The Relationship Between The Board of Directors’ Social Capital and Construction Firms’ Environmental Profiles

The concept of environmental sustainability has been a hot topic in recent years and is becoming an increasingly important aspect of our everyday lives due to UN and UK government initiatives such as the NetZero Project.

Our study conducted by Azar Shahgholian and David Bryde (Liverpool Business School, Liverpool John Moores University, Liverpool) takes the first step in providing data-driven evidence of the power of the social network in enhancing organisational performance relating to achieving environmental sustainability goals in a project-intensive industry sector. The aim is to show how the social capital of those individuals working at a board level in construction companies is utilised in different ways when carrying out practices that maximise environmental performance.

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How to cite this research
Shahgholian, A. & Bryde, D. (2022). The Relationship Between The Board of Directors’ Social Capital and Construction Firms’ Environmental Profiles. Association for Project Management. https:doi.org/10.61175/RQVE8344

About the research and why it is important

By focusing attention on the social networks of their directors, organisations in project-intensive industry sectors, like construction, can support practitioners tasked with delivering against environmental-sustainability targets through:

1. Utilising the Social Capital of boards of directors so that they maximise their managerial influence and information collection abilities. In doing so, appropriate and innovative policies and practices in relation to environmental sustainability can be brought into the organisation from outside and communicated and diffused to the project level.
   
   
2. Setting up effective environmental management and disclosure methods which act as the enablers of environmental performance that practitioners are tasked with meeting at the project level. This ensures that the right organisational support is in place for project management in terms of delivering against multi-dimensional success criteria that includes environmental sustainability.
   
   
3. Utilising knowledge obtained through business intelligence techniques, such as big data analysis. Taking a data-driven and evidence-based approach, organisations are able to understand the character of their own board social networks and how specific characteristics relate to the environmental management and disclosure approaches adopted. Such knowledge raises awareness of limitations and weaknesses related to board social capital that can then be addressed.

Intended audience

The primary audience for this report is people responsible for appointing boards of directors, the board members themselves and those with overall responsibility for ensuring that projects meet environmental sustainability-related performance targets.

The secondary audience is practitioners working at the project level in organisations responsible for delivering against the sustainability-related performance targets.

How was the research undertaken?

The research utilised three large existing datasets.

• Firstly, data on US companies listed as working in the construction & materials sector were collected from “BoardEx”, which contains information about the characteristics of these companies' social networks.
  
  
• Secondly, the characteristics of the companies’ boards of directors and their financial performance were obtained from “Compustat”.
  
  
• Thirdly, the “Carbon Disclosure Project (CDP) dataset provided information on environmental management practices and performance.

We merged the above datasets to produce a panel dataset of 709 firms for the period 2010-2018.

What did we discover?

Those with high managerial influence capability and high information collection ability, compared to companies classed as low social board capital reflect a high level of board social capital.

They also exhibit different characteristics in relation to their environmental management practices, i.e. the type of organisational structures set up with responsibility for environmental issues.

The relevance of this finding is that variations in practices and disclosure has an influence of the level of environmental performance, where performance is measured by a company’s score on the Carbon Disclosure Project (CDP) index. In addition, the inclusion of control variables in the analysis indicates that board size, market value of company and average tenure of individual board members are positively associated with CDP Performance Score.

Summary

The findings provide evidence to help answer the question: What are the relationships between the social capital of board of directors and firms’ environmental profile?

There is clear and strong evidence that the social networks of individual members of boards of directors influence environmental sustainability-related practices, in terms of environmental management and disclosure through the managerial influence and information collection ability that individual people can access through their social networks.

This influence and ability ultimately influence the environmental performance of the company, which, in the case of project-intensive industry sectors, such as construction, is manifested in the practices that take place at the project level.