Adapting corporations to climate change: How decarbonization impacts the business strategy-performance nexus

Today's conventional wisdom on competitive strategies advanced at a time when climate change was not an issue. However, increasing requirements for decarbonization may be affecting the soundness of well-established knowledge, which includes the effect of competitive strategies on performance. Based on 15 years (2005-2019) of panel data on 1264 publicly traded corporations from 34 countries, we find that carbon abatement positively moderates the relation between the intensity of a cost-leadership strategy and ROA, ROE, and Tobin's Q. A post hoc analysis also reveals, nevertheless, that this requires firms to show a minimum level of cost-reduction expertise before they can consider harnessing decarbonization for the same purposes. By contrast, the effect of decarbonization on the differentiation-performance nexus only improves for Tobin's Q, thus reflecting their difficulty to monetize climate change efforts in the short term. Overall, these findings not only allow revitalizing a rather stuck literature on competitive strategies and performance but also inform managers about when and why they can expect to achieve decarbonization for free with current competitive strategies.

Automated summary

Recent requirements for decarbonization may affect the impact of competitive strategies on performance. A study based on 15 years of data finds that carbon abatement positively moderates the relation between cost-leadership strategy and financial indicators. However, firms need to possess cost-reduction expertise before they can fully utilize decarbonization.