Business Strategy and the Environment

Bus. Strat. Env. 18, 347–359 (2009)

Published online 31 October 2007 in Wiley InterScience
(www.interscience.wiley.com) DOI: 10.1002/bse.602

The Natural Environment as a Primary Stakeholder:

the Case of Climate Change
Nardia Haigh1* and Andrew Griffiths2
1
The University of Queensland, UQ Business School, St Lucia, Queensland, Australia
2
The University of Queensland, UQ Business School, Brisbane, Queensland, Australia

ABSTRACT
In this paper, we review the debate surrounding whether or not the natural environment
should be considered an organizational stakeholder. We argue for a broad definition of
stakeholders, and present a case for the natural environment being an easily identifiable
primary stakeholder when climate change is brought into the debate. We develop a con-
ceptual stakeholder identification framework by combining and extending the work of
Mitchell, Agle and Wood, and Driscoll and Starik. We approach the stakeholder issue from
a strategic rather than moral or ethical perspective. In particular, we contend that power,
legitimacy, urgency and proximity are combined when climatic changes, such as increas-
ingly frequent anomalous extreme weather, can damage business infrastructure, resources,
products and market, overshadowing moral and ethical aspects of the debate. We also
identify key implications for business and policymakers, and highlight opportunities for
future research. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.

Received 31 January 2007; revised 28 July 2007; accepted 17 August 2007

Keywords: climate change; natural environment; stakeholder; strategy

S
INCE FREEMAN (1984, P. 46) POPULARIZED THE DEFINITION OF STAKEHOLDERS AS ‘. . . ANY GROUP OR
individual who can affect or is affected by the achievement of the organization’s objectives’, a great deal
of theoretical and empirical attention has been focussed on the concept. This work has established the
importance of stakeholders to strategic management (Hart and Sharma, 2004). During this time the
natural environment has also risen markedly in its strategic importance (Aragón-Correa and Sharma, 2003; Porter
and van der Linde, 1995), and there is a growing literature combining the two. This work combining stakeholder
theory with the natural environment has contributed to the natural environment’s progression from being excluded
as a stakeholder to its current mixed status.
The first aim of this paper is to answer a call by Phillips et al. (2003) to further consider whether the natural
environment is a stakeholder. Debate surrounding stakeholder status of the natural environment has become
protracted, and focuses predominantly on the question of how inclusive the scope of stakeholders should be.
The debate has unfolded along five interlinking lines of reason surrounding the existence of moral obligation
between organizations and the natural environment, the natural environment’s lack of human attributes, the
dependence of business on the natural environment, the adequacy of Freeman’s (1984) ‘can affect or is affected
by’ criterion and the need for theoretical parsimony.

* Correspondence to: Ms Nardia Haigh, The University of Queensland, UQ Business School, Colin Clark Building (39), St Lucia, Queensland,
Australia. E-mail: nhaigh@business.uq.edu.au

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment
348 N. Haigh and A. Griffiths

Our review of the debate lays a foundation for our second aim of arguing the case for recognizing the natural
environment as a stakeholder. To do this, in the latter half of the paper we frame the natural environment as a
primary stakeholder by combining the stakeholder identification framework of Mitchell et al. (1997), suggesting
that stakeholders have a mixture of legitimacy, power and urgency, with the additional element of proximity of
Driscoll and Starik (2004). Specifically, we argue that the natural environment can be identified as a primary
stakeholder when the potential strategic impacts of climate change are examined.
Starik (1995, p. 216) described the natural environment as ‘. . . one or more stakeholders . . .’. While we recognize
there are countless elements to the natural environment, we refer to the natural environment in the singular, and
leave it to future research to ascribe status to individual elements. Further, climate change is ‘. . . any change in
climate over time whether due to natural variability or as a result of human activity’ (McCarthy et al., 2001,
p. 984).
Climate change has become a significant issue for business due to the financial impact and unpredictability of
increasingly frequent natural disasters (Mills et al., 2002; Stern, 2006). In addition to incremental climate change
brought about by Earth’s geographic dynamics such as gradual changes in humidity and rainfall (Fairbridge, 1969),
which itself has displaced entire civilizations (Fagan, 1999, 2004; Schwartz, 1957), we now face severe weather
on an unpredictable but increasingly frequent basis associated with anthropogenic greenhouse gas emissions (Karl
and Trenberth, 2003; Paoli and Bass, 1997). We discuss the impacts of extreme weather on the energy industry
to make our case for the natural environment as stakeholder.
We approach the natural environment’s stakeholder status from a strategic rather than moral or ethical perspec-
tive. We contend that moral and ethical arguments are overshadowed by the power, legitimacy, urgency and
proximity intrinsic to increasing anomalous weather events that damage business infrastructure, resources, prod-
ucts and markets. In addition to establishing the natural environment as a stakeholder using this line of reasoning,
we also address an identified bias in the literature showing authors to focus on impacts of organizations to the
natural environment, while overlooking impacts of the natural environment to organizations (Winn and Kirch-
georg, 2005). Through this approach, we seek to fulfil our final aim of highlighting how the natural environment
is central to strategic management, and what the implications could be for business, policy and future research.

The Natural Environment as Stakeholder

Stakeholder theory has been described as a broad and ambiguous theory that considers the importance of various
entities to decisions about how business value is created (Phillips et al., 2003). Rather than stockholders occupying
a position of supreme and unchallenged importance to decision makers, they join a mix including community
groups, financiers, environmentalists, customers, employees, competitors, suppliers, regulators and the natural
environment (Driscoll and Starik, 2004; Freeman, 1984; Mitchell et al., 1997; Starik, 1994, 1995; Stead and Stead,
2004). Below, we outline debate surrounding broad versus narrow interpretations of stakeholder and key argu-
ments taking place within it, and also review work including or excluding the natural environment as a stakeholder
without debating it.

Debate Surrounding the Natural Environment as Stakeholder

Several early definitions of stakeholders, proposed by the Stanford Research Institute (1963, as cited by Freeman,
1984), Freeman and Reed (1983) and Freeman (1984), are among those considered broad, with Freeman’s (1984)
definition quoted earlier being one of the broadest and the most popular. Freeman’s (1984) definition has been
reworded and redefined by many (Phillips and Reichart, 2000), though later versions essentially relate back to it.
Authors arguing to include the natural environment as a stakeholder use broad definitions; relying on concepts
surrounding its physical force, our dependence on it for life and considering it a stakeholder as a matter of prac-
ticality (Driscoll and Starik, 2004; Starik, 1994, 1995; Stead and Stead, 2004). Alternatively, arguments for a nar-
rower definition often reflect stakeholder theory’s corporate social responsibility origins (Carroll, 1999) and focus
on moral obligation and desire for theoretical parsimony (Orts and Strudler, 2002; Phillips and Reichart, 2000).
We begin by reviewing the moral obligation debate.

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
DOI: 10.1002/bse
The Natural Environment as a Primary Stakeholder 349

Moral Obligation
Nash (1990) argued the natural environment has inherent rights, and Starik (1994, 1995) stated that organizations
are morally obligated to respect resources provided and constraints presented by it. However, Phillips and
Reichart (2000) contended in their ‘fairness-based’ approach that the moral foundations of stakeholder theory
make it impossible for the natural environment to be afforded stakeholder status. They stated that if stakeholder
status is to be meaningful a higher degree of moral consideration must be owed by an organization to a stake-
holder than would normally be afforded to the general population. They argued that the natural environment
does not assert a need for moral consideration, and that entities cannot be stakeholders unless they do.
Subscribers to a narrow definition of stakeholder have proposed excluding all but those entities that have (largely)
economic transaction-based relationships with organizations (Orts and Strudler, 2002; Phillips and Reichart,
2000). On the assumption that business transactions are ‘. . . characterized by cooperation, mutual benefit, and
voluntary acceptance of benefits’, they deny the presence of moral obligation between organizations and the natural
environment because there may be no mutually beneficial cooperation present (Phillips and Reichart, 2000, p.
187). Further, they do not believe the natural environment has an identifiable interest in organizations, though
they have advocated that ethical issues should include valuing its beauty, culture and historical importance
(Orts and Strudler, 2002). These arguments counter Starik (1995), who argued the natural environment to be an
economic entity and therefore a core stakeholder, and demonstrate the ideological differences on either side
of the debate.
A recent contribution by Bazin and Ballet (2004) reviewed the natural environment’s stakeholder status from
the corporate social responsibility perspective; taking in the arguments of Phillips and Reichart (2000) and Orts
and Strudler (2002). Bazin and Ballet also argued that stakeholder theory runs into complications if the natural
environment is included without having an ethical status, and therefore assigned it ‘philosophical ethical status’
and overall stakeholder status because humans have an interest in preserving life, which depends on the natural
environment.

Including Non-Humans as Stakeholders

One of the complications raised in considering the natural environment a stakeholder is that it does not have a
mind and cannot have needs as humans understand them (Orts and Strudler, 2002; Phillips and Reichart, 2000).
However, Stone (1974) advocated for legal rights of natural objects; noting that organizations are also non-human
entities, though they have been given many human rights. Stone’s line of reasoning suggests that because other
organizations, such as customers, suppliers and competitors, are already stakeholders, it is only a short step to
include other non-human entities.
Phillips and Reichart (2000) offered instead that any needs of the natural environment are accounted for through
human proxy stakeholders advocating for it; though they noted it is not the needs of the natural environment being
accommodated, but the needs of the proxy. The difficulty of proposing proxies is also demonstrated by Freeman
(1984), who identified the need for organizations to understand the workings of and to engage with stakeholders
directly, though he suggested environmentalists as stakeholders rather than the natural environment. Proxies have
somewhat confounded stakeholder theory in terms of the natural environment, because humans may create a
voice for it on one hand (Driscoll and Starik, 2004; Phillips and Reichart, 2000); however, they create additional
layers of interpretation and may cause organizations to only manage their relationships with them rather than
managing their relationship with the natural environment. Driscoll and Starik (2004) sought to address this by
distinguishing between human representatives of the natural environment and the natural environment itself.
Those advocating for a broad definition of stakeholders have countered the above arguments surrounding moral
obligations and lacking human characteristics by pointing out the dependence of organizations on the natural
environment.

Dependence on the Natural Environment

Broad stakeholder definitions have advocated that a key criterion for being considered a stakeholder surrounds
whether or not the organization depends on it (Stanford Research Institute, as cited by Freeman, 1984). Authors
subscribing to broad definitions argue that dependence is a core concept that has been overlooked (Starik, 1995),

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
DOI: 10.1002/bse
350 N. Haigh and A. Griffiths

that the survival of organizations and the natural environment are intricately related (Stead and Stead, 2004), and
that the natural environment’s biophysical constraints clearly apply to business strategy (Driscoll and Starik, 2004;
Starik, 1995).
Excluding the natural environment as a stakeholder has been described as a serious omission, given the impor-
tance of the resource and economic inputs it provides to business (Starik, 1994, 1995). These resources include
raw materials, water, air, energy, its carrying capacity and the physical context in which business is conducted
(Dyllick and Hockerts, 2002; Madsen and Ulhoi, 2001; Starik, 1994, 1995; Stead and Stead, 2004). The provision
of these inputs has been argued to make the natural environment a core economic stakeholder (Starik, 1994, 1995),
or the ultimate stakeholder (Stead and Stead, 2004), and are said to give it the balance of power in the organiza-
tion–natural environment relationship (Starik, 1994, 1995).
A point of debate associated with dependence on the natural environment is whether organizations affect or are
affected by it (Freeman, 1984; Freeman and Reed, 1983). Those arguing to exclude the natural environment have
not responded to this point directly, but have argued more laterally that Freeman’s ‘can affect or is affected by’
criterion is not sufficient to include it.

Freeman’s ‘Can Affect or Is Affected By’ Criterion

In advocating that a broad stakeholder definition would enable business to benefit from a more holistic and stra-
tegic approach to stakeholder management, Starik (1994, 1995) argued that Earth’s atmosphere, hydrosphere,
lithosphere and biosphere should be considered stakeholders, because they meet Freeman’s (1984) ‘can affect or
is affected by’ criterion. Supporting this, Starik (1994, 1995) and Kolk and Pinkse (2007, p. 371) noted how extreme
weather events can affect organizations; in particular, Kolk and Pinkse stated that ‘climate change is a case in point
where the environment has the potential to significantly affect business’. Though this line of reasoning has been
described as fruitful (Freeman, 1994), Phillips and Reichart (2000) argued that the ability of the natural environ-
ment to affect organizations is an inadequate reason to call it a stakeholder, and only gave the criterion weight if
moral obligation was also present.
Recognizing the physical affects of the natural environment, such as those posed by extreme weather, is to
realize that industries and economies exist within and rely upon the natural environment for their existence (Starik,
1995). This relates to the final thread of the debate, which on one side argues the need to maintain theoretical
parsimony, and on the other the need for stakeholder theory to accommodate a more complex and realistic
strategic landscape.

Theoretical Complexity, Rigour and Practicality

Starik (1994, 1995) proposed that stakeholder theory can accommodate the natural environment, and that it is well
positioned to have an inclusive scope. However, Phillips and Reichart (2000) and Orts and Strudler (2002) replied
that including the natural environment would threaten the theory’s meaningfulness. Orts and Strudler stated that
other frameworks apart from stakeholder theory are required to deal with non-human entities. They agreed with
Phillips and Reichart that the term stakeholder should be limited to humans, because it encounters ‘intractable
philosophical difficulty’ if non-humans are included (Orts and Strudler, 2002, p. 215). Problems included causing
the theory to become more porous (Phillips and Reichart, 2000), and the potential for it to collapse under its own
complexity (Orts and Strudler, 2002). The reply by Driscoll and Starik (2004) has been to reassert that a broader
scope would make stakeholder theory more comprehensive. Our observation is that contributors arguing for a
narrow definition do so while accepting that organizations do not have strictly delineated boundaries (Orts and
Strudler, 2002). If organizations are complex systems (Perrow, 1986) and have boundaries that change depending
on the circumstances (Orts and Strudler, 2002), then it seems feasible that a more comprehensive and realistic
theory would better serve theorists and practitioners (Driscoll and Starik, 2004).
Thus far, we have reviewed the work of scholars entering the debate about whether the natural environment is
a stakeholder. The varied and intertwined finer points reviewed demonstrate it to be a complex debate, and
the opponents passionate. Below, we review work outside the debate that either includes or excludes the natural
environment as a stakeholder.

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
DOI: 10.1002/bse
The Natural Environment as a Primary Stakeholder 351

Non-Debate Surrounding the Natural Environment as Stakeholder

Rather than explicitly including or excluding the natural environment as a stakeholder, the works reviewed in this
section have combined stakeholder theory with issues and concepts surrounding organizations and the natural
environment and have assumed it to be a stakeholder or not without debating it.
Henriques and Sadorsky (1999) investigated how managerial perceptions of stakeholder importance differed
among reactive, defensive, accommodative and proactive organizations, though they did not include the natural
environment as a stakeholder because their literature emphasized regulators, other organizations, communities
and the media as critical stakeholders. In a similar study drawing on Hart’s (1995) natural-resource-based view of
the firm to investigate the relationship between stakeholder importance and levels of proactivity, Buysse and
Verbeke (2003) found that a broader view of stakeholders was associated with more proactive environmental
strategies. In their study, stakeholders were divided into primary and secondary levels, and the natural environ-
ment was assumed to be represented by human proxy stakeholders.
Other works addressing stakeholder and natural environmental issues and assuming the natural environment
was not a stakeholder include research into the types of pressure exerted on firms about their environmental
management practices (Delmas and Toffel, 2004), the importance of activist stakeholders to pro-environmental
organizational change (Fineman and Clarke, 1996), competition between environmental stakeholders (Clemens
and Gallagher, 2002), antecedents to corporate environmentalism (Banerjee et al., 2003), standardization of envi-
ronmental policies (Christmann, 2004), impact of environmental legitimacy on stock market risk (Bansal and
Clelland, 2004), and the relationship between stakeholder influence and sustainability practices (Sharma and
Henriques, 2005). Finally, a broadening stakeholder definition was observed by Preble (2005), though he did not
include the natural environment. These works demonstrate the breadth of thinking in the area combining stake-
holder theory with the natural environment with an orientation towards human stakeholders.
Conversely, other work has automatically positioned the natural environment as a stakeholder. For instance,
Mitchell et al. (1997), whose work we utilize further below, recognized the natural environment as a stakeholder
with urgent and legitimate claims without debating the issue. Stead and Stead (2000) developed an ‘eco-enterprise
strategy’ including the natural environment as a stakeholder. Further, in a paper discussing the management of
global stakeholders, Carroll (2004) automatically included the natural environment in his work, developing a
pyramid framework for global social responsibility. Carroll’s work also provides a reply to Phillips and Reichart
(2000) and Orts and Strudler (2002) in that he included the natural environment as a stakeholder within the
context of corporate ethics. Finally, in their work advocating that organizations develop capabilities to identify,
interact with and cater to the needs of fringe stakeholders, Hart and Sharma (2004) recognized endangered species
and nature as fringe stakeholders.
Freeman (1984, p. 26) highlighted a ‘. . . need for new theories and models about certain non-traditional
groups . . .’. The contributions reviewed above demonstrate a trend of the natural environment moving from a
position of being not at all identified as a stakeholder towards being confidently identified as so by some. However,
an important limitation of much of the literature reviewed above is that it does not consider the natural environ-
ment’s full range of capabilities. Most contributors concentrated on organizational impacts to the natural environ-
ment; confirming the bias identified by Winn and Kirchgeorg (2005), where impacts from the natural environment
are often overlooked. Therefore, the stakeholder debate has not taken place in full appreciation of the organiza-
tion–natural environment relationship.
In the second half of the paper, we take this stakeholder of growing stature and view it through a conceptual
model estimated from the work by Mitchell et al. (1997) and Driscoll and Starik (2004) on stakeholder identifica-
tion. Leading to this, below we set out a backdrop for our argument by describing the impact that climate change,
and in particular extreme weather events, has had on the energy industry. This example clearly demonstrates how
the natural environment can fulfil each of the criteria set out by Mitchell et al. (1997) and Driscoll and Starik
(2004), and we draw on it to identify the natural environment as a primary stakeholder.

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
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352 N. Haigh and A. Griffiths

How Climate Change ‘Can Affect’ Industry

Waller-Hunter (2004, p. 30) mentioned that ‘[o]ne thing has become very clear, namely that climate change touches
upon virtually every sphere of life . . .’. Events such as the 2005 Gulf Coast hurricanes demonstrated that all indus-
trial sectors have the potential to be primarily impacted by extreme weather through damage to supply, infrastruc-
ture and market, supporting the minority of authors arguing that extreme weather fits Freeman’s (1984) ‘can affect
or is affected by’ criterion (Kolk and Pinkse, 2007; Starik, 1994, 1995).
One extreme weather event is not indicative of climate change; however, groups of events may be (Love, 2006),
particularly when they are associated with long term increases in oceanic and air temperature, which provide water
vapour, or ‘hurricane fuel’ (Flannery, 2005). The Gulf Coast’s 2005 sequential hurricanes Katrina, Maria, Ophelia,
Phillipe, Rita, Stan, Vince and Wilma are such an indicative group. These hurricanes were part of an anomalous
season that included 28 storms, of which Katrina, Rita and Wilma were three of the six strongest hurricanes ever
recorded (DOE, 2005b). One US energy company, Entergy New Orleans, reported that

Hurricane Katrina not only caused catastrophic and unprecedented damage to ENO’s electric and gas facilities,
but it also resulted in the loss of most of ENO’s customers, an unprecedented occurrence in the U.S. Utility
Industry (DOE, 2005a, p. 1).

ENO did not mention damage to supply; however, on 5 December 2005, 34% of Gulf Coast oil production, 27%
of gas production and some of the largest refineries remained shut after Katrina made landfall on 29 August (DOE,
2005a). The grossly inadequate responses of emergency services (Niman, 2005; Schneider, 2005) and industrial
organizations indicates that current management frameworks, including stakeholder theory, need to accommodate
issues of this magnitude (Griffiths and Winn, 2005).
Freeman (1984) suggested the natural environment was part of a non-traditional group of stakeholders. Below
we take a fresh look at the stakeholder identification work of Mitchell et al. (1997) and Driscoll and Starik (2004),
and use it to identify the natural environment as a primary stakeholder, using the case of climate-change-related
extreme weather.

The Natural Environment as a Primary Stakeholder

The theoretical works we draw together by Mitchell et al. (1997) and Driscoll and Starik (2004), which we have
already touched on in the review above, advocated a broad view of stakeholders, demonstrated by the definition by
Mitchell et al. (1997, p. 854) of stakeholders as ‘. . . those entities to whom managers should pay attention’. This
definition suggests a moral argument; however, their stakeholder identification framework demonstrates a strate-
gic approach. In the framework, stakeholders have a mixture of power, urgency and legitimacy, and from this a
typology of Latent, Expectant and Definitive stakeholder classes is developed based on whether one, two or all three
criteria, respectively, are met in the relationship. Mitchell et al. (1997) estimated the natural environment to have
legitimacy and urgency, and therefore categorized it as a Dependent stakeholder within their Expectant (two
criterion fulfilling) stakeholder class. Expectant stakeholders are described as active, but lacking power because
they depend on others to carry out their will. Driscoll and Starik (2004) expanded upon the criteria of Mitchell
et al. (1997) to include proximity and categorized the natural environment as a Primordial stakeholder.
We have utilized the work of Mitchell et al. (1997) and Driscoll and Starik (2004) because their stakeholder
identification criteria are well supported. The framework of Mitchell et al. has been thoroughly examined (cf.
Magness, 2006; Neill and Stovall, 2005; Pajunen, 2006; Roome and Wijen, 2006). It is also business-centric
(Steurer, 2006), which aligns with our concerns about the natural environment’s strategic importance. However,
an area they did not cover was stakeholder proximity, which Driscoll and Starik (2004) introduced. Other criteria
have been proposed beyond these four; however, they largely relate back to them. For instance, Pajunen’s (2006)
resource dependence relates to power, the discussion by Mellahi and Wood (2003) about stakeholder rights relates
to legitimacy, and stakeholder pressure (Brammer and Millington, 2004; González-Benito and González-Benito,
2006) relates to urgency. The relatedness is due to the thematic review of the literature by Mitchell et al. (1997)

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
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The Natural Environment as a Primary Stakeholder 353

Figure 1. Combined Stakeholder Identification Framework

taking in these types of criterion. The proximity criterion of Driscoll and Starik (2004) is also reflected in Pajunen’s
(2006) network position, and Neville and Menguc’s (2006) ‘multiplicity’.
Below, we assess the natural environment as stakeholder by combining and mutually extending the work of
Mitchell et al. (1997) and Driscoll and Starik (2004). We contend that climatic trends, such as increasingly frequent
and intense storms, demonstrate the natural environment to be a primary stakeholder. Figure 1 illustrates the
comprehensive model of stakeholder identification. Without repeating descriptions already articulated by Mitchell
et al. (1997) and Driscoll and Starik (2004), we describe our estimation of the model and draw on climatic events
to support our argument.

Power
Management literature often defines power in human-centred terms that assume the presence of social actors and
their will, such as ‘. . . the capacity of individual actors to exert their will’ (Finkelstein, 1992, p. 506). Mitchell
et al. (1997) followed this tradition by describing power as the ability to influence others to bring about desired
outcomes. They categorized the natural environment as a Dependent stakeholder because it cannot enforce a will,
inferring that power only exists in social entities and the natural environment can only be on the receiving end.
Driscoll and Starik (2004) recognized that the natural environment has a great deal of physical power and reasoned
that it is overlooked when stakeholder theorists only consider social actors as stakeholders. Orts and Strudler (2002)
and Phillips and Reichart (2000) demonstrated this by acknowledging the natural environment has power, though
discounted it for lacking will.
Power is a construct of the social sciences that assumes social actors are key elements. Within this construct,
the natural environment’s physical forces have been recognized as coercive power (Driscoll and Starik, 2004);
however, coercion still implies it has will, which it does not. The natural environment does not need will to have
power, because wilful exercise is not a prerequisite for power (Mitchell et al., 1997). We differentiate physical force
from socially constructed coercive power, because physical force is a fundamental form of power, though it is not
necessarily accompanied by will. By approaching power from the standpoint of physical force, in particular around
extreme weather, Starik’s (1994, 1995) idea of the natural environment as economic stakeholder becomes more
apparent. The strategic aspects of stakeholder theory surrounding the protection of resources and assets also
become more important than ethical aspects over which people have argued.
Power and resources are closely related. Power is afforded to entities controlling resources (Mitchell et al., 1997)
upon which organizations depend for growth and competitiveness (Barney, 1991; Pfeffer and Salancik, 1978). For

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354 N. Haigh and A. Griffiths

example, stakeholder theory shares with resource dependence theory a recognition that success depends upon
stakeholders providing critical resources. We have already noted that the natural environment provides not only
critical resources, but all the resources used to create and trade products (Driscoll and Starik, 2004; Starik, 1995).
When extreme weather occurs, it can also destroy resources, make them unavailable or change their state without
warning or negotiation. ENO’s statement above described the devastation felt by energy firms in the Golf Coast
during 2005. Hurricane Katrina not only wiped out infrastructure, but also markets and supply, demonstrating
how the natural environment’s pure physical power can have vast economic and resource consequences regardless
of having the will to do so. It clearly fulfils Freeman’s (1984) ‘can affect or is affected by’ criterion.

Legitimacy
Where power has affinity with resource theories, legitimacy is aligned with institutional theory (Mitchell et al.,
1997). Institutions determine what is considered legitimate behaviour, and institutional theory assumes that
appropriate behaviour is necessary to maintain competitive advantage (Scott, 2001). Stakeholder legitimacy is
defined as a ‘desirable social good’, and legitimate stakeholders are those that ‘really count’ (Mitchell et al.,
1997).
The question is whether the natural environment is a legitimate stakeholder. Authors excluding the natural
environment from being a stakeholders say no, due to its lack of human characteristics and a lack of perceived
obligation between it and organizations (Phillips and Reichart, 2000). However, we argue that if the natural envi-
ronment were not a legitimate stakeholder, managers would not address environmental issues to maintain their
‘right to operate’ as Hart and Milstein (2003) found, and, in relation to climate change, trends of extreme weather
and other climatic issues would not be prominent in the risk profiles of insurance companies (as they are)
(Friedman, 2002; Pelland, 1996), because losses are rising faster than premiums (Mills et al., 2006).

Urgency
Urgency is the degree to which an issue requires immediate action (Mitchell et al., 1997). Driscoll and Starik (2004,
p. 60) mentioned that ‘. . . society’s attention is often focussed on high profile, large-scale crises . . .’, and extreme
weather fits this description. There can be little debate surrounding the urgency of the crises surrounding the Gulf
Coast hurricanes. These devastating storms demanded immediate attention and exemplified urgency coupled with
power, legitimacy and proximity as organizations were faced with multiple destructive and life-threatening crises.
They demonstrated how natural environmental forces can require immediate attention, and have severe and pro-
longed strategic implications for government, organizations and society when that attention is not forthcoming.
Driscoll and Starik (2004) recognized the ‘slowly unfolding’ incremental facets of climate change relating to
global warming, though hurricanes were seen as lacking salience. They overlooked the possibility of more frequent
extreme weather events being associated with climate change. The connection is easier to see in a post-Hurricane
Katrina and post-Stern Review (2006) world, where non-linear climatic changes, such as extreme weather and the
implications of disrupting the thermohaline circulation, are considered (Arnell, 2006).

Proximity
Proximity was suggested in Starik’s (1994) earlier work, and considered more fully by Driscoll and Starik (2004).
Proximate stakeholders are those related to the organization spatially, such as members of the same network or
value chain, local customers and communities and the nearby natural environment (Driscoll and Starik, 2004).
In addition to the natural environment providing the physical context in which organizations operate (Driscoll and
Starik, 2004), its proximity is undeniable when extreme weather events occur where organizations or their stake-
holders are operating. During the Gulf Coast hurricanes, infrastructure was destroyed and rescuers and residents
were unable to get into or out of the area in good time (Niman, 2005).
By demonstrating the natural environment to have power, legitimacy, urgency and proximity, we argue that the
natural environment is a primary stakeholder. Moreover, the examples we have drawn on demonstrate that the

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The Natural Environment as a Primary Stakeholder 355

description by Mitchell et al. (1997) of the power, legitimacy and urgency does not need to be reconceptualized in
order to identify the natural environment’s primary stake; it is evident with original descriptions. Further, the
framework developed here enables us to acknowledge that organizations are essentially economic entities, which
can be myopic; however, by considering the capabilities of the natural environment in full, it still emerges as a
primary stakeholder even on this short-term and economically biased ground.

The Primary Stakeholder

Primary stakeholders are somewhat different from the Definitive stakeholders of Mitchell et al. (1997). Most
obviously, Figure 1 illustrates that Definitive stakeholders have legitimacy, power and urgency, while primary
stakeholders also have proximity. However, there are also more subtle and long-lived differences. For instance,
where Definitive stakeholders demand managers’ ‘. . . clear and immediate mandate to attend to and give prior-
ity to that stakeholder’s claim’ (Mitchell et al., 1997, p. 878), primary stakeholders require ongoing priority through
their long-lived and multifaceted stake. Primary stakeholders interconnect with other stakeholders, and their
stake encompasses the most fundamental elements required by organizations, without which organizations would
not be sustained. We see three types of outcome associated with recognizing the natural environment as a primary
stakeholder. We discuss each outcome below and explore what it could mean for practitioners, policymakers and
researchers.
The first outcome relates to Freeman’s (1984) point that organizations should understand and engage with
stakeholders directly. Learning about the natural environment directly, rather than through proxies such as envi-
ronmental, industry and other groups with their own agendas, would overcome several issues mentioned above.
For instance, Wood (2007) reported that in the 2007 US financial year climate change activist investor groups
filed 45 resolutions, up from 36 in 2006; their resolutions are getting more demanding and the number of com-
panies under their radar diminishing. The need to manage relationships with these proxies, and the additional
layers of interpretation and information filtering created by them, could be reduced as the physical interactions
between the organization and the natural environment are understood. We see that gaining a deeper understand-
ing of the physical context in which businesses operate can make two types of strategic advantage possible; these
form the second and third outcomes.
The second outcome of recognizing the natural environment as a primary stakeholder is that it opens the door
to learning about and harnessing the services that nature provides to business. Businesses could recognize the
natural environment as part of the value chain (Stead and Stead, 2004): moving beyond their industrial-age behav-
iours of just extracting resources from and emitting waste to eco-systems (Senge et al., 2001) to working with them
in mutually sustaining ways. One example of what might be achieved is biomimicry, or designing industrial
systems along biological lines to reduce waste and toxicity, and to reuse materials (Hawken et al., 1999). Scientists
and manufacturers have adopted biomimicry to innovate inexpensively with less waste and material use (Dahir,
1991; Environment, 2002; Mayer, 2005). Hypodermic needles, self-cleaning paint, Velcro, buildings that harvest
water from fog and other innovations were developed by mimicking nature (Environment, 2002; Post, 2007).
Perhaps research in the aerospace industry surrounding the strength and damage resistance of beetle shells (Dahir,
1991) could lead to the development of self-repairing building materials (Mayer, 2005) or hurricane-resistant build-
ing designs. Alternatively, we could design our buildings to catch water and fog, generate renewable energy and
reduce carbon emissions (Post, 2007), as others have done. The possibilities are endless, and access to these kinds
of ideas and information becomes more readily available when the natural environment is engaged with as a
stakeholder.
The third outcome is that a greater understanding of natural environmental dynamics can provide a more
holistic understanding of the strategic landscape. Organizations could come to understand how the natural envi-
ronment will affect competitors, suppliers and customers. For example, the paths of severe storms migrated over
the 50 years to 2001 in association with sea temperatures (Ho et al., 2004). Understanding and estimating
how storm paths will change in areas where operations, suppliers, competitors or markets are situated is valuable
long-term strategic information. Industries making long term capital investments, such as energy companies,
could use this information to avoid building assets in areas that might enter storm corridors in 20 years’ time.

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
DOI: 10.1002/bse
356 N. Haigh and A. Griffiths

The skills to perform these analyses are increasingly valuable in a world where climate change needs to be
understood.
Recognizing the natural environment as a primary stakeholder is not without its costs. There would be costs
involved in embedding it into strategy development, risk management, accounting and governance structures.
Technological change and re-evaluation of capital investments may also be required. However, if the scientific
evidence implicating organizations in continued anthropogenic climate change is maintained, and society’s
awareness about it accepted as a new paradigm rather than a phase, the investments will support long-term
sustainability. In the case of ENO, which suffered greatly form Hurricane Katrina and has since rebuilt, the
decision might have been one of whether to rebuild infrastructure in the same risky location, to relocate, to
invest in alternative technologies, to design more storm-resistant infrastructure or to get out of the business alto-
gether.
The natural environment is also a primary stakeholder of governments and policymaking institutions, and the
business outcomes we note also apply to them. Most obviously they exist in the same natural environment, and
investor activists are also voting constituents, so similar opportunities and implications apply. However, institu-
tions also influence how business interacts with the natural environment, and to this end policymakers need to
understand how the businesses targeted by policy interact with the natural environment. This implies a responsi-
bility to develop policy that enables the economy, society and the natural environment to be mutually sustaining.
Institutions have tended to hold the natural environment in the same industrialist paradigm as businesses, of
being a provider of resources and waste repository, without recognizing the services it provides and the impacts
it can have. Drawing again on our Gulf Coast example, greater understanding of climate change by policymakers
raises expensive sustainability questions such as why we continue to develop cities in locations where levees are
needed to keep inhabitants safe. Hurricane Katrina’s breach of levees and stopping of pumps in New Orleans
challenges ideas of building and rebuilding in locations that are increasingly vulnerable to more frequent and
intense storms and rising oceans. Historical and cultural value are among the reasons we continually ‘wrest them
from nature’ (Colten, 2005); however, an impassioned perspective can see a conspicuously large and growing risk
profile.
These outcomes indicate many opportunities for researchers in updating theoretical frameworks by having them
reflect and explore long standing interactions between organizations and the natural environment. There is a
smorgasbord of future research to be done in this area, surrounding how organizations understand their relation-
ship with the natural environment, how environmental dynamics influence business strategies, processes of
organizational change required to embed the natural environment within business models and strategy develop-
ment. Furthermore, the opportunities are necessarily multidisciplinary, and should complement ecological, bio-
logical, climatic and geological knowledge with management and strategy. The dynamics of the natural environment
have always affected businesses in the short and long term; however, recognizing it as a primary stakeholder is to
undertake to learn about how it affects particular organizations or industries, to consider how it can be used in
ways that enable the organization to leverage its services and to understand how they might affect the strategic
landscape.

Conclusion

We have approached the issue of stakeholder status for the natural environment from a strategic rather than an
ethical standpoint. Specifically, we have argued that when increasingly abnormal extreme weather events associated
with climate change are considered, moral and ethical arguments are overshadowed by the powerful, legitimate,
urgent and proximate properties of the natural environment, showing it to be a primary stakeholder. In particular,
we demonstrated with examples from the 2005 Gulf Coast hurricanes that the natural environment can alter or
destroy business infrastructure, resources and markets.
Freeman (1984, p. 26) highlighting a need for new models to be developed regarding non-traditional stakeholder
groups, pointing out that ‘[c]herished myths die hard, and for good reason: they have served us well in the past’.
By considering the natural environment’s stakeholdership through climate change, we have dispelled four myths.
We have demonstrated that (a) the natural environment has an economic stake in organizations, (b) there is no

Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 347–359 (2009)
DOI: 10.1002/bse
The Natural Environment as a Primary Stakeholder 357

need for moral obligation to exist between organizations and the natural environment from a strategic standpoint,
(c) the absence of will and other human attributes are non-issues, and (d) Freeman’s (1984) ‘affect or is affected
by’ criterion is solid. Stakeholder theory must include the natural environment as a non-traditional but truly
primary stakeholder to retain both relevance and rigour.
We outlined three types of business outcome of recognizing the natural environment as a primary stakeholder.
First, learning about the natural environment directly, rather than through proxies, could overcome their buffering
and information filtering effect, as well as reducing the need to manage relationships with them. Second, it may
enable organizations to understand services provided by nature, and create opportunities to work with them in
ways that are mutually sustaining. Third, a greater understanding of the strategic landscape could be had by fore-
casting how climatic trends will affect competitors, suppliers and customers.
Further to businesses, we envision these outcomes applying to policymaking institutions, as they need to under-
stand how the targets of policy interact with the natural environment. Climatic trends also raise serious issues for
policymakers on a broader scale, such as the development of cities in locations that are vulnerable to more frequent
and intense storms and rising oceans. We have also indicated multi-disciplinary research opportunities for up-
dating theoretical frameworks to reflect relationships between organizations and the natural environment. In
particular, early work could explore how organizations understand their relationship with the natural environment,
how the natural environment influences strategies and how organizations go about the organizational change
required to embed the natural environment within their business.
Climate change enables us to view the organization–natural environment relationship in a less anthropocentric
light, and with respect to its inherent properties. To date, management literature has focussed more on impacts
of organizations on the natural environment, and less on the natural environment’s impacts on organizations
(Winn and Kirchgeorg, 2005). We have contributed to overcoming this bias by highlighting its physical dynamics,
and their growing importance to strategic management.

Acknowledgements
We presented an earlier version of this paper in May 2007 at the EURAM Conference in Paris. We appreciate the two anony-
mous reviewers’ comments on the earlier version of the manuscript.

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