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 (NRBV) 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 UK firms, reveal that eco-innovations are more likely to arise when firms: (a) build capabilities on voluntary self-regulation (i.e. executive driven EMS and CSR) because such organisational 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.