Climate change exposes companies to various types of risks, beyond direct physical risks, such as losing market share to competitors with better environmental behavior and facing unfavorable financing conditions from investors. The study by Cenci, et al (2025) offers fresh insights into this issue by asking whether market competition can spark corporate sustainability in a way that truly makes a difference.
While some studies suggest a connection between competition and environmental performance, it remains unclear how this pressure translates into specific actions and if these actions genuinely lead to lower emissions. This study aims to address this gap by systematically analyzing the sustainability behavior of a global sample of publicly traded firms. The study covers nearly 1,500 publicly traded firms across Europe, North America and Asia over the decade between 2011 and 2021. By combining data from multiple sources, including sustainability initiatives from corporate reports, information on competition networks, emissions data, and financial information, the study brings together market structure, environmental impact and strategic behaviour in a single analytical framework.
To characterize companies' sustainability initiatives, the study employs a detailed dataset derived from an extensive text analysis of corporate sustainability reports. The characterized initiatives are then categorized into three types: risk mitigation efforts such as energy-efficiency improvements and procedural changes; stakeholder engagement including communication and incentives; and innovation, encompassing R&D, new product development and strategic partnerships. The study also considers a fourth crucial mechanism, diversification, that reflects how broadly companies spread their sustainability actions across different types. A two-step statistical method is used to first estimate the total effect of competition on emissions and then to investigate how this effect is mediated through different sustainability behaviors.
The findings suggest that competitive pressure significantly influences how companies invest in sustainability initiatives. Firms facing more intense competition tend to spread their sustainability efforts over a greater variety of areas instead of concentrating them narrowly. At the same time, competitive pressure appears to shift corporate attention away from risk mitigation and stakeholder-engagement efforts toward innovation. Perhaps most strikingly, the real environmental benefit, reductions in emissions, is strongest among firms that pursued a diversified approach to sustainability initiatives. In other words, companies that combine innovation with risk management and stakeholder engagement achieved better outcomes than those that focus on a single strategy. Though these effects are moderate, the statistical evidence is solid and consistent.
The study highlights several mechanisms behind this pattern. In competitive markets, firms not only observe and imitate successful rivals but also broaden their strategies by integrating new capabilities picked up from their surroundings. This exchange of practices makes them more likely to invest in a diverse set of initiatives, which in turn strengthens their resilience to change. The evidence shows that such diversification is far more effective in reducing greenhouse gas emissions than narrow, specialized efforts. In this way, competitive pressure emerges as a genuine driver of corporate climate action, complementing the influence of regulation and stakeholder expectations, and underscoring the role of market dynamics in addressing global environmental challenges.
Nevertheless, the study is not without limitations. Companies do not all report their emissions or initiatives in the same way, and the analysis cannot entirely rule out other factors that might shape both competition and climate strategies, which makes it difficult to establish strict causality. In addition, the results mainly capture short- to medium-term effects, spanning only one to two years after firms adopt sustainability measures. Even so, the overall conclusion remains clear: competition can drive more effective climate action, especially when it encourages a diversified portfolio of strategies rather than a narrow focus.
Simone Cenci, Hossein Asgharian, Lu Liu, Marek Rei, Maurizio Zollo (2025),
"Does competitive pressure drive effective corporate environmental actions?",
Journal of Cleaner Production, Volume 511
