Incumbent responses to anticipated discontinuous regulatory change: the case of Scope 3 CO2 reporting in the European steel industry

Abstract

Regulatory change can be highly discontinuous for organizations. Yet, despite the vast discontinuous change and institutionalism literatures, our understanding of incumbent behavior in response to anticipated discontinuous regulatory change is limited. To address this issue, we conducted a qualitative analysis in the European steel industry, which is facing prospective discontinuous regulatory change on Scope 3 reporting. Our findings offer new insights into this understudied field by elaborating on incumbents' expectations for the future, their ensuing motivations, and their taken or planned actions. We find evidence for heterogenous adaptation behavior that manifests in three motivational patterns: Incentives for early movers, reasons for hesitation, and disincentives preventing implementation. These patterns are a result of incumbents’ varying expectations of future circumstances, opportunities, and risks, and they lead to different actions incumbents plan or take in response to the anticipated change. Our study contributes to the theoretical understanding of regulatory change as a distinct form of discontinuous change, sheds light on incumbent behavior at an early stage of a discontinuous change prior to its actual occurrence, and highlights that adaptation to a discontinuous regulatory change can have both positive and negative effects on incumbents. Our process model enables practitioners to make more informed decisions in the context of discontinuous regulatory change and policymakers may use our findings to improve the regulatory design process and subsequent compliance. Finally, our study opens up numerous pathways for future research.