Are small and medium enterprises defining their business models to reach a symbolic or substantive environmental legitimacy?

Abstract

Involvement of small and medium enterprises (SMEs) is critical to the decarbonization of economies; however, legitimacy theory, climate change strategies, and the business model (BM) literature have not addressed this issue in depth. This research analyses whether SMEs define their environmental BMs to achieve substantive legitimacy by reducing their carbon dioxide (CO2) emissions. We analyze the relationships among environmental value proposition, creation, and capture using partial least-squares structural equation modeling with the data for 695 SMEs. The results show that SMEs’ environmental value proposition takes into account symbolic and substantive environmental legitimacy. This broad definition of the value proposition drives SMEs to undertake environmental value creation initiatives, but these initiatives are not very effective in reducing CO2 emissions. These results indicate that SMEs seek symbolic legitimacy more than substantive legitimacy, which has important implications for managers and policymakers who want SMEs to contribute to the transition to a low-carbon economy.