Exploring Organizational Responses to Nonmarket Institutional Pressures: The Case of the EU Taxonomy Regulation

Abstract

Published in June 2020, the European Union (EU) Taxonomy Regulation is an important tool for the reorientation of capital flows toward sustainability, establishing a classification system that enables investors to identify green economic activities. Confronted by the reporting demands of this regulation, companies are caught in a sustainability economic revolution. This study seeks primarily to understand firms’ responses to the EU taxonomy, and whether they recognize value creation opportunities by aligning market and nonmarket strategies with the taxonomy goals. For that, we conducted expert interviews and adopted a conceptual framework based on institutional theory, dynamic capabilities view and nonmarket strategy research. Our findings indicate that most firms respond reactively, while firms with sustainability-driven business models tend to respond in an anticipatory way, and firms with high greenhouse gas (GHG) emissions and low taxonomy eligibility in a defensive way. We also find evidence for mimetic isomorphism related to the influence of consulting and auditing services. Further, high levels of uncertainty, ambiguity and lack of clarity has a great impact on firms’ responses and motives. Finally, this study highlights the EU taxonomy considering a paradigmatic shift toward sustainability, which is not recognized by most firms. To this end, we find that most companies have not identified opportunities arising from nonmarket integration and, rather, see the taxonomy only as an extra regulation to be compliant with. Hence, we argue that it is crucial that firms contextualize the taxonomy within its larger institutional paradigmatic shift to capture the importance of going beyond mere compliance.

Citation

Palharini, M., Fertig, M. and Wehnert, P. (2024), "Exploring Organizational Responses to Nonmarket Institutional Pressures: The Case of the EU Taxonomy Regulation", Andersen, T.J. (Ed.) Sustainable and Resilient Global Practices: Advances in Responsiveness and Adaptation (Emerald Studies in Global Strategic Responsiveness), Emerald Publishing Limited, Leeds, pp. 99-147. https://doi.org/10.1108/978-1-83797-611-920241006