"From Sustainability to Compliance: How Peer Environmental Regulatory Sanctions Reshape Environmental Hiring in Non-Sanctioned Firms"

Strategy & Business Policy

Speaker: Ioannis Ioannou

Professor - LBS

Conference  Jouy-en-Josas / room meeting T025

Abstract: 

"Regulatory sanctions have become an increasingly prominent instrument through which governments shape corporate behavior. Drawing on threat-rigidity theory, we argue that environmental regulatory sanctions against industry peers heighten non-sanctioned firms’ perceptions of regulatory threat and prompt them to reorient their strategic focus from sustainability toward compliance. As a result, firms increase hiring of environmental compliance talent that strengthens adherence to regulatory requirements and reduces exposure to enforcement risk, while reducing hiring of sustainability talent associated with broader environmental capability development less directly tied to regulatory risk mitigation. We further propose that board political connections shape firms’ interpretation of peer sanctions, amplifying the shift toward environmental compliance hiring and away from sustainability hiring. Using a sample of S&P 1500 firms from 2015 to 2021, we find robust support for our arguments. We also find that this reorientation helps firms reduce their likelihood of future sanctions, yet it is associated with weaker improvements in environmental performance over time. These findings reveal unintended spillover effects of regulatory enforcement and demonstrate how regulatory threats reshape firms’ hiring priorities in ways that may mitigate immediate risk while constraining longer-term environmental capability building."