Open Research Online Human Capital and Environmental Engagement of SMEs in Pakistan: A Comparative Analysis of the Leather Industry

Objectives: To examine how human capital influences the environmental engagement of SMEs in Pakistan’s leather industry. Another objective is to explore the different motivations of SME owners and managers for adopting the pro-environmental behaviour in this industry sector. Prior Work: The research is informed by literature on SMEs and environmental responsibility. Previous research has identified a number of internal and external drivers of, and barriers to, the environmental engagement of SMEs, but much of this research has focused on developed economies. Moreover, research looking specifically at the resources, capabilities and internal processes remains limited. Developing economy-focused research can complement and counterpoint the developed economy orientation of existing work. A focus on environmental practices of SMEs in less familiar cultural settings can also provide new insights. Approach: The research study adopts a qualitative approach and uses multiple case study research design. Guided by the evidence collected in a preliminary literature review, purposive and snowball sampling techniques were used to select a suitable sample of SMEs. Semi-structured interviews were conducted, transcript evidence was combined with observational and documentary sources, and the cases were refined using thematic analysis technique. Results: Contrary to prior research, which regards regulatory compliance as the leading motivation for environmental engagement among SMEs in developed economies such as the EU, this study suggests that, in Pakistan, a primary factor is the presence of, and commercial pressure from, environmentally-conscious customers. The variation in findings can be attributed in part to context-specific factors. Drawing on the human capital literature, this study found that owner managers with higher educational attainment, tended to be more aware of both the challenges and the opportunities in adopting new environmental practices. However, some of the educated owner-managers had a lower level of environmental awareness, which hindered the environmental engagement of their businesses. It also appears that the owner-managers in this study would be more likely to invest in such initiatives through economic incentives, rather than as a consequence of adopting a sustainability agenda or acknowledging a wider responsibility for the natural environment. Value: The findings of the study are important in policy terms, given their focus on the enabling features of human capital in promoting environmental practices in developing economies. There is considerable scope for national governments and international donor agencies to launch environmental awareness programmes for SMEs, which should not simply educate entrepreneurs and the environmental awareness of owner-managers is identified to be a significant predictor of environmental practices of SMEs. Both these studies conclude that relative to formal education, the informal learning about environmental issues and access to environmental information (for example, through suppliers and environmental educational interventions) are better predictors of environmental engagement of SMEs. A significant limitation of these studies is that these only focus on owner-managers, whereas employees would also seem to be a crucial resource for SMEs The initial findings suggest that water pollution is the major environmental issue for SMEs in this industry sector: it is a source of several different diseases in the local community, reduces the productivity of agricultural land, and is also causing death of marine life. Other, less severe, issues include air and noise pollution, identified locally as sources of mental stress and depression. Most of the sampled SMEs are taking some initiatives to reduce their environmental impacts. Measures include the use of environment-friendly inputs, getting environmentally-certified, adopting resource-saving practices and pollution prevention measures. Although such actions are consistent with the developed economy literature, some country and industry-specific initiatives have been identified. These include installation of water treatment plant and reducing exhaust pollution from generators. Contrary to prior research, which regards compliance with regulations as the leading motivation (e.g. this study suggests that a primary factor is the presence of, and commercial pressure from, environmentally-conscious customers. The variation in findings can be attributed in part to context-specific factors. For example, there is evidence to suggest that the implementation of existing legislation is relatively weak in Pakistan. This is due to a number of factors including governmental agencies having a less developed interest in environmental issues, coupled with a lack of competency amongst local officials responsible for inspecting SMEs in this sector. The findings also show that the SMEs in Pakistan’s leather industry behave differently, as compared to those in developed economies such as the EU, where governments are more sensitive to environmental issues and compliance is more strictly monitored. The study found that environmentally non -engaging SMEs attributed their lack of engagement to an absence of pressure from their customers. This was often because they were working with smaller customers, who were oriented towards domestic markets.