2.3. Institutional Embeddedness and Proactive ECSR
The drivers of ECSR have been a key research theme in the ECSR domain. Early researchers have attributed CSR (including ECSR) practices to altruistic motives and citizenship behavior (see [
31,
32,
33]), while some recent literature (see [
34,
35,
36]) has advanced the view that CSR practices could be driven by instrumental and strategic motives [
16]. The strategic motive perspective is supported by the claims of legitimacy theory (LT). According to LT, firms continually strive to ensure that they are functioning within the bond and norms of the society in which they operate because the society grants firms without an inherent operation right a “license to operate” [
37,
38]. Hence, firms are strongly motivated to maintain their legitimacy through various practices, including proactive ECSR engagement. That is, the engagement of firms in proactive ECSR can be viewed as a response to institutional pressures [
16].
The sources of the institutional pressures of firms are diversified, while scholars generally believe that pressures from political membership embeddedness, associational membership embeddedness, and party branch embeddedness are the main sources of the institutional pressures faced by Chinese firms [
6,
14,
15,
16,
17,
27]. In modern China, various institutional embeddedness has become a common phenomenon, and the reasons are twofold. First, although China has made great progress in the transition toward a more market-oriented economy over the past few decades, its economic system still has a strong feature of government control [
6]. Recent development in the literature has supported the notion that the greater the influence the government has on the operation environment of a firm, the more likely the firm is to engage in political strategies (e.g., [
39,
40,
41]). Thus, it is easy to understand why it is fairly common to see extensive political connections between governments at all levels and firms [
6]. That is, politically embedded firms seek to enjoy preferential treatment over government loans, contracts, licenses, and other scare resources controlled by local bureaucrats [
6,
27]. Second, to achieve political stability and socioeconomic development, on the one hand, the state strives to recruit business elites into the political system and industry associations organized by the government (known as “cooptation” or “absorption;” see [
42,
43,
44,
45,
46]); on the other hand, the ruling party (the Communist Party of China, CPC) continuously embeds party branches into private enterprises. In this process, private entrepreneurs enter the political field and further seek protection and stability.
We contend that political membership embedded firms (serving as members of political councils such as the National People’s Congress (NPC) or the Chinese People’s Political Consultative Conference (CPPCC); see [
27,
47]) are more likely to engage in ECSR due to three reasons. First, one of the main characteristics of the environmental governance of China is the various social mobilizations taken by the government to make relevant social groups cooperate with government actions, while political membership embedded firms are usually the first object to be mobilized [
48,
49]. On the one hand, the government often first turns to political membership embedded firms because political mobilization usually follows the principles of “near before far,” and political connection builds a bridge between the state and private firms and, thus, shortens the information and relationship distance between the two [
7]. On the other hand, political membership embedded firms are more likely to acquiesce to demonstrate loyalty and secure benefits derived from close government-business linkages [
16]. In this sense, political membership embeddedness provides a formal channel for the government to shift and decompose environmental governance tasks to various companies [
7]. Therefore, political membership embedded firms are more likely to undertake environmental protection responsibility, and thus, actively engage in proactive ECSR practices.
Second, political membership embedded firms feel a stronger pressure to adopt ECSR practices which have been explicitly promoted by the Chinese government. Responding to government signals is a critical form to maintain political legitimacy [
6,
27]. The political identity of private entrepreneurs can increase the benefits brought by complying with government signals and correspondingly increase the costs (loss of legitimacy and other social and economic benefits) produced by non-compliance with government signals [
15]. That is, political membership embedded firms are more sensitive to changes in the goals and priorities of the government [
7]. Considerable facts indicate that the Chinese government has been signaling that ECSR is a desired activity over the last two decades [
6,
50]. For instance, the 11th Five-Year Plan for National Economic and Social Development in 2006 articulated a national vision rooted in the principles of developing a harmonious society and achieving sustainable development [
51], which was widely seen as a signal of the transition of Chinese government policy from an economic growth at all costs to an economic growth balanced with tackling pressing social and environmental problems properly [
27]. All the statements and guidelines of the government on CSR can be considered legitimacy guidelines (signals from powerful actors that define the appropriate activities of firms; see [
52]) [
27], and these imply that the institutional expectations from the Chinese government on firms’ adopting CSR practices are particularly strong [
16]. To maintain political legitimacy in the eyes of the government, political membership embedded firms are motivated to adhere to the government’s signals and engage in proactive ECSR activities.
In addition, political membership embedded firms are more likely to receive social and government attention than their counterparts [
13]. Specifically, political membership embedded firms are known by more people due to the high-profile political identity of their leaders. For instance, when the concurrent national meetings of the NPC and CPPCC (together known as “lianghui”) are jointly held in China, the NPC deputies and CPPCC members are commonly the focus of media attention [
53] Thus, these embedded firms are expected by the public to have high moral standards and do what is morally and legally respected [
13]. Moreover, the government tends to take political membership embedded firms as pioneers and leaders in implementing the encouraged policy to play a guiding role for other firms [
54]. The pressures and expectations from the public and the government may motivate these embedded firms to act more pro-environmentally, namely, practicing proactive ECSR activities. These arguments lead us to the following hypothesis:
Hypothesis 1. Political membership embedded firms will make more proactive ECSR investments than non-embedded firms.
It has been a common phenomenon that the party organization of the CPC is embedded into private firms [
55]. There are solid policy and legal bases for the establishment and construction of the party organization of the CPC. For instance, Article 30 of the Party Constitution of the CPC clearly stipulates, “Enterprises, rural areas, government organs, schools, research institutes, communities, social organizations, companies of the People’s Liberation Army (PLA), and other basic units shall establish grassroots party organizations if there are more than three formal party members in these areas and/or institutions.” As another example, Article 19 of the Company Law of China clearly states, “The party organizations of the CPC may be established in companies and carry out their activities in accordance with the Party Constitution of the CPC. Companies shall provide the party organizations of the CPC with conditions necessary for carrying out their activities.” In fact, private firms have set up the party organizations of the CPC since the 1990s [
45], and 1.88 million private firms have established the party organizations of the CPC by 2017 [
55].
Researchers believe that the establishment of the CPC branches in private firms is not only a means of pursing legitimacy [
14], but also provides the firms a channel to participate in politics and express their demands of interests [
56]. We assert that party branch embedded firms are more likely to engage in ECSR due to an “environmental policy compliance effect” and “environmental values shaping effect.” Specifically, private firms are less motivated to undertake environmental responsibility due to their property rights and profit-making purposes. Notwithstanding, as a formal institutional embeddedness, party branch embeddedness increases the pressure of firm legitimacy and, thus, prompts firms to follow the policies publicized by the CPC and the government. As mentioned earlier, the government has been promoting CSR in the last two decades. In fact, the CPC has also been promoting CSR over the same time. For instance, promoting “social responsibility among citizens, enterprises, and all kinds of organizations” has been documented by the statements of the Sixth Plenum of the 16th CPC Central Committee Congress [
57]. To maintain political legitimacy, party branch embedded firms are more likely to respond to these signals and engage in proactive ECSR activities. In addition, party branch embeddedness can shape the environmental values of embedded firms through the long-term policy propaganda of the CPC and the active promotion of party members. Nowadays, the expectations of stakeholders associated with ECSR are continuously rising [
58]. According to the Party Constitution of the CPC, the CPC is the representative of the fundamental interests of the overwhelming majority of the Chinese people, and all party members shall play exemplary and vanguard roles in various fields. Therefore, the embedding of the party branch of the CPC into private firms could effectively correct the deviation of their economic interest-oriented principles (from economic interest-oriented to stakeholder interest-oriented), improve the environmental values of firms, and drive firms to engage in proactive ECSR, which leads us to formulate the following hypothesis:
Hypothesis 2. Party branch embedded firms will make more proactive ECSR investments than non-embedded firms.
Industrial associations are generally regarded as an important form of the self-management of firms within an industry. In China, there are two major industrial associations: one is the All-China Federation of Industry and Commerce (ACFIC, also known as “Quanguo Gongshanglian”), and the other one comprises sector-based industrial associations (known as “hangyexiehui”) [
14]. The ACFIC was founded by the United Front Work Development (UFWD) of the CPC, and it works under the leadership of the CPC with the key functions of promoting the policies of the party among private industrialists and business owners [
43]. Hence, as an officially sponsored business association, the ACFIC was born within the existing political system (tizhinei) [
59]. Although membership in the ACFIC is voluntary, the members of the ACFIC are generally considered business elites, and they are normally leaders of privately owned, state-owned, or mixed ownership firms [
59]. By contrast, the sector-based industrial associations have been developed outside the political system (tizhiwai), and these non-governmental associations usually follow the principles of “running independently, self-management, and self-financing.”
Associational membership embedded firms are more likely to adopt proactive ECSR practices. First, the industrial associations membership can prompt the proactive ECSR behavior of membership firms through the standards and norms of associations. That is, associational membership exerts normative institutional pressures on firms [
14,
60]. Because CSR has been the focus and one of the priorities of the work of ACFIC in the last decade, associational membership embedded firms are strongly motivated to practice proactive ECSR activities. For instance, to encourage and guide firms to fulfill CSR, the ACFIC released its first research report on the CSR of private firms in 2014 [
61] and then released its first blue book on the performance of the Chinese private sector in fulfilling social responsibility in 2019 [
62]. Apart from the ACFIC, sector-based industrial associations also attach great importance to CSR due to the rising pressures from consumers and the media [
63,
64]. The environmental irresponsibility of any membership firm will have a serious negative impact on the industry reputation. Due to the high potential costs caused by environmental irresponsibility (e.g., the loss of membership that will affect the exercise of other rights in the association) [
65], associational membership embedded enterprises have the motivation to engage in proactive ECSR. In this regard, the engagement of embedded firms in proactive ECSR can be considered a response to the normative pressures.
In addition, industrial associations set guidelines on how the firms within the association should behave in environmentally responsible ways by promoting best practices [
66]. Associational membership embedded firms may make effective proactive ECSR efforts due to excelling at accessing information about the industry best practices. Moreover, there are fierce homogeneous competitions among the numerous member firms. To distinguish themselves from peers and, thus, achieve competitive advantages, firms with membership would engage in proactive ECSR [
15]. Forerunners will also provide imitation and demonstration effects for latecomers. That is, emulation could be triggered because potential ECSR adopters perceive diffused ECSR practices as appropriate [
15]. In this sense, the pressures of associational membership embedded firms are mainly from peer firms, and the engagement of embedded firms in proactive ECSR can be regarded as a response to the cognitive pressures. Therefore, we propose the following hypothesis:
Hypothesis 3. Associational membership embedded firms will make more proactive ECSR investments than non-embedded firms.
2.4. Family Involvement and Proactive ECSR
Many companies around the world are owned or controlled by families, and family business has been the world’s most prevalent ownership pattern of business organizations [
67]. For instance, La Porta et al. [
68] documented that 53% of publicly-traded firms in 27 countries are family-controlled when using the 10% minimum control cutoff to judge a family business. Family-controlled firms also dominate the corporate landscape in China. For instance, 85% of private firms are owned by individual shareholders and their family (i.e., holding more than 50% of the shares) [
69]. Scholars believe that family involvement (i.e., the power of families in shaping the goals, strategies and behaviors of firms; see [
70]) has an influence on a range of firm behaviors (e.g., succession, governance, and CSR) [
71], and quite a few studies have regarded family involvement as a key determinant of the ECSR activities of private firms [
2,
8,
9,
72,
73]).
The socioemotional wealth (SEW) framework (see [
74,
75,
76]) is a helpful theoretical tool that explains the behavior of family businesses. According to SEW theory, family firms are motivated by, and committed to, the preservation of their SEW, which is a primary reference point that family firms use in making major decisions [
75,
76]. The SEW refers to nonfinancial utilities that a family derives from its controlling position in a particular firm, such as the identification of the family with the firm, the ability to exercise family influence, and the perpetuation of family social capital and family dynasty [
72,
74,
75,
76]. The basic assumption underlying SEW theory is that the willingness to preserve and enhance SEW is a unique utility with family involvement, and family principals are highly loss-averse to SEW [
71]. Firms with higher family involvement are more likely to make decisions that are conducive to the preservation and enhancement of the SEW of their families, even when they contrast with firms’ short-term economic goals [
71,
77].
Two dimensions of family involvement (i.e., family involvement in ownership and family involvement in management) can be distinguished on the basis of the existing literature [
78,
79,
80,
81]. Family involvement in ownership depicts the degree of family ownership and intrafamily ownership dispersion, while family involvement in management indicates the presence of the family members in the management teams of the company [
78,
79].
We contend that family involvement is conducive to proactive ECSR at each of the two dimensions. Specifically, when family owners have large shares in the business, they may become increasingly risk-averse and are sensitive about the external image they project to external stakeholders because they generally perceive the firms as an extension of their families [
82]. Therefore, firms with higher family involvement in ownership are more likely to engage in proactive ECSR, which is conducive to the protection and enhancement of the family image and reputation, an important SEW goal [
70]. Proactive ECSR is a discretionary responsibility that goes beyond the legal requirements [
3,
17], which means that firms can freely make decisions on how much ECSR investment to make despite the expectation of society that firms engage in proactive ECSR. Unlike reactive/passive ECSR (e.g., paying environmental pollution control fees in the context of strict government regulations), which generally aims to avoid imminent punishment, proactive ECSR aims primarily at accumulating reputational capital for firms and avoiding the potential damaging effect on the SEW of firms caused by being labeled as environmentally irresponsible corporate citizens [
72]. Additionally, families holding large portions of shares have more legitimate power to influence the strategic decisions of firms, thereby gearing the strategic decision-making of firms toward family preferences [
71], such as engaging in proactive ECSR. Therefore, families with higher family involvement in ownership are more motivated to engage in ECSR to avoid the potential risk of SEW loss.
Although family members tend to engage in proactive ECSR to accumulate and enhance the SEW of their family, they may be resisted by non-family members in their company. This is because non-family members pay more attention to financial values than non-financial affect-related values and fear proactive ECSR at the cost of the short-term economic profits of firms [
10]. This is especially true in emerging markets, such as China [
10]. Family involvement in management guarantees that the legitimate power granted by ownership can be employed directly to make decisions favoring family interests [
71]. That is, firms can more easily implement strategic actions (e.g., proactive ECSR) that are conducive to preserving and enhancing the SEW of families. Furthermore, family involvement in management can strengthen the willingness family members to preserve the SEW of their family [
71]. The more executive positions family members hold, the less clear the boundary between the family and the firm. In this sense, stakeholders are more inclined to perceive the firm as an extension of the family itself because the identity of the incumbent family executives is closely tied to the firm [
83]. Thus, to protect the SEW of families, firms with higher family involvement in management tend to engage in proactive ECSR. We, therefore, hypothesize the following:
Hypothesis 4. Firms with higher family involvement in ownership and management will make more proactive ECSR investments than firms with lower family involvement in ownership and management.