Case study: human capital and environmental engagement of SMEs in Pakistan – a comparative analysis of the leather industry

Abstract

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 employees, but also inspire them to pursue environmental opportunities.