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The purpose of this paper is to review and discuss different aspects of institutional theory and resource based‐theory in relation to issues of environmental sustainability and how these might influence business practices and environmental decision making in agriculture‐based tourism businesses. A wine tourism district in Australia has been selected for further studies.

This paper presents a brief review of the concept of sustainability for the business community, followed by a review of institutional and resource based theories linked with the natural environment, and discusses how business‐activities towards sustainability might be promoted or hindered by the institutional context. This review identifies current research gaps and makes suggestions regarding empirical testing through comparative research on a wine tourism cluster in Australia and an apple tourism cluster in Norway.

The paper presents a series of gaps in current theory and empirical research and makes recommendations regarding a comparative empirical study of an Australian wine tourism cluster and a Norwegian apple tourism cluster.

This paper is among the first to explore the issue of environmental sustainability and business decision making from an institutional perspective. The recommendations regarding empirical research will potentially inform future research initiatives regarding environmental sustainability in wine tourism clusters. More knowledge about the firm's perspective on the issue of environmental orientation and strategy, and how best to ensure lasting change is vital for the development of relevant wine business and environmental policies. This knowledge would be important both for wine industry organisations as well as environmental policy makers.

The paper aims to examine the competitive advantage of the environmental behaviour at a firm level and micro-cluster level, building the analysis on Harts model of natural resource-based view of the firm and by using Brown et al.'s framework for analysing contextual resources that would provide locational advantage based on environmental behaviour. The case study examines the drivers and the obstacles to environmental action and demonstrates how clustering has been important in progressing a sustainability agenda.

A case study of a single wine tourism cluster in Australia is undertaken using mixed methods.

The main drivers for environmental action are genuine concerns for the environment by the cluster participants, especially water conservation in the Australian context. Supporting this is the co-ordination of the Lovedale Chamber of Commerce which has promoted its “greening Lovedale” project as a source of regional identity and potential competitive advantage. The obstacles to action are those that are present when small firms dominate, a lack of resources and a lack of know how. Through clustering small businesses can share resources, access specialists and share knowledge.

A single cluster case study within the Australian and the wine tourism context confined to one point in time.

The clustering of firms in agricultural regions offers the opportunity to achieve individual and collective benefits. Clustering participation can reduce costs, achieve scale economies and share knowledge. These advantages are relevant for environmental actions. In the context of weak or absent government actions and regulations over the environment, regional clusters can utilise the advantages of clustering to meet environmental goals. These in turn can contribute to regional identity and regional comparative advantage. These issues are addressed through the study of the Lovedale wine cluster in Australia.

There are few studies of how clustered agricultural industries are addressing environmental challenges independently of central government directives or subsidies. Clustering enables small firms to participate in environmental programs despite being faced by resource and knowledge shortages.