AbstractThe key objective of the European Union's environmental policy is to successfully combine environmental protection with sustainable economic growth in the long term. Nowadays, it is increasingly recognized that environmental policies, besides increasing production cost, may at the same time give incentives to firms for undertaking innovative actions and/or developing and exploiting differentiation opportunities. Both differentiation capacity and cost increase are strongly dependent on a multiplicity of internal and external factors, such as energy intensity, type of technology used, characteristics of the competitive environment etc. The present paper presents a multicriterion approach for classifying firms into discrete categories of possible impact, according to their sensitivity to cost increases and their differentiation potential. The resulting environment–competitiveness matrix can be exploited for establishing sustainability strategies and designing effective policies in the industrial sector. Copyright © 2006 John Wiley & Sons, Ltd and ERP Environment.

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