Leveraging on levers of control to learn how to integrate sustainability in management Open Access

Following a wave of criticism around “greenwashing” in environmental social governance (ESG) disclosure (Bianchi et al., 2022; Herremans and Nazari, 2016; Derchi et al., 2021), academic interest has been focused on understanding how firms genuinely integrate sustainability into their operations to generate shared value. According to Arevalo et al. (2011), the effective incorporation of sustainability into core business strategy and operational practices takes various forms: from prioritizing stakeholders’ interest to innovation for sustainability, from designing a system of key indicators to the identification of measurable targets, timescale and accountability, to the development of sustainability leadership. In a more quantifiable way, ESG performance, stakeholder engagement and alignment with sustainable development goals (SDGs) result from sustainability integration. Earlier on, scholars such as Rake and Grayson (2009), Pistoni and Songini (2013), Zollo et al. (2013), and Zollo and Mele (2013) have been debating the fundamental challenge of embedding corporate sustainability within business operations. More recently, Lenarčič (2024) and Cortés et al. (2024) emphasized that sustainability integration is crucial for influencing behaviors that incorporate sustainability concepts, leading to actual ESG performance, impact and alignment with the SDGs. Lenarčič (2024) and Cortés et al. (2024) assert that sustainability should not be a peripheral concern but a central business priority. Quotes from leading practitioners reinforce this perspective. Jon Raphael, National Managing Partner, Sustainability, Transformation and Assurance at Deloitte and Touche LLP (2022), ^[1] stated :

Similarly, KPMG leader Hendrik Rosenthal, Director of Group Sustainability (Hong Kong), affirmed: “We do not have a standalone strategy; we have a business strategy where sustainability is built in” ^[2].

Despite increasing regulatory requirements, public expectations and companies’ public proclaims, businesses often struggle to move beyond compliance and effectively embed sustainability into their core management practices. Investigating how requires insights into internal managerial processes, design and utilization methods to foster sustainability. Scholars have pointed to the role of management systems, particularly management control systems (MCSs), in facilitating sustainability integration (Narayanan and Boyce, 2019; Asiaei et al., 2021; Heggen and Sridharan, 2020). MCSs are “formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities” (Simons, 1995, p. 5). These systems typically include budgets, balanced scorecards, resource allocation mechanisms, strategic planning frameworks and performance measurement tools (Malagueño et al., 2018; Garcia Osma et al., 2018; Bedford, 2015; Langevin and Mendoza, 2013). In addition, MCSs encompass environmental management accounting systems (Phan et al., 2018; Schaltegger et al., 2018; Guenther et al., 2016; Hörisch et al., 2015; Rodrigue et al., 2013; Ferreira et al., 2010; Henri and Journeault, 2010; Burritt and Schaltegger, 2002; Schaltegger and Burritt, 2000). MCSs integrate financial and non-financial information, providing insights into environmental and social impacts (Parker and Chung, 2018; Reibstein, 2009; Burritt and Schaltegger, 2002). These integrated systems enable businesses to assess financial and non-financial aspects such as health and safety, stakeholder claims and environmental impact. Malmi and Brown (2008) refer to MCSs as a “package,” recognizing the interconnected nature of control practices, while Maciariello and Kirby already in 1994 ahead of time pointed out the open and stakeholders’ interactive nature of MCS.

Epstein and Buhovac (2010) were among the first to emphasize the role of MCSs in integrating sustainability into corporate management, highlighting the importance of formal systems in supporting sustainability strategies. Ferreira et al. (2010) contend that MCSs facilitate innovation for sustainability and organizational learning (OL) with materiality matrices in sustainability reports as an example of this engagement. Derchi et al. (2021) tested that incorporating sustainability incentives fosters continuous learning and improves ESG performance. Asiaei et al. (2021) stressed that effective MCSs translate corporate social responsibility (CSR) strategies into actionable outcomes, driving sustainability performance. Finally, Narayanan and Boyce (2019) suggest that MCSs, traditionally used for efficiency and accountability, can be reconfigured to support sustainability integration and embed it into core business strategy.

While MCSs seem to hold potential for sustainability integration, specific challenges arise in the context of sustainability. Standardized ESG measurement frameworks remain lacking compared to financial performance measures. Elkington’s (1999) triple bottom line framework highlights the need to assess economic value and environmental and social impact. Multiple reporting frameworks, such as the global reporting initiative, have emerged to assist businesses, yet a common understanding of sustainability remains elusive. Another challenge is aligning sustainability with financial performance, complicating stakeholder outcomes assessments. Organizations like the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) are developing standardized reporting frameworks. The European Sustainability Reporting Standards under the Corporate Sustainability Disclosure Directive (CSRD) exemplify such efforts. There are also concerns regarding ESG data quality, consistency and comparability. Financial expertise does not always translate into effective ESG measurement, leading to disagreements among analysts (Christensen et al., 2021). ESG materiality, as defined in the European Sustainability Reporting Guidelines (2022), requires a “double materiality” approach, demanding experience from corporations and raters to prioritize critical ESG issues effectively. While the Finance Function is well-positioned for aggregating financially material ESG metrics due to its expertise in risk management, it may lack the competencies required to measure overall ESG performance effectively, raising concerns about its role as a sustainability partner and enabler of OL (Zoni and Pippo, 2017; Wiacek, 2025).

Our study examines three ESG champions across different industries, each with varying maturity levels in sustainability integration. As sustainability integration is crucial in academic debates (Minoja, 2008; Pistoni and Songini, 2013; Zollo and Mele, 2013; Ditillo and Lisi, 2016; Cici and D’Isanto, 2017; Lenarčič, 2024; Cortés et al., 2024), we use it as our “dependent” variable, proxying sustainability integration effectiveness with ESG performance, stakeholder engagement and alignment with SDGs (Gomez-Conde et al., 2019). By using Simons’ (1995) Levers of Control (LoC) framework, we analyze how these companies progressively learn to integrate sustainability into management. The aim is to shed light on how LoC can effectively integrate ESG into the strategic management of organizations through an OL process. We assume that firms leverage significantly on all LoC and learn progressively from intuiting to institutionalizing sustainability in line with Crossan et al. (1999).

Our research identifies several insights. We provide empirical evidence that sustainability integration is not a one-time event, but an iterative refinement process influenced by evolving regulatory landscapes, market pressures and OL. Our main conclusion is that one model does not fit all, which aligns with Malmi and Brown (2008) and Bedford (2020), who highlighted the complementary and substitute nature of different forms of control. Patterns emerged despite lacking one single model. We posited that all four control levers – belief, boundary, diagnostic and interactive systems – play a role in embedding sustainability into decision-making and operational strategies. Following Bianchi et al. (2022) and Crossan et al. (1999), we further hypothesized that sustainability integration follows an OL trajectory, transitioning from intuition to institutionalization in loops. Our findings confirm that sustainability integration is a dynamic, long-term process that unfolds through multiple learning loops. We observed that belief and boundary systems often initiate sustainability integration, driven by internal values or external regulatory pressures. Further, the design and use of diagnostic systems underlying the disclosure of the sustainability report and the materiality matrix seem critical steps in the integration process. Sustainability reports and ESG performance metrics serve as diagnostic tools that improve over time, while interactive systems facilitate cross-functional, inter-organizational dialogue and strategic adaptation. Interactive systems contributed significantly to the emergence of a sustainability strategy, stakeholders’ integration and the search for public recognition of firms’ commitment to sustainability. We also observed that interactive systems operated as feedback and refinement mechanisms for diagnostic (improved ESG performance measurement) and boundary systems (ESG-integrated investment criteria), culminating in adopting ESG-linked managerial incentives.

With our study, we contributed to advancing the study on the importance of MCSs in facilitating OL and that OL depends upon both the characteristics and use of the organization’s MCS.

The paper’s structure consists of four sections: Research Design, Research Methodology and Case Analysis, Discussion of Findings and Conclusions.

To organize our analysis, we drew from two widely recognized conceptual frameworks to describe how MCSs contribute to integrating sustainability into management through OL. We used the LoC by Simons (1995) as an analytical tool to map the design and use of the MCSs and the four Is (4Is) OL conceptual framework (Crossan et al., 1999) to provide a dynamic, longitudinal view to our study.

The LoC framework identifies four subsystems within the MCSs. The belief, boundary, diagnostic and interactive systems are viewed as a way of analysing how organizations learn and leverage their MCSs to promote business strategy. The full potential of the four LoC is realized when they are mobilized together to enable the implementation and attainment of an organization’s strategic objectives. Belief systems consist of an explicit and formal set of organizational statements that managers use to communicate the organization’s values and provide a coherent strategic agenda. They are created and disseminated through such documents as credos, mission statements and purpose statements. Senior managers also use MCSs to establish boundaries that restrict the actions of individuals in their search for strategic opportunities. An explicit set of organizational definitions and parameters defines boundary systems, usually expressed in negative or minimum terms. They are used to support managers in identifying risks that must be avoided if organizational objectives are to be achieved. Investment evaluation criteria are examples of boundaries. Diagnostic use of MCSs occurs when managers compare performance against targets set to identify critical exceptions from plans. Progress on strategic initiatives is evaluated against performance measures incorporating short-term and long-term financial and non-financial objectives. The design of a diagnostic system is part of the control process. Finally, interactive controls are formal processes managers use internally as well as in interactions with stakeholders-both internal and external- to manage strategic uncertainties and identify opportunities. Strategic uncertainties are contingencies that could threaten or invalidate the assumption underlying an organization’s strategy.

Two recent studies use Simons’ LoC model to articulate how firms use the LoC to attain a sustainability strategy. The first study by Arjaliès and Mundy (2013) explores how organizations leverage MCSs to drive strategic renewal and trigger organizational changes while supporting society’s broader sustainability agenda. The study investigates France’s largest listed companies and provides insight into the structures and processes firms use to design, implement and monitor sustainability strategies. Findings support prior research suggesting that even companies engaged in a sustainability strategy merely for compliance or legitimacy purposes experience learning and organizational change. MCSs foster the transformation of managerial practices, encouraging innovative behaviors and opportunities for management. The authors warn that transforming organizational practices is not straightforward, and ESG results may be jeopardized. A second, more recent study by Albertini (2019) uses the interpretative framework of LoC to show how companies grow their environmental capabilities, such as stakeholder integration, shared vision, OL and continuous innovation. Through a single case study explicitly focusing on the environmental component of the ESG, Albertini (2019) itemized how each control lever contributed to developing environmental capabilities. The study challenges the idea that MCSs are equally needed to support strategy in all contexts. In fact, in the case of Xerox, Albertini (2019) observed that the LoC can foster:

• stakeholders’ integration capability through the joint use of the belief systems, boundary systems and diagnostic control systems;

• shared vision capability through the joint use of belief and boundary systems;

• OL capability through the joint use of diagnostic control and interactive control systems; and

• continuous innovation capabilities through the use of interactive control and belief systems, and to a lesser extent diagnostic control systems.

In the two studies mentioned above, the observation of MCSs, which happens at a single point in time, fails to track the role of the experience, i.e. the learning, in dealing with sustainability as a process of change and adaptation of the MCSs.

As stated by Kloot (1997), four significant constructs are associated with OL: knowledge acquisition, information distribution, information interpretation and organizational memory. Kloot (1997) and numerous scholars such as Edwards (2009), Arevalo et al. (2011), Albertini (2019), Narayanan and Boyce (2019), Asiaei et al. (2021), Derchi et al. (2021) attributed a role to OL in fostering or mediating the integration of sustainability. Expressly, Arevalo et al. (2011) point out that companies approach the integration of sustainability using different learning models. A formal approach to the learning challenge is sometimes met through training programs and knowledge transfer. In other cases, more emergent and experimental methods such as dialogic workshop experimental, experiential and introspective learning techniques are favored. In Derchi et al. (2021), despite how learning happens, evidence is given that ESG-linked incentives increase ESG performance monotonically for many years after adoption.

Following Bianchi et al. (2022), who applied the concept in a sustainability setting, we used the Crossan et al. (1999) model of the 4 Is to operationalize OL. Crossan et al. (1999) conceptualized the process of OL in the 4-Is model. Each “I” corresponds to a phase of OL. The first phase is intuiting when individuals draw from their experiences to develop novel ideas to identify new opportunities (e.g. pollution prevention solutions and possible waste reduction initiatives). The second phase, interpreting, reflects the translation of these ideas into words. This phase moves from the individual to the group level. Idea originators discuss their ideas with their peers and start making sense of the environmental logic using dialogue. The third phase is integrating, whereby groups develop a shared understanding that provides a common direction. Integrating is particularly important, as the concept of sustainability may be new to organizational actors, so the chosen structure is not decoupled from daily practices (Crilly et al., 2012). The last phase is institutionalizing, which entails embedding new learnings at the individual and group levels in organizational practices and strategy. Each of the four phases generates dynamic organisational loops. In Crossan’s model, MCSs, among other mechanisms, are both a trigger and an enabler of OL in sustainability if they adapt. Wijethilake and Upadhaya (2020) attribute a moderating role to MCSs in developing sustainability learning capabilities.

The realization of the transformative potential of MCSs through OL that ensures sustainability integration is a continuous, iterative process and not merely a compliance exercise. Thus, as any other process of organizational change (Quattrone and Hopper, 2001), it is unpredictable, non-linear and socially embedded (Baxter and Chua, 2003). Further, we must point out that the transformative potential depends significantly on the compelling mix of multiple management control practices (Malmi and Brown, 2008). Discussing the understanding of MCSs, Bedford (2020) emphasizes that their effects and their adaptation to contextual changes depend on the interdependence (joint effects) of multiple management control practices, the magnitude of their interdependences and how “core” different management control practices are at various times. The study hints that LoC could be complementary or substitutive in integrating sustainability.

To the best of our knowledge, no studies track the dynamics of the sustainability integration process to show how firms leverage LoC and learn sustainability management. With our study, we attempted to fill this research gap, as advocated by Bui and De Villiers (2017), among others. We used longitudinal case studies as a fit for the research purposes, knowing that our research may suffer from methodological bias and our findings are not generalizable (Jans and Dittrich, 2008).

Table 1 visually and conceptually frames the cause – use of LoC – to effect, e.g. progressive OL leading to sustainability integration. It offers a structured pathway to investigate how firms move beyond mere compliance or greenwashing to embed sustainability into their core strategic processes.

The current research is based on qualitative case studies. We adopted a qualitative methodology based on the case study method (Yin, 2009). The case study method is suited to answer how and why research questions and provide an in-depth study of phenomena in their real-life context (Yin, 2003, 2009), disentangling its intricacy.

Within the same institutional context, our target was to identify three clinical cases of ESG champions. We looked at industry, size, regulatory contexts, ownership structures and stakeholders’ pressure to create the variety. We targeted industries where environmental and social capabilities are essential to reduce the ecological footprint during the manufacturing process and along the value chain or to produce a social impact while preserving the environment. Namely, we analysed firms operating in pharmaceutical production, energy production and distribution and manufacturing and distribution of beauty products. Within each industry, based on external communications such as corporate communication, press news, conference presentations, public engagement events and personal contacts, we sorted out firms with experience in proactively implementing sustainability strategies. Finally, based on ESG ratings available in either CERVED (for Italian unlisted companies) or Sustainalytics (for global listed companies), we choose firms whose proactive sustainability strategy had gained a sustainable competitive advantage through cost reduction, stakeholders’ integration and continuous innovation in environmentally friendly products. Because the three companies are ESG champions in their industry, we equated their championship with an effective integration of sustainability in management. Based on the above, our final selection refers to three cases of ESG champions in three industries with different degrees of maturity in integrating sustainability. Since 2015, all companies have been aligning with SDGs. Table 2 provides a summary of the most relevant company features.

The first two companies, Company A and Company B, are medium to large by Italian standards and family-owned businesses. They operate respectively in beauty and pharmaceuticals. Company A and Company B recently obtained the B-Certification and became Benefit Corporations. In Company A and Company B, family members act as sustainability ambassadors on the board of directors. They are responsible for the sustainability unit and proactively adopting a sustainability strategy. As a result, Company A and Company B are known nationally for their commitment to sustainability and long presence in the market, based on their reputation and legacy. They are also closely connected to their local communities and adhere to their core values. The third firm, Company C, is a public company with a dominant shareholder: the Italian Ministry of Economy and Finance, holding 23.6%. Institutional investors hold 59.4% of outstanding shares, while retail investors hold 17.0%. Since 2014, ESG investment funds have doubled their share of the company’s share capital to 14.6% in 2021. It operates in the energy production and distribution sector and was one of the first Italian companies to publish a sustainability report in 2002. Researchers and industry professionals often recognize Company C as a pioneer in adopting a sustainability strategy (Pistoni and Songini, 2013). Companies C and Company B operate in regulated industries.

We have been gathering information for each of the companies for several years. Our case study combines data from different sources, mainly external documents: “sustainability” reports, annual reports, impact reports, remuneration reports (for C company only) industry news, public announcements and information published on company websites. A narrative of each case study is reported below.

For our analysis, we used the framework in Table 1. We identified the use of LoC: boundary, belief, diagnostic and interactive systems and attributed it to a corresponding phase of OL for each of the three companies. Keeping chronological track of facts,  Appendix summarizes the narrative of each case, highlighting the most relevant steps in sustainability integration. The classifications are based on qualitative data, so it might suffer from research biases. Besides, the same event may proxy the use of different LoC. For example, the adoption of a sustainability plan may embed elements of belief (mission, vision), boundary (investment evaluation criteria) and interactive systems (the process of plan preparation). We exerted some judgment of the predominant value of the event based on the ancillary information. We considered both the nature of events and their timing to attribute to one of the three steps in OL. We must highlight that intuiting, interpretation/integration and institutionalisation phases unfold more than once along the time frame due to the “loop” nature of OL. Thus, for example, in the same year a company may experience events that refer to different phases of OL.

We also had the opportunity to meet in public events, forums and guest speeches at the university Chief financial officers (CFOs), controllers, sustainability ambassadors of the three companies and we interviewed them. We completed the data collection through site visits to establish its construct validity and reliability (Eisenhardt, 1989), and we double-checked our classification with each firm for consistency. Our study is compliant with the code of Ethics of our university for academic research.

The company was founded in 1983 and is family-owned but not directly managed by family members. The firm has shown continuous financial growth, confirming a double-digit growth, closing with a turnover of €263m in 2023; 80% of its revenues are from exports, mainly to the American and Canadian markets ^[3]. Company A’s vision is to “Do our best for the world, creating a good life for all through beauty, ethics, and sustainability.” Since 2018, the Group has chosen to align its corporate strategy with specific SDGs and committed to reaching the goal of net zero emissions by 2030.

Company A’s sustainability journey started in 2000 and lasted for a decade, leading to early awareness and ethical commitments (2000–2010). Since the early 2000s, the company has been sensitive to sustainability and developing progressive awareness. In 2005, the company drafted its first “Carta Etica” (belief), a document consolidating the commitment between the company and the staff, trying to create a vision to take care of the surroundings and have an idea of the 360° sustainability concept. In 2007, Company A drafted the Sustainable Beauty Manifesto (belief), encouraging social well-being and care for the planet. Moreover 2009, the firm created the Charter for Sustainable Research (diagnostic) to measure their laboratory performance and maximize their formulas’ sustainability.

Structural changes and stakeholder engagement happened only in 2011 up until 2016. This marks the transition to the transformation phase. By 2011, the firm started to change its packaging to be more sustainable through the Packaging Research Charter Guidelines (boundary) and constantly updated to design and generate low environmental impact solutions. In addition, to involve some of their most relevant stakeholders, the hair salons (interactive), since 2012, the company has encouraged them to switch to renewable energy through active participation in different company A’s projects, dialogue and communication to their clients and consumers. In 2015, the company adapted in several ways. The company started evaluating suppliers’ environmental and social performance, setting expectations for sustainable sourcing (belief). Company A established a volunteer team to enhance employee well-being, fostering internal sustainability awareness (interactive). In the same year, for the first time, company A issued the sustainability report (diagnostic) as the main instrument for communicating and evaluating results to stakeholders. In the following year, 2016, the firm obtained the B-Certification (boundary) for the first time, focusing on achieving sustainable goals and collaborating and sharing knowledge to drive organizational changes. The B-Certification requires that the company is assessed by the benefits impact assessment (BIA), an online tool through which a firm discloses the impact of its actions on the environment, workers, communities, customers and business model. The BIA measures the company’s footprints in different areas: workers, community, environment, customers and governance. The BIA can determine the overall impact generated by the company, the standards, certifications obtained, implemented in-house practices, community involvement and value chain activities. The information of the BIA can also help prepare the annual Benefit Report, which benefits corporations must make available to the public. The B-Corp accreditation- an external drive to formalize adopting a sustainability strategy-strongly acknowledged company A’s mission. The experience gained in working through the B-Corp certification led to identifying another learning target to take Company A to the next level.

Formalization and strategic sustainability started in 2018, when Company A launched the Company Village, a physical embodiment of its sustainability values (belief). Five years later, in 2023, besides achieving the Leadership in Energy and Environmental Design certification (boundary), which helps to bound the environmental and social impact on their production site, the firm started the road to draft and map their materiality matrix (diagnostic), with the identification of stakeholder’s and stakeholders’ interests to help identify the material topics (Interactive). The exercise led by the Sustainability Committee (SC), composed of the President, Chief Executive Officer (CEO), top executives, sustainable development activators, team leaders and the CFO, has been extraordinarily choral and a valuable OL experience. The first step was identifying material topics that were the responsibility of the sustainability department. Company A identified internal and external stakeholders in each phase of the value chain. The internal stakeholders approved a list of material issues and sized the investment required to accomplish the outcome in the identified area. The second step involved comparing the list of material issues with a peer group. The newly created SC in the first implementation relied on the expertise of a consultant to identify a list of material items specific to the industry and the peer competitors. Hence, the list of material topics was externally validated. The third phase implied meeting with external stakeholders to define priorities and draw up the materiality matrix. The firm organized a forum to codify the material matters in the presence of internal and external stakeholders. At the end of the forum, stakeholders voted and attributed relevance to each material item on the list. Using the results, Company A set up the materiality matrix, which became the input for developing a full-fledged sustainability strategy. Recently, the development of a sustainability strategy became a formal process. This bottom-up process starts with a great deal of training of the activators, which is separate from the strategic planning process. The exercise has been valuable, and the experience gained will benefit the future preparation of the Corporate Sustainability Report following the adoption of the CSRD, which is the evolution of the Non-Financial Reporting Directive. All relevant tracks are shown in the following Figure 1.

Company A is working to integrate sustainability incentives into managerial compensation, linking financial rewards to long-term sustainability goals. 54.8% of headquarters managers (executives, middle managers and employees) already receive profit-sharing bonuses for the achievement of sustainability performance. The finance and sustainability departments collaborate on materiality analysis and strategy development. Still, financial metrics related to sustainability remain outside the financial department’s scope ^[4]. Company A’s financial and controlling unit cooperates with the sustainability unit for the materiality analysis and the subsequent development of the strategy. However, the financial department does not deal with sustainability metrics.

Company B, founded in 1935, is a family-owned and managed company known for researching, developing, producing and commercializing drugs for respiratory, neonatology and rare diseases. The stable growth has been the primary driver of its operations and research activity internationalization. In the 1970s, Company B established its first presence abroad, in Brazil; in 1979, it gained public and wide recognition for respiratory diseases by launching its first asthma medicine. One of Europe’s leading Italian pharmaceutical companies for patent deposits, with 4.857 patents granted in 2021 ^[5], in 2023, the Group reported revenues slightly above 3 billion euros and invested 24% of its revenues in Research and Development. The Group Research and Development develops and markets novel therapeutic solutions in three areas: AIR (products and services that foster breathing from newborn to adult individuals), RARE (treatment for patients with rare and ultra-rare conditions) and CARE (products and services that assist with specialty care and consumer-facing self-care) to fulfil its mission of improving people’s quality of life by acting responsibly toward society and the environment. The European market remains the most significant market for Company B, accounting for 72% of the total revenues.

Company B’s early awareness and regulatory influence grew in 2003–2014. This period corresponds to the “awareness” phase. Implementing corporate responsibility regulations through the Italian Ministerial Decree 231 prompted Company B to take ethical business practices more seriously (boundary). No relevant events happened for over a decade until the focus on sustainability intensified when, in 2013, the company expanded its research and biotechnology influence by acquiring a Danish biopharmaceutical company, reinforcing its focus on innovation for sustainability.

The initial sustainability commitments and structural changes happened between 2015 and 2017. In 2015, Company B took actions. It structured the governance of its CSR activities, establishing the Shared Values and Sustainability (SV&S) unit and an Impact Committee. A family member was nominated to head the SV&S unit. As stated in its 2015 Impact Report, Company B’s commitment to integrating sustainability into its business aims at continuous processes and organizational innovation to positively impact people and patients and promote a conscious and sustainable way of conducting business through collaborative dialogue with stakeholders (interactive). The same year, the company issued a CSR program bounding its activities (boundary) and its first CSR report (diagnostic). In 2017, the company continued its efforts to formalize sustainability into the organization and formed the Corporate Compliance Committee, which includes the Chief Human Resources Officer, Group Compliance Officer and Head of Internal Audit, to oversee compliance-related matters. The committee supported the Board of Directors on relevant assessment and management matters. A whistleblowing system was introduced, providing employees with a direct communication channel to report unethical behaviour (interactive). The first sustainability report was disclosed in the same year, reinforcing external communication of sustainability efforts (diagnostic).

In 2018 and 2019, Company B advanced sustainability and engaged in green investments. In its 2018 Impact Report, the company identified and measured (diagnostic) the outcome of the firm’s activities and the objectives set up to pursue common benefits. The same year, the company refined its materiality analysis and drafted its materiality matrix map with the material topics identified in the 2018 impact assessment as baseline (diagnostic). The firm also becomes aware of and commits to the SDGs in its first sustainability-integrated strategic plan. To maximize the results of their efforts, the company has chosen to focus on nine specific SDGs that align with Company B’s capacities, abilities, skills and strategy (belief). In 2019, the company designed and committed to analysing the impact of a global logistic network, aiming to create a model that allows the evolution of logistics guided by sustainability principles and improves efficiencies, such as costs, service levels and quality (diagnostic). It was the first pharmaceutical company to disclose a solution to reduce the carbon footprint of pressurized metered dose inhalers by 2025, investing 350 million euros, the first sustainability-related sizeable investment. The firm also drafted its Suppliers’ Code of Interdependence (boundary) and obtained the B-Corp certification (boundary).

2020–2022 has seen a strengthening of ESG as a risk management framework. This aligns with the strategic learning and formalization step. Company B has gained experience in managing the preparation of the materiality matrix and the impact report. The knowledge gained allowed Company B to leverage the experience and integrate ESG concepts further; most importantly, Company B uses the materiality matrix and the Impact profile as input for budgeting and rewarding processes. In 2021, Company B proudly acknowledged an overall ESG score ^[6] of 73.7 out of 100, indicating a solid commitment to sustainability. The ESG score is a relevant indicator for their learning process; the head of the SV&S unit highlighted the importance of the score in identifying strengths and weaknesses for the firm to improve, such as supplier relationships and expanding sustainability processes throughout the value chain. The rating is a starting point for continuous learning, identifying new opportunities and promoting improvement actions (ESG, Company B, 2023) ^[7]. A new function of Enterprise Risk Management, reporting directly to the Group’s CFO, was established in 2022, and it supervises the sustainability non-compliance risk (interactive). In 2022, Company B reconfirmed its B-Corp certification after an internal process assessment, obtaining a significant improvement over the 2019 score. Since 2018, sustainability incentives have progressively aligned to promote shared value and a sustainability mindset among all employees ^[8]. To date, the use of ESG-linked incentives has followed up on the targeting of ESG results as stated in the plans of the Impact Profile. All relevant tracks are shown in the following Figure 2.

Company C, a traditional energy company with significant coal, oil and natural gas assets over the years, shifted its focus to renewable technologies, positioning itself at the forefront of sustainability management. This leading Group in the energy sector is in over 40 countries on five continents. A vertically integrated firm along the entire value chain through business lines with specific focuses supports its core business areas with global services (Procurement, Digital Solutions and Global Customer Operations). Innovation and sustainability are a fundamental global unit. The international business model in each country adapts to specific local requirements.

The development of sustainability awareness dates from 1999 to 2004. Company C’s sustainability journey began in 1999 with its privatization, allowing it to adapt to market liberalization and increasing competition (Giangreco and Peccei, 2005). This phase corresponds to the “awareness and initiation” phase, as it includes early commitments such as in 2000, when it signed an agreement with the Ministry of Economy and Finance to reduce carbon emissions by 13,5% (boundary). Since 2002, when it published its first CSR report (diagnostic), the company adopted a more and more comprehensive sustainable strategy, including investment decisions, ethical commitments and responsibilities. Company C’s sustainability strategy based on establishing solid, long-lasting relationships with local communities, integrated socioeconomic factors within business processes. The Group’s ethical obligations and responsibilities manifesto (belief) aligned the conduct of employees with sustainability standards expected by internal and external stakeholders. In 2004, the company entered the Dow Jones Sustainability Index (DJSI) to give evidence of its commitment to sustainability and nurturing its shareholders’ trust.

By 2008, Company C took an even more decisive step in implementing its sustainability strategy (interactive) by creating an independent company (Green Power), building strong relationships with colleagues, customers, partners, investors, institutions and local communities for a sustainable future and therefore, investing heavily in renewable energy and becoming the world’s largest private renewable energy operator with 54 GW of installed capacity. Green Power was conceived to operate in different countries to maximize strategic growth options and, at the same time, minimize regulatory and country risks. It invested in various initiatives, such as photovoltaic parks in Italy and abroad. It entered strategic partnerships (interactive) with global operators being an example to clients and suppliers worldwide. In 2012, the company realized its first “analysis of materiality” program aimed at mapping and calibrating the issues and expectations of stakeholders and the means and processes (diagnostic) with which the company responds to such expectations. This systematic approach ensured that sustainability was not just a compliance requirement but an evolving corporate priority

A reinforcement phase (2016–2020) followed. In this period, we identify the “integration and formalization” phase. The company reinforced its sustainability integration in 2016 when it was included in the Carbon Disclosure Project (CDP) A-list, reflecting its involvement and leadership (interactive) in climate responsibility. During the same period, the firm also reported their non-financial disclosure according to Legislative Decree 254 / 16 on the relative risks and management procedures concerning the management of human rights, anti-corruption, occupational health and safety, the supply chain and community relations, as well as the relative policies and controls adopted (diagnostic). To continue to commit to more efficient energy production standards, in 2016, the firm started the “Open Power” model/standards (boundary) to link the strategy to concrete values and conduct for all people working in the Group and to increase involvement and the ability to communicate the innovations related to the new strategy. This approach permeates all the processes for people’s management, development and motivation. The 2018 remuneration report states that the remuneration policy is structured according to a long-term incentive plan for the top management, aligning to a better ability to diagnose sustainability long-term impacts (diagnostic) as indicated by the increased sensitivity of the market for ESG issues. In 2020, the company demonstrated its constant involvement in dialogue and participation with the community by becoming a member of the Global Sustainability Standard board (interactive)

The year 2021 has seen several events through which Company C closed the “loop” of sustainability. This marks the “strategic alignment and institutionalization” phase. In 2021, Company C was the first Italian-listed company to adopt the principle of double materiality. Materiality assessment processes are vital for helping companies effectively identify, manage and report significant ESG risks and opportunities. Company C ^[9] describes the development of materiality analysis as a dynamic exercise of learning and change, a multi-contributed and shared process. Issues are firstly classified into business, governance, social and environmental. The Corporate Governance and Sustainability and the Control and Risks Committees review the topics based on the company’s current context in line with the SDGs, the 2030 Agenda, and the World Economic Forum (WEF) guidelines. Once the issues have been pre-identified, stakeholders are engaged and asked to assess their priorities and satisfaction concerning each issue. Company C categorizes its stakeholders into businesses, trade associations, customers, financial communities, institutions, civil society, local and global communities, media, employees, suppliers and contractors. Relevance is assigned to each category of stakeholders based on Company C’s dependence, the stakeholders’ influence and tension between parties, updating the list to remain aligned with the sustainability context in which the firm operates. Company C conducts multiple engagement initiatives: in 2021, Company C counted 480 initiatives, including surveys and online questionnaires. Company C also uses socioeconomic, environmental and cultural data from external sources and public organizations, as well as interviews with local stakeholders; as reported in the case study by Blanco et al. (2021) in Brazil, they work closely with rural communities to understand their context and determine the best ways to connect them to the electricity grid. With the inputs received from its stakeholders, Company C identifies which topics to monitor (low priority, low satisfaction), which ones to improve (low priority, high satisfaction), which ones to maintain (high priority, high satisfaction) and which calls for action (high priority, low satisfaction). The analysis is then checked against strategic priorities for consistency and alignment with the stakeholder’s view. Double materiality applied to the analysis implies financial materiality – outside-in, which focuses on risks and opportunities related to future cash flows, and impact materiality – inside-out, which assesses the company’s impact on society and the environment in the short, medium or long term. The combination of financial and impact materiality gives Company C a broader view of the impacts suffered and generated by the company and the associated risks. The materiality analysis and report are discussed and approved by the Board of Directors. In 2021, with specific objectives for reducing greenhouse gas (GHG) emissions, focusing on renewable capacity growth and the gradual closure of coal plants, the company implemented a Net Zero path commitment, requiring extended capacity to measure emissions and (diagnostic). The Group targeted 2022–2024 investments to align 94% with the United Nations SDGs and over 85% with the European Taxonomy. The targets are explicit commitments and normative requirements of the first “Sustainability-Linked Financing Framework” (boundary). The framework establishes a direct, explicit link between sustainability strategy and investments with the company financial debt instruments ^[10], paying an interest rate and applying other economic terms linked to achieving sustainability goals. In the case of Company C, goals concerned green emissions (SDG 13: Climate action) or installed capacity powered from renewable sources (SDG 7: Affordable and clean energy), and, more recently, “Scope 1 and 3 GHG emissions intensity relating to Integrated Power (gCO2eq/kWh)”, “Absolute Scope 3 GHG emissions relating to Gas Retail (MtCO2eq)” and “Proportion of Capital Expenditure (CAPEX) aligned to the EU Taxonomy (%) ^[11].” In this context, the double materiality analysis (diagnostic) proved relevant in building transparency and reassuring investors, raters and policymakers ^[12] of the ESG consistency of plans and strategic priorities. Company C fully and formally integrated sustainability considerations in its investment evaluation criteria in planning 2021 40 billion euros in gross capex to increase its leadership in renewables and networks. Sustainable funding sources are targeted at 48% by 2023 and 70% by 2030 (Carungu et al., 2022). In the context of the advancement of sustainability integration reached in 2021, the compensation policy in 2021 specifies that a sizeable portion of the variable compensation -both short and long-term- of the Chief Executive Officer/General Manager and key management personnel is linked to performance objectives concerning sustainability and climate (diagnostic). All relevant tracks are shown in the next Figure 3.

Data collected from the year 2000 demonstrates that integration is a long process of learning and adaptation. Consistently with Albertini (2019) and Arjaliès and Mundy (2013), we observed that all companies activated all LoC; on average, we identified 13–15 significant uses of LoC to move firms forward in the process of sustainability integration.

In line with Malmi and Brown (2008) and Bedford (2020), from Figures 1–3 we note that one model does not fit all. Despite this, we observed that belief and/or boundary systems alternatively triggered the process. Whereas belief systems are more rarely impacted, showing the general stability of the firm’s values, boundary systems are more frequently affected by new external regulations or communicated commitments taken by the company to integrate sustainability. Company A’s primary driver of change was its shareholder’s engagement and growing awareness of sustainability. In Case A, the internal beliefs in sustainability permeated the organization and led to the Carta Etica drafted in 2005. Carta Etica was an embryo of a more mature manifesto to state the willingness of social and environmental responsibility in producing, distributing and using natural resources. Company A was committed to minimizing adverse externalities early on, e.g. packaging uses only recyclable primary material, and formulation, design and production operations use only 100% clean energy. Unlike company A, external forces accompanied the first move toward sustainability in the other two cases, cases B and C. The pharmaceutical industry is known for being one of the most regulated industries, and in Case B in 2003, the obligation to implement ethical commitments and responsibilities was enforced by a normative Decree 231 / 2001. In case C, the liberalization of electricity-related activities to comply with the public service obligations (Decree n.79 of April 16th, 1999) ^[13] coexisted with a ministerial agreement to reduce carbon emissions over time. Those external forces made firms set boundaries for their investment activities.

In Figures 1–3 interactive and diagnostic systems are more frequently designed and used to transition to sustainable management, especially in cases B and C. Even if Heggen and Sridharan (2020) stated that diagnostic/interactive systems used independently or in combination do not impact eco-performance, we observed positive impacts of their use on sustainability integration. Diagnostic systems are central when it comes to measurements. In line with Maas et al. (2016), diagnostic systems have been transformed to incorporate ESG measurements, their disclosure in sustainability reports, and their use in drafting sustainability plans. In our case studies, at the outset, sustainability reports primarily of a voluntary nature might have been greenwashing exercises. The intent to project a green/social company image was coupled with ESG lack of knowledge and limited ability to define, track and measure ESG performance. Noticeably, sustainability reports have been evolving dramatically across companies over time. Differences refer to the timing of adoption and the labelling of the report but primarily to its focus and content and the subsequent integration of information for all stakeholders. We seem to note that the subsequent drafting of sustainability reports led to learning how to measure and diagnose ESG performance. Company C – the earliest adopter-drafted a CSR report for the first time in 2002. CSR was the report’s focus; the measurements included were few and scattered, the qualitative narrative was predominant and commitments mainly referred to general ethics concepts. Only more than a decade later, in 2019, Company C published its first annual integrated financial report, where the ESG measures abounded, underlying an improvement in the ability to diagnose ESG performance and outcomes. Company A and B issued their first reports in 2015: Company A labelled it “sustainability report,” while Company B still focused on CSR. Currently, the integration of financial and non-financial information has not yet happened for Companies A and B. Company B is mandated to disclose an integrated report for the year 2024. Even in these two cases, the quality of the measurements has improved and become more quantitative (complex measures), in line with the introduction of ESG incentives (Maas and Rosendaal, 2016). According to Kloot (1997), the interactive use of control systems enhances information distribution and interpretation as they allow sense-making, enabling firms to reach key integration milestones, such as the emergence of a sustainability strategy, integration of stakeholders and public recognition.

For the first time, after their first adoption of the sustainability report, firms came up with a sustainability strategy, a plan for sustainability committing to specific sustainability targets. Setting a sustainability strategy is a significant step in integrating sustainability in defining the value chain, decision-making and the allocation of resources. Interactions among managers or teams of managers and directors contributed to the emergence of a sustainability strategy. In 2008, Company C started its green strategy with a start-up (Green Power) whose main goal was to produce energy from renewable sources. A few years later, in 2016, Company C set new environmental standards and adopted the “Open Power” strategy. Company A sustainability strategy had been emerging, and a few key events proxied the adoption of a formalized plan:

• the commitment to promote the usage of renewable sources in hair salons in 2012;

• the announcement of the employee’s well-being initiative in 2015; and

• the adoption and integration of certain SDGs in their plan with the specification of targets.

Company B’s adoption of a sustainability strategy was more formalized and identifiable with the formal commitment to integrate sustainability into business through the first CSR program in 2015 and the release of the first sustainability plan in 2018.

Moreover, interactive systems provided the organizational and methodological infrastructure to start the materiality matrix exercise (Garst et al., 2022) and the progressive stakeholders’ integration to evaluate “tensioned topics,” which indicate material societal impact but lack a business case. Adopting the materiality matrix is another milestone in integrating sustainability into management as it allowed firms to gain insights into the ESG activities that stakeholders other than investors value. Gathering data to share with stakeholders and defining what is material and not from the sustainability standpoint allowed all firms to learn further and integrate stakeholders’ expectations in reviewing and crafting strategy. Companies A, B and C adopted the materiality matrix for the first time after adopting their sustainability strategy, respectively, in 2023, 2018 and 2012. Company C, in 2021 ^[14], published its first double materiality matrix, defining materiality from the perspective of both financial materiality and impact materiality ^[15].

Further, firms used interactive systems to seek public recognition of their commitment to sustainability. Companies A and B obtained the B-Corp certification in 2018 and 2019. In 2019, CDP included Company C in the “A” list for its leadership in environmental transparency and performance on climate change, deforestation and water security. In acknowledgment of its leadership, Company C became a member of the ISSB in 2020, having consolidated knowledge and experience in managing sustainability.

Willing to observe the moderating role of OL, in Figure 4, we reported the association of LoC to the phase of the OL; the line thickness was based on the frequency of association. The chronological sequencing of LoC use reported in Figures 1–3 in association with phases of OL itemized the learning loops.

LoC stimulated learning, from the intuition to the institutionalization phase, as indicated by. Unlike Crossan et al. (1999) and Albertini (2019), we found that not only diagnostic and interactive systems support OL. Like Arevalo et al. (2011), we note that each firm adopted more structured (Case C and B) or more explorative (Case A) learning models. The variety of learning models is reflected in the LoC coupling loosely or tightly to each phase of OL. Based on our study, tight coupling emerges primarily between the use of diagnostic systems and the institutionalization phase of OL. According to our observation, diagnostic systems provided learning through continuous improvement in sustainability metrics and operational practices, witnessing in line with Epstein and Buhovac (2010), Narayanan and Boyce (2019), Albertini (2019), and Asiaei et al. (2021) that measurement remains central to institutionalizing goals and outcomes even in the sustainability setting. Establishing clear limits and risk parameters -boundary systems- tightly couples with the institutionalization phase, channelling learning by focusing efforts on what is deemed acceptable or strategic in sustainability, consistently aligning individual and group actions with objectives, thus institutionalizing sustainability. Like Kloot (1997), interactive systems stimulate the OL process in the interpretation and integration phase. When looking at the chronological sequencing of LoC, we realized that interactive systems trigger loops and operate as feedback and refinement mechanisms for either the diagnostic or the boundary systems.

All other associations in Figure 4 are loosely coupled. In our understanding, loose coupling should not be overseen but rather analysed further. Albertini (2019), already stated that belief and diagnostic systems inspire individuals and groups to generate new ideas and engage in discussions that challenge traditional practices, fostering intuition, creating a shared vision and stakeholder alignment and integration and driving cultural and strategic shifts that embed sustainability in the core business (innovation). Based on our findings the use of beliefs and diagnostic systems are loosely associated with the intuiting phase. Interactive systems are loosely associated to the institutionalisation phase, when companies work on their governance and/or institutionalize innovation. Additional looser couplings exist.

It does not surprise that, according to Bedford (2020), management control practice could have interdependent effects (compensating, reinforcing, enabling, substituting, exacerbating, instigating) or independent effects (supplementary, conflicting, redundant, interchangeable), thus impacting OL in different ways. Observing those effects falls beyond the scope of our study, but it is undoubtedly worth investigating to disentangle the intricacy of causes and effects.

From Figure 4, we can also observe the dynamic of the OL through the intuiting, interpretation integration and institutionalization phases. During our observation period, companies went through those phases more than once, confirming the OL generates a loop effect, being a process of organizational change (Quattrone and Hopper, 2001), unpredictable, non-linear and socially embedded (Baxter and Chua, 2003). In line with Crossan et al. (1999), it was interesting to observe that the learning concerned individuals, teams, groups and inter-organizations. ESG ambassadors (at their embryonic stage), whether top managers (Case C) or the owner-family members (Case A and B), contributed to sharing their intuitions, values and knowledge within the organization. Educated by ambassadors, groups of managers focused on managing sustainability and adapted their routines in search of shared values. In line with Porter and Kramer (2011), we gathered evidence of redefining productivity in the value chain and reconceiving products and market features while creating shared value or pursuing financial success that yields environmental and social benefits. Companies A, B and C, to different extents, innovated for sustainability: for example, the introduction of eco-packaging for Company A, the research focused on RARE (diseases) in Company B, the creation of a new entity Green Power focused on energetic transition toward renewable sources. Further, companies engaged in inter-OL through various initiatives. Company A, for example, drafted the Charter for Sustainable Research (2009), set Guidelines for Eco-packaging (2011), promoted the use of renewable energy at their customer premises (2012) and created an eco-village (2015). Company B set up a suppliers’ code of independence (2019). Company C contributed to the codification of knowledge by joining the Global Sustainability Standards Board (2020).

One last observation stems from the consideration that since the United Nations identified the SDGs in 2015, a progressive alignment of sustainability strategy to the SDGs compelled firms to learn further. We noticed that, in line with Bebbington and Unerman (2020), a gap still exists between the embracement of the SDGs at the strategic level and the ability to quantify performance against SDGs target.

Integrating sustainability into business management has evolved from a peripheral concern to a strategic imperative as firms seek to align with regulatory requirements, stakeholder expectations and global sustainability goals. The academic debate continues to grapple with challenges such as greenwashing, ESG performance measurement and the balance between financial and sustainability objectives. While prior studies explored the role of MCSs in sustainability integration, few have tracked the longitudinal dynamics of sustainability integration. To the best of our knowledge, no studies track the dynamics of the sustainability integration process to show how firms leverage LoC and learn sustainability management. Through a longitudinal study of three cases, we attempted to fill this research gap, as advocated by Bui and De Villiers (2017), among others.

We provide empirical evidence that sustainability integration is not a one-time event, but an iterative refinement process influenced by OL in evolving regulatory and competitive landscapes. In line with Malmi and Brown (2008) and Bedford (2020), who highlighted the complementary and substitute nature of different forms of controls, our main conclusion is that one model does not fit all.

Patterns emerged despite lacking one single model. Consistently with Arjaliès and Mundy (2013), Albertini (2019), and Asiaei et al. (2021), our research assumed that firms leverage Simons’ (1995) LoC to facilitate sustainability integration as a learning process. We posited that all four control levers – belief, boundary, diagnostic and interactive systems – play a role in embedding sustainability into decision-making and operational strategies. Following Bianchi et al. (2022) and Crossan et al. (1999), we further hypothesized that sustainability integration follows an OL trajectory, transitioning from intuition to institutionalization. Our findings confirm that sustainability integration is a dynamic, long-term process that unfolds through multiple learning loops.

We observed that belief and boundary systems often initiate the sustainability integration process, driven either by internal values (e.g. Company A) or external regulatory pressures (e.g. Companies B and C). Diagnostic and interactive systems are crucial for transitioning sustainability from a compliance exercise to a core business strategy. The design and use of diagnostic systems underlying the disclosure of the sustainability report seem a critical and crucial step in the integration process. Sustainability reports and ESG performance metrics serve as diagnostic tools that improve over time, while interactive systems facilitate cross-functional dialogue and strategic adaptation. Interactive systems contributed significantly to the emergence of a sustainability strategy, stakeholders’ integration and the search for public recognition of firms’ commitment to sustainability. We also observed that interactive systems operated as feedback and refinement mechanisms for diagnostic (improved ESG performance measurement) and boundary systems (ESG-integrated investment criteria), culminating in adopting ESG-linked managerial incentives.

With our study, we contributed to advancing the study on the importance of MCSs in facilitating OL, which depends upon the characteristics and use of the organization’s MCS. The framework guides managers to design and adapt their control systems to foster a culture of continuous learning and genuine sustainability integration, demonstrating an aligned set of controls. Case studies suggest possible paths to effectively integrate sustainability in management and promote progressive alignment with the SDGs.

Despite its contributions, our research is subject to certain limitations. While providing rich qualitative insights, the case study approach limits generalizability (Jans and Dittrich, 2008). In addition, our reliance on publicly available data and interviews may introduce bias, as internal decision-making processes remain partially opaque. Future research should consider broader sample sizes, cross-industry comparisons and quantitative validation of learning dynamics in sustainability integration.

To conclude, we would like to reflect on the role of performance measurement as part of MCSs in pursuing a better world. As pointed out by Bebbington and Unerman (2020), in contrast to the slow development of academic research seeking to advance insight into how accounting, e.g. performance measurement, can contribute to the achievement of the 17 SDGs and their underlying 169 targets, many organizations in both public and private sector were quick to build the SDGs into their strategy and external corporate reporting. Our cases evidence this practice, proving that practice is a leading theory. Innovative, evidence-based solutions to organizational-level strategic and operational-related SDG challenges should be investigated and framed further in future research. To unfold the transformative potential of performance measurement, companies should reimagine innovative methodologies involving costing, budgeting, capital budgeting and reporting to fulfil the current quest for alignment with broader societal goals. In this research arena, it would also be interesting to see how SDG-related metrics will develop at an organizational level, across other SDGs and inter-organizationally.

The authors wish to acknowledge the two anonymous reviewers for their valuable comments and their genuine interest in advancing Management studies.