When governance bundles backfire: institutional crowding in corporate sustainability

Corporate sustainability research highlights the importance of governance mechanisms in driving sustainability outcomes. This study investigates whether governance bundles always enhance sustainability performance or whether their coexistence can generate institutional crowding. This paper investigates how different governance mechanisms, internal sustainability leadership and external sustainability affiliations, affect corporate sustainability performance. Although both approaches are increasingly adopted by firms to address sustainability challenges, their individual and joint effects remain unclear. The research employs a longitudinal quantitative design based on panel data of European listed companies over a fourteen-year period. The results show that both internal sustainability leadership and external affiliations independently enhance corporate sustainability performance. However, their combination does not always yield additive benefits. Instead, the coexistence of the two mechanisms may lead to institutional crowding, a condition in which overlapping governance practices routinize sustainability initiatives and reduce the strategic influence of sustainability leaders. The findings suggest that firms should carefully design their governance architectures to ensure alignment between internal leadership and external affiliations. Without such integration, overlapping mechanisms risk diluting rather than reinforcing sustainability outcomes. The paper introduces the concept of institutional crowding to explain why multiple governance practices may not always be complementary. By conceptualizing sustainability leadership and affiliations as part of broader governance bundles, the study advances theoretical understanding of how firms organize for sustainability and offers actionable insights for designing effective governance systems.