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Regulatory Limits to Corporate Sustainability: How Climate Change Law and Energy Reforms in Mexico May Impair Sustainability Practices in Mexican Firms

This paper aims to show that sustainable behavior by firms may be impaired by regulatory restrictions. We challenge the assumption that regulation aimed at curbing greenhouse gas emissions (GHG) in the form of a target to meet the Country’s GHG emissions commitments will promote sustainable corporations. We argue that, in fact, such regulation may impair sustainability practices because it creates unintended consequences. This paper tackles the efficiency of the institutional framework chosen through the lenses of the analytical themes of fit, scale, and interplay, then we use a systems dynamic approach to represent how regulation in the arenas of energy efficiency and GHG emissions reduction may withhold competitive business outcomes and corporate sustainability schemes. We exemplify and simulate a single regulation scheme: a clean energy target for firms; and found that as a result of such scheme, the system is dominated by negative feedback processes resulting in lesser outcomes that would be better tackled by firms not being subject to the restrictions imposed by the regulation.