Does competitive pressure drive effective corporate environmental actions?

Abstract

Competitive pressure is an important driving factor of corporate behavioural changes. Yet, it is still unclear how it influences corporate attitudes towards environmental challenges. In this study, we systematically analyse the sustainability behaviour of a global sample of publicly traded firms to examine if and how competitive pressure pushes them to implement effective behavioural changes to reduce their greenhouse gas emissions. Our results suggest that competitive pressure induces firms to diversify investments across a broad spectrum of environmental initiatives. Importantly, diversification results from a decreased relative investment in risk mitigation and stakeholder engagement activities counterbalanced by an increased relative investment in innovation capabilities, and it is associated with a positive abatement potential. Effects are modest in size but significant and robust against multiple alternative specifications. Overall, our analysis suggests that competitive pressures can be a driving force of effective corporate mitigation actions that integrate response diversity mechanisms to environmental challenges.

Keywords: Sustainability behaviour, Competition, Diversification

JEL Classification: C10, C80, Q5