Initiating sustainability assessments: Insights from practice on a procedural perspective

Environmental Impact Assessment Review 72 (2018) 99–107

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Environmental Impact Assessment Review journal homepage: www.elsevier.com/locate/eiar

Initiating sustainability assessments: Insights from practice on a procedural perspective

T

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Thomas Borgerta,b, , Jerome D. Donovanb, Cheree Toppleb, Eryadi K. Maslib a b

Faculty of Business, Design and Arts - Swinburne University of Technology, Sarawak Campus, Jalan Simpang Tiga, 93350 Kuching, Sarawak, Malaysia Faculty of Business and Law - Swinburne University of Technology, PO Box 218, Hawthorn, Victoria 3122, Australia

A R T I C LE I N FO

A B S T R A C T

Keywords: Sustainability assessment Procedural framework Multinational enterprises Initiation step

Sustainability assessment is a key method that offers a platform from which the private sector can implement systematic processes to address sustainability. While this presents a unique opportunity for broadening the use of sustainability assessments, this is constrained by the lack of commonly accepted processes and little empirical evidence on private sector practices. This study directly engages with this dilemma, examining the initiation step of the sustainability assessment from a procedural framework perspective. A multiple case study approach is utilised with semi-structured interviews of 32 respondents from nine multinational enterprises operating in the manufacturing industry of Indonesia. Findings indicate the initiation step is initially directed by regulatory compliance, with organisations using checklists based on mandatory sustainability issues to consider. The majority of organisations go beyond this compliance approach, however, with the role of the headquarters directing these organisations to more holistically consider sustainability issues through the use of established lists and materiality analysis. This is informed through headquarter commitments to voluntary international standards and global sustainability guidelines, which have translated into corporate practice through established policies and procedures. These findings highlight the importance of an emerging trend for the private sector to undertake voluntary activities beyond the regulatory context of the country they are operating within, and guided by corporate codes of conduct, when undertaking sustainability assessments.

1. Introduction The 2030 Agenda for Sustainable Development by the United Nations renews a call to action for the global community and represents “the world's blueprint for global sustainable development” (European Commission, 2016, p3). With this renewed focus, large companies, and particularly multinational enterprises (MNEs), are confronted with the dilemma of how to more actively address sustainability within their operations. The private sector is, however, presented with a range of different global standards, guidelines and methods for addressing sustainability that are all becoming more widespread and accepted (see, Ghadimi et al., 2012; Govindan et al., 2013; Lion et al., 2013). A method that has emerged with promise as a means of addressing sustainability-related issues in development activities is sustainability assessment (Bond et al., 2012; Pope et al., 2013), which draws on more traditional impact assessment approaches (Bond and MorrisonSaunders, 2011; Morrison-Saunders et al., 2014; Pope et al., 2004; Pope et al., 2017) – such as the widely legislated environmental impact assessment - and offers a platform from which the private sector can

implement processes to address sustainability (Donovan et al., 2017a; Myllyviita et al., 2016). The proliferation of sustainability-related impact assessment research over the last two decades has given rise to a range of conceptions and variations in how sustainability assessments have been approached and developed. At the outset, the literature is confounded with variations of sustainability assessment types including an integrated sustainability assessment (Shields et al., 2011), sustainability impact assessment (Lee, 2006), corporate sustainability assessment (Donovan et al., 2017a), internal sustainability assessment (Morrison-Saunders and Pope, 2013), integrated assessment (de Ridder et al., 2007), EIAdriven integrated assessment, objectives-led integrated assessment or assessment for sustainability (Pope et al., 2004). A range of authors have proposed a variety of different yet interlocking definitions and understandings of the concept of sustainability assessment. This includes a consideration of the time of application (i.e. ex-ante, ongoing or ex-post, such as in Morrison-Saunders et al., 2014; Pope et al., 2017; Shields et al., 2011), the level of application (i.e. policy, planning, programme or project contexts through work by Coteur et al., 2016;

⁎ Corresponding author at: Faculty of Business, Design and Arts - Swinburne University of Technology - Swinburne University of Technology, Sarawak Campus, Jalan Simpang Tiga, 93350 Kuching, Sarawak, Malaysia. E-mail addresses: [email protected] (T. Borgert), [email protected] (J.D. Donovan), [email protected] (C. Topple), [email protected] (E.K. Masli).

https://doi.org/10.1016/j.eiar.2018.05.012 Received 16 May 2017; Received in revised form 25 May 2018; Accepted 29 May 2018 0195-9255/ © 2018 Published by Elsevier Inc.

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information (Shields et al., 2011), while others still suggest it is private sector commitments to international standards and sustainability guidelines that will direct how the sustainability assessment is initiated, before identifying key sustainability issues to be considered (Lion et al., 2017). What is clear, however, is the initial step or phase (as referred to by Binder et al., 2010), plays a critical role in directing how the entire assessment is undertaken and thus holds significant value for not only consolidating existing theoretical and empirical insights, but also testing through empirical investigation. To do this, this study focuses on a set of multinational enterprises operating within the Indonesian manufacturing sector. Indonesia was chosen for a number of reasons including large foreign direct investment (FDI) inflows (UNCTAD, 2016), an FDI-dominated manufacturing industry (Munandar, 2017), which the government has prioritised to further increase (Amianti, 2014; Danubrata et al., 2014; Munandar, 2017). In a 2009 report by the International Institute for Sustainable Development (IISD), it was suggested that FDI operations in Indonesia are contributing to increasing standards of commercial operations. For instance, in examining chemical manufacturing, the study found that broadly FDI operations were outperforming domestic organisations in terms of environmental performance and community impact (Adiningsih et al., 2009). Despite this focus on increasing the FDI involvement in manufacturing, indications that these organisations are contributing more directly towards sustainability, and a government focus on sustainable development (OECD, 2016), a paucity of literature has sought to directly examine this. Indeed, a review of previous research within the Indonesian context illustrates a focus largely on EIAs, which have been required by regulation for over thirty years (Hadi, 2002; Petts, 1999; Purnama, 2003). These studies have included a focus on, for example, an overview to the EIA (AMDAL) (The World Bank, 2005; Zulhasni, 2000; Lohani et al., 1997) and policy reform (Purnama, 2003; Qipra Galang Kualita, 2005; Giovanna et al., 2006); an EIA system critique (WALHI, 1994; Phillips et al., 2009; Quitzow et al., 2011; Simbiak and Sammut, 2013) and opportunities (EASES, 2006; Hadi, 2002; Kessler et al., 2015; Syafiq, 2015); needs for and increasing public participation in ex-ante assessment processes (Hadi, 2002; Simbiak and Sammut, 2013); post-natural disaster EIA (Gore and Fischer, 2014); project-level (Razif and Persada, 2016; Simbiak and Sammut, 2013); and, foreign authority assessment of industry policy and performance (Environment Agency [of Japan], 1998). With a lack of explicit focus on sustainability assessments within this context, the increasing prevalence of FDI in Indonesian manufacturing, and indications that these MNEs are contributing more broadly towards sustainability, this article makes an important contribution towards the literature. This study focuses on providing empirical insights into how organisations address sustainability challenges through the initiation step of the sustainability assessment. By initiation step, this research focuses explicitly on the first step within the sustainability assessment that “initiates” the overall process. In taking this perspective, this research specifically examines 1) What are the processes associated with the initiation step of the sustainability assessments by MNEs in Indonesia? and, 2) What are the key tools and techniques utilised within the initiation step by these MNEs? This article provides empirical evidence from manufacturing MNEs in Indonesia to explore the processes of the initiation step of the sustainability assessment. In the next section, we will locate this research within the broader sustainability assessment literature, with a focus on procedural frameworks. Following this, literature examining procedural frameworks and the initiation step of the sustainability assessment will be examined drawing on both theoretical and empirical insights from the extant literature. A broad framing will follow, that focuses on the existing knowledge for the initial activities and processes involved at the beginning of a project level sustainability assessment. The remainder of the article will justify the methodology of this study, subsequent to

Dizadaroglu, 2015), approach to the consideration of the sustainability pillars (i.e. integration, articulation or outcomes from Pope and Klass, 2010; de Ridder et al., 2007; Sala et al., 2015), or the actor undertaking the sustainability assessment (i.e. government or proponent from Topple et al., 2017a; Morrison-Saunders and Pope, 2013). Rather than argue for the relative merits of each of these different positions within the broader sustainability assessment literature, which is beyond the scope of this paper, we recognise these differing conceptualisations of sustainability assessment and identify several main components that appear to cross many of these definitions and understandings of sustainability assessment. This includes that it is a process (i.e. Arodudu et al., 2017; Pope et al., 2017), aimed at informing decision-making (i.e. Dizadaroglu, 2015; Morrison-Saunders and Pope, 2013; Pope and Klass, 2010), and should seek to address environmental, social and economic dimensions (i.e. Dizadaroglu, 2015; Morrison-Saunders et al., 2014). This can occur throughout the entire lifecycle of a policy, plan, programme or project (i.e. de Ridder et al., 2007; Donovan et al., 2017c; Hacking and Guthrie, 2008) and may be undertaken by a variety of different actors including the government and authorities or the private sector (i.e. Donovan et al., 2017a; Morrison-Saunders and Pope, 2013). We thus define a sustainability assessment as a process aimed at informing different actors' decisionmaking processes when considering sustainability issues in policy, plan, programme or project contexts. Of significance to this article is understanding the processes that guide the sustainability assessment from the perspective of a procedural framework. By procedural framework, we are referring to a framework that details the steps forming the basis for how the assessment is undertaken (Binder et al., 2010; Sala et al., 2015). This understanding generally reflects descriptions not only in sustainability assessment literature, but also more broadly across the impact assessment domain. For example, Sala et al. (2015) refer to the ‘sustainability assessment procedure’ as comprising “several steps”; or Binder et al. (2010) notes the ‘structure of the procedure’ being composed of a phase and steps. This reference to a “procedural framework” being focused on the key steps is evident in other impact assessment literature, such as from Strategic Environmental Assessment (SEA) (Chaker et al., 2006), Environmental Impact Assessment (EIA) (Momtaz, 2002), Social Impact Assessment (SIA) (Arce-Gomez et al., 2015), and Health Impact Assessment (HIAs) (Harris-Roxas and Harris, 2011). This perspective is warranted for a number of reasons, not least of which, is the recognition that there is a lack of “commonly understood process for conducting them [sustainability assessments]” (Pope et al., 2017, p205). Beyond this, limited research has engaged with this perspective, particularly research that provides empirical insights. A number of studies have sought to provide insights into a procedural framework or “dimension” that can be applied at the project level but from a largely theoretical perspective (such as Shields et al., 2011; Binder et al., 2010). Other studies have provided insights through case studies into different aspects of the procedure; however, these have not been examined from a procedural framework perspective with little theoretical framing. Rather, these studies have provided insights into potential considerations at various steps within a sustainability assessment (such as Morrison-Saunders and Pope, 2013 and Orenstein et al., 2010). Focusing on clearly formulating and empirically testing a procedural framework for sustainability assessments will clearly contribute to the dearth of studies evident and the dilemma noted by Pope et al. (2017). Here, we concentrate on the initiation step of the sustainability assessment, an area that has received disparate and conflicting theoretical and empirical insights. While this will be more clearly detailed in the literature review, it is worth highlighting several of the varying perspectives within the extant literature to illustrate this point. Some authors suggest that the sustainability assessment begins with defining the approach to sustainability and setting values and sustainability principles (Sala et al., 2015), or identifying stakeholders, impacts and 100

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participants and stakeholders, and their interpretation of the goals for sustainable development. From these values, this is translated into the sustainability principles to be achieved, before targets are established. (Shields et al., 2011, p1216), on the other hand, emphasise the explicit identification of stakeholders, value sets, objectives, and a consideration of “the land, communities and people it has the potential to impact”. This overlaps with what they describe as the “scope” of the project, and should also consider the environmental, social, economic and technical aspects; temporal and spatial scales; and, the ability to acquire information for the assessment. From this stage the assessment moves to considering the different alternatives. Other perspectives are offered, with Binder et al. (2010), for example describing their procedural dimension as beginning with a distinct ‘preparatory/set up phase’. This has some similarities with the breadth of coverage evident in Shields et al. (2011), with first evaluating “the system under consideration, the scale of analysis and the user groups of the assessment itself, as well as the stakeholders to be involved and the type of their involvement” (Binder et al., 2010, p74). Although there are obviously similarities, it stops short of considering the different dimensions of sustainability (as seen in Shields et al., 2011), with this more clearly beginning in the first step of their assessment with the selection of indicators (and happening after this first phase of their assessment procedure). From studies utilising case research to inform their framing of the initiation processes of the sustainability assessment, a limited number of studies elaborate on how the private sector initiates the sustainability assessment, demonstrating a variety of perspectives from ex-ante (Morrison-Saunders and Pope, 2013; Orenstein et al., 2010) to ongoing activities (Donovan et al., 2017a). Looking first at Morrison-Saunders and Pope's (2013) ‘internal sustainability assessment’, they identify what they refer to as some “common steps” within sustainability assessment processes and include: “the identification of relevant sustainability issues (which in some cases were developed into clear objectives or criteria); assessment of the performance of the proposal or the options with respect to these issues; some level of community and stakeholder engagement; and a final decision by a nominated decision maker, either a regulator or internal to the organisation as appropriate” (Morrison-Saunders and Pope, 2013, p158). While these steps are quite clear, it appears from examining their case examples with BHP Billiton's Liquefied Natural Gas (LNG) plant and the Water Corporation's Water Forever project, the first step revolves around identifying different project options for which the assessment would initially evaluate. This evaluation occurred through a range of sustainability criteria being applied to the assessment of the different alternatives. In the case of BHP, this evaluation led to the identification of a favoured site for further analysis. For the Water Corporation, this led to a high-level screening to remove unsustainable options, before a second stage analysis aimed at ranking the options remaining for their strengths and weaknesses, and overall sustainability performance. While it appears both cases start with the identification of alternatives before an analysis against sustainability criteria, it should be noted that the focus of their study was not on detailing the process, but rather elaborating on general practice emerging from Western Australia. In the study by Orenstein et al. (2010), it appears that Royal Dutch Shell initiated a similar process when evaluating the Northern Field Test in Canada, although the stakeholder engagement came at the second step within the assessment. They illustrate how the initial activities within the assessment were directed from a technical perspective, involving a multi-disciplinary team with three personnel (the disciplinary leads from environment, social and health teams) mapping the different impact pathways associated with the project. As part of this process, the team specifically considered the potential overlaps between the different impact pathways. Following this, ‘technical working sessions’ were implemented to further analyse this through a broader team of experts, including the consideration of effects,

which, empirical insights from nine case studies of large manufacturing MNEs operating in Indonesia are provided. Finally, the article will discuss the outcomes of this study with a specific focus on the research questions posited above, the practical insights from these case study findings, before concluding with the practical implications and future research opportunities in this area. 2. Literature review – sustainability assessments Evident within the sustainability assessment literature are the multitude of theoretical positions and contexts to understand sustainability assessments. An in-depth review is beyond the scope and focus of this paper, however, we provide a brief explanation here to set the context and a foundation for our study. Sustainability assessment research has been presented according to features, elements, dimensions and categories (i.e. Arodudu et al., 2017; Binder et al., 2010; Lee, 2006; Pope et al., 2017; Bond and Morrison-Saunders, 2011; Hacking and Guthrie, 2008); tools, methods or indicators (i.e. Li et al., 2017; Schöggl et al., 2016), and procedures (i.e. Sala et al., 2015; Shields et al., 2011; Donovan et al., 2017a). The terminology used to reflect these theoretical positions is broad and reflective of the diversity of approaches to sustainability assessment and also highlights the difficulties of clarifying a clear over-arching perspective from which to analyse sustainability assessments. While these different approaches to examining sustainability assessments are a useful starting point, we draw back to two leading frameworks that offer a broader framing of the sustainability assessment literature – Lee (2006) and Hacking and Guthrie (2008), which have particular relevance to the positioning of this research focusing on procedural frameworks examining the specific processes of a sustainability assessment. For Lee (2006), he positions the literature for a common framework perspective around three main areas including the context of the assessment, the process, and the methods. Here, Lee (2006) refers to the process aspect and how it relates to the main stages or steps of the assessment. Hacking and Guthrie (2008), also provide three broad categories, including context, process and features within the assessment. The process category relates to how, when and who undertakes the assessments. While this framing is somewhat different from Lee (2006), it still has a key consideration of the “how” aspect, which is the focus of this paper. With this context, we now turn to reviewing the literature that has focused on the “how” or “process” perspective, examining procedural frameworks and the steps within the sustainability assessment. A specific focus will be placed on the initiation step of the sustainability assessment from both a theoretical perspective, and drawing on empirical insights that may be relevant here. 2.1. Procedural frameworks for sustainability assessments Procedural or process-based frameworks for sustainability assessments have been presented from a number of perspectives. This includes the adoption of a life cycle assessment perspective (i.e. Arushanyan et al., 2017); a strategic or policy perspective (i.e. de Ridder et al., 2007; Lee, 2006); and a proponent or private sector perspective (i.e. Morrison-Saunders and Pope, 2013; Shields et al., 2011; Binder et al., 2010; Topple et al., 2017a). The focus of this study orientates around the private sector (or proponent) perspective, at the project level, where it has been documented as a largely voluntary driven process (Donovan et al., 2017c; Morrison-Saunders and Pope, 2013). When examining this perspective, it is clear that there are disparate approaches that have been utilised to describe and theorise the initiation step of the sustainability assessment. For example, Sala et al. (2015) theorise a conceptual framework for sustainability assessments. From their ‘sustainability assessment procedure’, it is suggested that this begins with establishing the approach to sustainability, whereby the values and sustainability principles are determined for directing the assessment. Values emerge from 101

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To complement the case study methodology, a semi-structured interview approach was adopted. One of the strengths of semi-structured interviews is the ability they provide the researcher to probe the answers given by participants (Saunders et al., 2012). This enables a more thorough understanding of the responses given, and an opportunity for the discussion to lead to other relevant areas of interest, adding significance and depth to the data obtained (Saunders et al., 2012). This approach using case studies and semi-structured interviews was seen as a particularly valuable method for investigating project level, proponent-driven, sustainability assessment and enabled insights and into managers' actual practices and the reasons behind these. As noted in the study by Myllyviita et al. (2016), there remain significant gaps between theorised sustainability assessments and actual practice, and interviewbased methods are one particular way that may allow this to be bridged. There were 32 respondents involved in this study across the nine MNEs (an overview of respondents is provided in Appendix A.1.). In cases 3, 4, 5, 6 and 7, only respondents from the affiliate-level agreed to participate. Key representatives of each organisation were initially identified through internet searches, with these personnel within the corporate, public relations, or communications departments of these organisations. This provided the basis for engagement with each organisation, as key external relations personnel. Once these personnel were contacted, and confirmed participation in the research, consultation occurred within each organisation on the selection of appropriate personnel to be involved in the interviews. The general focus of the research was initially provided through the provision of an invitation letter, informed consent document (in line with ethics approval from our university), and the interview overview and questions. Follow up discussions occurred with each organisation to explain the overall intent of the research and explain the type of personnel that would be most relevant to participate in the research. Given the nature of sustainability functions within MNEs (both in planning and operational contexts), these personnel spanned a range of executive and management areas including finance, operations, human resources, supply chain management, engineering, and external relations. Discussions occurred with each personnel to ensure their job function and experience within the organisation was relevant to the research and they would be able to provide responses to the questions with sufficient depth and knowledge. The breadth of personnel involved in sustainability related decision-making is reflected in the diversity of personnel listed within the respondent overview, and also the necessity to undertake triangulation through conducting interviews with at least three respondents in each organisation to cover the multiple perspectives that existed from this diversity. Documentary analysis was also conducted on internal (including company reports) and external (including government reports and news regalia) mediums to triangulate the interview data. These interviews and secondary data were collected between January 2014 and December 2016. Interviews were transcribed verbatim and then entered, with other data sources, into the computer-assisted qualitative data analysis software (CAQDAS) package NVivo. This use of CAQDAS has been highlighted as a particularly useful process to allow the collection and organisation of qualitative data (Baxter and Jack, 2008), and has also been utilised extensively across academic research, including recently within the impact assessment domain (i.e. Harris et al., 2018; Naime, 2017). All primary and secondary data sources were analysed using open codes in NVivo (Topple et al., 2017b). Open codes were utilised in linking data with a sustainability assessment framework that initially guided this inquiry. Open codes are a method that allows the organisation of a large mass of textual data from interviews, field notes and observation notes, amongst many other sources of qualitative data (Bowen, 2008). Substantive labels were allocated to concepts derived from the textual data (Bowen, 2008), and this was linked with concepts derived from the literature aligned with a broad procedural framework for sustainability assessment (Lion et al.,

significant and alternatives. These activities occurred before the implementation of the next step, focused on a dual-scoping process that matched the results of the technical analysis with community engagement. The most recent, and most comprehensive private sector, project level, sustainability assessment research has been undertaken by Donovan et al. (2017a). In their study of MNE's in Thailand, Donovan et al. (2017b) refer to the initiation step of the sustainability assessment as being focused on “identifying the appropriate issues that emerge for a new or continuing project” (p69). Findings highlighted the importance of broad, sustainability outcomes sought by the private sector when beginning their assessment activities (Donovan et al., 2017c). This was significantly influenced by international standards and sustainability guidelines that organisations have committed to, directing them to initially consider a specific set of sustainability issues and impacts. Underpinning this approach was the use of established lists of sustainability issues linked with the different international standards and sustainability guidelines that these organisations were committed to. It appears that a materiality analysis was also used by organisations implementing Global Reporting Initiative sustainability guidelines, involving some level of stakeholder engagement. Although, having said that, it appears that the materiality analysis was most significantly utilised within the next step, scoping, for refining and prioritising the different sustainability issues identified in the initiation step. Whilst these empirical cases are helpful for understanding more about organisational sustainability practices, the processes of proponent-led sustainability assessments at the project level are still somewhat in their infancy. We therefore highlight two potential broad elements from the extant literature that potentially frame the initiation of a sustainability assessment from this perspective. This includes: 1) The contextualisation of the project, including stakeholder selection, system and scale for the assessment (Binder et al., 2010; Shields et al., 2011; Sala et al., 2015); and, 2) Identification of relevant sustainability issues or criteria for the assessment (Morrison-Saunders and Pope, 2013; Shields et al., 2011; Orenstein et al., 2010; Donovan et al., 2017a). This may be either technical (driven by experts), or participatory (with the involvement of different stakeholders). We build from this point, turning now to the examination of the materials and methodology employed in this study. 3. Materials and methods As earlier highlighted, the study investigates the processes and activities taken by foreign MNEs operating in the Indonesian manufacturing sector when focusing on the initiation step of a sustainability assessment. Two MNEs had headquarters located in East Asia, five were from Western and Northern Europe, and two from North America (see Appendix A.1. for further case details). All MNEs involved in this sample had already begun operational activities within Indonesia, and could therefore be classified as being within the ‘ongoing’ classification for conducting a sustainability assessment. However, cases were specifically chosen to enable the capture of perspectives on both the exante concept planning and the ongoing operational activities. This also translated into participant selection, with respondents sought that could provide insights into the investment decision-making process, as well as the ongoing operational activities of the MNEs. A case study methodology using semi-structured interviews (both face-to-face and by telephone) was adopted, involving key representatives of all MNEs (the semi-structured interview guideline is provided in Appendix A.2.). Case study methods are particularly useful for enabling “the researcher to answer “how” and “why” type questions, while taking into consideration how a phenomenon is influenced by the context within which it is situated” (Baxter and Jack, 2008, p556). Case studies are also used in many different situations to contribute to our knowledge of, amongst other things, management processes and organisational phenomena (Yin, 2014). 102

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2017). Three thematic categories were allocated to the data reflecting a saturation of textual data linked with overarching concepts identified at the initiation step of sustainability assessments. This allowed for data to be organised into key themes and then assigned to the appropriate area within the framework, ensuring aspects that do not relate to the initiation step are not also included in the analysis and presentation of results. From the further analysis of the data, these thematic categories were further refined into two categories presented below. This includes ‘Regulation compliance and checklists’ and ‘Voluntary practices: the role of the headquarters, international standards and sustainability guidelines.

As for the environment, the regulations and level of compliance varies depending on the [host] country. Trying to replicate what we are aiming for in [the home country] to the countries we are extending to, is in my opinion very difficult. However, for Indonesia, we will meet the local regulations. As an overall framework, the instruction from [headquarters] is to meet the local regulations. 4.2. Voluntary practices: the role of the headquarters, international standards and sustainability guidelines Beyond Case 2 and 5, the remaining seven extended their consideration of sustainability issues beyond this initial basis set through local regulatory requirements. These organisations received explicit direction from their headquarters (including through established corporate strategies and policies) on how to initiate their sustainability assessment and what issues and impacts needed to be considered. Respondents emphasised how headquarter-level commitments to sustainability funnelled down to their subsidiary operations. The local context (through regulatory requirements) was not seen as a critical basis for their full sustainability assessment. Rather, it was the headquarter approach to sustainability that framed their subsidiary sustainability activities. A respondent from Case 1 illustrates the importance of this, stating:

4. Findings and discussion 4.1. Regulatory compliance and checklists Across the sample, it is clear that an initial focus for all MNEs was an analysis of local regulatory requirements. Considered initially to ensure organisations meet the minimum regulatory requirements for their business operations, this also set a context for necessary sustainability considerations to include within decision-making processes. This was evident from reflections by respondents across the sample, not just through the initial planning phase of their operations, but also their ongoing activities. Organisations were required to consider sustainability issues linked with not just local (municipal and provincial) requirements but also laws set by the Indonesian central government for foreign investment. These laws were primarily related to the identification and consideration of environmental, health and safety, and labour issues. Organisations also reflected that, besides regulatory compliance, the government also dictated the prioritisation of local development issues for consideration in the organisation's investment and operational plans, as well as their ongoing operations. These issues were often identified by the local government (for instance, labour issues) with organisations required to address specific issues related to their operations (for instance, employ locals and providing appropriate training). The emphasis on following the local regulation was articulated by a participant from Case 2, when reflecting on environmental issues:

… There's actually two aspects. … the business case for the country … then the [internal standards system] or ethical portion is another aspect. … [The headquarter company] emphasise a lot on the clean businesses … our regulations about the partners we work with, the people we sell to, the project we do, these are important. In this example, the respondent referred to the headquarter standards directing the consideration of a very specific set of sustainability issues. The compliance side with local regulations was the first aspect of initiating their sustainability assessment, included within their process of developing a business case for the investment within the country. Building beyond this, however, they then conducted a holistic examination of sustainability issues and impacts in line with the corporate requirements. This approach was reflected across the interviews at both headquarter and subsidiary levels for these seven organisations. A respondent from Case 6 reflects on this: “The company always tries to find the best solution to solve the problems. Because [the company] has a forecast division, it always prepares to overcome the potential problems”. This reflects the headquarters directing the examination of sustainability issues at the subsidiary level. This organisation, and others, emphasised not only. “…obeying the law but also for them to set a higher standard [from] within [the company]”. Looking more closely at the headquarter level, there were several influencing factors identified as guiding the development and implementation of sustainability-oriented practices within their global operations. At the broadest level, these organisations recognised a range of principles from various United Nations conventions and initiatives (such as the United Nations Global Compact (UNGC)), the ILO Fundamental Principles and Rights at Work, and the OECD Guidelines for Multinational Enterprises, amongst others. These were implemented on a voluntary basis, without any formal enforcement mechanisms to regulate their adoption or compliance. Despite this, these often appear to be linked with the key sustainability principles and practices adopted by these organisations. More specific international sustainability standards/guidelines were also evident, which tended to be specific in directing how these organisations identified sustainability issues. These international standards/ guidelines included the Global Reporting Initiative (GRI), CDP, Fairtrade and the Roundtable on Sustainable Palm Oil. For example, GRI has a range of different issues that are outlined in their standard,

…according to Letter of the State Minister of Investment/Head of the Investment Coordinating Board No. 369/SE/BKPM/7/1998 … every foreign and domestic direct investment should provide environment analysis report (AMDAL) as a requirement to establish factory or project as mandated by the newly approved Environmental Protection and Management Law on Article 22. The aim of the AMDAL is to evaluate the environmental feasibility of a project. As a mean by which the authority grants the necessary permits for the project or activity. Regulatory compliance led organisations to adopt a checklist approach when initially considering relevant sustainability issues to include within their assessment. In two organisations (Cases 2 and 5), sustainability issues and impacts were only considered in order to satisfy these requirements. These organisations did not seek to look beyond these requirements, using this as both a key initiation point and boundary around what sustainability issues would be identified and addressed within their sustainability assessment. These two organisations had pre-defined headquarter operational standards for subsidiary operations, which directed the subsidiary towards focusing on local regulatory requirements set by the Indonesian government. Satisfying these local requirements was the key factor for initiating their assessment of sustainability issues. It also framed the boundaries of their assessment, directing the consideration of only those sustainability issues and impacts required by the government. This is reflected in the comments of a respondent from Case 2’s headquarter-level divisional planning: 103

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stakeholder engagement appears to be more linked to CSR at the subsidiary level, rather than a broader approach to sustainability. This was reflected, for example, by a respondent from Case 4:

which require organisations to capture issues and impacts across all three sustainability dimensions. Organisations actively tried to align with the key sustainability issues and impacts embedded in these standards, as a respondent from Case 9 reflected:

[The company] narrowed and focused issues to be considered and evaluated. … [The company] held regular meetings with some key local people to discuss any problems that can be aided by the company. Then the company brought this issue to the board meetings and submit project proposals of CSR. If it is approved then the program run.

So we were a little bit ahead of ISO and GRI. We report according to the GRI principle and so each time that we do connect, we connect the GRI impact with one of the fundamentals that we have inside our list. Some of them may be overlapping and somehow contributing, some of them are different.

We can therefore generally conclude that in the organisations we studied there is an emphasis on following the issues identified by the headquarters throughout this process, including with stakeholder engagement. The other activities undertaken when engaging stakeholders, particularly for ongoing operations at the subsidiary level, seem to be limited to local government engagement and some ad-hoc CSR or philanthropic activities. As part of this process, it is clear the use of established lists was dominant across these seven organisations. The other key tool emerging from this is the use of a materiality analysis to engage with stakeholders in identifying key issues to consider.

Despite having established their own sustainability impacts for over a decade, this organisation had aligned and moved towards addressing the GRI issue and impact areas in their operations. This organisation had very well-developed sustainability issues and impact areas they sought to address, and initiated all new projects with a consideration of this. As new principles or standards emerged that could align with their existing practices, or improve their overall performance, they would progressively be integrated across their global operations. The issue identification process across these organisations was clearly informed by the commitments that the headquarters had made to international standards and global sustainability guidelines. Sustainability guidelines, like those developed by GRI, require the consideration of specific issues across the three sustainability dimensions and identify a range of industry-specific issues that should be reported on. This aligns with the use of an established list approach when considering which sustainability issues should be considered within their assessment. Beyond these established lists of issues evident in their approaches, five of these organisations also made specific reference to the use of a materiality analysis linked with the GRI standards for identifying potential sustainability issues. A materiality analysis provides a mechanism to engage with both external and internal stakeholders to determine the key issues for consideration that are then weighted and prioritised to inform planning processes. This was closely linked to the headquarter commitment to the GRI standards across their reporting and governance frameworks at the global level. While this provides a significant cue for the types of tools and techniques adopted by these organisations to identify the most important sustainability issues, it was not clear how this was implemented. While reference was made by some subsidiary representatives on how important this is to the process of identifying and prioritising issues, it appeared to be largely driven by the corporate headquarters as part of their broader sustainability processes. When it was translated to the local level, the sustainability issues emerged from the global level and funnelled down to local activities. This materiality analysis was clearly used to identify contextually specific sustainability issues for the Indonesian operations, through engaging with local stakeholders, including local communities, NGOs and the local government. It appeared, however, that the stakeholder engagement during this process was largely ad-hoc for identifying key sustainability issues and impacts. This is reflected, for example, in Case 3 where one respondent highlights that the responsibility for this engagement resides with one representative who seeks to consult with the community about problems or issues:

5. Conclusions and future research Our examination of extant literature led to the identification of two key aspects of the initiation step within the sustainability assessment 1) The contextualisation of the project, including stakeholder selection, system and scale for the assessment, and 2) Identification of relevant sustainability issues. The findings from this study, however, have emphasised how the process is framed, first and foremost, by a focus on regulatory requirements related to the host country these organisations are operating in. This directs initial activities within the sustainability assessment, and leads to a checklist approach being adopted by organisations to ensure relevant – and mandatory – sustainability issues are included in their plans and operational activities. While this reflects a compliance approach by organisations within the sample, it was quickly apparent that the broader headquarter commitments of MNEs to international standards and sustainability guidelines were critical for directing a more holistic engagement with sustainability within their operations. This also demonstrates the importance of headquarter-subsidiary relations in how sustainability assessments are conducted, and was evident across the majority of cases within this sample. From the headquarter commitments to GRI, UNGC, CDP, and other widely acknowledged sustainability guidelines and standards, organisations more holistically considered what sustainability issues need to be considered at the initiation step of their assessment activities. This included through establishing corporate policies and procedures to translate their sustainability commitments into actionable processes within their operations. Beyond these sustainability commitments and associated policies and procedures, it was evident that when the majority of organisations sought to identify the key sustainability issues to include within their assessment, an established list approach was utilised. This saw the (often) overlapping commitments to different international standards and global sustainability platforms converted into a list of key sustainability issues that these organisations focused on when undertaking their planning and operational activities. Extending beyond this, five organisations within the sample also highlighted the use of materiality analysis to augment the established list approach allowing stakeholder engagement to occur through the initial activities of their assessment processes. Building from these insights, while previous research has highlighted technical issue identification and impact mapping (Orenstein et al., 2010), or the potential of multi-criteria decision analysis (Morrison-Saunders and Pope, 2013), this study clearly highlights the use of checklists for compliance purposes, established lists for commitments to sustainability guidelines and standards, and a materiality analysis for organisations committed to the GRI sustainability standard.

[The subsidiary] do[es] not have a special division or committee to survey the community and to collect information from them … They do not have a special team but have assigned a representative to come to local community and talk about the problems that occur in the community who then report to the company … There is no special method…. Stakeholders are generally identified and defined at the global level, and this informed how they undertake the issue identification processes. Even with those organisations that are undertaking a systematic process (through a materiality analysis), it remains unclear how exactly this is applied at the local level operations within Indonesia. What does appear evident from analysis of respondent's responses is that 104

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a commonly acknowledged process for sustainability assessments (Pope et al., 2017). Beyond extending into other steps within the framework, from both a theoretical and empirical standpoint, this study has been limited by its context in Indonesia. Research exploring practices in other country contexts or industries may reveal significant findings into the role of regulation or industry-linked practices. We hope this study of the initiation step within the sustainability assessment provides a platform from which other researchers can engage with a procedural framework for sustainability assessments and offer future insights into emerging practice by the private sector.

At the initiation step within the sustainability assessment, this clearly sheds new light on extant literature, showing the three layers of tools and techniques being implemented by organisations, and how this frames the processes implemented within this step to identify the key sustainability issues to be considered within the assessment. This supports, to an extent, the findings from Donovan et al. (2017c) emphasising the importance of organisational commitments to sustainability guidelines and standards. It also extends from this study, in highlighting the consistent focus by organisations on meeting regulatory requirements initially, and the use of checklists to ensure this occurs. While this study has provided interesting insights into an area of sustainability assessment research that has yet to receive significant attention, further research is needed to extend into other steps of the procedural framework. Given the diverse theoretical insights and empirical cases illustrated in the initiation step, further work to consolidate this literature will provide an avenue for addressing the lack of

Funding The research underpinning this study was supported through funding from the Australian Agency for International Development (project number: 64802).

Appendix A. Appendix A.1. Case and respondent profile

Case#

Parent region

Manufacturing sub-category

MNE level

Respondent role

1

North America

Electrical equipment, appliances, and components

HQ Subsidiary

2

East Asia

Electrical equipment, appliances, and components

HQ Subsidiary

3

North America

Food, beverage and sanitary

Subsidiary

4

Western Europe

Automotive and transportation

Subsidiary

5

East Asia

Food, beverage and sanitary

Subsidiary

6

Northern Europe

Automotive and transportation

Subsidiary

7

Northern Europe

Food, beverage and sanitary

Subsidiary

8

Western Europe

Automotive and transportation

HQ Subsidiary

9

Western Europe

Food, beverage and sanitary

HQ

Marketing and communications Senior executive Finance Production Operations, planning and development Human resource and general affairs Engineering Finance Human resource and general affairs Marketing and communications Finance Engineering Marketing and communications Sales Operations, planning and development Marketing and communications Operations, planning and development Finance Supply chain Human resource and general affairs Senior executive Development fund External affairs Operations, planning and development Finance Senior executive Engineering Development fund Development fund Supply chain Sales Operations, planning and development

Subsidiary

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A.2. Interview guideline 1. 2. 3. 4. 5. 6.

Please describe your role within your organisation. Please describe your organisation and its key activities internationally and within Indonesia. What is the broader corporate vision, mission and strategy? What regulation or international standards do you consider when evaluating operations in Indonesia (i.e. ISOs, domestic or foreign regulations)? Can you explain the role of headquarters and how they influence your sustainability practices in Indonesia? What types of development (environmental/economic/social) issues are considered by your organisation when managing and monitoring operations in Indonesia?

(a). Is there a particular method of identifying these issues? Please explain what method and how these are identified. 7. How are different development issues considered by your organisation when managing and monitoring operations in Indonesia? (a). Is there a particular method of measuring and assessing these issues? Please explain what method/s and how these are assessed or measured. 8. How does the regulatory framework within Indonesia affect the consideration of development issues? 9. Does your organisation have a set a range of performance targets related to development issues for the establishment of the subsidiary in Indonesia? (a). What are these? How often are these measured and monitored? 10. Did your organisation put in place any procedures to allow comparison between planned activities and actual performance?

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