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Penalty Zones in International Sustainability Standards: Where Improved Sustainability Doesn't Pay

Nicole Darnall¹; Konstantinos Iatridis²; Effie Kesidou³; Annie Snelson‐Powell⁴

¹ Arizona State University · ² School of Management, University of Bath · ³ Leeds University Business School, University of Leeds · ⁴ University of Bath

AbstractAdopting an international sustainability standard (ISS) helps firms improve their sustainability performance. It also acts as a credible market ‘signal’ that legitimizes firms' latent sustainability practices while improving their market value. But how do these signals function when firms adopt multiple ISSs? We show that the relationships between firms' ISSs adoption and their market value and their sustainability performance appear positive. However, beyond a tipping point of 2 ISSs, firms' market gains decline, even though their sustainability performance continues to improve until a tipping point of 3 ISSs. Differing tipping points create a gap that we refer to as the ‘penalty zone’ – the place where market value declines, even though firms' actual sustainability performance continues to improve. The penalty zone arises because of imprecisions in market signals and serves as a significant barrier to firms wishing to further their sustainability agenda through additional ISS adoption.

DOI

10.1111/joms.12975

Volume

61 (6)

Pages

2373-2405

Language

en

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