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

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  • Nicole Darnall
  • Konstantinos Iatridis
  • Effie Kesidou
  • Annie Snelson‐Powell

Abstract

Adopting 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.

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  • Nicole Darnall & Konstantinos Iatridis & Effie Kesidou & Annie Snelson‐Powell, 2024. "Penalty Zones in International Sustainability Standards: Where Improved Sustainability Doesn't Pay," Journal of Management Studies, Wiley Blackwell, vol. 61(6), pages 2373-2405, September.
    • Handle: RePEc:bla:jomstd:v:61:y:2024:i:6:p:2373-2405
    DOI: 10.1111/joms.12975
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