How to Ensure Sustainability Practices Have a Positive Influence in Small and Medium-Sized Companies? Evidence of Quadratic Relationships and Moderating Effect of Innovation?

Abstract

Greenwashing is an obstacle to sustainable development that must be addressed. While there is increasing social pressure for businesses to adopt sustainable practices, there is also skepticism about the potential for these practices to yield economic benefits. In this context, organizations may opt to assign the responsibility of sustainability implementation to their compliance departments. Yet, with proper implementation, sustainability may help businesses to improve their economic efficiency. The Stakeholder Theory provides justification for this possibility; however, making it a reality demands a long-term perspective in an economy where short-term thinking seems to be deeply rooted. Therefore, it is essential to establish a strategic approach to sustainability that prioritizes stakeholder relationships, ultimately leading to long-term economic efficiency improvements and moving away from a short-term focus. That said, the literature shows mixed results about the possibility of achieving economic benefits from sustainable practices. Using a sample of 17,498 MSMEs from 17 Latin American countries, our study shows that the U-shaped relationship between these variables can explain the inconclusive evidence. Moreover, it also demonstrates that the relationship can be positively moderated by innovation. Our findings contribute to the literature by revealing a positive relationship between an intensive application of sustainability practices, which would be realized in the long term, and an improvement in business performance, with improved efficiency resulting from sustainable practices. This result can help organizations to more readily identify long-term strategies by giving them insights into the possibilities for increasing their efficiency. The findings indicate that the long-term, intensive implementation of sustainability practices correlates with enhanced business efficiency, a relationship of a quadratic nature that is influenced by the role of innovation in sustainable practices.