Journal of Business Ethics

, Volume 90, Issue 2, pp 295–310 | Cite as

Ecology-Driven Real Options: An Investment Framework for Incorporating Uncertainties in the Context of the Natural Environment

  • Timo BuschEmail author
  • Volker H. Hoffmann


The role of uncertainty within an organization’s environment features prominently in the business ethics and management literature, but how corporate investment decisions should proceed in the face of uncertainties relating to the natural environment is less discussed. From the perspective of ecological economics, the salience of ecology-induced issues challenges management to address new types of uncertainties. These pertain to constraints within the natural environment as well as to institutional action aimed at conserving the natural environment. We derive six areas of ecology-induced uncertainties and propose ecology-driven real options as a conceptual approach for systematically incorporating these uncertainties into strategic management. We combine our results in an integrative investment framework and illustrate its application with the case of carbon constraints.


ecological economics uncertainty natural environment real options investment planning 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Adner, R., & Levinthal, D.A. (2004). What is not a real option: Considering boundaries for the application of real options to business strategy. Academy of Management Review, 29(1), 74–85.Google Scholar
  2. Amram, M., & Kulatilaka, N. 1999. Real options: Managing Strategic Investment in an Uncertain World. Harvard Business School Press, Boston.Google Scholar
  3. Aragon-Correa, J.A., & Sharma, S. (2003). A contingent resource-based view of proactive corporate environmental strategy. Academy of Management Review, 28(1), 71–88.Google Scholar
  4. Atkisson, A.: 2007, ‹Global Warming is an Ethical Issue’, Accessed 26 Sept 2008
  5. Baecker, P., & Hommel, U. 2004. ‹25 Years Real Option Approach to Investment Valuation: Review and Assessment’. in: T. Dangl, M. Kopel and W. Kuersten (eds.). Real Options. Gabler: Wiesbaden, pp. 1-53.Google Scholar
  6. Bailey, E.: 1998, ‹Intertemporal Pricing of Sulfur Dioxide Allowances’, Working paper, MIT Center for Energy and Environmental Policy Research, MassachusettsGoogle Scholar
  7. Bansal, P., & Roth, K. (2000). Why companies go green: A model of ecological responsiveness. Academy of Management Journal, 43(4), 717–736. doi: 10.2307/1556363.CrossRefGoogle Scholar
  8. Benford, R.D., & Snow, D.A. (2000). Framing processes and social movements: An overview and assessment. Annual Review of Sociology, 26, 611–639. doi: 10.1146/annurev.soc.26.1.611.CrossRefGoogle Scholar
  9. Black, F., & Scholes, M. (1973). Pricing of Options and Corporate Liabilities. The Journal of Political Economy, 81(3), 637–654. doi: 10.1086/260062.CrossRefGoogle Scholar
  10. Blyth, W., R. Bradley, D. Bunn, C. Clarke, T. Wilson and M. Yang: 2007, ‹Investment risks under uncertain climate change policy’, Energy Policy 35(11), 5766-5773.CrossRefGoogle Scholar
  11. Borison, A. (2005). ‹Real Options Analysis: Where Are the Emperor’s Clothes?’. Journal of Applied Corporate Finance, 17(2), 17–31. doi: 10.1111/j.1745-6622.2005.00029.x.CrossRefGoogle Scholar
  12. Boyd, B.K., Dess, G.G., & Rasheed, A.M.A. (1993). Divergence between Archival and Perceptual Measures of the Environment - Causes and Consequences. Academy of Management Review, 18(2), 204–226. doi: 10.2307/258758.CrossRefGoogle Scholar
  13. Brach, M.A. 2003, Real Options in Practice (John Wiley & Sons, Hoboken).Google Scholar
  14. Buchko, A. A.: 1994, ‹Conceptualization and Measurement of Environmental Uncertainty – An Assessment of the Miles and Snow Perceived Environmental Uncertainty Scale. Academy of Management Journal, 37(2), 410–425. doi: 10.2307/256836.CrossRefGoogle Scholar
  15. Busch, T., & Hoffmann, V.H. (2007). Emerging carbon constraints for corporate risk management. Ecological Economics, 62(3-4), 518–528. doi: 10.1016/j.ecolecon.2006.05.022.CrossRefGoogle Scholar
  16. Chichilnisky, G., & Heal, G. 1998. ‹Global Environmental Risks’. in G. Chichilnisky, G. Heal and A. Vercelli (eds.), Sustainability: dynamics and uncertainty. Kluwer Academic Publishers: Dordrecht.Google Scholar
  17. Choren: 2006, ‹The Company Story: Yesterday – Today – Tomorrow’, Accessed 7 March 2007
  18. Clark, W.C. 1986. ‹Sustainable development of the biosphere: themes for a research program’. in W. C. Clark and R. E. Munn (eds.). Sustainable development of the biosphere. Cambridge University Press: Cambridge, pp. 1-48.Google Scholar
  19. Clarkson, R., & Deyes, K. 2002. ‹Estimating the Social Cost of Carbon Emissions’. London: Department of Environment, Food and Rural Affairs.Google Scholar
  20. Clemen, R. 1996, Making Hard Decisions – An introduction to Decision Analysis (2nd ed.) (Duxbury Press, Belmont).Google Scholar
  21. Common, M., & Stagl, S. 2005, Ecological Economics: An Introduction. Cambridge University Press, Cambridge.Google Scholar
  22. Copeland, T., & Antikarov, V. 2001, Real Options: A practitioner’s guide. Texere, New York.Google Scholar
  23. Copeland, T., & Keenan, P. (1998). Making real options real. The McKinsey Quarterly, 3, 128–141.Google Scholar
  24. Cormen, T., Leiserson, C., Rivest, R., & Stein, C. 2001. Introduction to Algorithms (2nd ed.) MIT Press, McGraw-Hill, Cambridge, New York.Google Scholar
  25. Cornelius, P., Van De Putte, A., & Romani, M. (2005). Three decades of scenario planning in Shell. California Management Review, 48(1), 92–109.Google Scholar
  26. Cortazar, G., E. S. Schwartz and M. Salinas: 1998, ‹Evaluating Environmental Investments: A real options approach’, Management Science 44(8), 1059-1070.CrossRefGoogle Scholar
  27. Costanza, R., Daly, H.E., & Bartholomew, J.A. 1991. ‹Goals, Agenda, and Policy Recommendations for Ecological Economics’, in R. Costanza (eds.) Ecological Economics: The Science and Management of Sustainability. Columbia University Press: New York, pp. 1-20.Google Scholar
  28. Crane, A., & Matten, D. 2007. Business ethics (2nd ed.). Oxford University Press, Oxford.Google Scholar
  29. Damanpour, F., & Evan, W.M. (1984). Organizational Innovation and Performance - the Problem of Organizational Lag. Administrative Science Quarterly, 29(3), 392–409. doi: 10.2307/2393031.CrossRefGoogle Scholar
  30. Dawkins, J., & Lewis, S. (2003). CSR in stakeholder expectations: And their implication for company strategy. Journal of Business Ethics, 44(2), 185–193. doi: 10.1023/A:1023399732720.CrossRefGoogle Scholar
  31. De Tienne, K.B., & Lewis, L.W. (2005). The pragmatic and ethical barriers to corporate social responsibility disclosure: The Nike Case. Journal of Business Ethics, 60(4), 359–376. doi: 10.1007/s10551-005-0869-x.CrossRefGoogle Scholar
  32. DiMaggio, P.J., & Powell, W.W. (1983). The Iron Cage Revisited - Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review, 48(2), 147–160. doi: 10.2307/2095101.CrossRefGoogle Scholar
  33. Dixit, A.K., & Pindyck, R.S. 1994, Investment under uncertainty. Princeton University Press, Princeton.Google Scholar
  34. Dixit, A.K., & Pindyck, R.S. (1995). The Options Approach to Capital-Investment. Harvard Business Review, 73(3), 105–115.Google Scholar
  35. Donaldson, T., & Dunfee, T.W. 1999. Ties that bind: a social contracts approach to business ethics. Harvard Business School Press, Boston.Google Scholar
  36. Ernst & Young and Oxford Analytica: 2008, Strategic Business Risk: Insurance 2008. EYGM LimitedGoogle Scholar
  37. Ferrell, O.C., Fraedrich, J., & Ferrell, L. 2002, Business Ethics. Ethical Decision Making and Cases (5th ed.) (Hoghton Mifflin, Boston).Google Scholar
  38. Friedman, M. 1962, Capitalism and Freedom (University of Chicago Press, Chicago).Google Scholar
  39. Garrett, T.M. 1966, Business Ethics (Meredith Publishing Company, New York).Google Scholar
  40. Garriga, E., & Mele, D.N. (2004). Corporate Social Responsibility theories: Mapping the territory. Journal of Business Ethics, 53(1-2), 51–71. doi: 10.1023/B:BUSI.0000039399.90587.34.CrossRefGoogle Scholar
  41. Gladwin, T.N., Kennelly, J.J., & Krause, T.S. (1995). Shifting Paradigms for Sustainable Development - Implications for Management Theory and Research. Academy of Management Review, 20(4), 874–907. doi: 10.2307/258959.CrossRefGoogle Scholar
  42. Greenwood, R., & Hinings, C.R. (1996). Understanding radical organizational change: Bringing together the old and the new institutionalism. Academy of Management Review, 21(4), 1022–1054. doi: 10.2307/259163.CrossRefGoogle Scholar
  43. Greenwood, R., Suddaby, R., & Hinings, C.R. (2002). Theorizing change: The role of professional associations in the transformation of institutionalized fields. Academy of Management Journal, 45(1), 58–80. doi: 10.2307/3069285.CrossRefGoogle Scholar
  44. Hambrick, D.C., Finkelstein, S., & Mooney, A.C. (2005). Executive job demands: New insights for explaining strategic decisions and leader behaviors. Academy of Management Review, 30(3), 472–491.CrossRefGoogle Scholar
  45. Hannigan, J. 2006, Environmental Sociology (Vol. 2) (Routledge, New York).Google Scholar
  46. Hart, S.L. (1995). A Natural-Resource-Based View of the Firm. Academy of Management Review, 20(4), 986–1014. doi: 10.2307/258963.CrossRefGoogle Scholar
  47. Hart, S.L., & Milstein, M.B. (1999). Global sustainability and the creative destruction of industries. Sloan Management Review, 41(1), 23–33.Google Scholar
  48. Heal, G. 1998. ‹Interpreting Sustainability’. in G. Chichilnisky, G. Heal and A. Vercelli (eds.). Sustainability: dynamics and uncertainty, Kluwer Academic Publishers: Dordrecht.Google Scholar
  49. Hillman, A.J., & Hitt, M.A. (1999). Corporate political strategy formulation: A model of approach, participation, and strategy decisions. Academy of Management Review, 24(4), 825–842. doi: 10.2307/259357.CrossRefGoogle Scholar
  50. Hirsch, R., R. Bezdek and R. Wendling: 2005, Peaking of World Oil Production: Impacts, Mitigation, and Risk Management. DOE NETLGoogle Scholar
  51. Hoffman, A.J. (1999). Institutional evolution and change: Environmentalism and the US chemical industry. Academy of Management Journal, 42(4), 351–371. doi: 10.2307/257008.CrossRefGoogle Scholar
  52. Hourcade, J. C., D. Demailly, K. Neuhoff and M. Sato: 2007, ‹Differentiation and Dynamics of EU ETS Industrial Competitiveness Impacts’, Climate Strategies ReportGoogle Scholar
  53. Husted, B.W. (2005). Risk management, real options, and corporate social responsibility. Journal of Business Ethics, 60(2), 175–183. doi: 10.1007/s10551-005-3777-1.CrossRefGoogle Scholar
  54. Husted, B.W., & Allen, D.B. (2007). Corporate social strategy in multinational enterprises: Antecedents and value creation. Journal of Business Ethics, 74(4), 345–361. doi: 10.1007/s10551-007-9511-4.CrossRefGoogle Scholar
  55. IPCC.2007, Climate Change 2007: The Physical Science Basis (Cambridge University Press, Cambridge).Google Scholar
  56. Jones, T. M.: 1991, ‹Ethical Decision-Making by Individuals in Organizations – an Issue-Contingent Model’, Academy of Management Review 16(2), 366–395. doi: 10.2307/258867 CrossRefGoogle Scholar
  57. King, A. (1995). Avoiding Ecological Surprise - Lessons from Long-Standing Communities. Academy of Management Review, 20(4), 961–985. doi: 10.2307/258962.CrossRefGoogle Scholar
  58. Knouse, S.B., & Giacalone, R.A. (1992). Ethical Decision-Making in Business - Behavioral Issues and Concerns. Journal of Business Ethics, 11(5-6), 369–377. doi: 10.1007/BF00870549.CrossRefGoogle Scholar
  59. Kuik, O. (2003). Climate Change Policies, Energy Security and Carbon Dependency. International Environmental Agreements: Politics, Law and Economics, 3, 221–242. doi: 10.1023/B:INEA.0000005625.44125.54.CrossRefGoogle Scholar
  60. Laurikka, H. and T. Koljonen: 2006, ‹Emissions Trading and Investment Decisions in the Power Sector—A Case Study in Finland’, Energy Policy 34(9), 1063-1074.CrossRefGoogle Scholar
  61. Lawrence, A.T., Weber, J., & Post, J.E. 2005. Business and Society: Stakeholder Relations, Ethics, Public Policy (11th ed.) (McGraw-Hill, New York).Google Scholar
  62. Le Menestrel, M., van den Hove, S., & de Bettignies, H.C. (2002). Processes and consequences in business ethical dilemmas: The oil industry and climate change. Journal of Business Ethics, 41(3), 251–266. doi: 10.1023/A:1021237629938.CrossRefGoogle Scholar
  63. Lepoutre, J., Dentchev, N.A., & Heene, A. (2007). Dealing with uncertainties when governing CSR policies. Journal of Business Ethics, 73(4), 391–408. doi: 10.1007/s10551-006-9214-2.CrossRefGoogle Scholar
  64. Lin, T. T., C. C. Ko and H. N. Yeh: 2007, ‹Applying Real Options in Investment Decisions Relating to Environmental Pollution’, Energy Policy 35(4), 2426-2432.CrossRefGoogle Scholar
  65. Lo, S.F., & Sheu, H.J. (2007). Is corporate sustainability a value-increasing strategy for business? Corporate Governance: An International Review, 15(2), 345–358. doi: 10.1111/j.1467-8683.2007.00565.x.CrossRefGoogle Scholar
  66. Luehrman, T.A. (1998). Investment opportunities as real options: Getting started on the numbers. Harvard Business Review, 76(4), 51–67.Google Scholar
  67. McDevitt, R., Giapponi, C., & Tromley, C. (2007). A model of ethical decision making: The integration of process and content. Journal of Business Ethics, 73(2), 219–229. doi: 10.1007/s10551-006-9202-6.CrossRefGoogle Scholar
  68. Meadows, D.H., Meadows, D.L., Randers, J., & Behrens, W.W. 1972, The Limits to Growth (Universe Books, New York).Google Scholar
  69. Miller, D., & Shamsie, J. (1999). Strategic responses to three kinds of uncertainty: Product line simplicity at the Hollywood film studios. Journal of Management, 25(1), 97–116. doi: 10.1177/014920639902500105.CrossRefGoogle Scholar
  70. Milliken, F.J. (1987). 3 Types of Perceived Uncertainty About the Environment - State, Effect, and Response Uncertainty. Academy of Management Review, 12(1), 133–143. doi: 10.2307/257999.CrossRefGoogle Scholar
  71. Nicholson, N. (1994). Ethics in Organizations - A Framework for Theory and Research. Journal of Business Ethics, 13(8), 581–596. doi: 10.1007/BF00871806.CrossRefGoogle Scholar
  72. Nilles, D.: 2006, ‹Process Heat and Steam Alternatives Rising’, Ethanol Producer Magazine, Accessed 30 March 2007
  73. Nordhaus, W. D.: 2006, ‹The Stern Review on the Economics of Climate Change’, NBER Working Paper No. W12741, National Bureau of Economic Research, CambridgeGoogle Scholar
  74. Oliver, C. (1992). The Antecedents of Deinstitutionalization. Organization Studies, 13(4), 563–588. doi: 10.1177/017084069201300403.CrossRefGoogle Scholar
  75. Oliver, C. (1997). Sustainable competitive advantage: Combining institutional and resource-based views. Strategic Management Journal, 18(9), 697–713. doi:10.1002/(SICI)1097-0266(199710)18:9<697::AID-SMJ909>3.0.CO;2-C.CrossRefGoogle Scholar
  76. Point Carbon. (2008). Data. Trading Carbon, 02(03), 38–39.Google Scholar
  77. Polletta, F., & Jasper, J.M. (2001). Collective identity and social movements. Annual Review of Sociology, 27, 283–305. doi: 10.1146/annurev.soc.27.1.283.CrossRefGoogle Scholar
  78. Porter, M.E., & van der Linde, C. (1995). Green and Competitive - Ending the Stalemate. Harvard Business Review, 73(5), 120–134.Google Scholar
  79. Prigogine, I., & Stengers, I. 1984, Order out of Chaos: Man’s new dialogue with Nature (Bantam Books, Toronto).Google Scholar
  80. Reed, J.: 2007, ‹Problems of Pitching Cleaner Cars to the Unconverted’, Financial Times (North American Edition) Jan, 30 (London)Google Scholar
  81. Rugman, A.M., & Verbeke, A. (1998). Corporate strategies and environmental regulations: an organizing framework. Strategic Management Journal, 19(4), 363–375. doi:10.1002/(SICI)1097-0266(199804)19:4<363::AID-SMJ974>3.0.CO;2-H.CrossRefGoogle Scholar
  82. Sadorsky, P. (1999). Oil price shocks and stock market activity. Energy Economics, 21(5), 449–469. doi: 10.1016/S0140-9883(99)00020-1.CrossRefGoogle Scholar
  83. Saling, P.: 2002, ‹Life Cycle Management, Eco-efficiency Analysis by BASF: The Method’, Accessed 30 March 2007
  84. Schwartz, P. (2007). Investing in global security. Harvard Business Review, 85(10), 26–27.Google Scholar
  85. Scott, W.R. 2001, Institutions and Organizations (2nd ed.) (Sage Publications, London).Google Scholar
  86. Sharp, F.C., & Fox, P.G. 1937, Business Ethics. Studies in fair Competition (D. Appleton-Century Company, New York).Google Scholar
  87. Shell: 2006, ‹Shell Hydrogen’, Accessed 25 Oct 2006
  88. Shrivastava, P. (1995). Environmental Technologies and Competitive Advantage. Strategic Management Journal, 16, 183–200. doi: 10.1002/smj.4250160923.CrossRefGoogle Scholar
  89. Sijm, J. P. M., S. J. A. Bakker, Y. Chen, H. W. Harmsen and W. Lise: 2005, CO2 price dynamics: The implications of EU emissions trading for the price of electricity (Energy Research Centre of the Netherlands,, Petten).Google Scholar
  90. Smircich, L., & Stubbart, C. (1985). Strategic Management in an Enacted World. Academy of Management Review, 10(4), 724–736. doi: 10.2307/258041.CrossRefGoogle Scholar
  91. Stanwick, P.A., & Stanwick, S.D. 2009, Understanding Business Ethics. Pearson Prentice Hall, Upper Saddle River, NJ.Google Scholar
  92. Starik, M. (1995). Should Trees Have Managerial Standing - toward Stakeholder Status for Nonhuman Nature. Journal of Business Ethics, 14(3), 207–217. doi: 10.1007/BF00881435.CrossRefGoogle Scholar
  93. Stern, N. 2006, The Economics of Climate Change – The Stern Review (Cambridge University Press, Cambridge).Google Scholar
  94. Thompson, J.D. 1967, Organizations in action (McGraw-Hill, New York).Google Scholar
  95. Tol, R.S.J. (2003). Is the uncertainty about climate change too large for expected cost-benefit analysis? Climatic Change, 56(3), 265–289. doi: 10.1023/A:1021753906949.CrossRefGoogle Scholar
  96. Trevino, L.K. (1986). Ethical Decision-Making in Organizations - a Person-Situation Interactionist Model. Academy of Management Review, 11(3), 601–617. doi: 10.2307/258313.CrossRefGoogle Scholar
  97. Trevino, L.K., & Youngblood, S.A. (1990). Bad Apples in Bad Barrels - a Causal-Analysis of Ethical Decision-Making Behavior. The Journal of Applied Psychology, 75(4), 378–385. doi: 10.1037/0021-9010.75.4.378.CrossRefGoogle Scholar
  98. Trigeorgis, L. (1988). A Conceptual Options Framework for Capital Budgeting. Advances in Futures and Options Research, 3, 145–167.Google Scholar
  99. Trigeorgis, L. 1995, Real options in capital investment: Models, strategies, and applications (Praeger, Westport & London).Google Scholar
  100. van Marrewijk, M., & Werre, M. (2003). Multiple levels of corporate sustainability. Journal of Business Ethics, 44(2), 107–119. doi: 10.1023/A:1023383229086.CrossRefGoogle Scholar
  101. Wheatley, M.J. 1999, Leadership and the New Science: Discovering Order in a Chaotic World (Vol. 2) (Berrett-Koehler Publishers, San Francisco).Google Scholar
  102. Winn, M., and M. Kirchgeorg: 2005, ‹The Siesta is over: A Rude Awakening from Sustainability Myopia’, in S.␣Sharma and M. Starik (eds.), Research in Corporate Sustainability, Volume 3, Strategic Capabilities and Competitiveness (Elgar, Northampton), pp. 232-258Google Scholar
  103. Yang, M., W. Blyth, R. Bradley, D. Bunn, C. Clarke and T. Wilson: 2008, ‹Evaluating the power investment options with uncertainty in climate policy’, Energy Economics 30(4), 1933-1950.CrossRefGoogle Scholar
  104. Zadek, S. (2004). The path to corporate responsibility. Harvard Business Review, 82(12), 125–132.Google Scholar

Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.ETH ZurichZurichSwitzerland

Personalised recommendations