Author: Federico Falzini
Date: 31-07-2026

In recent years, sustainability has moved beyond the realm of reputation and compliance to become an integral part of corporate strategy. According to a 2024 McKinsey survey of CEOs, topics such as decarbonization, sustainable supply chains, energy transition, and green innovation are no longer merely supplementary objectives but genuine drivers of competitiveness (McKinsey & Company, 2024).

In addition, three exogenous factors have significantly increased the relevance of sustainability and its integration into business strategies: regulatory developments, particularly within the European Union through instruments such as the CSRD, SFDR, and EU Taxonomy despite the uncertainty surrounding the Omnibus Package; growing stakeholder pressure; and the progressive reallocation of capital through sustainability-oriented investment selection mechanisms and corporate finance instruments such as sustainability-linked bonds and sustainability-linked loans. In this context, neglecting sustainability no longer means simply “falling behind,” but rather risking the loss of access to financing, market share, and competitive advantages.

At the same time, a significant body of academic literature suggests that ESG practices are associated with improved financial performance and a lower cost of capital (Friede et al., 2015; Clark et al., 2015). However, empirical evidence remains heterogeneous and highly context-dependent. This leads to the central research question: What role does sustainability truly play in corporate strategy?

The study revolves around two main questions:

1. Is there currently a significant relationship between sustainable strategies and corporate financial performance?
2. Does this effect persist over time, or is there a delay before markets reward such strategies? The key issue is not only whether sustainability pays off, but also when.

From a theoretical perspective, several approaches support the idea that sustainability can be a source of competitive advantage (Hart, 1995). The Natural Resource-Based View highlights how efficient environmental resource management can generate difficult-to-replicate advantages. Similarly, Porter and Kramer’s Creating Shared Value framework emphasises the simultaneous creation of economic and social value (Porter & Kramer, 2011). Empirically, numerous studies report a positive relationship between sustainability and performance. Eccles, Ioannou, and Serafeim demonstrate that highly sustainable firms tend to outperform in the long run (Eccles et al., 2014), while a meta-analysis by Friede, Busch, and Bassen confirms the prevalence of positive relationships between ESG and financial performance (Friede et al., 2015).

However, an important methodological limitation emerges: much of the literature relies on aggregated ESG scores, treating sustainability as a homogeneous phenomenon. Yet firms do not implement sustainability in the same way. This is precisely the gap addressed by the present research.

To overcome this limitation, the study adopts the Competitive Environmental Strategies (CES) framework proposed by Renato J. Orsato in “Sustainability Strategies: When Does It Pay to Be Green?” (Orsato, 2006).

The model identifies four categories of sustainability strategies, classified according to the source of competitive advantage (cost reduction versus differentiation) and the competitive focus within the value chain (organisational processes versus post-sale use):

• Eco-efficiency, aimed at reducing production costs;
• Beyond Compliance Leadership, focused on increasing the value proposition through production processes;
• Eco-branding, aimed at creating value during product use and post-use phases;
• Environmental Cost Leadership, focused on reducing costs and environmental impacts after products enter the market.

Figure 1

From a technical standpoint, the CES variable was developed through textual analysis of corporate annual reports. Four dictionaries containing keywords associated with different environmental strategies were created, enabling dynamic classification of firms over time. Annual reports were retrieved through the LSEG Workspace API and analysed in Python using a keyword-based approach. Keywords were divided into Tier A and Tier B categories, with different weights reflecting their strategic relevance. This approach seeks not only to measure how much firms discuss sustainability, but also how sustainability is integrated into their strategic positioning. Consequently, it overcomes some of the limitations of traditional ESG scores, which often capture mainly disclosure quality and reporting practices.

Figure 2 below presents the dictionaries used for the analysis, based on Orsato’s classification of Competitive Environmental Strategies (CES).

Figure 2

The empirical analysis is based on a panel of approximately 600 European and U.S. consumer goods companies between 2014 and 2024. The estimated models employ two-way fixed effects (Wooldridge, 2020), allowing control for both firm-specific heterogeneity and macroeconomic shocks over time. Corporate performance is measured using both accounting-based metrics, such as ROA and EBITDA margin, and market-based metrics, such as Tobin’s Q and stock returns. Control variables include firm size, leverage, growth, cash holdings, capital intensity, and firm age.

The main finding is clear: environmental strategies do not exhibit statistically significant effects on corporate performance in the short term. None of the CES categories is robustly associated with superior financial or market outcomes. Traditional factors such as firm size, leverage, and growth continue to explain most of the variation in performance. Sustainability, therefore, does not appear to provide a shortcut to immediate superior results within the observed time horizon.

Figure 3

Figure 4

Although a strategic approach to sustainability does not appear to generate significant benefits in the short term according to the metrics considered, this finding should not necessarily be interpreted as evidence of its overall ineffectiveness. Sustainability is inherently a long-term paradigm, as it involves investments and organisational transformations whose effects tend to materialise progressively over time. Initiatives aimed at improving operational efficiency, reducing environmental and reputational risks, strengthening stakeholder relationships, and proactively adapting to future regulatory developments generally yield delayed returns that are difficult to observe in the short run. Consequently, the economic and competitive benefits associated with a sustainability-oriented strategy may become more evident over the medium-to long term, once such initiatives are fully integrated into corporate processes and the firm’s strategic positioning. To assess whether the effects of sustainability emerge over a longer horizon, two- and four-year lagged specifications were introduced.

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Even in these models, coefficients associated with environmental strategies remain largely insignificant and unstable across specifications. Only weak signals emerge for certain market-based metrics, insufficient to support the existence of a systematic and robust effect. In other words, if sustainability pays off, it likely does so over horizons longer than those observable in the dataset.

A second important implication emerges from the results: pursuing sustainability objectives does not negatively affect performance, either in accounting or market terms. Sustainability appears to function primarily as a risk-management tool, a mechanism for stakeholder legitimacy, a reputational lever, and a means of preparing for future regulatory shocks. For managers, this implies integrating sustainability into the firm’s core strategy rather than treating it merely as a communication initiative.

In summary, the study finds no strong evidence of a direct and immediate impact of environmental strategies on financial performance (Friede et al., 2015). At the same time, there is no evidence of value destruction. This suggests that sustainability may represent a long-term strategic choice compatible with value creation, even if its benefits are not immediately visible in quarterly financial statements. Methodologically, the study’s main contribution lies in developing a strategic classification of sustainability that moves beyond the logic of aggregated ESG scores.

The research nevertheless presents some limitations that warrant caution in interpreting the findings while also opening promising avenues for future investigation. First, the classification of environmental strategies through keyword analysis is based on information disclosed in annual reports. It may therefore capture reporting practices more accurately than the actual quality of strategic implementation. Second, although the analysis includes lagged effects of up to four years, this horizon may still be insufficient to fully capture the structural impacts of sustainability, particularly for investments with long maturation periods. Future studies could extend the observation window, refine the semantic dictionaries used for classification, apply the framework to other industries, and integrate more advanced semantic analysis and natural language processing techniques.

Ultimately, sustainability resembles a marathon more than a sprint: the results may not be visible immediately, but starting late rarely helps win the race.