MS&E's wide-ranging role in actionable sustainability research

If ever there was an illustration of the value of MS&E's unique role at the intersection of technology, computation, and the social and behavioral aspects of systems, it's the department’s diverse contributions to the area of sustainability. 

One example appeared in the Earth Day article, How breakthrough statistical models are helping us reduce our carbon footprint, one building at a time. It explores Professor Peter Glynn's collaboration with colleagues from the Stanford Doerr School of Sustainability to advance "smart building" technology. 

However, there are a number of other initiatives underway, just two of which are understanding the dynamics and efficacy of environmental activism and exploring how investors decide which sustainability-oriented startups to support. Below, learn more about these two efforts that illustrate MS&E's orientation toward actionable insights.

Environmental activism: What does and doesn't drive institutional change

The societal movement to address climate change has long been an interest of Chuck Eesley, professor of MS&E and faculty director of STVP, the Stanford Engineering Entrepreneurship Center. Watching Congress become increasingly gridlocked on passing environmental legislation, he wondered what other mechanisms help drive progress. In particular, he was curious as to how social movement organizations influence informal institutions, which then influence companies to improve environmental performance. What he learned offers practical implications for activists, policymakers and companies.

In one study that led to several different papers, he sought to understand what factors successfully drive firms to make changes when under pressure from outside groups. It became the first to demonstrate with empirical evidence that power (relative size of the group), legitimacy (e.g., a religious group is regarded as highly legitimate) and urgency (lawsuits, proxy battles, etc.) increase the odds that a firm will take action. The Strategy Research Initiative listed the first article arising from the study as a seminal piece within the field of strategy (>1,000 citations to date).

The study concluded that only a small percentage of pressure campaigns result in change, and that David rarely wins against Goliath. Large, national groups (think Greenpeace or coalitions like the Interfaith Center on Corporate Responsibility) get better results, which means smaller organizations likely waste their efforts going it alone. However, when highly legitimate groups like asset management companies or pension funds protest, companies perceive that the sentiment has become more mainstream and that they need to act.

The study also discovered a pattern in the types of tactics that groups use and to what end. Some tactics, like boycotts, primarily aim to draw attention; others focus on reformation, like when As You Sow put forth a shareholder resolution in 2011 to successfully compel McDonald's to replace its foam hot beverage cups with paper. Sometimes a series of tactics among various groups, orchestrated or not, leads to action, like when Chevron made changes after being subjected to a boycott, followed by a Greenpeace protest, followed by a proxy vote led by an asset manager.

Eesley also found that, counterintuitively, groups don't necessarily target the "dirtiest" firms; sometimes they go after the cleaner but also larger and more visible firms to draw public and regulatory attention to the issue. An area that Eesley still wants to explore is the role of collaboration and how to best initiate it. For example, the World Wildlife Fund has long collaborated with Coca-Cola to improve freshwater basin health, among other programs. He'd like to understand what motivates firms to engage and what role antagonistic tactics may play in getting their attention.

When "sustainability" is a bug, not a feature

At the intersection of entrepreneurial finance and sustainability lies a very important question: What does or doesn't attract investors to a sustainability startup, beginning with the first words they see in a pitch?

Anna Lukkarinen is a postdoctoral researcher working with Riitta Katila, professor of MS&E and faculty director of STVP, and is aiming to find out. After all, innovation doesn't lead to tangible impact unless inventors can get others to invest in and help commercialize it.

Past research on this topic has primarily focused on pension funds and other large, institutional investors, including venture capitalists. Lukkarinen and Katila wanted to find out what drives decision making among early-stage investors. Using a randomized control trial with A/B testing, they experimented with an equity crowdfunding platform with 48,000 investor-users from 160 countries.

In this experiment, the users were randomly split in two. When the users were sent information about a new venture investment opportunity and a link to a pitch deck on the platform, everything about the investment opportunity was identical for both groups but the email subject line. The subject line for one group included the word "sustainable" in describing the opportunity, and the subject line for the other did not. The researchers went in assuming that the investors who got the email with "sustainable" in the subject line would be more willing to invest.

Their expectation turned out to be dead wrong.

Contrary to expectations, almost every category of investor was less likely to invest when the word "sustainable" was included. Oddly, however, email open rates and click rates were not indicators of whether someone would invest. In fact, sometimes people were more likely to open and click on the version with "sustainable," but still less likely to invest. Curiosity may have been higher, but propensity to invest was lower.

They've since run variations of the experiment. In another experimental round for a different startup, they tried adding more context with the words "light electric vehicle" for the treatment group.

Again, investors shied away from "sustainable" startups. Lukkarinen, Katila, and the sustainability community are stumped and still trying to figure out what's behind this perception. Do investors view "sustainable" businesses as less profitable? Less attractive to customers? Too niche? Is this being driven by financial priorities or political ideology? What's going on, and, most importantly, what should startups do to convey what makes them distinctive without turning investors off?

For the sake of sustainability, Lukkarinen and Katila are determined to get answers. And apparently, so are others. The research has already attracted attention from the academic community, with Lukkarinen winning the Best Postdoc Presentation Award at Stanford's Sustainability Data Science Conference (2024); presentations at the Ghoshal (2024), Strategic Management Society (2024), Industry Studies Association (2024), Wharton ESG Initiative (2024), and Academy of Management (2023) conferences; and a talk to the Breakthrough Alliance of the United Nations Joint SDG Fund (2023).

Under what conditions is environmental activism likely to lead to change? What does and doesn't attract investment in new sustainability ventures? Sustainability questions like this are just two of the many that MS&E researchers are seeking to answer. They are also an illustration of how MS&E's unique intellectual spectrum—from social and behavioral sciences to analytics and computation—is becoming increasingly relevant and critical to engineering contributions in the realm of sustainability.