Sustainable strategy as a lever for corporate legitimacy and long-term competitive advantage: an examination of an emerging market multinational

The growing importance of emerging market multinational enterprises (EMNEs) since the end of the 20th century has increasingly garnered attention from scholars, given their distinct dynamics and behaviors compared to multinational enterprises (MNEs) from developed countries. Corporate social sustainability (CSR) and sustainability practices among EMNEs have gained recent relevance in the International Business literature focusing on these types of firms (Doh et al., 2021; Gomez-Trujillo et al., 2021b; Gonzalez-Perez et al., 2020; Høgevold et al., 2014; Narula, 2019; Tashman et al., 2019; Svensson et al., 2016). CSR is viewed as a means for companies to enhance shareholder profitability by seeking political legitimacy, brand differentiation and a positive image and reputation. Furthermore, it allows for the expansion of competitive advantages, improves employee satisfaction and redirects consumer and investor preferences toward products aligned with the sustainable development goals (SDGs). Paradoxically, sustainability goals related to the environment (SDG13; SDG14; SDG15) and sustainable production and consumption (SDG12) appear more challenging to achieve for some developed countries and their companies, given their high pollution levels and significant waste production, which necessitates substantial investments to align their established industrial and production models with the SDGs (Gomez-Valencia et al., 2021; UN, 2021).

For this study, we define corporate legitimacy as a condition reflecting a widespread perception or belief that the actions and operations of a corporation are desirable, appropriate and suitable within the socially constructed systems of norms, values, beliefs and definitions in which it operates. This perception extends not only to the corporation’s immediate activities but also to its broader strategic objectives and underlying principles.

However, achieving corporate legitimacy is not merely a matter of securing acceptance in the present. It also involves proving long-term relevance, that is, demonstrating the ability to continue to meet the needs and expectations of stakeholders over time. This means responding proactively to changes in social, environmental and economic contexts and showing an ongoing commitment to sustainability and corporate social responsibility.

In addition, it is worth noting that managing legitimacy in firms is based on three types: pragmatic, which pertains to stakeholders; moral, which relies on normative approval; and cognitive, which is based on comprehensibility and taken for granted (Suchman, 1995).

Several significant achievements remain to be accomplished as we enter the third decade of the 21st century. Consequently, governments and companies are obligated to meet stakeholders’ demands and fulfill their social responsibilities, while also considering the well-being of future generations (Betancourt, 2020; Ferro et al., 2017; Oertwig et al., 2017; Rosendo-Silva et al., 2018). Striving to contribute to local development and achieving a balance between social, economic and environmental impacts presents unique challenges for companies. This pursuit can potentially create internal and external conflicts as they strive to achieve their corporate objectives. Therefore, companies must incorporate sustainability into their corporate strategies to meet these new demands that redefine the notion of competitiveness (Dyllick and Hockerts, 2002; Gomez-Trujillo et al., 2021a). Furthermore, MNEs are expected to drive sustainable development in the regions where they operate and influence institutional behavior in host countries (Guerrero de Lizardi, 2021; Sutter et al., 2018; Van Zanten and Van Tulder, 2018). However, limited knowledge exists about the process of integrating sustainability into the corporate strategies of MNEs and the dynamic responses of subsidiaries in addressing internal and external institutional pressures (Beddewela, 2019; Park, 2018).

Latin America’s features, in particular, make this region an appealing laboratory for research on these topics (Amorós et al., 2021). For instance, Latin America, like other emerging market regions, is characterized by unstable markets, poor infrastructure, institutional voids and weak international credibility (Correa da Cunha et al., 2022; Floriani et al., 2023; Madhok and Keyhani, 2012). Nevertheless, companies from this region are becoming significant investors in international markets, resulting in higher international competitiveness and their transformation from local to global players (Cuervo-Cazurra, 2008; Economist Impact, 2022). This is also the case for Colombia multinationals, which have seen a surge in outward foreign direct investment since 2002 (Gonzalez-Perez and Velez-Ocampo, 2014). Colombian firms must overcome liabilities of foreignness, as do other multinational firms, and liabilities of emergingness, as do other EMNEs (Madhok and Keyhani, 2012), due to the country’s adverse circumstances related to drug trafficking, armed conflict and institutional instability. They must also deal with liabilities of newness and a dark past while reaching international markets (Gonzalez-Perez and Velez-Ocampo, 2014; Velez-Ocampo and Gonzalez-Perez, 2022). Colombian companies have used a “sustainability flag” to overcome these adverse circumstances. Hence, studying them can contribute to understanding the interrelation between international expansion and corporate sustainability in the context of emerging market economies with an institutional theory perspective, which is underrepresented in the field of international business.

Therefore, this paper aims to address the following question:

Entrepreneurial innovation plays a crucial role in updating the evolving trends of supply and demand markets for goods and services. Implementing corporate strategies becomes inevitable for enterprises of all types, particularly multinational companies, as customers seek new ways to meet their current or emerging needs (Magnani et al., 2018). This necessitates innovative ventures that optimize resource management, resulting in improved productivity and product quality. In the present market, products must be competitive not only in terms of price and quality but also in corporate social responsibility aligned with the SDGs (Vargas and Del Castillo, 2008).

Therefore, having a sustainability strategy in the company also improves the brand image, attracts more investors and ultimately increases productivity as it generates greater employee commitment and reduces costs with saving and reuse measures. Thus, competitiveness as a concept under construction evidences an evolution toward sustainability where economic, social and environmental aspects are now recognized as a relevant factors in promoting the adaptation of organizations (Chang et al., 2017).

Thus, through a single case study, this paper explores the integration of sustainability into the corporate strategy of an emerging market multinational (EMNE) company to achieve corporate legitimacy and maintain long-term competitive relevance. Internal and external pressures that influence subsidiaries’ implementation of a sustainability strategy can be identified here. Once they are properly handled, they become a source of competitive advantage and trust generation among stakeholders, as well as foundations of corporate legitimacy and long-term competitive relevance.

Under our own operational definition for this study, and as earlier presented, corporate legitimacy, in a broader perspective, is the capacity of a corporation to maintain its desirability and appropriateness over time by continuously adapting and responding to both the current and future needs and expectations of its stakeholders. This requires a comprehensive understanding of the stakeholders’ evolving needs, aspirations and perceptions, as well as a commitment to ethical conduct, sustainable practices and corporate social responsibility.

In essence, corporations that establish their legitimacy and long-term relevance are those that are perceived not only as economically successful but also as responsive and responsible entities that contribute positively to society and the environment, both today and in the future. This perception is a testament to their ability to effectively integrate sustainability into their business practices, thereby securing their position in the market in the long run. This paper provides a comprehensive exploration of the integration of a sustainability strategy within a Latin American multinational company (multilatina), focusing on its impact on achieving and maintaining corporate legitimacy and aiming for long-term relevance in a weak institutional environment. The case study methodology and approach adopted for this study are described in detail, followed by an analysis of the findings. The discussion centers on the intricate dynamics of institutional duality and the responses of subsidiaries to the implementation of a sustainability strategy. By examining these aspects, the paper sheds light on how emerging markets multinational companies navigate the challenges and opportunities associated with sustainability integration. Finally, the paper concludes by discussing the limitations encountered during the research and offering recommendations for future studies in this area.

Institutions influence companies’ behaviors because they can establish the environment to ensure success. In other words, institutions can enable or constrain, in organizational terms, corporate activities (Campbell, 2004). Therefore, the corporate and social responsibility dynamic in any type of firm is influenced by specific institutional conditions formed by public and private regulations.

Similarly, Campbell (2007) argues that corporate engagement in environmental and socially responsible initiatives depends on economic conditions. Therefore, companies are less likely to engage in these initiatives when experiencing unhealthy economic conditions or weak financial performance. Also, companies might engage in social responsibility activities to overcome institutional constraints, enhancing companies’ socially responsible behavior through strong state regulations and with the inclusion of private and public stakeholders to monitor their behaviors. This rationale makes institutional theory relevant to understanding corporate sustainability because of the increasing institutionalization of sustainability initiatives (Bansal, 2005).

In this sense, according to Blowfield (2012), companies have served as development agents showing more significant involvement in sustainability issues in the past decades. This is because the world is facing new challenges in this regard considering the depletion of natural resources, pollution global warming, among many other matters. Hence, MNEs, as private actors, become responsible for creating resources, leadership, capabilities and innovation for institutional frameworks related to sustainable development themes locally and abroad. Hence, these institutions (focused on economic and political matters mainly) govern corporate behavior regarding several social issues including sustainability efforts. All this is due to MNEs being forced to deal with complex and diverse institutional environments (Marano et al., 2017).

Although in the specific case of EMNEs, they suffer the disadvantage of operating in countries with underdeveloped institutions compared to MNEs from developed countries. However, this disadvantage becomes an advantage for EMNEs when MNEs from developed and emerging markets operate in complex and harsh governance conditions, as they are used to operate within these complex environments (Cuervo-Cazurra and Genc, 2008). This means that the diversity of problems to overcome derived from the very environment of public administration in developing countries, or with notable corruption challenges, can paradoxically make companies more resilient. This is because excessive bureaucracy and regulatory uncertainty tend to prepare companies for uncertainty and the need to act flexibly in the face of unexpected situations such as inflation, exchange rate volatility and other abrupt movements in the economic indicators of some markets, as is the case in many Latin American countries precisely (Acs and Amorós, 2008; Hojnik et al., 2018).

Consequently, institutions can be considered a critical driver of MNE engagement in sustainable development initiatives of companies. In this way, institutional duality appears to analyze the confrontation of subsidiaries with two different pressures and their need to maintain legitimacy with both. The first one is the host country and its own institutional patterns. The second is the obligation of subsidiaries to comply with parent mandates as they are not independent entities. Figure 1 shows this dynamic when practices are institutionalized, they gain legitimacy, and when organizations achieve legitimacy, they increase their chances of success and survival (Kostova and Roth, 2002).

In this way, MNEs can achieve corporate social responsibility and sustainable development initiatives, referring to the implementation in subsidiaries of the formal rules proposed by headquarters. Alternatively, practices can be internalized when the employees of the subsidiaries give them symbolic meaning and they become part of their organizational identity.

In this way, Dhanda and Shrotryia (2021) argue that companies strive for corporate sustainability and longevity today more than ever. Therefore, the context of sustainability has changed for enterprises over time. This journey to corporate sustainability began with the inclusion of philanthropy into the corporate strategy to get the social license to operate and with the shape of altruism putting profitability to the service of social problems (Laszlo and Zhexembayeva, 2011).

In a following phase, the transition toward corporate sustainability was characterized by external challenges for the sustainment and growth of companies. In this context, companies realized that to survive in an emerging world, their core value proposition should expand their responsibilities toward different stakeholders. Sustainability became part of the agenda and strategy of managers (Slacik et al., 2021).

Hence, in this scenario, institutional theory became a key factor for managing and controlling the rights and duties of the organizations’ stakeholders, keeping a balance between economic and social objectives and creating sustainable value with long-term benefits (Aguilera et al., 2019; Sethi, 2002). Under these conditions, strategies such as the Global Reporting Initiative were created to bring transparency and serve as a framework for trust generation among stakeholders. In this way, the incorporation of sustainability into the corporate strategy is to monitor companies’ efficiency, performance, competitiveness and growth by incorporating economic, social and environmental aspects (Rodrigues and Franco, 2019).

Nowadays, companies are continually reexamining their strategies related to sustainability to reflect the new social realities. This dynamic includes the integration of different actors with the purpose not only of achieving sustainability but also of gaining trust among their stakeholders. In other words, the managerial mindset moves from the assumption of profit maximization to a new mindset of sustainable value generation.

Moreover, companies’ engagement in cross-organizational relationships and their partnerships with different stakeholders creates a network of partnerships to learn, share experiences, build knowledge and gain the legitimacy that aligns the sustainability strategy and creates share value for all the stakeholders (Vrabcova et al., 2022).

According to the above, sustainability value is essential to understand how the legitimacy to achieve long-term competitive relevance depends on the understanding of the different areas and fields that permeate the organizations. Thus, companies, from the new theories, implement various strategic and operational procedures to ensure the best productivity scenarios within the decision-making logic (Karman and Savanevičienė, 2021).

In this manner, SDGs are also an essential tool to get competitiveness nowadays for any kind of entrepreneurship initiative. Therefore, companies operate in a world of hyper-transformations that needs to incorporate changes in the dynamic of businesses, with sustainability at the center to gain a competitive advantage (Vendrell-Herrero et al., 2022). All the last, such as Porter and Kramer (2006) affirm that the creation of shared value can guide the company to attract more consumers and gain unique comparative advantages over their competitors.

In this line, sustainability strategies can be considered as the long-lasting and self-sustaining qualities that help businesses succeed (Apte and Sheth, 2019; Danciu, 2013). Moreover, it is also evidence of the intangible outcomes of incorporating sustainable practices, such as improving the brand image in the eyes of stakeholders, customer satisfaction and loyalty and enhanced publicity and marketing opportunities (Rao, 2002).

Then, it is clear the reason managers try to adopt different approaches to deploy SDGs considering the potential of all of them for consolidating any type of business and avoiding short-term return-driven behavior (Ciravegna et al., 2020). Likewise, sustainability makes companies align their organizational interests to create shared value and safeguard their legitimacy and long-term competitive relevance.

Therefore, it is noted that sustainability evolved from an initial inclusion of philanthropy into a corporate strategy to the commitment to create sustainable value and long-term benefits for all stakeholders. As a result, different actions and initiatives are incorporated into firms’ operations to generate trust and legitimate their actions, which serve as a framework to improve their relationship capabilities and safeguard long-term competitive advantage, while contributing to sustainable development. Accordingly, this study proposes that the intersection between companies’ contribution to sustainable development and their corporate legitimacy and long-term competitive relevance creates sustainable value (Figure 2). Therefore, as the process of inclusion of sustainability into corporate strategy is largely unexplored in the context of emerging markets, this study provides empirical evidence on the achievement of corporate legitimacy and long-term relevance through the incorporation of a sustainability strategy as one of the sides and ingredients in the sustainable value recipe.

The sustainability management framework requires a connection between environmental and social aspects of firms’ competitive strategy and their reporting, as a supporting tool for strategic management (Schaltegger and Wagner, 2006). In this regard, Lozano (2012) argues that 70 organizations and their leaders are aware of their role in the achievement of sustainability and implement different strategies to engage in this global issue. Similarly, Kolk (2003) suggests that the reporting of sustainability practices is used as a tool to prevent criticism of their social and environmental commitments, which could affect their trade and production worldwide. Another stream of literature highlights the influence of mandatory corporate sustainability reporting, such as Dumay and Hossain (2019) analysis, which claims that mandatory guidelines will help to regulate the disclosure of firms’ social, economic and environmental risks. Similarly, according to Manning et al. (2018), the absence of mandatory regulations leads to a variety of corporate sustainability reporting and performance options. This mandatory view is related to enforced self-regulation and innovative legislation, with a legally binding character in which the role of government becomes a crucial aspect (Gonzalez-Perez, 2013).

Lozano and Von Haartman (2018) propose that corporate sustainability drivers can be categorized into internal, connecting and external drivers. Internal drivers are grouped into economic, cultural and leadership categories. Connecting drivers are divided into crises, market, reputation and reported dimensions. The external drivers’ categories are stakeholder pressure, collaboration and awareness and regulation and policy dimensions. Along the same line, Yadav et al. (2018) identify the main external and internal drivers for including sustainability in corporate practices. Governments, customers, networks and alliances, suppliers, community surrounding, competitors and the tangibility aspect of the business sector are among the external drivers identified in their analysis. Internal drivers, on the other hand, include employees, organizational culture, brand image and reputation, competitive advantage and strategic intent, environmental management capability and firm size. Porter and Kramer (2006) argue that there are four main justifications for establishing social responsibility activities. These are “moral obligation, sustainability, license to operate, and reputation” (p. 3).

Concerning sustainability outcomes, Cortesi and Vena (2019) suggest that voluntary integrated reporting:

• enhances corporate disclosure and reduces information asymmetries;

• increases the quality of reported earnings per share;

• does not positively influence the value relevance of book value; and

• has marginally decreasing benefit (p. 745)

In turn, Cuervo-Cazurra et al. (2018) state that EMNEs compete with undifferentiated, low-quality and low-price products due to their home country characteristics. In their analysis of 18 firms in six Latin American countries, the authors found that these companies can develop competitive advantages and upgrade their international capabilities through the implementation of differentiation strategies (tropicalized innovation), improving product quality (global efficiency) and expanding into high value-added parts of global chains (coordinated control). This shows the need for companies to respond to customer demands, which can affect the type of sustainability practices they adopt and the role of sustainability practices as a driver of competitive advantages creation (Hult et al., 2018; Sharma and Henriques, 2005). Finally, according to Windolph et al. (2014), multinational companies generate different sustainability reports nationally and internationally to achieve legitimacy, success and internal improvement. In this way, the combination of profit generation and social impact can provide opportunities for innovation (Lashitew et al., 2020).

In this sense, these three categories would lead us to address the research question: How does the integration of a sustainability strategy influence corporate legitimacy and long-term relevance within emerging markets multinational companies? As they facilitate the understanding of the implementation of a sustainability strategy that considers both internal and external drivers, as well as financial and nonfinancial outcomes related to the long-term relevance of the firm.

To understand how the integration of a sustainability strategy influences corporate legitimacy and long-term relevance within emerging markets multinational companies, we studied an EMNE using a qualitative case study.

Figure 3 summarizes the stages and steps carried out in this study to validate the central assumptions of this article where sustainability as a legitimacy strategy can enhance long-term competitive relevance for enterprises. Therefore, the process of integration of sustainability into the corporate strategy of multinational companies from emerging markets grants competitiveness ensures corporate validity and boosts permanence as recent review articles suggest (Gomez-Trujillo and Gonzalez-Perez, 2020; Gomez-Trujillo and Gonzalez-Perez, 2021).

In this sense, Interconexión Eléctrica S.A. (ISA), a Colombian multinational in the energy sector, shows to be a critical case for testing existing theories of international business and corporate sustainability. Hence, the case can be used to confirm, challenge or extend the theory to determine whether these theory’s propositions are correct or whether alternate explanations can be more relevant. This single case can thus represent a contribution to knowledge and theory building (Yin, 2009). Furthermore, due to Colombia’s unique qualities, a company from this country is the ideal actor for analyzing the relationship between internationalization and sustainability in an emerging market context.

To understand how the process of integration of sustainability into the corporate strategy of a multinational company and afterward achieving legitimacy as well as long-term competitive relevance. The current paper studied an EMNE using a qualitative case study approach. As suggested by Birkinshaw et al. (2011) and to justify the previous methodology selection, it is possible to note that the single case approach allows an in-depth investigation of a phenomenon in its real-life context (Welch and Piekkari, 2017; Yin, 2003). In this way, single case studies are valuable when the selected case has the characteristic of being critical, typical, revelatory, extreme, unusual or longitudinal (Yin, 2018).

In this sense, the chosen enterprise for conducting a single case analysis is ISA from Colombia, which is considered a leader in sustainability in all the markets where it operates. Similarly, it has obtained exceptional financial performance, geographical diversification and sustainability initiatives recognition; this is why, ISA is considered a multilatina (multinational company from Latin America).

In this manner, this firm operates in the energy transmission, road concessions, telecommunications and ICT business. It has 51 companies located in seven countries located in Central and South America (Colombia, Peru, Chile, Brazil, Bolivia, Panama and Argentina) and 4,352 employees with 29% participation of women in the executive team. Due to its mixed ownership, the Colombian State (Ministry of Finance and Public Credit) is the major shareholder owning 51.41% of the company, Empresas Públicas de Medellin owns 8.8% and 39.77% owned by private investors. In the same way, in 2021, Ecopetrol bought the 569,472,561 shares that the Colombian State has in ISA. This transaction was closed on around US$3,600m, and it is expected to support climate change risk mitigation and become a carbon-neutral country by 2050 (ISA, 2020, 2022a).

In 2020, ISA was the first enterprise to issue green bonds in Colombia’s stock market. Moreover, the return of equity closed at 15.6%, with an increase of 18.7% compared with 2019, and the earnings before interest taxes depreciation and amortization (EBITDA) was US$1,729m, 24.4% higher than the previous year. In addition, the company’s operating revenues reached US$2.7bn, and the net income was US$550m, 25.7% higher than in 2019 (ISA, 2020). Then, Table 1 displays more specific company characteristics.

Considering all these previous indicators ISA was recognized with the bronze medal awarded by S&P Global in The Sustainability Yearbook 2021 as one of the most sustainable companies in the world for the first time. By 2021, it has also been included for six consecutive years in the Dow Jones Sustainability Index and in the FTSE4Good, which recognizes listed companies with the best global standards regarding corporate sustainability practices. Moreover, its corporate program “Conexión Jaguar” was selected as the best “Corporate Offsetting Project” by the Environmental Finance Awards 2020. Similarly, its commitment to sustainability was also reflected by a volunteer social investment of Colombian Peso (COP) 40,605 million in the country where it has operations (ISA, 2020).

In this way, these outcomes are clear evidence of ISA’s 2030 strategy based on “Our future inspired by sustainable value” launched in 2018 and ratified in 2020, confirming the robustness of this strategy to face new global dynamics. This business strategy aims to generate sustainable value (Figure 4), as well as to create a positive social and environmental impact, besides ensuring corporate long-term competitiveness. In other words, this strategy, in terms of its governance model, reveals that ISA had 13 meetings in 2020 with a 99% attendance. Similarly, 78% of the Board of Directors members are independent. It also had 0 confirmed events of human rights violation, 0 confirmed corruption cases and 0 proven cases of misuse of information. The ethics line reported 100% of complaints were addressed. Therefore, all the business strategy adopted contributes to a harmonized functioning of the company and the rational use of its entire resources (ISA, 2022b).

Hence, ISA identified within its business strategy the internal and external issues that are relevant to assure its operational functioning, not only for the corporate vision from commercial transactions but also for its stakeholders involved. In this line, ISA recognizes and values its different stakeholders classified as employees, the state, investors, suppliers, clients/users and society. Therefore, the company incorporates them into its strategic model and formulates commitment with each one of them. Finally, this strategy is based on the ability to reach financial benefits, seize opportunities and ensure corporate legitimacy and long-term competitive relevance through the development of organizational capabilities and sustainable value creation.

This study relies on multiple sources of information. The semi-structured interviewees were the main primary data source; however, it combined interviews with direct observation as Kotlar and De Massis (2013) used to mitigate bias in information. Moreover, the study included secondary sources of information such as company reports, archival documents, company presentations, news and strategy documents. These diverse data sources allowed the analysis of the phenomenon from different angles and the triangulation of information to make the research more accurate (Cuervo-Cazurra et al., 2016).

Hence, there were 31 interviews conducted in five Latin American countries in the first semester of 2021. Then, to secure diverse viewpoints, it was chosen informants from different levels of the organization and located in different geographical areas; all this with the requirement of being involved in sustainability issues of the organization. In the same way, the formulated questions for the interview (Figure 5) were classified into different groups.

The interviews lasted 34 h in total. They were recorded and transcribed in a no-verbatim manner. It should be noted that in the current process, information from 74 newspaper news was considered as well as corporate reports from 2005 to 2021.

A database was created with all the records and transcripts of interviews as well as the corporate reports, observations transcripts and notes and newspaper news. These facilitate the coding and tracing of evidence in accordance with the research question (Yin, 2009). Table 2 summarizes the interviews.

Following our abductive case study methodology, we moved from the empirical to the theoretical world in the process of systematic combining (Grøgaard et al., 2019). “Systematic combining is a process where theoretical framework, empirical fieldwork, and case analysis evolve simultaneously” (Dubois and Gadde, 2002, p. 554).

Empirical evidence was systematically combined with previous theories to understand how the process of integration of sustainability into the corporate strategy in a multinational company to achieve corporate legitimacy and long-term competitive relevance.

As the data analysis should fit the data itself, the correct identification of labels becomes a critical aspect in this step to avoid any misfit (Atlas. ti. was used for this purpose, and to ensure rigor, the analysis was structured following different steps [Van Maanen, 1998]). In the first phase, key themes were identified in the data from primary and secondary sources to code common expressions regarding ISA’s sustainability strategy, yielding 142 codes and 1,046 quotes. The triangulation of data and researchers improved trustworthiness as it incorporated different perspectives, experiences and meanings (Welch and Piekkari, 2017). In the second phase, these codes were abstracted into categories, creating an iteration between theory and data. The use of formalized steps for organizing the topics through the codification with Atlas. ti provided internal validity and traceability to the analysis (Cuervo-Cazurra et al., 2016; Sinkovics et al., 2008).

In the final step, overarching concepts were developed, based on first-order themes and second-order categories, fitting interpretations with theory, thus demonstrating the accuracy of the findings and transcending description to reveal new theoretical constructs (Sinkovics et al., 2008).

Throughout the study, different initiatives, drivers, outcomes, challenges, capabilities and risks of sustainability inclusion at headquarters and subsidiaries were documented and extracted from the interviews with the informants and through the analysis of secondary material.

This section presents the findings in narrative form, integrating quotes to exemplify the key concepts. The narrative style of theorizing specifies a process that lays out a set of mechanisms that explain events and outcomes, as opposed to the proposition-based style (Cornelissen, 2016). To examine the how question of this study, the qualitative data should be accurately analyzed (Nielsen et al., 2020). To achieve this, the “data structure” is built by progressively abstracting first-order themes from an informant and building second-order categories and overarching concepts (Langley and Abdallah, 2011).

According to the above, it is possible to establish that ISA integrates its sustainability strategy and sustainability initiatives with voluntary and not mandatory actions as exposed by the Corporate Sustainability Director of the company:

These actions intend to generate trust among the different stakeholders of the company and support the SDGs.

Although the company complies with all the mandatory regulations of the countries where it operates, its sustainability initiatives bring a genuine interest in contributing to sustainable development, building trust relationships with internal and external stakeholders and creating share value among them.

In any case, the sustainability initiatives are different in headquarters and subsidiaries, as they have their own strategy deployment activities. In addition, they have specific objectives according to their capabilities and budget. Nevertheless, all of them contribute somehow to the company’s general objective and higher purpose, “Connections that inspire”.

The drivers or boosters of the company’s sustainability strategy include internal, connecting and external drivers. However, the main driver of the 2030 sustainability strategy of ISA is the stakeholder pressure as manifested by different members of the sustainability teams:

Other drivers of the sustainability initiatives of ISA include the organizational culture, environmental management capability, license to operate, leadership and moral obligation.

In line with the main driver of the sustainability strategy, the primary outcomes of its strategy are stakeholder trust and increased reputation. Considering stakeholder’s trust, the interviewees expressed the following:

Concerning reputation apart, there is evidence of sustainability as an antecedent of corporate reputation and a tool to enhance stakeholders’ trust and acceptance (Gomez-Trujillo et al., 2020), and this is also the case for ISA:

Other sustainability outcomes include value generation, talent attraction, environmental benefits, sustainable development, influence capability, competitive advantage, public value and economic benefits.

It is also important to highlight that for ISA, the main challenges in incorporating sustainability within its corporate strategy include articulation with stakeholders, governmental relations, environmental management, creation of a sustainability culture, team consolidation and materialization of the strategy mainly. In addition, there are other challenges, such as the understanding of the economic dimension of sustainability, budget and alignment between headquarters and subsidiaries. These challenges also include some risks such as political instability, the politicization of resources, communicational conflicts, expropriation and nationalization. Other risks include mistrust by the stakeholders, social unrest, exchange rate and fines.

In this way, ISA must develop some specific capabilities to materialize and implement its strategy. The key capability of ISA is its relationship capability with different stakeholders, followed by its political capabilities and innovation.

In the end, this guarantees corporate legitimacy and long-term competitive relevance as expressed by the interviewees:

For the construction of the hierarchical data structure as suggested by Corley and Gioia (2004), in vivo codes were first developed through “open coding” of data using participants’ perspectives and words, which became the first-order themes. Then, a higher level of abstraction is reached through “axial coding”, allowing for the creation of “second-order categories” through further data comparison. Finally, the overarching concepts or “core categories” form the core of the theoretical contribution. In this sense, Figure 6 summarizes the empirical basis of the key concepts in implementing and deploying a sustainability strategy in the company to achieve corporate legitimacy and long-term competitive relevance.

The study aims to provide an understanding of the process of integrating sustainability into the corporate strategy of an EMNE company to achieve corporate legitimacy and long-term competitive relevance. Our findings suggest that subsidiaries are under a lot of pressure to accomplish internal and external legitimacy while integrating the sustainability strategy. However, the main driver of this integration process is external legitimacy, which is represented in the stakeholder’s pressure to comply with sustainability issues at the economic, social and environmental dimensions. This challenges the assumption of internal drivers have a greater impact and influence on the sustainability practices of EMNEs (Lozano, 2013; Zhu and Zhang, 2015). It also reflects the testing of external actors who look for positive signals regarding the organization’s capabilities (Hannan and Freeman, 1984).

Corporate legitimacy can be defined as the broad acceptance and approval of a firm’s actions and operations within a given social system, underpinned by shared norms, values and beliefs. This acceptance is an ongoing process, not a static state, and hinges on the corporation’s ability to demonstrate its long-term relevance. This long-term relevance is the corporation’s capacity to anticipate, adapt and respond to current and future stakeholder needs and expectations.

A key aspect of long-term relevance, and thus corporate legitimacy, is the development and implementation of a robust sustainability strategy. Such a strategy should encompass not only environmental considerations but also social and economic dimensions, aligning with the principles of sustainable development and the SDGs. A well-implemented sustainability strategy signals a corporation’s commitment to act responsibly and ethically, ensuring its operations contribute positively to society and the environment, which in turn, enhances its legitimacy.

Moreover, our study found that the sustainability strategy must permeate all levels of the organization. This involves integrating sustainability into the core business model and operations, infusing it into the organizational culture, and ensuring every member of the corporation, from executives to employees in every subsidiary, understands and aligns with the sustainability goals of the firm. This comprehensive integration fosters a coherent and consistent approach to sustainability, enhancing the corporation’s credibility and fostering trust among stakeholders.

Thus, corporate legitimacy, in this context, is an ongoing process of demonstrating a commitment to a broad sustainability strategy that resonates with shared societal values and anticipates the changing needs and expectations of stakeholders. As our study demonstrates, it signifies a corporation’s ability to integrate sustainability into all facets of its operations and culture, thereby ensuring its actions are desirable, appropriate and beneficial for both present and future stakeholders.

As shown in Figure 1, the pressures for external legitimacy of subsidiaries are mainly due to their liability of novelty, the liability of foreignness (LOF) and the liability of emergingness (LOE) when entering new markets.

The liability of newness focuses not only on why or how the business emerges. It also explains how firms fail due to a lack of learning experience (Stinchcombe, 1965). In turn, the LOF is composed of the different barriers firms face when entering new markets. The concept was introduced by Hymer (1960), arguing that entrant firms are at a disadvantage to local companies due to their unfamiliarity with the business conditions. Zaheer (2002) suggests that these types of liabilities are closely related to the costs of doing business abroad (CDBA), focused on market-driven costs. These costs are complemented by the structural/relational and institutional CDBA, which are associated with the firm’s network position in the host country. This idea has evolved into the concept of liability of outsidership, which states that the business environment is a network, and the liability arises when a company is out of that network (Johanson and Vahlne, 2009). The LOE indicates that companies from emerging markets face additional challenges compared to companies from developed economies merely for being from emerging markets (Madhok and Keyhani, 2012; Velez-Ocampo and Gonzalez-Perez, 2022). Other authors present the liabilities of origin as the negative perception in host countries of the firm’s ability to conduct legitimate business due to the negative stereotyping of the firm’s origin (Marano et al., 2017; Ritvala et al., 2021).

In this sense, external legitimacy can be attained when companies surpass these liabilities by developing and upgrading firms specific capabilities and by complying with regulatory (laws and rules), normative (values, beliefs, norms) and cognitive pillars (shared social knowledge) (Kostova and Roth, 2002). In addition, companies can work around these liabilities by aligning themselves with institutions that promote guidelines for global MNEs behaviors, such as sustainability practices that reduce their negative impact (Kostova et al., 2008; Marano et al., 2017).

Hence, this study advances theory regarding compensation of liabilities through the implementation of sustainability practices as a strategy to gain legitimacy in emerging market contexts, which is lacking nowadays (DasGupta et al., 2022). Similarly, from a managerial perspective, it highlights the importance for managers to address stakeholder demands and institutional conditions of host countries to gain legitimacy among them.

Therefore, companies are pushed to develop or adopt specific capabilities to remain competitive locally and internationally. Herein, different capabilities such as brand recognition, superior technology or the ability to exploit economies of scale have been analyzed in the literature as a mechanism to compensate for these disadvantages (Zaheer, 2002). However, in this study, relationship capabilities appear to be an essential tool to get external legitimacy and develop competitive advantages when incorporating a sustainability strategy.

On the other hand, internal legitimacy is associated with the pressures of subsidiaries to comply with parent mandates as they are not independent entities (Kostova and Roth, 2002). These organizational practices are “particular ways of conducting organizational functions that have evolved under the influence of an organization’s history, people, interests, and actions and have become institutionalized in the organization” (Kostova, 1999, p. 309; Lawrence and Suddaby, 2006).

In this regard, Kostova (1999) argues that three factors at three different levels affect the intrafirm transfer of strategic organizational practices in multinational companies, namely, country, organizational and individual factors can affect this transfer at social, organizational and relational levels.

Moreover, the institutionalization of a practice can be conceptualized at two levels: implementation and internalization. Implementation is linked to the extent to which the subsidiary follows the formal rules implied by practice. In contrast, internalization is reached when employees attach symbolic meaning to practice and recognize its value (Kostova, 1999)

In this regard, sustainability practices gain legitimacy mainly through internalization as subsidiaries take it as a way of acting and implementing different initiatives and actions for the strategy deployment for all the levels of the organization. In this sense, as a result, there is commitment, satisfaction and psychological ownership of these practices.

Hence, the study tests knowledge on practice institutionalization, considering sustainability as a practice that is transferred from headquarters to subsidiaries, and demonstrating the meaning of these practices among different teams. This indicates that sustainability is not a formal rule or mandate, but rather a useful practice that, when included as a core component of the corporate strategy, allows the alignment with headquarters and the firm’s long-term competitive relevance. This is in contrast with the empirical evidence of a higher quality of sustainability reports when there is a mandatory imposition by internal or external agents, as has been widely known in the literature (Mion and Loza, 2019).

Finally, the company achieves long-term competitive relevance after overcoming internal and external pressure, ensuring the legitimization of the sustainability strategy. This is a response to the need for conducting research on the sustainability learning curve and its relation to firm competitiveness (Aigner and Lloret, 2013) as shown in Figure 7. This has practical implications for managers and policymakers because it highlights the importance of addressing institutional pillars, particularly the regulatory pillar influenced by governments, which should facilitate and enhance sustainability adoption by companies to improve their international competitiveness. Furthermore, managers should have an internal commitment to sustainability to overcome liabilities and develop firm-specific advantages to safeguard the firm’s long-term competitive relevance and legitimacy.

From this study, it is possible to conclude that the process of integration of sustainability practices into the corporate strategy is boosted by internal, connecting and external drivers. Corporate stakeholder pressures are the main booster of this implementation (external legitimacy). Along the same line, the outcomes of this implementation are highlighted as trust generation of stakeholders and corporate legitimacy and long-term competitive relevance of companies. Furthermore, moving in the development process of relationship capabilities gives the company a competitive advantage in international markets.

On the other hand, subsidiaries deal with internal pressures for the implementation of these sustainability practices. In this sense, the practice adoption is directed by a process of internalization in which employees attach the sustainability practices with symbolic meaning and consider it as a value or way of acting. After this infusion of the sustainability strategy, all the sustainability initiatives become institutionalized and they contribute to the EMNEs’ corporate legitimacy and long-term competitive relevance.

As suggested by Bello and Kostova (2012), it is necessary to specify and position the contribution within the specific literature. In this sense, this study advances knowledge in the fields of corporate sustainability and international business. It also contributes to institutional theory and the resource-based view. It analyses the institutional dynamics of subsidiaries in implementing sustainability practices and the development and enhancement of capabilities to achieve competitive advantages in international markets, safeguarding corporate legitimacy and long-term competitive relevance.

Another significant contribution of this study concerning the context of analysis (Plakoyiannaki et al., 2019; Thomas et al., 2011; Welch et al., 2011) as context differentiates international business from traditional business research (Teagarden et al., 2018). This study is positioned within the specific context of Latin American countries as a region that can bring insights into the internationalization of firms from emerging markets (Borda-Reyes et al., 2019). The unique characteristics of these countries can generate new ideas of the home country’s role in the international expansion and adoption of sustainability practices of firms compared with the experience of companies from other regions of the world (Aguilera et al., 2017).

Colombia and this specific case can be used to enrich research on EMNEs and their characteristics for intra-firm transfer of processes and, more specifically, the implementation of a sustainability strategy in various contexts. This also allows for assessing and transferring the findings outside and beyond the specific scope of this particular study.

Therefore, this study presents several unique contributions to the existing body of literature in the fields of corporate sustainability, international business, corporate social responsibility, institutional theory and the resource-based view. First, our work provides a deeper understanding of the dynamics of integrating sustainability practices into corporate strategy, highlighting the internal, connecting and external drivers that facilitate this process.

The most significant contributions of our work lie in the identification and analysis of the key outcomes of this implementation process, notably trust generation among stakeholders, bolstered corporate legitimacy and long-term competitive relevance. In this vein, our research showcases how the development and enhancement of relationship capabilities can serve as a competitive advantage in international markets.

A second unique contribution is the examination of the role of employees in the internalization of sustainability practices. By framing these practices with symbolic meanings and values, we have discovered how their adoption can become institutionalized, enhancing the corporate legitimacy and competitive relevance of EMNEs.

Furthermore, our work extends the understanding of institutional dynamics within subsidiaries, providing insight into how internal pressures shape the adoption of sustainability practices. This enhances the current knowledge base on the intra-firm transfer of processes, focusing specifically on the implementation of sustainability strategies across different contexts.

Another significant contribution of our research is the exploration of sustainability practices within the specific context of Latin American countries. The unique attributes of this region provide novel perspectives on the internationalization of firms from emerging markets, offering new ideas about the role of home countries in international expansion and the adoption of sustainability practices. Specifically, the examination of Colombian corporations enriches the research on EMNEs, shedding light on their specific characteristics concerning intra-firm transfer of processes and sustainability strategy implementation.

Finally, although our study presents a comprehensive analysis of highly regulated service firms in emerging markets, we also acknowledge the limitations of our work. Future studies should consider examining companies from different industries in developed countries to validate and extend our findings. In addition, although our qualitative approach offers rich data and insights, further quantitative analysis would be beneficial to expand the investigation.

In summary, our research provides a valuable and innovative addition to the literature on corporate sustainability and international business by delving into the dynamics of sustainability practice integration and internalization within EMNEs, particularly in the under-explored context of Latin America.

The authors appreciate the time and insights of ISA’s executives in the corporate headquarters and the foreign subsidiaries who participated in the study.

Since acceptance of this article, the following author has updated her affiliation: Ana Maria Gomez-Trujillo is at the Department of International Business, CEIPA Business School, Sabaneta, Colombia.