Conference Programme

Despite the diffusion of sustainability as a legitimate strategic logic, evidence of its impact on firm value remains tentative. Current scholarship provides limited strategic guidance on how firms should adapt their behavior as systemic boundaries become more salient. This paper bridges this gap by developing a framework that links the value of sustainability strategies to their ability to manage a multi-level feedback loop between firm operations and systemic outcomes. We posit that firms must develop strategic complexity, the degree of sophistication of their strategies in terms of the breadth of implied sustainability behaviors, to match the systemic complexity of their environment. Due to organizational costs, this relationship follows an inverted U-shape. Furthermore, we hypothesize that this curve shifts when exogenous shocks alter systemic complexity. To test these predictions, we apply a hierarchical Bayesian model to a dataset of over 200000 sustainability initiatives by 1186 firms to measure the complexity of their enacted strategies. Our empirical design leverages the European Union's "Fit for 55" policy as a quasi-natural experiment. Our results support both hypotheses: we find a curvilinear relationship between strategic complexity and firm financial value, and show that the curve shifts toward higher complexity for EU firms following the regulatory shock.