The role of environmental sustainability in the relocation choices of MNEs: Back to the home country or welcome in a new host country?

Abstract

This study investigates how firms' awareness of environmental sustainability affects the revision of their internationalization strategies. Combining Stakeholder and Signalling theories, we argue that firms concerned with environmental sustainability have a higher propensity to return to their home country when confronted with the need to relocate foreign manufacturing subsidiaries, in order to match Corporate Social Responsibility (CSR) stakeholder expectations and enhance the effectiveness of sustainable disclosure endeavours. We also argue that the home country's environmental policy stringency, reflecting a stronger pressure by stakeholders and a higher need for effective signals, positively moderates the relationship between the firm environmental sustainability concern and the likelihood to move back home. The empirical analysis conducted on a sample of 150 relocations performed across European nations in 2002–2016 reveals that MNEs signalling their CSR are more likely to backshore only in case of rigid environmental laws, which are perceived as an opportunity to align with CSR stakeholder expectations and to amplify the benefits of disclosing the shortening of their global value chain.