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MNEs’ Contribution to Sustainable Development: Examining the Mediating Role of Environmental, Social Performance, and SDGs’ Alignment.

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20 May 2024

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20 May 2024

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Abstract
The current global business landscape demands an acute commitment of international businesses’ sustainable practices to attain a global sustainability agenda. This paper examines the intricate nexus of Multinational Enterprises' (MNEs) Corporate Social Responsibility (CSR) practices, particularly environmental innovation, business ethics, CSR reporting and their environmental performance, social performance, as well as the influence of their alignment with the United Nations Sustainable Development Goals (SDGs). Using data from Refinitiv Eikon workspace for 91 MNEs from the Middle East and North Africa (MENA) region as a point of the study, the Partial Least Squares Structural Equation Modeling (PLS-SEM) results underline the potential and significant involvement of MNEs in sustainable development shaping, especially in developing and emerging countries. The harmonization and convergence of MNEs’ CSR practices and their adoption of the SDGs emerges as a pivotal approach to enhance MNEs’ contribution to a global development and sustainability agenda.
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Subject: Business, Economics and Management  -   Business and Management

1. Introduction

The rapid evolvement of international businesses (IB) in the arena of sustainable development has posed a challenge for international business and management research, especially in adapting to their speed. This has been much pronounced since the announcement of the sustainable development goals by the United Nations (UN, 2015), which are termed as a package of opportunities (Eang et al., 2023; Montiel et al., 2021; (Cambridge, 2016), challenges (Tsalis et al., 2020), and ‘gift’(Pedersen, 2018), for businesses, especially the Multinational Enterprises (MNEs) (Van Tulder et al., 2021). Although the majority of studies have analyzed the relevance of MNEs from the angle of macro level (Ghauri, 2022; van Zanten & van Tulder, 2018). Some MNEs’ contributions to sustainable development have emerged with neither the explicit label of Corporate Social Responsibility (CSR), nor the similar coined terms (Kolk, 2016; Siltaloppi et al., 2021)
While society's increasing attention has found their space in the realm of management research, development and practices (Berrone et al., 2023; Kourula et al., 2017a), the incorporation of the impact of Foreign Direct Investment (FDI) in international business is yet to be fully explored (Bokpin, 2017; Pananond, 2015; Paul & Feliciano-Cestero, 2021). By tradition, FDI’s economic impacts to host countries businesses, labors and governments have taken control of the discourse in IB and development economics (Bahoo et al., 2020; Gomez-Trujillo & Gonzalez-Perez, 2020; Kim et al., 2020; Kolk et al., 2018; Nielsen et al., 2023). The discussion has progressively evolved, engaging a large number of scholars from different disciplines exploring the social and ecological implications of FDI (Ansari et al., 2019; Ben Jebli et al., 2019; Chang, 2015; Duodu et al., 2021; Mahadevan & Sun, 2020; Musah et al., 2022; Ochoa-Moreno et al., 2021; Shahbaz et al., 2015; Xie et al., 2020; Zeeshan et al., 2021), even with other emerging terms such as green FDI and FDI versus SDGs (Amendolagine et al., 2021; Aust et al., 2020). In the same manner, IB scholars have actively explored the Research manuscripts reporting large datasets that are deposited in a publicly available database should specify where the data have been deposited and provide the relevant accession numbers. If the accession numbers have not yet been obtained at the time of influence of Corporate Social Responsibility (CSR) and sustainability practices on MNEs’ operations (Eid & Loon, 2023; Kolk & Lenfant, 2013; Lartey et al., 2021; Marano et al., 2017; Siltaloppi et al., 2021). Nevertheless, analyses have predominantly evolved around the influence of such practices in enhancing the reputation and legitimacy of MNEs in host countries (Chiu & Sharfman, 2011; Colleoni, 2013; Schmidtke & Lenz, 2023; Silva MENA countries where MNEs are present. , 2021; Wiessner et al., 2024; J. Zhang et al., 2022), often overlooking the wider societal implications (Becchetti et al., 2023; van Zanten & van Tulder, 2018; Fiaschi et al., 2017; Kolk, 2016). Considering that sustainability has gained massive attention on the societal radar in recent years (Habermann & Fischer, 2023), consequently, businesses are facing increased pressure to align with Corporate Environmental Performance (CEP) and sustainable practices. (Berrone et al., 2013; Gomez-Trujillo et al., 2020). This study investigates the nuanced progression of international business’ environmental, social, and ethical deliberations, especially within the sphere of multinational enterprises’ engagement with ESG issues and sustainable development. Using data sample of 91 MNEs from the Middle East and North Africa (MENA) region. We seek to unearth the intricate interplay of CSR practices of MNEs that incorporate CSR reporting, environmental innovation (EI), and business ethics (BE) and their respective outcomes on corporate social and environmental performance in the host. The analysis further explores how MNEs’ alignment with the UN Sustainable Development Goals (SDGs) influences this nexus.
The two main research questions (RQs)guiding this study are:
RQ1: What is the relationship between MNEs’ CSR practices (CSR reporting, environmental innovation, and business ethics) and their social and environmental performance?
RQ2: How does MNEs’ alignment with the United Nations Sustainable Development Goals (SDGs) influence the relationship between CSR practices of MNEs and social and environmental performance?

2. Literature Review

There is evidence on the role of MNEs in contributing to sustainable development and the accomplishment of Agenda 2030. In this regard, (Berning, 2019) found that the multinational enterprise was able to promote sustainability in three different levels such as operations, products and services as well as social contributions. MNEs’ strategic decisions have economic, social, and environmental implications locally and internationally, this can be translated into a demand for the MNE to act responsibly in all these three aspects (Berning, 2019) which could in turn contribute to the SDGs. (Kourula et al., 2017b), indicated that MNEs play an essential role in implementing SDGs through their involvement into poverty and equality (people and prosperity), energy and climate change (planet), as well as peace (peace), embarked with partnerships seeking to achieve agenda 2030 (SDGs) (Kolk et al., 2019). Therefore, multinational companies appear as a key factor in the generation of sustainable development of the countries where they operate.
However, what has often been overshadowed is the fact that despite the increasing CSR practices among MNEs and sustainability concepts (van Zanten & van Tulder, 2018; Montiel et al., 2021; Van Tulder et al., 2021). It is not enough to conclude the success story of international businesses in sustainable development initiatives. In fact, CSR goes far beyond what is incorporated in MNEs’ business strategies to include and examine the ethical, environmental, economic, and social obligations of MNEs (Mohieldin et al., 2023; Park & Ghauri, 2015). The term includes ethical and social dimensions, ecological concerns as well a wider societal implication MNEs (Wang et al., 2024; Cheung & Lai, 2023). Research has actively been based on firm-level outcomes rather than on the perspective of performance. Society’s expectancies regarding heaved, which underline the persistent blur and demarcation between private and public roles of international businesses. Scholars are progressively underlining this by amplified debate on CSR and interlinked concepts, for instance, sustainability, sustainable development, triple bottom lines, human rights and corporate citizenship (Kolk, 2016)
Indeed, ethical, social, and environmental have recently taken a central role, usually failing under the CSR’s umbrella. Whereas previous studies focused on elucidating and underlining the essence of Corporate Social Responsibility (Babiak & Trendafilova, 2011; Frederiksen & Nielsen, 2013; Kolk & Lenfant, 2013). Recent studies are underscoring the potential link between firms’ performance and their ability to adhere to codes of ethics (Khan et al., 2024; Liu, 2023; Răpan et al., 2022; Shakil et al., 2019; Taliento et al., 2019; Yoon et al., 2018). In the same manner, both financial and non-financial disclosure have increased along with this evolving trend, demanding transparency, (Baldini et al., 2018; Leopizzi et al., 2020; Răpan et al., 2022), in response to evolving trends, the disclosure of both financial and non-financial managerial challenges as results of CSR breaches in the global value chain (GVC) which pose a threat to both global sustainability agenda and the reputation of MNEs, (Asmussen et al., 2023; García-Sánchez et al., 2020; Durand & Jacqueminet, 2015)
Although the extant literature on the impact of MNEs practices on environment and society is still inconclusive, critical arguments have risen claiming that companies are engaged in CSR practices initiatives and tend to adopt reactive strategies regarding sustainability challenges superficial add-ons known as “greenwashing” and adopt CSR practices as umbrellas to overcome the liabilities of foreignness (Ritvala et al., 2021; Gonzalez-Perez, 2021;Marano et al., 2017; van Zanten & van Tulder, 2018). Nevertheless, some studies have maintained that the UN SDGs encompass economic, social, and environmental dimensions (Costanza et al., 2016).
Their adoption represents a significant transformation to both businesses and societies regardless of the motives for adoption or implementation (Kolk, 2016; Montiel et al., 2021; Sachs & Sachs, 2021), and the same has a potential impact towards the 2030 global development agenda. Precisely, (Wiessner et al., 2024)indicated that MNEs’ adoption of SDGs into their business strategies underlines their broader acceptance aside governmental adoption and legitimacy purpose adoption (Silva, 2021)
Therefore, the extant literature is not clear regarding the nexus of international businesses' engagement in CSR initiatives and their implications, especially to the societal and environmental dimensions. Furthermore, the literature has no consensus on the MNEs’ alignment with the SDGs in moderating this relationship. Understanding the potential role of MNEs towards attaining sustainable development, especially in MENA region whose countries are mostly emerging and developing, the present study is bridging the observed gap in the literature by critically examining the relationship between multinational businesses’ CSR practices and social and environmental performance while keenly observing the moderating role of the SDGs' alignment, with the aim of making this relationship clear for researchers, policymakers, and business managers’ applicable as well as shareholders including the general society/public in the host countries. This is further justified by the literature that the economic dimension has been mostly studied, unlike the environmental and societal dimensions. Exploring and unveiling this relation is deemed crucial, especially considering that inclusive, sustainable development is viewed as an urgent need as nations are counting down to the elapse of SDGs in 2030. Emerging and developing countries like those in MENA are especially relevant for this study, unlike those from the developed world (Gómez-Bolaños et al., 2022; Răpan et al., 2022; Park & Ungson, 2019; Shakil et al., 2019; Fiaschi et al., 2017; Kotabe & Kothari, 2016). We explore this nexus by using a Partial Least Squares Structural Equation Modeling (PLS-SEM) model, which allows a thorough exploration of the relationship and variables under the study. (Hair et al., 2014; Nura et al., 2017; Ringle et al., 2023)

2.1. Research Model and Framework

In the past few decades, companies, especially multinationals, have faced high causational pressure regarding their contributions towards environmental pollution and their toxic releases that lead to environmental damage and global warming. Superficial responses to such increasing pressure include environmental innovation, with novel for reduced emissions, treatment, cleaner energy sourcing, and waste recycling, aiming at mitigating environmental damages(Dai & Zhu, 2024; Helfaya & Aboud, 2023; Gómez-Bolaños et al., 2022; Lee et al., 2023; Cainelli et al., 2012). The past years’ studies investigated determinants of environmental innovation and its role, as well as analyzing the nexus of environmental innovation, the amount of pollution expenditures, and its relevancy in international businesses’ performances (Brunnermeier & Cohen, 2003; Theyel, 2000). (Ellimäki et al., 2023) indicated that MNEs take advantage of environmental innovation opportunities because of relatively low associated risks and knowledge inputs. As prior stated, there is an insufficiency of studies that explore the MNEs’ engagement, especially on social and environmental dimensions, accompanied by how these MNEs leverage environmental innovations (within the environmental dimension) (Borsatto & Amui, 2019; Tsai & Liao, 2017), with the domain of the sustainable development goals. Hence, this offers a distinguished avenue of study in international business and sustainability (van Zanten & van Tulder, 2018). The scarcity of research in these areas is partly due to the SDGs' relative novelty and limited attention paid to MNEs' role in society and environmental aspects in developing and emerging countries.
The present paper explores the uncharted territory of MNEs' CSR practices in the MENA region and their impacts on ESG concerns as long as alignment with the SDGs (Habermann & Fischer, 2023). We precisely assess MNEs in this region as contributing to social and environmental performance through CSR initiatives. We delve into this via environmental innovation (EI), CSR reporting, and Business Ethics (BE)’s lenses. We further examine the role of aligning with the United Nations’ SDGs in social and environmental outcomes. The employed methodology in this paper (of aligning MNEs' CSR practices with the SDGs), is adopted from (Costanza et al., 2016), originally from (Daly, 1992) in the same vein, we group the 17 SDGs into three groups: fair distribution (FD) to protect capabilities for flourishing economy, efficient allocation (EA) for building a living and vibrant economy and sustainable scale (SS) for staying within planetary boundaries.

3. Methodology

3.1. Data Collection and Analysis

This study used data from the Refinitiv Eikon workspace. The data contain 91 Multinational Enterprises (MNEs) from the Middle East and North Africa (MENA) region. CSR practices, as well as environmental and social performance variables, were selected based on the reviewed literature to best mirror the need of this study. Refinitiv is a comprehensive and robust database from which the variables’ data are extracted to examine the relationship between the sustainability practices of MNEs (CSR reporting, EI and BE) and corporate social and environmental performance, moderated with their alignment with the UN Sustainable Development Goals (Habermann & Fischer, 2023; Montiel et al., 2021).
This study employs a robust Partial Least Squares Structural Equation Modeling (PLS-SEM) approach (Ringle et al., 2023; Hair et al., 2014), to unearth the intricate interplay between the variables as displayed in the study model in Figure 1. This model is suitable for analyzing complex interconnection among variables within the dataset (Nura et al., 2017), hence making it the best fit for the study as we assess the multifaceted dynamism among international corporations’ practices, social and environmental performances, and alignment with the UN SDGs at the same time. The early step involved data cleaning and reliability and validity evaluation, given our study's observed metrics. This was followed by the Structural Model Analysis.

3. Study Results and Discussion

This study unveils potential insights into the interplay between multinational enterprises’ CSR practices and their successive social and environmental performance. Interestingly, the findings underline the positive and significant relationship between MNEs' CSR practices and their associated social and environmental performance. The findings of the PLS SEM are reported in Table 1 and Figure 2 below.
Regarding the CSR practices’ dimensions, the findings reveal that environmental innovation (EI) has a positive impact on the environmental performance of the MNEs. Nevertheless, we did not find satisfying evidence to conclude the existing connection between corporate social performance and environmental innovation of MNEs. Furthermore, both CSR reporting and business ethics are observed to strongly contribute to the social and environmental performance of MNEs by exhibiting a positive and statistically significant effect on MNEs’ social as well as environmental performance. As far as the interplay between MNEs’ corporate responsibility (CSR) practices and the alignment with the United Nations sustainable development goals, the results show fascinating dynamics. Unlike business ethics (BE) and environmental innovation (EI), which did not exhibit a direct relationship with MNEs’ degree of alignment with the SDGs, CSR reporting, on the other hand, showed an impactful and significant impact on MNEs’ alignment with the SDGs.
Moreover, the results were equally interesting when we examined the relationship incorporating each specific group of SDGs. The findings for the efficient allocation (EA) of resources cluster for enhancing a sustainable economy indicated that MNEs’ embracement of SDG12 (responsible consumption and production), SDG11 (sustainable cities and communities), SDG9 (industry, innovation and infrastructure), SDG8 (decent work and economic growth), moderated the nexus between their environmental practices and Business ethics.
The results of this study deeply resonated with the explored contexts in the extant literature. The positive and significant relationship reported between multinational enterprises' CSR practices and social and environmental performance concurs with progressive society’s expectations from the firms, particularly MNEs (Siltaloppi et al., 2021; van Zanten & van Tulder, 2018; Babiak & Trendafilova, 2011). The unique and significant impact of CSR reporting, environmental innovation, and business ethics confirms the robust dimensions through multinational enterprises, which actually contribute to sustainability initiatives in the host countries, especially the emerging and developing ones, as explored in this study. This further portrays the diverse and multifaceted nature of MNEs’ CSR influence toward achieving sustainable development, as argued by (Kolk, 2016).
The positive influence of CSR reporting on the MNEs’ alignment with the SDGs as reported in the results, supports that MNEs in the host countries play a key role in adopting and implementing SDGs beyond the governments (Wiessner et al., 2024). Furthermore, the role of SDG groups in relationship moderating underscores that the intricate balance is needed (and essential) to attain sustainable results across all dimensions, that is, environmental, social, and economic dimensions, and ultimately the achievement of sustainable development (Costanza et al., 2016; Ghauri, 2022)

5. Conclusions

5.1. Conclusion and Implications.

This study presents a comprehensive analysis using data for a sample of 91 MNEs in the Middle East and North Africa (MENA) region in 2023. The paper used Partial Least Squares Structural Equation Modeling (PLS-SEM) to assess the intricate relationship between MNEs’ CSR practices, namely CSR reporting, environmental innovation, business ethics, and corporate social and environmental performance. The study examined the relevance of MNEs' alignment with the United Nations’ SDGs in moderating or influencing this relationship.
The results reveal that, MNEs’ environmental innovation has a positive and significant influence on environmental performance. Similarly, CSR reporting and business have a strong positive and statistically significant impact on both social and environmental performance. However, the results did not support the influence of environmental innovation on social performance. Regarding the MNEs’ corporate responsibility (CSR) practices and the alignment with the SDGs, the findings show that MNEs’ SDGs alignment was significant in moderating CSR reporting but not business ethics and environmental innovation. As far the specific SDGs’ clusters were concerned, the results of this study reveal that, efficient allocation of resources’ cluster results show that the embracing of SDG8 (decent work and economic growth), SDG9 (industry, innovation and infrastructure), SDG11 (sustainable cities and communities), and SDG12 (responsible consumption and production) by MNEs moderates the relationship between business ethics and environmental practices, unlike the fair distribution and sustainable scale clusters. This study’s findings, therefore, underscore the importance of integrating SDGs into corporate strategies to promote responsible leadership, stakeholder engagement, and ethical practices that align with global sustainability goals. This presents a paradigm shift in how MNEs, particularly those in emerging markets and developing economies, approach sustainability beyond regulatory compliance to a more profound commitment towards addressing global challenges such as climate change, poverty, inequality, food and energy crisis and human rights as outlined in SDGs and hence contribute to a broader sustainability agenda (Pinkse & Kolk, 2012; Van-Tulder et al., 2021). This research provides actionable insights for MNEs aspiring to improve their (corporate) social and environmental performance in alignment with the broader global sustainability agenda. It further informs policymakers and scholars on the relevance and contribution of international businesses/multinational enterprises in shaping sustainable development and attaining the global agenda 2030. Remarkably, the alignment with Corporate Social Responsibility (CSR) practices and United Nations Sustainable Development Goals emerges as a promising avenue for enhancing these contributions, emphasizing the potential for synergies between global development aspirations and corporate actions.

5.2. Study Limitations and Suggestions for Future Research

Our study sheds light on the nexus of MNEs’ CSR practices (CSR reporting, environmental innovation, and business ethics), their (corporate) social and environmental performance, and the MNEs’ alignment with the United Nations Sustainable Development Goals’, influence moderating this relationship. Despite the potential insights that the result of this paper offers, the present study is not without limitations, and it is crucial to essential to acknowledge several limitations and address them as opportunities for future research studies.
First, we used data collected in 2023 for 91 MNEs in the MENA region, which restricts our ability to establish causal relationships or analyze the relationship between the variables over a broader or extended period. Therefore, future research can utilize longitudinal data analysis to provide a more comprehensive understanding of this intricate relationship. The second limitation is that this study does not control for several potential variables, such as the age, size, and industry sector of the MNEs, which can be potential on how MNEs approach CSR practices and their Environmental, Social, and Governance (ESG) performance, in our case environmental and social performance. The upcoming research can, therefore, incorporate these factors into the analysis, which is likely to offer more detailed insights into the varying levels of MNEs’ CSR practices and environmental and social performance, as well as their alignment with SDGs. Finally, this paper focuses on quantitative analysis, which provides valuable comprehension. However, future research should incorporate interviews and case studies to gain a deeper understanding of the motivations, challenges, and experiences of MNEs that adopt such practices and implement the SDGs into their business strategies. This can provide broader insight into the underlying implementation nuances and decision-making process, thus further enriching comprehension of the phenomenon.

Conflict of Interest: The authors declare no conflicts of interest.

Funding

This research received no external funding.

Data Availability Statement

The data presented in this study are available on request from the corresponding author.

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Figure 1. Research Model. Source: Authors.
Figure 1. Research Model. Source: Authors.
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Figure 2. The partial least squares structural equation model results.
Figure 2. The partial least squares structural equation model results.
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Table 1. Reported results from the Partial least squares structural equation modeling (PLS-SEM) analysis.
Table 1. Reported results from the Partial least squares structural equation modeling (PLS-SEM) analysis.
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Where: SS = sustainable scale, CEP = corporate environmental performance, CSP = corporate social performance, CSR= corporate social responsibility, FD= fair distribution, EA = efficient allocation, BE = Business Ethics, Mod = moderating, R = reporting. Source: Authors Compilation.
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