Assessing the effectiveness of interdependent corporate sustainability choices

55 Pages Posted: 6 Sep 2022 Last revised: 16 Dec 2024

See all articles by Simone Cenci

Simone Cenci

University College London - UCL Institute for Sustainable Resources

Matteo Burato

Imperial College Business School

Marek Rei

Imperial College London

Maurizio Zollo

Imperial College Business School

Date Written: July 28, 2023

Abstract

Lowering the environmental externalities of business operations while preserving firms' value is a challenging task that involves complex sustainability decisions. These decisions require navigating highly interconnected choices of actions and goals that characterise companies' sustainability behaviour. Here, we develop an empirical framework to investigate the implications of choice interdependence on companies' integrated financial and environmental performance. Our results suggest that the sustainability choices of companies in energy and energy-intensive sectors emerge from effective decision-making processes and have a larger impact on performance than random allocation of actions. However, comparing the behaviour of companies in our sample with hypothetical quasioptimal ("satisficing") choices, we observe a considerable under-performance, a low choice differentiation across the population, a significant over-investment in risk mitigation activities, and under-investment in developing innovation capabilities. Overall, our study provides a framework for evaluating companies' contribution to a sustainable low-carbon transition and highlights critical gaps in corporates' environmental actions.  

Keywords: Sustainability behaviour, Fitness landscape, Interdependent choices

JEL Classification: C10, C80, Q5

Suggested Citation

Cenci, Simone and Burato, Matteo and Rei, Marek and Zollo, Maurizio, Assessing the effectiveness of interdependent corporate sustainability choices (July 28, 2023). Available at SSRN: https://ssrn.com/abstract=4205664 or http://dx.doi.org/10.2139/ssrn.4205664

Simone Cenci (Contact Author)

University College London - UCL Institute for Sustainable Resources ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Matteo Burato

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Marek Rei

Imperial College London

Maurizio Zollo

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
+447923241443 (Phone)

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