Can adopting ambitious environmental sustainability initiatives lead to business failures? An analytical framework

Drawing on environmental sustainability orientation and business failure literature, we examined a thought‐provoking question: “Can adopting ambitious environmental sustainability initiatives lead to business failures and under what conditions is this more likely?” To address this question, we developed an analytical framework that provides new insights into how voluntary environmental initiatives affect the business environment and firm competitiveness. This paper also yields new insights on the features that emerge at adopting environmental initiatives–business failure nexus: from greening to growing, from greening to sustaining, from greening to constraining, and from greening to collapsing. Accordingly, the study accounts for the conditions under sustainability initiatives, and a variety of complex contextual factors are likely to culminate in closures of small and medium‐sized enterprises (SMEs). Although many top executives, entrepreneurs, and managers view implementation of environmental initiatives as tantamount to superior firm performance, the paper highlighted the effects of resource constraints and vulnerabilities of SMEs and new firms during the early stage of development, and therefore, pursuing aggressive green initiatives could minimize their life chances. Implications for scholars and practising managers are discussed.