While the RBT of the firm establishes the connection among firm resources, capabilities and competitive advantage, Hart (1995, p. 986) argued that the theory has a ‘serious omission’ in that ‘it systematically ignores the constraints imposed by bio-physical (natural) environment’. Given the growing magnitude of ecological problems, he claimed that such an omission can render the RBP inadequate as a basis for identifying important emerging sources of competitive advantage. Building upon the RBT, he proposed a natural-resources- based theory (NRBT) of the firm, which is a theory of competitive advantage based upon the firm’s relationship to the natural environment. Hart (1995, p. 989) argued that,
One of the most important drivers of new resources and capability development for firms will be the constraints and challenges posed by the natural (biophysical) environment.
The growing scale and scope of human activity and its potential for irreversible environmental damage on a global scale, have been identified as key driving forces in the NRBT. The increasing number of existing and emerging national and international environmental regulations and schemes (such as NGER and the Kyoto Protocol) resulting from an increased level of global awareness puts additional constraints on business organisations, especially those in the resources sector. These regulations or schemes impose (or have the potential to impose) restrictions on companies to use natural resources and to pollute the environment. Such restrictions call for efficient environmental management and product differentiation in line with pro-environmental attributes that, in turn, expose the companies to a new competitive market environment. Therefore, NRBT asserts that firms that are able to secure resources and develop capabilities such as waste minimisation, green product design and recycling technology in response to environmental challenges will eventually gain a competitive advantage. Hart (1995) proposed three strategic capabilities under NRBT. There are: pollution prevention, product stewardship and sustained competitive development.
The NRBT pollution prevention strategy
Hart (1995) proposed that a pollution prevention strategy should aim at reducing emissions, effluents and waste. The key resources involved in this strategy are continuous improvement methods that focus on reducing or preventing emissions rather than relying on costly end-of-pipe pollution control technology. The author argued that as less waste means better utilisation of inputs, the pollution prevention strategy may increase company productivity and efficiency. By offering the potential to cut emissions well below the required level, it also reduces compliance costs. Thus, the competitive advantage derived from the pollution prevention strategy is minimising cost, which would result in, ceteris paribus, improving cash flow and company profitability.
The NRBT product stewardship strategy
While reducing emissions is the principal objective of a pollution prevention strategy, product stewardship aims at reducing the environmental impact created by the product system from ‘cradle to grave’ by using life-cycle analysis (LCA). Life-cycle thinking entails minimising the use of non-renewable materials mined from the earth’s crust, using
renewable resources matched with their rate of replenishment and avoiding the use of toxic materials. LCA requires redesigning the existing product in a way that would enhance its ability to degrade, to be re-used or recycled at the end of its useful life. It also means taking innovative steps to devise new environmentally responsible products that have lower life- cycle costs (Hart, 1995). Product stewardship, including the LCA, has been integrated as a key component of the Australian Mineral Industry Code for Environmental Management (MCA, 2000). The competitive advantage derived from the product stewardship is the competitive pre-emption, which allows the firm to differentiate its product by establishing the firm as an early mover in the green product domain. It also provides a base for the firm to build up an environmentally friendly reputation.
The NRBT sustainable-development strategy
The sustainable-development strategy of NRBT is fostered by a strong sense of environmental commitment. Henriques and Sadorsky (1999) defined this as an organisation- wide recognition of the importance of the natural environment, one that influences organisations to develop and deploy low-impact technologies consistent with the interests of the natural environment. Hart (1995) indicated that such an environmental commitment or long-range shared vision of the future is considered the key in generating the internal pressure and enthusiasm needed for innovation and change. He suggested that, given the difficulty of establishing an organisation-wide consensus of purpose and action, such shared vision and practice can be considered as rare firm-specific and inimitable resources that few companies are able to establish and maintain. Hart (1995) proposed that a sustainable development strategy develops competitive advantage by enhancing the expectations for future performance of the firm relative to its competitors.
Using RBT, Escobar and Vredenburg (2011) argued that at an international level, compliance with regulations by undertaking pollution prevention measures only results in a short-term source of competitive advantage to multinational companies. For oil and gas industries, it is the organisational capabilities obtained through the sustainability-development strategies, specifically product refinement and process innovation, which offer a long-lasting source of competitive advantage (Escobar and Vredenburg, 2011). However, employing NRBT in an analysis of a sample of German third-party logistics industry, Mass et al. (2014) determined
that pollution prevention and service stewardship capabilities could help third-party logistics providers to improve competitiveness. In a recent study, Gallego-Álvarez et al. (2014) analysed the impact of carbon emission reduction on the financial and operational performance of a sample of firms selected from the Fortune 500 list of large international companies. This study provides support for NRBT, concluding that overall, greater environmental behaviour through emission preventive measures generates a positive impact on financial performance.