In an era where governments worldwide are designing industrial policies to balance economic competitiveness with urgent environmental goals, multinational enterprises (MNEs) play a crucial but often ambiguous role. A recent study, "Industrial Policy, Green Challenges and International Business", published in the Journal of International Business Studies by Klaus Meyer, International Business Professor at the Ivey Business School and Gabriel Benito, Professor of Strategy and Entrepreneurship at BI Norwegian Business School, sheds light on the dual impact of sustainability-oriented industrial policies (SIPs). These policies present both opportunities and challenges for globally operating firms, pushing them to adapt or risk falling behind in an evolving economic landscape.
The rise of green industrial policy
Industrial policies have long been used to support economic growth and national competitiveness. However, recent policies, especially in advanced economies, have expanded their focus to include “Green Challenges,” such as climate change mitigation and the sustainable use of natural resources. Meyer points to policies like the European Green Deal and the U.S. Inflation Reduction Act (IRA) as prime examples of this shift.
“These policies are not just about economic competitiveness but about reshaping industries to meet long-term sustainability objectives,” says Meyer. “They signal a major transformation in how governments approach industrial policy and require MNEs to rethink their strategies.”
While these policies create new markets and incentives for clean technologies, they also disrupt existing business models. Traditional MNEs that have built competitive advantages on resource extraction, global supply chains, and economies of scale may find their market positions threatened by policies favoring local, circular, or low-carbon alternatives.
MNEs as agents of change—or resistance?
Meyer identifies two opposing perspectives on how MNEs interact with sustainability-oriented industrial policies. On the optimistic side, MNEs can act as enablers of sustainability by spreading best practices, driving technological innovation, and linking global knowledge clusters to local economies. For instance, MNEs investing in renewable energy or circular economy models can accelerate national transitions toward greener industries.
“MNEs have the ability to connect different locations and knowledge clusters,” Meyer explains. “They can pioneer and spread novel technologies that help host countries achieve their sustainability goals.”
However, there is also a more skeptical view. Many MNEs may resist SIPs if they challenge their traditional sources of competitive advantage. Policies promoting circular economy models, for example, can reduce throughput in global value chains—disrupting businesses built on large-scale production and consumption cycles. Similarly, local clean energy initiatives may undermine fossil fuel-based value chains controlled by major global corporations.
“Some MNEs see these policies as existential threats,” Meyer notes. “For them, SIPs introduce uncertainty, regulatory risks, and potential losses in established business models.”
Strategic responses: Adaptation vs. avoidance
The study categorizes MNE responses to sustainability-oriented industrial policies into four broad strategic approaches. Some firms attempt to bypass stringent regulations by shifting operations to jurisdictions with weaker environmental standards—a practice known as regulatory arbitrage. Others take a reactive approach, meeting only the baseline regulatory requirements without significantly altering their business models. Meanwhile, forward-looking MNEs invest in sustainable technologies and business models, aligning themselves with emerging regulations and consumer preferences. The most progressive firms go beyond adaptation and work directly with policymakers, NGOs, and industry partners to shape sustainability strategies, effectively turning policy challenges into competitive advantages.
Meyer emphasizes that firms choosing proactive strategies are more likely to secure long-term competitive benefits. “MNEs that take the lead in sustainability not only future-proof their operations but also gain credibility, regulatory goodwill, and access to emerging markets.”
Lessons from the Nordic Model
To illustrate the dynamics between industrial policy and business adaptation, the research examines case studies from Nordic countries, which have been at the forefront of sustainability-oriented policies. Denmark’s leadership in wind energy and Norway’s successful implementation of circular economy initiatives demonstrate how SIPs can drive industrial transformation when businesses and governments collaborate effectively.
“In Denmark, industrial policy didn’t just encourage renewable energy—it created an entire ecosystem where businesses, government agencies, and research institutions work together to drive innovation,” Meyer explains. Similarly, Norway’s deposit-return recycling systems have fostered a localized circular economy, demonstrating that well-designed policies can align business incentives with sustainability goals.
Implications for Business Leaders
For executives navigating an increasingly complex regulatory landscape, the study offers key takeaways:
* Monitor policy trends – Sustainability-oriented industrial policies are evolving rapidly. Understanding their implications early can help businesses adapt proactively;
* Engage with policymakers – MNEs that participate in policy discussions can help shape regulations that are both effective and business-friendly;
* Invest in green innovation – Companies that align their R&D with sustainability goals will be better positioned to capitalize on new market opportunities; and
* Adopt a flexible business model – Rigid, legacy-driven business models are at risk. Leaders should consider how to integrate sustainability into their core strategy.
Broader consequences for MNEs and industrial policy
Meyer’s study underscores the growing complexity of international business as sustainability goals increasingly shape industrial policies. MNEs that embrace these changes and engage with policymakers will find opportunities to drive both innovation and profitability. Conversely, firms that resist transformation may find themselves at a disadvantage as regulations and market expectations shift. By understanding the nuances of sustainability-oriented industrial policies and adapting accordingly, MNEs can position themselves as key players in the transition toward a more sustainable global economy.
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For more insights, read the full open-access study "Industrial Policy, Green Challenges and International Business" in the Journal of International Business Studies.
