Adapting corporations to climate change: How decarbonization impacts the business strategy-performance nexus

Today's conventional wisdom on competitive strategies advanced at a time when climate change was not an issue. However, increasing requirements for decarbonization may be affecting the soundness of well-established knowledge, which includes the effect of competitive strategies on performance. Based on 15 years (2005-2019) of panel data on 1264 publicly traded corporations from 34 countries, we find that carbon abatement positively moderates the relation between the intensity of a cost-leadership strategy and ROA, ROE, and Tobin's Q. A post hoc analysis also reveals, nevertheless, that this requires firms to show a minimum level of cost-reduction expertise before they can consider harnessing decarbonization for the same purposes. By contrast, the effect of decarbonization on the differentiation-performance nexus only improves for Tobin's Q, thus reflecting their difficulty to monetize climate change efforts in the short term. Overall, these findings not only allow revitalizing a rather stuck literature on competitive strategies and performance but also inform managers about when and why they can expect to achieve decarbonization for free with current competitive strategies.