Sustainability‐oriented capabilities for eco‐innovation: Meeting the regulatory, technology, and market demands

Despite consensus in the literature that regulation, technology push, and market pull drive eco-innovation (EI), evidence remains limited on the diverse firm capabilities needed to boost EI. Building on the natural-resource-based view of the firm and the EI literature, this paper posits that firms need to renew and realign their capabilities, and ultimately develop distinctive sustainability-oriented capabilities, in order to meet the rapidly changing regulatory, technology, and market demands. Results of the analysis, based on a survey of U.K. firms, reveal that EIs are more likely to arise when firms (a) build capabilities on voluntary self-regulation (i.e., executive driven environmental management system and corporate social responsibility) because such organizational capabilities allow them to address increasing regulatory pressures; (b) invest in environmental research and development (i.e., eco-R&D)—instead of generic research and development—because it provides them with the relevant and specific technological capabilities to tackle technology shifts towards sustainability; and (c) develop capabilities in green market sensing as such capabilities allow them to address green consumption needs.