Why Firms Delay Reaching True Sustainability

Abstract This paper explores a discrepancy between what the literature says about sustainability and how sustainability is actually practiced. Our analysis reveals that we are in a transition era in which firms incrementally offset – rather than eliminate – their negative impacts on the environment and society. We also argue that external stakeholders have yet to create the conditions that would compel firms to become truly sustainable. We further find that a firm's response to external pressure to become truly sustainable greatly depends on its capabilities. For large firms, the decision to become truly sustainable is driven by their ability to manage external stakeholders’ expectations, with the most innovative of large firms remaining unsustainable even in the long term. In contrast, small innovative firms guide their decision‐making based on their internal readiness to change and therefore will be the first to reach true sustainability. Finally, and regardless of size, firms that lack an innovation capability are unlikely to become truly sustainable; they will struggle to survive the transition era.