Griffiths, 2010). Therefore, the intangible reputation of the firm can be regarded as the crucial attribute of supporting organization’s goals for sustainability and thus improve firm’s competitiveness and environmental performance.
Hence, identifying the inability of conventional accounting methods to express firm’s market value, the focus of literature has been transferred in acknowledging the importance of intangible assets in reflecting organization’s real value. In the existing literature, numerous researches studied the association between intellectual capital and firm competitiveness (Edvinsson and Malone, 1997; Johnson, 1999; Stewart, 1994), reputation and performance (Greenwood et al., 2005; Carmeli and Tishler, 2005; Meiryani and Lusianah, 2018), green intellectual capital and competitive advantage (Chen, 2008), however, there is the lack of academic studies that identify the impact of green intellectual capital and reputation in influencing environmental performance of the firms.
In compliance, the current study fills the gap of the literature by analyzing the contribution of intangible resources in affecting firm’s environmental performance. In doing so, the authors aim to examine the contribution of organization’s reputation in driving firm’s environmental performance. Furthermore, the contribution of the current study is extended to study the crucial role of green intellectual capital in influencing sustainable performance. In this regard, the study measures intellectual capital by following Johnson (1999) and Bontis (2001) in the form of green human capital, green social capital and green relational capital in realizing their impact on firm’s environmental performance. Confronting the patterns of strict natural traditions and prominent ecological awareness, organizations ought not freeze or overcompensate from the existing ecological regulations as these natural patterns could be moved toward the green practice that may drive them to convey sustainable development and bring consensus in the environmental and organizational objectives (Ali and Haseeb, 2019; Haseeb et al., 2018; Haseeb et al., 2019; Suryanto et al., 2018). Unlike viewing ecological policies as hindrances of firm’s future improvement, the findings of the current study concentrate on finding the right assessment of intangible resources in carrying efficiency in firm’s course of sustainable practices by evaluating its impact on environmental performance.
The remaining of the present study follows the later pattern. Section two will give the literary knowledge regarding prevailing studies and support to form hypotheses. Section three will guide the methods of the current study regarding instrument development, measures utilized and data collection. Section four will demonstrate empirical findings and interpret the results of the tested hypothesis. Finally, section five will discuss the results and conclude the investigation with future recommendations.
2. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
The theory of resource based view (RBV) suggested that the key to achieve organizational competitiveness lies in utilizing organizational resources effectively. Given the significance of organizational assets and resources in driving firm’s productivity and growth, the usefulness of organization’s intangible assets is valuable to boost performance. In this regard, the emphasis of the literature in studying intangible assets is confined to actualize its relationship with monetary, social and economic fundamentals and a very little is known about their link with environmental performance. Among them, several studies identify the association of intangible resources with economic and financial factors (Wyatt, 2005; Simon, and Sullivan, 1993), knowledge spillovers (Corrado et al., 2017); O’Mahony, and Vecchi, 2009) financial performance (Surroca et al., 2010; Riahi-Belkaoui, 2003) and organizational competitiveness (Hall, 1993; Ivanov, and Mayorova, 2015).
The theoretical fundamentals of RBV explains the role of organizational reputation as an eminent intangible asset (Dangelico, 2015). Describing the vitality of firm reputation, Dowling, (2006) elaborated that optimistic reputation underlies the potentials of raising firm’s brands and provide the business to utilize the equity generated from the brand to enlarge market segmentation, improves financial performance, organized institutional investment and upsurge share values. By definition, organizational reputation is referred as the collective judgment for the business by the populace (Fombrun and Shanley, 1990). The importance of good reputation is well preserved by the institutional investors that prefer to contemplate the improvements in environmental and social conditions prior implementing investment decisions. In this regard, Russo and Fouts (1997) while examining the RBV approach in attaining environmental and financial performance established that intangible resource of reputation is highly substantial to boost organizational performances for being more valuable, difficult to imitate and supplementary to the consumers rising demand of sustainable environment.