Dr. Fujie Zhao, Assistant Professor at the Faculty of Business, City University of Macau, has published a research paper entitled “Extreme environmental distance and global sustainability engagement: Evidence from the United Nations Global Compact” in the Journal of World Business. Dr. Zhao is the first author of the paper, with the Faculty of Business at City University of Macau listed as the first institutional affiliation. The co-authors are Associate Professor Joey Yang and Associate Professor Rui Zhong from the University of Western Australia, and Associate Professor Jing Yu from the University of Sydney, Australia.

Journal of World Business is a leading journal in the field of international business. It is rated 4 stars in the Academic Journal Guide (AJG) and A* by the Australian Business Deans Council (ABDC), indexed in the Social Sciences Citation Index (SSCI), and ranked in the first quartile (Q1) of the Journal Citation Reports (JCR).

Main Content

In the face of increasingly polarized environmental regulations, MNEs struggle to respond strategically to divergent environmental contexts. This study introduces the concept of extreme environmental distance, capturing the most pronounced environmental discrepancy between an MNE’s home country and any host country within its global operating network. Drawing on Issue Salience Theory and the Attention-Based View, the study uses 87,046 MNE-year observations from 12,008 MNEs across 67 countries between 2000 and 2020 to examine how environmental divergence shapes MNEs’ strategic engagement with global sustainability initiatives.

Details

The Article at a Glance

The study finds that MNEs facing greater extreme environmental distance are more likely to adopt coherent, firm-wide sustainability strategies. As environmental discrepancies across international markets become more salient, MNEs are more likely to engage with the United Nations Global Compact (UNGC), a supranational sustainability initiative, to respond to heterogeneous environmental contexts and stakeholder pressures.

Why Do Extreme Environmental Differences Encourage Sustainability Engagement?

Whether host-country environmental regulations are particularly strict or unusually lenient, extreme environmental distance can heighten stakeholder scrutiny and contestation. According to Issue Salience Theory, pronounced and contested environmental issues are more likely to command managerial attention. The Attention-Based View further explains how headquarters allocate limited attention to salient strategic issues. Consequently, MNEs tend to favor coherent, firm-wide sustainability strategies over isolated subsidiary-level responses.

How Does the UN Global Compact Help Multinational Enterprises?

The UNGC, the world’s largest corporate sustainability initiative, provides a supranational governance framework grounded in common principles concerning human rights, labor, the environment, and anti-corruption. For MNEs operating across heterogeneous institutional environments, the UNGC helps align sustainability commitments and coordinate standards across subsidiaries. Beyond signaling commitment, the UNGC draws on its Ten Principles, public Participant Database, annual Communication on Progress, and local networks to support transparency and help MNEs manage stakeholder contestation across borders.

When Are Firms More Likely to Engage in Global Sustainability Initiatives?

Drawing on Stakeholder Salience Theory, the study identifies three factors that strengthen this relationship through greater stakeholder power, legitimacy, and urgency: host country economic significance, industry competition intensity, and ESG reputation risk. Economically significant host markets increase the salience of host-government demands; competitive industries intensify peer scrutiny and stakeholder urgency; and heightened ESG reputation risk raises concerns among investors, customers, NGOs, and the media.

From Sustainability Commitments to SDG Alignment

Beyond examining UNGC participation, the study investigates MNEs’ alignment with the United Nations’ 17 Sustainable Development Goals (SDGs). Whereas UNGC engagement captures participation in a global sustainability initiative, SDG alignment reflects the extent to which firms report alignment with specific goals through their sustainability activities and disclosures. The findings show that extreme environmental distance is positively associated not only with UNGC engagement but also with subsequent SDG alignment.

Can Sustainability Engagement Create Economic Value?

The study further finds that UNGC participation is associated with higher subsequent foreign sales ratios and foreign sales amounts. After accounting for UNGC participation, greater SDG alignment is also positively associated with international financial performance. These findings offer empirical evidence relevant to sustainable value creation through global sustainability engagement.

Three Key Research Contributions

The study makes three main contributions to international business and corporate sustainability research.

First, extending international business distance research

By introducing extreme environmental distance, the study extends the conventional focus on individual home–host country differences to MNEs’ entire global operating networks, demonstrating the strategic relevance of the most pronounced environmental discrepancy within a firm’s international portfolio.

Second, advancing MNE sustainability research

Integrating Issue Salience Theory and the Attention-Based View, the study explains how extreme environmental distance heightens stakeholder scrutiny and directs headquarters’ attention toward coherent global sustainability strategies. It also contributes new evidence to the debate between the “race to the bottom” and the “race to the top” in international environmental management.

Third, linking global sustainability governance to value creation

The study finds that UNGC engagement and SDG alignment are associated with stronger subsequent international financial performance, suggesting that global sustainability initiatives may support both consistent sustainability governance and international business performance.

Practical implications

For Multinational Enterprise Managers

When developing global sustainability strategies, MNE managers should look beyond individual home–host country differences and identify the most pronounced environmental discrepancies across their international operating networks. Engagement with the UNGC and alignment with the SDGs can help establish coherent sustainability commitments while responding to regulatory divergence and stakeholder expectations.

For Policymakers

The findings suggest that global sustainability frameworks can help coordinate environmental practices across divergent national regulatory contexts. Policymakers can work with international sustainability initiatives and encourage MNEs to adopt globally recognized principles, supporting the diffusion of higher environmental standards across international markets.