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How can stakeholders pressure firms to create

value through innovation and CSR?

A study on CSR-driven innovations in the clothing industry.

MASTER THESIS WITHIN: Business Administration NUMBER OF CREDITS: 30 credits

PROGRAMME OF STUDY: Digital Business AUTHORS: Hariz Imran Higgs

Anna Maria Kocik

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Master Thesis in Business Administration

Title: How can stakeholders pressure firms to create value through innovation and CSR? A study on CSR-driven innovations in the clothing industry.

Authors: Hariz Imran Higgs and Anna Maria Kocik Tutor: Assistant Professor Ulla Anneli Saari Date: 2020-05-18

Key terms: Corporate Social Responsibility (CSR), innovation, clothing industry,

stakeholder theory, value co-creation, Porter hypothesis,

Abstract

Background: As the clothing industry is influenced by fierce competition and fast

changing trends, firms must handle high stakeholder pressure such as for example, increased environmental and social awareness. According to the UN (2019), the clothing industry is the second biggest polluter to the environment, thus demonstrating the urgent need for CSR initiatives to make significant impact in this industry. In fact, many firms have been innovative, but the benefits from these innovations have yet to be seen.

Purpose: The main purpose of this study is to understand how innovation and CSR

can be combined to offer value for stakeholders in the clothing industry and evaluate this through the relationship of the Porter hypothesis, stakeholder theory and value co-creation.

Method: This thesis adopts a mixed-method approach by responses from interviews

and from a self-completing questionnaire. This is supported by the analysis of secondary data reports from firms in the clothing industry and governmental institutions.

Conclusion: The results of this study conclude that firms experience two forms of

stakeholder pressure which forces them to innovate, supporting the argument for the ‘strong’ form of the Porter hypothesis. Furthermore, it finds that value creation is inextricably linked to stakeholder theory.

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Acknowledgements

First, we would like to thank our supervisor, Assistant Professor Ulla Anneli Saari, for all her help and advice during this process. We would like to thank our family and friends, for motivating us to work hard, and giving us the support, we needed to finish this thesis with our heads held high. Moreover, we would like to thank all the interviewees and participants of the questionnaire for contributing to science and for taking part in our study. Finally, we would like to acknowledge the support of our fellow students, whose valued feedback and constructive critique helped us to question our own thought processes and improve our study – we wish you the best of luck in your future endeavours.

Hariz Imran Higgs Anna Maria Kocik

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Table of Contents

1. Introduction ... 1

1.1. Why is CSR important now? ... 4

1.2. Illustrating CSR practices ... 5

1.3. Research Problem ... 7

1.4. Research Proposal ... 8

1.4.1. Objectives of the thesis ... 8

1.4.2. Research questions ... 9

2. Current state of literature ... 11

2.1. Corporate Social Responsibility (CSR) ... 12

2.2. The Porter Hypothesis and the Triple Bottom Line (TBL) ... 13

2.3. Value Co-creation and Stakeholder Theory in the CSR Context ... 15

2.4. The intersection of the Porter Hypothesis, Stakeholder Theory, and Value Co-creation ... 18

2.5. The Clothing Industry Perspective ... 18

2.5.1. The textile and clothing industry ... 18

2.5.2. The impact from the clothing industry ... 19

2.5.3. Observing CSR in the clothing industry ... 21

2.5.4. CSR-driven innovation in the clothing industry ... 23

3. Theoretical Framework ... 25 4. Methodology ... 28 4.1. Research Philosophy ... 28 4.2. Research Design ... 29 4.3. Research Method ... 29 4.3.1. Qualitative Research ... 30 4.3.2. Quantitative Research ... 30 4.4. Sampling Strategy ... 31 4.4.1. Sample Size ... 31 4.5. Data Collection ... 32

4.5.1. Primary Data: Self-Completing Questionnaire ... 32

4.5.2. Primary Data: Semi-Structured Interviews ... 32

4.5.3. Secondary Data ... 33

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4.7. Trustworthiness and Limitations ... 34

4.7.1. Trustworthiness ... 34 4.7.2. Limitations ... 35 4.8. Ethical Considerations ... 36 5. Empirical Findings ... 37 5.1. Qualitative Research ... 37 5.2. Quantitative Research ... 48 6. Analysis ... 58 6.1. Research Question 1 ... 58 6.2. Research Question 2 ... 60 6.3. Research Question 3 ... 62 6.4. Research Question 4 ... 64

6.5. Revision of the Framework ... 66

7. Conclusions ... 69

8. Discussion ... 71

8.1. Implications ... 71

8.1.1 Managerial Implications ... 72

8.2. Critique of the Research Investigation ... 72

8.3. Delimitations ... 73

8.4. Suggestions for Future Research ... 74

Bibliography ... 75

Appendices ... 93

Appendix 1: Interview questions ... 93

Appendix 2: GDPR Thesis Study Consent Form ... 96

Appendix 3: Interview coding example ... 99

Appendix 4: Questionnaire template ... 100

Appendix 5: Questionnaire results ... 106

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Abbreviations ... 120 Glossary ... 121

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Figures:

Figure 1: Value of the clothing market worldwide from 2005 to 2020 (in bn USD). ... 3

Figure 2: Proposed Theoretical Framework. ... 26

Figure 3: Questionnaire respondents’ distribution as stakeholders of the clothing industry. ... 49

Figure 4: Respondents’ willingness to pay more for a sustainable pair of jeans. ... 52

Figure 5: Illustration of the distribution of question 24 answers. ... 57

Figure 6: Revised framework. ... 67

Tables:

Table 1: List of the interviews. ... 38

Table 2: Questionnaire participants’ answers with regards to industry activities. ... 50

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1. Introduction

This chapter presents the clothing industry’s impact on the environment and society. Additionally, current examples of CSR-driven innovations help illustrate what sustainable activities look like in this industry. Furthermore, it explores different CSR terminology, identifying different perspectives of CSR. The identified research gap is based off presented theories and concepts. Lastly, it presents the objectives of this thesis and provides arguments for choosing the clothing industry as a research space, as well as, the reasoning for each research question.

The clothing industry is a big polluter, and as its impact continues to be seen in the environment (Allwood et al., 2006), firms are rushing to recuperate their footprint through innovative Corporate Social Responsibility (CSR) activities such as: investing in technology, Research and Development (R&D), and implementing mandatory and voluntary policies (Kim et al., 2014). Furthermore, firms are aiming to reduce their impact through green innovations (Księżak, 2016). These so-called eco-innovations aim to change the status quo by reducing environmental impact whilst helping firms reach sustainability targets (Rennings, 2000). More specifically, technologies have given firms the chance to increase the social and environmental capital supporting their CSR initiatives. This means that firms are able to improve their perceived value overall (Luu, 2019). CSR initiatives aim to garner acceptance of business practices from stakeholders, and current literature has seen that consumers are likely to associate with CSR-participating firms over non-participants (Jeong et al., 2013). As cited by Bonn & Fisher (2011):

“A study conducted by KPMG in 2008 suggested that almost 50% of companies consider sustainability to be an important driver for innovation (KPMG, 2008)”.

However, CSR initiatives need to expand beyond communication, holistically becoming integrated in each part of the value chain. Most firms have chosen to adopt traditionalistic campaigns to boost their image and have seen some success for example by promoting their sustainability through social media channels (Kesavan et al., 2013). However, in some cases this has caused public distrust in CSR as it appears to be used to cover up harmful activities (Russell et al., 2016). For example, some firms have scrambled to

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introduce CSR initiatives in response to high profile scandals (e.g. Tommy Hilfiger and their sweatshops in Burma), which is problematic (Isaksson et al., 2014). Thus, firms require new methods to achieve real value for their stakeholders.

Ahen & Zettinig (2015) explored how CSR could be redesigned to incorporate multifaceted perspectives and suggest that firms must develop strategic alliances amongst stakeholders in order to co-create value sustainably. Coupled with the fact that to gain any significant competitive advantage via CSR, firms must demonstrate the ability to be innovative and create new solutions in their value chain (Bellow, 2012). CSR initiatives need to be proactive, dealing with crises before they become burdens. For example, firms can alter their business strategy to improve their responsiveness to CSR-related issues such as redesigning input materials to reduce waste (Yuan et al., 2020). They could invite external parties to innovate together (He et al., 2018) by using social media to support discourse between consumers and firms. Or they could even reinvest in internal stakeholders (Kim et al., 2014), where evidence shows that invigorated employees and partners tend to uphold organisational values and culture when they are appreciated more (Dunfee et al., 1999; Linnenluecke & Griffiths, 2010). Such examples support the growing importance of a firm’s stakeholders and their involvement in the value chain.

Moreover, firms need to engage external stakeholders in an effort to demonstrate transparency. This is due to growing pressure from consumers to oblige firms into acting ethically (Dutot et al., 2016). Further evidence has shown that consumers are concerned for the environment, changing their habits to reduce their individual impact (Sarkar, 2012) and expecting firms to do the same. Similarly, institutions have set legislation that has instigated changes across the industry, highlighting the role governments hold in CSR ("What does sustainability mean?," 2010). This is particularly crucial, as firms find it easier to carry out CSR-oriented innovation when they utilise pooled knowledge from their stakeholders (Roszkowska-Menkes, 2018). In fact, it is not unexpected for firms to reach out to external parties to cooperate on new innovations (Ramani & Mukherjee, 2014).

Sustainability within the clothing industry has become a contemporary topic. Due to its size and global spread, the negative impact on the environment and society is

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unfashionable, hence the need for CSR initiatives (Allwood et al., 2006; Cleff et al., 2018; Gardetti & Torres, 2013). A brief look into the industry has shown that increased customer purchasing power and the prevalence of the ‘fast fashion business model’ (Beton et al., 2014; Księżak, 2016; Šajn, 2019) has pushed the clothing industry to reach a predicted total value of 1.5 trillion U.S. dollars in 2020 (Statista, 2020). This has led to increased competition amongst firms, motivating some companies to integrate sustainable activities into their production in order to improve their brand image and create a unique selling proposition for their customers, while concurrently tackling their negative environmental and social impact (Kozlowski et al., 2012). For example, companies have been focusing on diminishing their carbon footprint, reducing their water use, improving their fabric recycle processes and researching new sustainable fabrics (Fletcher, 2008; Lehmann et al., 2018).

Figure 1: Value of the clothing market worldwide from 2005 to 2020 (in bn USD).

Source: Adapted from Statista, Apparel Market worldwide, 2020.

To dive a little deeper, firms are trying to serve their customers whilst striving to strengthen their brand image by showing that they are more sustainable than their competition. For example, by promoting their former head of Sustainability, Helena Helmersson, as their new CEO, Swedish fast fashion giant H&M was able to shift their focus onto sustainability (Chin, 2020). Adidas, a multinational sportswear brand, issued a statement that by the year 2024 the company will only use plastic fibres derived from recycled plastics to create all its shoes and clothing (Danziger, 2019). Similarly, global

988 1306 1517 0 200 400 600 800 1000 1200 1400 1600 2005 2015 2020 Ma rk et v al ue in b ill io n U .S . d ol la rs Year

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sportswear manufacturer Nike announced its “Move to Zero” plan which aims to power all its facilities with only sustainable energy by the year 2025; with the intention to operate with net-zero carbon emissions (Biron, 2019). Finally, Levi Strauss & Co. has launched a Recycle and Reuse program, which will help the company to achieve its goal to reduce water consumption by 50% in water-stressed regions by the year 2025. Moreover, many fast fashion retailers, namely: H&M, and Zara, have started to include more sustainable fabrics, such as organic cotton, recycled polyester and Tencel® (lyocell and modal fibres), in their garments (Kozlowski et al., 2012).

With regard to this thesis, there is no distinction between the textiles and the clothing industry, due to the fact that textiles make up the basis on which the clothing industry creates its products (Gardetti & Torres, 2013). Thus, in this thesis, terms such as: ‘textile’, ‘clothing’, ‘apparel’ and ‘garment’ are interchangeable, as they refer to the entire value chain of the clothing industry instead of one particular area.

1.1. Why is CSR important now?

Climate change is real and the rise in the average temperatures blurs seasonality, attributed to the rise in greenhouse gases caused by deforestation, industrialisation and mass-scale agriculture (United Nations, n.d.). Melting glaciers and ice caps continue to increase the sea level, and current forecasts predict an increase of more than 1 metre by the end of this century (Lindsey, 2019). Scientists have predicted that due to global warming, hurricanes will occur more often and with greater intensity; a pattern that has continuously increased since the 1980s (Jackson et al., n.d.). All of this is exacerbated by the poor management of resources, and changes in consumer behaviours driven by deep-rooted consumerism. In fact, customers today partake in higher-than-usual consumption lifestyles despite their increased awareness of their carbon footprint (Kozlowski et al., 2012; Nicolaides & Singh, 2014).

Failure to meet previously announced CSR initiatives and standards can lead to negative orientation towards a firm from consumers. This might manifest in the form of negative word-of-mouth, disappointment, anger, condescension and even boycotts and anti-company/anti-brand consumer activism (Grappi et al., 2013). Moreover, poor crisis management may amplify negativity to the brand, critically damaging brand value,

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reputation and CSR reliability (Russell et al., 2016). After CSR scandals, companies struggle with regaining lost trust and making amends to society. Additionally, disingenuous CSR initiatives created just to improve brand image make stakeholders sceptical, thus inviting more criticism towards the company (Smith, 2003). For example, the Norwegian Consumer Authority (NCA) accused H&M over their misleading of customers with their Conscious Collection tags as the clothes were sold using the term ‘Conscious’. Here, H&M failed to inform their customers in more detail about why these garments were more sustainable than others. The NCA argued that it was impossible to be sure if the Conscious Collection garments were actually sustainable (Segran, 2019). As such, pragmatism is needed in order to tackle the urgency of the ongoing climate change debate.

1.2. Illustrating CSR practices

A firm’s responsibility to their customers, employees, operating environment, society, and partners has been a well-explored topic in sustainability literature over the last few decades – and it continues to be a point of contention for a lot of research today. CSR has been used as the default term to describe the numerous activities involved around making firms ‘more sustainable’, either socially, ethically, or environmentally. However, these activities have not been explicitly detailed, only confusing consumers and managers alike. As such it requires a holistic definition such as the one suggested by Vallée (2005):

“Corporate social responsibility, therefore, consists (of)… the decisions that enterprises make in the interests of other components of the enterprise – such as employees, customers, suppliers, local communities or society at

large.Contrary to the concept of civil responsibility, CSR does not relate

solely to compensation for social or environmental damages stemming from the enterprises’ activities. Rather, it is upstream in that it suggests integrating social or environmental considerations into the very definition of the enterprise production plan by including, in various ways, the stakeholders of the enterprise.”

Lantos (2001) further reviewed how CSR has developed since its conception and determined that CSR could be defined into three different fields: ethical, altruistic, and strategic. This followed Carroll (1991), whom earlier proposed a framework that sought

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to understand the impact of CSR towards a firm’s stakeholders economically, legally, ethically, and through philanthropy. Later research has implicated that CSR now revolves around business activities, society, and the environment (Mosca & Civera, 2017), but points out that firms still can be ambiguous with their CSR practices either by doing the bare minimum or actively expressing and integrating CSR into their operations. Despite this, literature has mainly agreed that CSR has become a crucial factor in business strategy; Isaksson et al. (2014) stated:

“In other words, it has transformed from being perceived as a cost into becoming a strategic investment in intangible assets”.

According to Smith (2003) CSR cannot be avoided, hence implying strategic intent – meaning that firms simply cannot plan ahead without considering CSR. Pedersen (2006) argues that this is due to growing consumer pressure and institutional legislation, suggesting that stakeholders and CSR hold a significance in business strategy.

Given the range of activities involved, the different terms used to describe CSR or CSR-related activities has increased. Admittedly, different perspectives have been used to produce new theories (Garriga & Melé, 2004); but however mixed the terminology, most research is still under the same umbrella. This means that additional terms, for example: sustainability, corporate responsibility, and ethical business have to be considered when researching this area. In fact, such terms are often mentioned together in media and literature, and sometimes it is used interchangeably.

Increasing stakeholder pressure has made companies invest more time and resources towards sustainable practices (Smith, 2003). Companies are being observed, judged and held accountable for their environmental and social impact by multiple groups of stakeholders (Porter & Kramer, 2006). Regardless of their size, any company can introduce CSR activities into their business strategy by introducing policies that reduce their carbon footprint, benefit the environment and employees, promote conscious investments, support charities, promote volunteering in the community, create educational programs, improve labour policies and conditions, as well as engaging in fair trade (Dickson & Chang, 2015; Kozlowski et al., 2012; Nicolaides & Singh, 2014; Smith, 2003).

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1.3. Research Problem

The growing importance of sustainability is influencing innovation. In literature, theoretical concepts and frameworks have attended to singular issues such as open innovation and Strategic CSR (SCSR) (Roszkowska-Menkes, 2018), innovative CSR (Preuss, 2011), CSR-driven enterprises (Nicolaides & Singh, 2014), CSR governance in innovation (Albareda, 2013), or CSR discourse through social media (Korschun & Du, 2013). Furthermore, in the context of the clothing industry, research has only pertained to the environmental impact (Kozlowski et al., 2012), sustainability of the industry (Allwood et al., 2006), or barriers to CSR (Księżak, 2016). This means that while innovation has been explored extensively in CSR, it has not done enough in the clothing industry context.

Considering CSR, the sentiments of the Porter hypothesis (Bitat, 2018), stakeholder theory (Pérez & Rodríguez Del Bosque, 2016), and value co-creation (Ahen & Zettinig, 2015) are notably complimentary and could work effectively together. However, there is no way of knowing if this true as there is little to no research that combines the three concepts holistically. Furthermore, current literature has not explored the interdependency between innovation and CSR, especially in the context of the clothing industry. This does not even consider the fact that any future research in this industry needs to consider all stages of garment manufacturing (Fletcher, 2008; Lehmann et al., 2018). As such, theoretical concepts must be used to develop new business methods for firms. Hence the use of the Porter hypothesis (to describe the nature of CSR governance and compliance), stakeholder theory (to illustrate the relationships between different parties and the firms), and value co-creation (to understand how stakeholders and firms can work together to create real value).

Currently, a lot of research related to CSR and the clothing industry emphasises the importance of a single integrated approach to either target issues in supply chain, efficient distribution of resources, or safe work environments (Beton et al., 2014; Lehmann et al., 2018). This has been reflected in research as compliance within a firm’s triple bottom line, which focuses on balancing social, environmental and economic performance aspects (Brown et al., 2019; Dickson & Chang, 2015; Kuo & Smith, 2018; Mithani, 2017; Roszkowska-Menkes, 2018; Voegtlin & Scherer, 2017). Thus, alternatively this thesis is

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trying to observe and understand how firms can be proactive with innovative CSR – rather than, using triple bottom line policies, to regulate current activities. The intention of this thesis is to confirm examples of successful strategies and incorporate that into theory. Furthermore, this study aims to motivate firms to create new sustainable solutions, breaking away from compensating for their current activities.

1.4. Research Proposal

1.4.1. Objectives of the thesis

The main objective of this thesis is to understand how innovation and CSR can be combined to offer new value for all stakeholders in the clothing industry. This industry is influenced by fierce competition and fast changing trends, which means companies must handle high consumer expectations and their increased environmental and social awareness (Chen & Burns, 2006; Kozlowski et al., 2012; Nicolaides & Singh, 2014), all the while participating in innovative CSR (Ayuso et al., 2011; Kozlowski et al., 2012). The preliminary literature review for this thesis has discovered existing gaps with regards to innovation in CSR activities as a whole and additionally in the context of the clothing industry.

This thesis aims to analyse how combining CSR and innovation could translate into customer value. For example, one area that has been explored is the intersection of CSR, co-creation activities, and engagement, of which is recognised as collaborative and social proceedings (Iglesias et al., 2018). In this area, co-creation has the ability to create long-term relationships with stakeholders, especially with regard to CSR (Aquilani et al., 2018). Furthermore, the prevalence of social media has enabled firms to reap benefits from collaborating with stakeholders, as it is another method of communicating company values and ongoing operations – including CSR activities – as well as a platform for stakeholders to gain insights from their fellow community members (Bhattacharya et al., 2009; Roszkowska-Menkes, 2018). Reviewed literature highlights the fact that co-creation is a powerful vehicle, which firms can easily incorporate in their CSR strategy (Korschun & Du, 2013). This exploration for new and radical ideas for CSR has nudged companies towards the search for more creative approaches.

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Using research on CSR-driven innovations, this thesis will aim to create recommendations to help reduce the barriers to CSR innovation and provide a holistic link between innovation and CSR, simultaneously developing a methodical approach for the future. This thesis will focus on research conducted in the clothing industry. This industry is using radical business models to face clients, create new value, and unearth numerous scientific discoveries and technological improvements – allowing the textile industry to offer more sustainable products for consumers (Amed et al., 2020). Current literature has pointed to the fact that this industry is undergoing rapid change, and many external factors have threatened the business models of many clothing firms (Lehmann et al., 2018).

1.4.2. Research questions

The expectations of consumers, suppliers, and external partners are increasing proportionally with increasing environmental awareness (Chen & Burns, 2006; Kozlowski et al., 2012; Nicolaides & Singh, 2014), thus the need for firms to design and implement new or radically altered solutions which suit the current demands of the market. As such, companies are attempting to carry out novel CSR activities which are supported by technological advancements (Iglesias et al., 2018). Thus, the first research question is proposed, Q1: Do the demands of external stakeholders create pressure

on firms to combine CSR and innovation?

The literature review was able to identify a number of positive links between CSR and innovation, but one aim of this study is to identify which trends pose challenges for CSR. Mithani (2017) found that certain industries need to leverage numerous resources to create new technologies, and development activities tend to take a dive when conducted in parallel to CSR initiatives. This is counterintuitive in achieving successful CSR goals. Following stakeholder theory, this thesis aims to determine how firms in the past have dealt with this challenge by observing the perspective of related stakeholders. While it is important to make technological progress, it is crucial to balance the impact of innovation and the importance of CSR initiatives (Voegtlin & Scherer, 2017). As such, the second question is proposed, Q2: Do new technologies have a significant impact on

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Furthermore, open communication and engagement between stakeholders and the firm has shown to increase customer loyalty to brands (Dutot et al., 2016), cost efficiency and risk reduction (Iglesias et al., 2018), insights and knowledge (Ayuso et al., 2011), real social impact (Roszkowska-Menkes, 2018) and dynamic capabilities (He et al., 2018). As such, this question has been proposed to determine how companies derive benefits coming from value co-creation and incorporate them into their strategies. For example, current literature has shown that social media has been an effective method to foster discourse between stakeholders (Kesavan et al., 2013; Kollat & Farache, 2017; Korschun & Du, 2013; Kádeková & Holienčinová, 2018; Lipschultz, 2017). Based on this argument, this study aims to determine how external stakeholders force firms to design new or radically altered solutions to carry out novel CSR activities. Q3: Does the

discourse between stakeholders drive CSR initiatives and create value for all partaking parties?

Lastly, the development of new innovations cannot be hindered by poor production and customer delivery methods, as company-wide CSR initiatives require a holistic and comprehensive approach in order to be successful. This is part of the multi-disciplinary approach required for CSR, and as such the aim of this question is to determine the need for productivity improvements in a CSR setting. In this context, the clothing industry plays a big part in waste (Beton et al., 2014; Gupta & Hodges, 2012) and in the EU it takes up around 5% of household spending (Šajn, 2019). How can firms take this into consideration when developing new solutions, especially given the long-term impact from consumers? This question hopefully aims to detail how innovative business models could be used to solve such issues. Q4: How does the clothing industry synergise

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2. Current state of literature

This chapter presents the literature review for this thesis, showcasing research in CSR, stakeholder theory, value co-creation, and the Porter hypothesis. It distinguishes different terminologies and notions connected to CSR. To help better understand the research subject, this chapter clarifies the definition of CSR and will introduce and explain the theories and concepts used.

Due to the diversity of topics within CSR, the pool of literature on the subject has spread across many disciplines. This is a result of the wide applicability of CSR research in many different fields; hence, CSR is more prevalent than ever. Nonetheless a single, indisputable definition still does not exist (Mosca & Civera, 2017; Russell et al., 2016). While the topic of CSR is not new, many academics have aimed to coin new definitions to better define the activities within the field. Consequently, this has created a significantly sized list of different terms that ultimately pertain to the same range of activities. For example, CSR, Strategic CSR (or SCSR) (Lai et al., 2015), Corporate Sustainability (Linnenluecke & Griffiths, 2010), and Sustainable Business Practices (Guest, 2010; Svensson et al., 2010), are often used interchangeably to define activities relating to sustainably orientated business practices, especially to do with ethical activities that aim to improve the social/environmental capital of firms.

For the purposes of this thesis, the definition of CSR that is used has been defined by the European Commission and the World Business Council for Sustainable Development. Some researchers describe CSR as a form of a social contractual relationship between companies, their customer, and the society in which the business functions (Dunfee et al., 1999; Robin & Reidenbach, 1987). The European Commission (European n.d.-a) itself has determined a definition of CSR as:

“the responsibility of enterprises for their impact on society and, therefore ... companies can become socially responsible by: (1) integrating social, environmental, ethical, consumer, and human rights concerns into their business strategy and operations; and (2) following the law”.

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When it comes to CSR innovation, a similar trend appears to occur where the innate flexibility of the subject has led to numerous topics in literature. However, CSR innovation does tend to generally involve research and development activities in business practices, which means that the majority of literature has focused on business strategy or new product development (usually from an engineering perspective). The most relevant section of literature usually focuses on innovation strategy and sustainable implementation (Als, 2010), and how innovation and CSR could work together (Mithani, 2017; Preuss, 2011). Research in Corporate Social Innovation (CSI) and Sustainably-Oriented Innovation have further explored the field of CSR and innovation from the perspective of the firm and conversely in its external stakeholders (Guest, 2010; Svensson et al., 2010; Wetering et al., 2017). In institutional settings, terms such as Sustainable Development have been derived to describe CSR and innovation in the context of corporate governance from governmental settings (Voegtlin & Scherer, 2017). Finally, as with most topics surrounding innovation, many researchers are concerned with the managerial implications and management of CSR innovations; which usually are the main considerations in new models and strategic thinking (Bocquet et al., 2017; Luo & Du, 2015).

In this study, research took elements from existing theories such as stakeholder theory, the Porter hypothesis, and value co-creation. This was done in order to support CSR innovation literature and to develop the intersection between these three topics (and its related links).

2.1. Corporate Social Responsibility (CSR)

CSR has transformed from a social notion to a business strategy, involving changes in corporate behaviour and management policies (Isaksson et al., 2014). This is in line with the growing argument that CSR has become more of an investment as opposed to a value-adding cost. Garriga & Melé (2004) suggest that CSR activities have been framed within many spaces, as they cover integration, ethics and legislation. Moreover, as it has been confirmed by many researchers, the initiatives act as a vehicle to foster innovation (Al-Shuaibi, 2016; Cegarra-Navarro et al., 2016; McWilliams & Siegel, 2001; McWilliams et al., 2006; Moon & Choi, 2014; Spence, 2016). Furthermore, several researchers

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emphasise the social perspective of CSR and how that effects obligations towards stakeholders (Bhattacharya et al., 2009; Smith, 2003).

According to Lantos (2001), customers and end-users have a responsibility in the whole process of CSR activities. Sarmah et al. (2015) agrees with this belief that all the stakeholders have to be involved for CSR to become a success. Their reasoning is that CSR initiatives are not successful without the diversity and inclusivity of multiple value chain participants. Additionally, it is difficult to pinpoint how the value of sustainability is distributed amongst the value chain – hence why new approaches must be clear. According to Luu (2019), external stakeholders such as customers and suppliers can highly stimulate value co-creation behaviour in CSR initiatives. CSR has been shown to be costly at first (Mirvis et al., 2016), despite the fact that previous research has shown that CSR initiatives, especially ones supported by innovation, can result in financial surplus (Maxfield, 2008). However, firms will most likely experience financial surplus through other means, since research has shown that consumers’ willingness to pay is not positively affected in terms of sustainability (Gupta & Hodges, 2012).

2.2. The Porter Hypothesis and the Triple Bottom Line (TBL)

Under the context of sustainability, the TBL approach was introduced by Elkington (1999), whom suggested that businesses should consider all three performance areas: economic, environmental and social in order to achieve a balanced and sustainable strategy (Brown et al., 2019; Dickson & Chang, 2015; Kuo & Smith, 2018; Mirvis et al., 2016; Mithani, 2017; Voegtlin & Scherer, 2017). This approach has been used to measure business performance (Kuo & Smith, 2018), and it often shifts business focus strictly from profit-orientation to sustainability-orientation (Svensson et al., 2010). TBL connects activities in a way that takes into consideration the well-being and harmonious existence of People, Planet and Profits, frequently referred to as 3Ps (Dreyer et al., 2017; Nicolaides & Singh, 2014). This co-existence can be achieved by applying innovations across the business and will create value between all stakeholders, such as end-consumers, financial and governmental institutions (Brown et al., 2019).

It is important to note that the TBL approach has evolved to incorporate new thinking. For example, current literature has extended the TBL to four pillars (Bellow, 2012; Kim

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et al., 2014; Louche et al., 2010), namely: economic, ethical, strategic, and discretionary. As summarised by Kim et al. (2014):

“In sum, these four dimensions of CSR theories are concerned with profits, political performance, social demands, and ethical values”.

This is in line with modern interpretations of stakeholder theory, in which firms’ economic practices take into account the wealth of all stakeholders. Furthermore, ethical pillars help focus on the company’s ethical obligations towards society (Kim et al., 2014). Finally, discretionary practices involve the wealth and well-being of the community; therefore, these activities encompass the development of social programs, granting financial support to communities and employees’ voluntary work (Księżak, 2016).

In current literature, the Porter hypothesis is often used to detail environmental regulation – in the sense that institutional stakeholders have an esteemed capability to influence a number of environmental and social factors (Constantatos & Herrmann, 2011). In this study, the TBL approach is considered to be, by-in-large, an extension of the Porter hypothesis. This is simply because just as legislation is a set of external rules that need to be abided by, the TBL is often the set of internal guidelines firms adhere to in respect to their environment and community.

With almost twenty-five years of empirical data, the Porter hypothesis has led a treacherous path through research. This is because it has many proponents and opponents due to a number of reasons, and researchers are unable to collectively agree on its validity. In its basic form, the Porter hypothesis states that a business entity can reap benefits arising from properly adjusted and legally enforced environmental regulations (Porter & Linde, 1995). However new perspectives have added that the effectiveness of the Porter hypothesis is largely dependent on a multitude of socio-geographic factors (D’Agostino, 2015). This is true regardless of the fact that shortly after its development, the Porter hypothesis was further devised into a ‘weak’ form where the link between environmental regulation and innovation is valid, and a ‘strong’ form in which environmental regulation and competition is linked (Jaffe & Palmer, 1997). In the ‘weak’ form of the Porter hypothesis, existing environmental regulation forces firms to agree to additional costs whilst searching for solutions to mitigate this burden; thus, promoting innovation (Brunnermeier & Cohen, 2003). Conversely, the ‘strong’ form of the Porter hypothesis

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suggests that firms have to manage profitability and new investments in imperfect markets, meaning that when environmental regulations are introduced, firms must radically innovate in order to keep up with competitors (Lanoie et al., 2011). The research team would like to suggest that the Porter hypothesis is more fluid than previously assumed, and that, as a phenomenon it is likely that a firm would be privy to both forms of the Porter hypothesis at any point in time.

This hypothesis implies that the waste by-product from the manufacturing processes of firms are evidence of poor resource management (Porter & Linde, 1995). This is supported by Lanoie et al. (2008) whom puts forward that this waste by-product is a form of “economic waste”, in which the inefficient utilisation of resources indicate that pollution mitigation could improve resource management. Moreover, the hypothesis states that firms have to expend more energy and resources to counteract the emissions of any toxic and harmful industrial waste, namely: handling, storage, removal of waste, and compensatory activities to relieve the social and environmental damage done by hazardous waste emissions (Kozlowski et al., 2012; Porter & Linde, 1995). Porter suggests that this wastage is attributed to poor effectiveness, leading to cost inefficient usage of resources (Porter, 1995; Porter & Linde, 1995). Hence the increasing demand to shift from control to prevention, reasoned by the reduction of costs and improvement of brand image (Kozlowski et al., 2012; Lai et al., 2015; Porter & Linde, 1995). Porter & van der Linde (Porter, 1995; 1995) stipulate that effective and legally binding environmental regulations can help businesses with altering their processes and adapting them into more efficient and sustainable ones. It is important to note that firms can skirt CSR activities whilst still strengthening their brand image through clever marketing strategies. Porter & van der Linde (1995) makes the important distinction that many firms (especially in manufacturing) rely on delicate ecosystems and non-renewable resources, thus legitimising the need for sustainability even if reasoned by pure pragmatism.

2.3. Value Co-creation and Stakeholder Theory in the CSR Context

Research has continued to explore many different avenues in CSR literature. However, a main theoretical concept that has been applied comprehensively in the area of CSR is the stakeholder theory proposed by Freeman (2010). It visualises the various relationships between firms and all their stakeholders, which historically has been the main starting

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point for CSR research (Matten et al., 2003). Most importantly, stakeholder theory takes on the perspective of the firm and describes the nature in which firms can influence key stakeholder relationships (Freeman & McVea, 2001). Furthermore, it motivates firms to satisfy the wishes of relevant stakeholders in order to achieve successful CSR related goals. Most literature on CSR usually touches upon the concept of organisational accountability, where profits, social obligations, business growth and corporate values are usually aligned to tackle a range of CSR-related factors (Garriga & Melé, 2004; Mosca & Civera, 2017). As such, the intersection between stakeholders and value sharing/co-creation has been lacking. However, new perspectives on existing models, such as the corporate social performance model (Carroll, 1979) can give research a new take on CSR. Frooman (1999) suggests that without any conflict between firms and their stakeholders, firms are not obliged to manage their sustainability initiatives or corporate responsibilities. Today, current research mainly uses stakeholder theory to understand co-creation of value in business models (Freudenreich et al., 2019), sustainability orientation (Ahen & Zettinig, 2015), and social responsibility (Sarmah et al., 2015) - however, there is of course an opportunity to further examine the intersection of these two areas.

In this context, value co-creation is crucial to the success of stakeholder theory because firms must develop strategic partnerships between all the related parties that surround it, such as: consumers, suppliers and retailers, the environment and the government (Ahen & Zettinig, 2015). This is supported by Freeman (2010), whom suggested that the grounds for stakeholder theory is demonstrated by how value shifts between many actors, rather than just between customers and businesses. Value co-creation mainly leverages value across different stakeholders, and as such it can include a number of functions (Kuo & Smith, 2018). It is important to note that, stakeholders are privy to value creation only when they are aware of their role in such a relationship (Ennew & Binks, 1999), because without regulation, stakeholders are less likely to get involved in activities (Yi & Gong, 2013). To succeed, value co-creation must be cooperative and narrated by stakeholders (Bettencourt, 1997), where it develops innovative offerings through collaboration (Iglesias et al., 2018).

Additionally, research has discovered a correlation between stakeholders and CSR, which has made stakeholder theory a popularly used framework (Roszkowska-Menkes, 2018).

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Historically, CSR has become more complex, which can be seen in its implementation by companies operating within different industries (Cochran, 2007; Isaksson et al., 2014). This is because of increased environmental awareness amongst company’s stakeholders – employees, customers, partners, suppliers, financial institutions, etc. (Nicolaides & Singh, 2014). Moreover, literature has concluded that failure to acknowledge the value of CSR activities by firms can result in potentially fruitless economic outcomes (Freeman, 2010; Mahoney, 2012; Mithani, 2017). What this means in practice is organisations must shape their CSR activities to reflect their stakeholder orientation in order to stay relevant and engage their stakeholders (Abugre & Nyuur, 2015). Crucially, there is evidence that suggests that introducing co-creation of value within CSR activities has had a positive effect on customers (Luu, 2019). Additionally, research has shown that targeting stakeholder relationships in new business models (and thus creating functional value between the different parties) will create a transformational impact on the effectiveness of CSR initiatives (Freudenreich et al., 2019). Considering Freeman’s perspective (2010), stakeholders are part of an intricate network of value chains where it is crucial to manage each relationship, which is in line with how modern CSR initiatives need to be carried out (Sprinkle & Maines, 2010). In the past, CSR was usually used as a one-way communication tool to promote sustainability, but it has grown to show that multi-directional holistic stakeholder involvement is needed for the successful execution of CSR initiatives (Sarmah et al., 2015). Furthermore, Luu (2019) has found that awareness increases when firms hold values that are in-line with the values of their external stakeholders. Hence firms should continuously improve and innovate CSR initiatives, keeping them up to date with consumer-based trends, market-related activities, and other stakeholder-related issues (Aquilani et al., 2018).

To build upon this intersection in literature, Yi & Gong (2013) has shown that stakeholders can participate in value co-creation with firms in many parts of the value chain, thus suggesting that new CSR-driven innovations could exploit such traits in any part of the organisation. This is supported by the fact that stakeholders are all active participants in creating real benefits and changes (Vargo & Lusch, 2004), and that CSR generally considers the wealth fare of consumers (Laczniak & Murphy, 2006).

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2.4. The intersection of the Porter Hypothesis, Stakeholder Theory, and Value Co-creation

Currently there is limited research that combines the Porter hypothesis, stakeholder theory, and value co-creation. This might be due to the fact that previously, CSR literature need not combine the three elements to holistically devise new frameworks. There is however extant literature that explores the relationship between the Porter hypothesis with value creation (Gupta & Benson, 2011), and stakeholder theory with value co-creation (Reypens et al., 2016). In Gupta & Benson (2011), the Porter hypothesis is used to demonstrate a number of positive links between sustainability and value creation, implying that environmental regulation and innovation can coexist without needing heavy intermediary action. This is in addition to the fact that environmental innovation can increase resource efficiency (Rexhäuser & Rammer, 2014), suggesting that being innovative with regards to sustainability and CSR has a multitude of positive effects (Porter, 1995). As such, it is possible to deduce that the Porter hypothesis and stakeholder theory already have certain links between them; if for example, sustainability was considered as the vehicle to link the two theories.

In comparison, literature that combines stakeholder theory and value co-creation similarly finds that using external stakeholder groups to collaborate on innovation will improve the chances to affect CSR innovations (Roszkowska-Menkes, 2018). When firms reach out to their stakeholders, especially through their CSR activities, they develop the propensity to strengthen their relationship with their stakeholders (Bhattacharya et al., 2009); suggesting that value co-creation can make a significant impact amongst stakeholders. In addition, external stakeholders considerably appreciate value exchanges with firms and actively respond with opportunities to collaborate together (Freudenreich et al., 2019). Ultimately, the goal is to exploit all available value for the benefit for all involved parties (Porter & Kramer, 2011).

2.5. The Clothing Industry Perspective

2.5.1. The textile and clothing industry

In line with the European Commission, the textile and clothing industry is characterised by vast number of diverse activities (European Commission, n.d.-b). As observed by Gardetti & Torres (2013), textiles play a major role in the clothing industry as it supplies

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the base on which the clothing industry exists. Thus, many vertical links are established between them. Everything starts with fabrics manufacturing and design creation – the first step out of many (Księżak, 2016). Between textiles and the clothing industry there is a concurrent, bilateral flow of information, goods and services (Gardetti & Torres, 2013). According to the European Commission, the textile and clothing industry:

“covers a range of activities from the transformation of natural (cotton, flax, wool, etc.) or synthetic (polyester, polyamide, etc.) fibres into yarns and fabrics, to the production of a wide variety of products such as hi-tech synthetic yarns, bed-linens, industrial filters, and clothing” (European

Commission, n.d.-b).

Therefore, for the purposes of this thesis, there is no distinction between textiles and the clothing industry – reasoned mainly due to the fact that under stakeholder theory, both are considered to be active players in the same area. Moreover, both can operate under similar CSR initiatives, such as fabric recycling.

2.5.2. The impact from the clothing industry

Over a 14-year period (between 2000 and 2014), the amount of manufactured clothes has duplicated due to the development of the ‘fast fashion’ business model (Šajn, 2019). This business model aims to deliver cheap fashion influenced by constantly changing trends imposed by high-fashion brands. This model allows customers to use their rising purchasing power to compulsively buy the most recent pieces of new collections, that soon will be rendered obsolete by quickly upcoming newer collections (Allwood et al., 2006; Beton et al., 2014; Gardetti & Torres, 2013). For example, one of the fast fashion giants, ZARA, offers 24 different collections within one year, followed by H&M, which supplies its customers between 12 to 16 different collections each year (Šajn, 2019).

The clothing industry is the second largest industry, right after the petroleum industry, to release the largest volume of contaminants annually. It is culpable for approximately 8% of carbon emissions, as reported by United Nations Conference on Trade and Development (UNCTAD), and it uses nearly 93 billion cubic meters of water per annum. To illustrate the colossal size of water usage: this amount of water is sufficient to sustain the lives of 5 million people (United Nations, 2019). Production of raw materials, such as cotton [which has dominated the textile industry representing roughly 43% of all fabrics

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used (Beton et al., 2014)], requires the use of a large amount of water, herbicides, mulch, and land. This severely influences the environment thus exhausting natural resources, promoting water scarcity, increasing toxicity caused by disposal of hazardous chemical compounds, and elevating emissions of greenhouse gases (Cleff et al., 2018; Šajn, 2019).

During the process of spinning, pre-treatment, dyeing, weaving yarn, tailoring, printing and finishing of garments, a considerable amount of chemicals – almost 2000 different ones – are being used (Allwood et al., 2006; Lehmann et al., 2018). As stated in ‘Pulse of the Fashion’ industry report, approximately 120 litres of water are required to produce one t-shirt solely made out of cotton (Lehmann et al., 2018). Furthermore, the usage part of the garment lifecycle affects the environment namely: washing, ironing and tumble drying as well as its frequency of use, amount of energy used (from washing), water and detergents used. Additionally, in the end-of-life phase (which consists of reusing, recycling, and disposing – either by incinerating or landfilling) the garments create a significant footprint on the environment (Beton et al., 2014). According to research, only half of used clothes are gathered and intended to be reused or recycled - and even then, only 1% of used clothes are actually being recycled (Šajn, 2019). Moreover, new pieces of clothing cannot be manufactured with solely recycled fabrics without decreasing their quality and sturdiness, as reported by H&M Group, where the use of recycled materials can only account for at least 50% of a new product. However, there are exceptions of said rule e.g., in the case of mechanically recycled cotton where the required recycled material content is only 20% (H&M Group, n.d.; Księżak, 2016).

The clothing industry is under tremendous pressure from competition and constantly changing trends, thus clothing labels are under pressure to continuously produce new clothes with cheap labour in poor countries (Nordås, 2004). Moreover, governmental regulations and standards vary from country to country. Not every country is capable to follow international precedents, mainly caused by technological stagnation and lower level of development (Gupta & Hodges, 2012). These are solid grounds to facilitate human rights violations, as firms create ‘sweatshops’ where employees work in poor, often unsafe conditions for drastically low wages. Furthermore, firms can enforce overtime, employ child labour, and abuse legal regulations (if existing and non-compliant

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with international ones) (Cleff et al., 2018; Gupta & Hodges, 2012; Kozlowski et al., 2012; Smith, 2003).

For example, in 2013, where news about a collapsing building accommodating several clothing manufacturing factories in Bangladesh circulated the world. It violated construction regulations, caused by cutting costs, which was one of the main reasons for the tragedy that took the lives of many people. Many major American and European clothing brands, such as: Walmart, Primark and Mango, were said to be cooperating with these factories (Manik & Yardley, 2013). In 2018, Burberry faced intense backlash when it was caught destroying its unsold products worth approximately US$ 37 million to protect the exclusivity of its brand name (Cox, 2018). They claim it happened within their energy recovery process, where emitted heat and energy can be recovered and re-used; however, it is still an enormous waste of resources as it emits a substantial amount of CO2 (Beton et al., 2014). The need for meaningful innovation-driven CSR, to not only respond and mitigate detrimental outcomes derived from value chain activities, is ever present in this industry – especially to transform processes to provide beneficial solutions to society and the environment (Porter & Kramer, 2006).

2.5.3. Observing CSR in the clothing industry

Retailers have started to place more emphasis on presenting sustainable certifications to their customers, as according to the PEFC (Programme for the Endorsement of Forest Certification) Global Consumer Survey, more than 80% of customers admit they want tangible proof of sustainable practices (PEFC, 2014). Certificates help consumers identify environmentally friendly processes and ethical work conditions, allowing clothing labels to promote their merchandise properly and inform their customers in a clear and concise way about the product origin, working conditions and their sustainable practices (Koszewska, 2011). Koszewska (2011) suggests that in order to achieve the best outcomes, ecolabels that have the highest social impact should be paired with certain standardised system processes, namely:

“(1) transparency and standardisation of certification systems (2) current system synergy (3) framework describing the systems (4) consumer education”.

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Eco and social labels can be awarded by public or private entities, which aim to distinguish ecological products versus non-ecological products. For example, Cradle to Cradle Certified™ logos indicate that products have a whole lifecycle planned, from sustainable production to recycling and reuse. In order to receive this certification, products have to fulfil five requirements, namely:

“(1) material health; (2) material reuse; (3) renewable energy and carbon management; (4) water stewardship; and (5) social fairness” (Cradle to

Cradle Products Innovation Institute, n.d.).

Another example is the Fairtrade Certification Mark, which is awarded on products from the textile, food, cosmetics and personal care categories. Products receive this award when particular social, environmental, and economic progress benchmarks are met (Fairtrade International, n.d.). Another example is the Oeko-Tex Standard 100, which focuses on the reduction of harmful substances in textile production. Each textile article that carries this label, such as buttons, threads, linings and zippers, has been established as safe in accordance with annually updated criteria (Oeko Tex, n.d.). Lastly, the Global Organic Textile Standard can be found on textiles that have used chemicals that comply with toxicology and environmental benchmarks, and contain at least 70% organic fibres (Global Standard, 2020).

In addition, numerous firms have shown how they can implement CSR in their strategies. For example, TOMS, an American clothing and accessories label, donates one pair of shoes for each pair of shoes sold. Since its conception, the company has donated almost 90 million pairs of shoes to children in need (Mulqueen, 2019). Patagonia, an American outdoor clothing label, created a program called ‘Patagonia Action Works’, where through a digital platform they connect both individuals and organisations within local communities. On this platform, stakeholders can find local initiatives and volunteering opportunities, sign petitions, and donate money to local fundraisers (Patagonia, 2020). In 2015, Adidas partnered with Parley for the Oceans, an environmental organisation, in order to reduce aquatic pollution by repurposing plastic found in the ocean to create new products (Morgan, 2019). Thanks to this collaboration Adidas has manufactured more than 11 million pair of shoes out of the recycled plastic in 2019, and it aims to produce between 15 to 20 million pairs in 2020 (Adidas Group, 2020). Furthermore, Adidas has

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partnered with luxury brand Stella McCartney, a vegetarian company which does not use any animal products in its collections (Lewittes, 2018). The outcome of this partnership was a collection focused solely on minimizing waste by repurposing excess manufactured textiles (Wentworth, 2018). Such examples demonstrate a concurrent shift in the industry, however current initiatives have not done enough to reduce the negative impact to the environment (Lehmann et al., 2018).

2.5.4. CSR-driven innovation in the clothing industry

For the purposes of this thesis, innovation refers to activities using recent technology (such as 3D printing or blockchain) and recent developments in management. Such innovations are employed in order to improve products, internal and external processes or business models. Furthermore, given that the clothing and textile industry are observed together, the term ‘innovation’ additionally encompasses activities related to fabric innovation.

Collaborative thinking, cooperation on new challenges, and developing external networks are all key activities firms must now undertake in order to design and create new innovations (Reypens et al., 2016). This is true for the clothing industry, where some clothing firms are working with strategic partners to innovate fabric and manufacturing processes in order to become more sustainable. For example, luxury brand Salvatore Ferragamo established a collaboration with Orange Fiber, a textiles firm which is dedicated to manufacturing sustainable materials from by-products of citrus juice production, e.g., citrus peels. This by-product is turned into a cellulose yarn with silk-alike traits, offering a possible substitute to real silk (Orange Fiber, n.d.; Lehmann et al., 2018). Vegea and Provenance Bio have both developed cruelty-free, sustainable biomaterials that imitate leather (Provenance Bio, n.d.; Vegea Company, n.d.; Lehmann et al., 2018), Vegea uses grapes (Vegea Company, n.d.), whereas Provenance Bio uses their own proprietary blend of structural collagen, which assures that their manufactured bio-leather offers a ‘true’ leather-like touch and feel (Provenance Bio, n.d.). Furthermore some labels are looking into the possibility of using bast fibres such as hemp, nettle, jute, and flax to replace cotton, as these fibres can comparatively double their yield in same amount of farm area and are proven to be more sustainable than cotton in terms of water usage (Lehmann et al., 2018).

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Today CSR-driven innovations have surpassed the area of sustainable fabric alternatives, as firms are now interested in changing linear business models towards a circular economy. Such as software firm Reverse Resources, whom has been working on a Software as a Service (SaaS) platform to facilitate digital traceability (mapping, measuring and facilitating visibility) for textile leftovers. This solution could reduce the overproduction of textiles, boost the development of circular economies (by repurposing scrap material), and lower the carbon footprint caused by fabric production (Reverse Resources, n.d.). Additionally, firms are now offering fashion rentals where customers have the possibility to rent a piece of clothing for a period of time. For example, Rent the Runway offers a subscription fashion service, which offers designer clothes for customers to rent without having to purchase a garment (Rent the Runway, n.d.). Another circular business model is used by Vigga whom provides maternity wear and children’s clothes through a subscription model (Lehmann et al., 2018). Circular economies aim to minimize waste, harmful emissions, as well as water and chemical usage, all the while boosting the reusability of materials (Cleff et al., 2018).

Finally, the digital transformation of this industry is expected to influence the whole value chain (Amed et al., 2020); however, it will likely impact the supply chain the most. As cited by Pulse of the Industry (Lehmann et al., 2018) on behalf of Coresight Research (2017):

“The application of digital technologies has the potential to reduce the time it takes to move an item through the supply chain by 48% … That means digitalization could cut up to 19 weeks off the process”.

For example, research has shown that blockchain has the power to enhance the accuracy of end-to-end traceability (Kumar et al., 2017). It can automate garment manufacturing processes; shortening production time, using sensors and IoT (Internet of Things) networks to boost efficiency and workplace safety. Current research suggests that these technologies are still in a pilot stage, not ready yet for full-scale implementation (Lehmann et al., 2018), however there are many possibilities to improve the industry. Moreover, research has noted that despite the need for sustainable solutions, there is still sparse demand for sustainable fashion (Cleff et al., 2018), as consumers aren’t ready to pay higher prices for more conscientious choices (Gupta & Hodges, 2012).

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3. Theoretical Framework

This chapter presents the theoretical framework derived by the research team, reasoned with the explanation of how it came to exist, the extant theory that supports it and what it aims to achieve.

The research questions derived earlier were used to help the research team create a holistic framework. This framework would help identify the nature of which CSR problem spaces are dealt with. The purpose of this approach was to help focus the study in the area in which CSR and innovation tend to intersect i.e. product innovation, or business model innovation, so that readers would quickly associate the framework within a business mindset. As such, the visualisation of the proposed theoretical framework includes the CSR problem space, the intersection when stakeholders are introduced to collaborate on a solution, and the impact space in which a range of activities are to be implemented to deal with the issues. Ultimately, this framework has been devised to illustrate the previously mentioned links between stakeholder theory and value co-creation.

Additionally, it aims to demonstrate the effects of the Porter hypothesis within CSR-related issues (through the adherence of a firm’s triple bottom line approach).To simplify the effects of the Porter hypothesis, the research team has chosen to follow the basic form of the theory that was originally developed (Porter & Linde, 1995). Again, this is visualised as the triple bottom line, as it better associated with actions that firms undertake in respect to their CSR.

Actually, when the research team began to browse through existing literature, the theoretical framework was originally set to combine only sustainability (instead of triple bottom line to explain the Porter hypothesis) with the stakeholders’ standpoint within the clothing industry. But after more research was done, the importance of highlighting value co-creation as part of the framework became visible. This means that the theoretical framework combines three theories, namely: The Porter hypothesis, stakeholder theory and value co-creation. Thus, this theoretical framework will observe how CSR activities and stakeholders’ collaboration can influence sustainability and innovation.

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The literature review indicates that there is a visible connection between stakeholder theory and value co-creation, because to create offer value for stakeholders (e.g. consumers, employees, suppliers, NGOs, etc.), firms must work with stakeholders to satisfy their needs. Stakeholders can be a valuable source of knowledge and through collaboration, additional value can be created (Ahen & Zettinig, 2015; Freeman, 2010). Furthermore, Gupta & Benson (2011) found that the connection between the Porter hypothesis and value co-creation exposes links between sustainability and co-creational activities. This is particularly poignant, given the fact that the Porter hypothesis is often researched in tandem with innovation. In addition, when focusing on their stakeholders, business entities are immediately engaging in fulfilling the objectives of the Porter hypothesis (Porter, 1991), thus indicating to potential links between stakeholder theory and the Porter hypothesis.

Figure 2: Proposed Theoretical Framework.

Source: Adapted by Higgs & Kocik (2020) based on the Porter hypothesis (Porter & Linde, 1995), stakeholder theory (Freeman & McVea, 2001) and value co-creation (Ahen & Zettinig, 2015).

The proposed theoretical framework represents the connection between the three major concepts explored and illustrates how the value of each stakeholder group, combined into

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one, can translate into an impact that will result in a Triple Bottom Line outcome. A CSR-related problem space can be influenced by the value co-created from various groups of stakeholders, namely: customers/consumers, employees, shareholders, NGO members and institutions. Stakeholders can communicate their needs and demands, as well as share feedback, providing businesses with the necessary information to tweak and adjust the firm to be better aligned with their CSR initiatives. As stakeholders play a role in value co-creation, the impact of the activities will spread and engage with the firm’s TBL approach – providing economic, environmental and social benefits, creating the required solution needed.

Figure

Figure 1: Value of the clothing market worldwide from 2005 to 2020 (in bn USD).
Figure 2: Proposed Theoretical Framework.
Table 1: List of the interviews.
Figure 3: Questionnaire respondents’ distribution as stakeholders of the clothing industry
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References

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