Corporate commitment to climate change action,carbon risk exposure,and a firm's debt financing policy

Motivated by the rising consensus that corporate engagement in climate change actions holds the key for society's transition into environmentally resilient economy, the study examines whether a firm's commitment to climate change action and its carbon risk exposure shape the firm's debt financing policy. Based on insights drawn from signaling, corporate reputation, and agency theories, we develop models that link corporate commitment to climate change actions and a firm's carbon risk exposure with its debt financing decisions. Using data drawn from S&P 500 companies, for years 2015 to 2019, we find a robust evidence that firms that engage in higher levels of commitment to climate change actions issue a higher proportion of debt with longer terms to maturity, even after controlling for their carbon risk exposure. However, we do not find a robust evidence corroborating an association between firms' carbon risk exposure and their debt financing policy. These findings are consistent with arguments that high-commitment firms enjoy positive reputation, better credit rating, and reduced agency and information asymmetry costs, allowing them to gain easier access to long-term debt markets.     

The use of real options valuation methodology in enhancing the understanding of the impact of climate change on companies

Climate change has in recent years gathered traction on the business, political and social agenda. From the business perspective, research has shown that climate change impacts on company value are uncertain, significant and strategically important. The challenge therefore is for the business community to apply financial valuation models that support the incorporation of the climate change impacts in strategic planning. However, the commonly used discounted cash flow techniques in capital budgeting are seen as failing to address the high levels of uncertainties inherent in climate change impacts. Real options thinking has been touted as having the potential to enhance understanding of these impacts via its direct handling of uncertainty, although not much research has been done to demonstrate this. Using an illustrative case study, this research presents an argument for introducing the real options approach, a new method for valuing options of future strategic action by companies in a setting that exhibits climate change impacts. The objective of this research is to contribute to the literature on strategic tools for addressing climate change and ultimately offer some management insights that can narrow the gap between finance theory and business practice. Copyright © 2009 John Wiley & Sons, Ltd and ERP Environment.     

Assessing the Effects of Climate Change Regulations on the Business Community: A System Dynamic Approach

Based on the business environmental literature and system dynamics, this paper develops a simulation model for managing the business risks derived from climate change. In particular, the purpose of this paper is to transform the valuable findings from the literature regarding climate change and corporate implications into an effective business management model with a broad applicability, regardless of the size of the business or the sector in which it operates. A methodology consistent with the basic principles of the system dynamic modeling process is developed, and a case study is designed to determine the level of completeness of the simulation model and its ability to address different aspects of business performance. To do so, three different scenarios have been simulated to analyze the reactive, proactive and inactive stance of managers against climate change risks. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment     

Stakeholder pressures and corporate climate change mitigation strategies

Climate change mitigation and its related reduction of greenhouse gas (GHG) emissions is one of the most important challenges facing society. The major cause of the problem and the key to its solution are GHG‐intensive firms that emit vast amounts of anthropogenic GHG emissions. The study reported herein aims to increase our understanding of the climate change mitigation strategies of these firms, in particular their antecedents and effects. A comprehensive conceptual model is proposed and tested empirically based on a survey of 247 firms that participated in the European Union's Emissions Trading Scheme in the first two trading periods. We find that market pressures for reducing GHG emissions, perceived GHG‐related regulatory uncertainty and environmental strategy focus are important determinants of corporate GHG reduction strategies which, in turn, enhance GHG‐related performance. We also show that the results vary depending on the type of emissions.     

A relational view of climate adaptation in the private sector: How do value chain interactions shape business perceptions of climate risk and adaptive behaviours?

Studies exploring climate change adaptation in the private sector have seldom investigated the effect of business network interactions on climate vulnerability and adaptation outcomes. This paper proposes a novel theoretical framework to explore how business–network dynamics affect risk perceptions and adaptive behaviours in business firms. The framework is empirically grounded in a comparative analysis of business–network dynamics from three agricultural value chains in Jamaica that are vulnerable to climate change impacts. The results illustrate how the exposure, sensitivity, and adaptive capacity of value chain actors are influenced by business interdependencies and interfirm relationships. We find that the level of formality of business exchanges (contractual or noncontractual), the level of resource interdependency, and the ability to diversify access channels to critical resources can influence the propagation of climate‐related risks and influence actors' exposure and sensitivity to those risks. The study also offers evidence of the role played by bonding and bridging relational ties on adaptive capacity. The framework and findings provide a foundation for a new research agenda exploring a relational view of firm adaptation strategy in response to climate risks.     

Corporate Strategies for Managing Climate Risks

This paper focuses on organizations and their management of climate risks. Climate risks stem from continued changes in climate means and the increase in frequency and intensity of extreme weather events. We ask whether companies also apply the usual process of corporate risk management to climate risks. In seeking to answer this question, we review several literature streams in order to set out an initial theoretical reflection. Based on this we conducted an exploratory case study with 11 electric utilities. Our results illustrate that these companies perceive climatic changes as a material issue for their business. However, management has restricted knowledge about such climatic changes and thus cannot precisely determine the potential negative impacts on business activities. As a consequence, the companies have implemented a climate risk management that does not differ from the usual process of managing other business risks. Our results further illustrate that there is some variation in how individual firms manage climate risks: While risk identification and risk assessment are equally important for all electric utilities, there are differences in how management determines the direction of the individual response to climate risks. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.     

Impacts from climate change on organizations: a conceptual foundation

Physical impacts from climate change already pose major challenges for organizations, and the trend is rising. Organization theorists, however, have barely begun to systematically consider the organizational impacts of more and increasingly intense storms, floods, droughts, fires, sea level rise or changing growing seasons as part of their domain of study. Eight organizationally relevant dimensions of climate impacts are identified: severity, temporal scale, spatial scale, predictability, mode, immediacy, state change potential and accelerating trend potential. Combined, their scale, scope and systemic uncertainty suggest future conditions of systemic hyperturbulence in organizational environments, defined here as ‘massive discontinuous change’ (MDC). To build a conceptual foundation for organizations to respond and adapt to MDC, the paper examines contributions from literatures on the management of sustainability, crisis, risk, resilience and adaptive organizational change. It highlights gaps for addressing both business challenges and opportunities from MDC, and suggests avenues for future research. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.     

How warm is the corporate response to climate change? Evidence from Pakistan and the UK

In response to growing consensus among scientists and governments to act fast to avoid dangerous impacts of climate change, many industries have started to prepare for a carbon‐constrained world. However, this response is far from being uniform. Often action is predicated on economic, technological, organizational and institutional drivers and barriers, which vary between countries and across industrial sectors. In order to understand the effectiveness of industry response, it is therefore important to analyse corporate response across different sectors in different countries. Focusing on the nine most energy‐intensive and greenhouse gas (GHG) emitting industrial sectors, this paper compares corporate responses to climate change in Pakistan and the UK. By analysing the divergence of strategies adopted by industries across different sectors in two countries, the paper examines the key factors influencing corporate adoption and implementation of GHG reduction and energy‐efficiency strategies in Pakistan and the UK. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.     

Mitigating climate change: A role for regulations and risk‐taking

Why do some firms engage in actions to reduce climate change? We propose two counterintuitive mechanisms: high levels of regulation and a firm's increased tolerance for risk. Drawing from insights on how institutional contexts constrain, and enable, prosocial firm behavior, we argue that external pressures, amplified internally by a firm's higher tolerance for risk, increase the likelihood that a greenhouse gas (GHG)‐intensive firm will engage in climate change actions that exceed regulatory requirements. An analysis based on 7,101 observations of U.S. publicly traded firms during the 2013 to 2015 period supports our hypotheses. Our models show high overall prediction accuracy (88.6%) using an out‐of‐time holdout sample from 2016. Moreover, we find that firms that have exhibited environmental wrongdoing are also more likely to engage in beyond‐compliance activities, which may be a form of greenwashing. Thus, more formal and informal regulatory oversight has the potential to spur positive environmental actions. This has implications for a firm's corporate social responsibility actions as well as for climate change regulatory policy.     

The use of multi-criteria decision-making methods in the integrated assessment of climate change: implications for IA practitioners

Integrated assessment (IA) considers interactions of physical, biological, and human systems in order to assess long-term consequences of environmental and energy policies such as limits on greenhouse gas emissions, and other strategies to negate climate change. Users of IA face the daunting task of interpreting large amounts of data and uncertainties. Multi-criteria decision-making (MCDM) methods can help users process IA data, understand policy tradeoffs, and learn how their value judgments affect decisions. We held a workshop during which climate change experts tested several MCDM methods for using IA outputs to rank hypothetical policies for abating greenhouse gas emissions. Participants also evaluated several methods for visualizing tradeoffs under both certainty and uncertainty cases. This paper explores potential roles for MCDM in IA identified during the workshop, along with implications for IA design and implementation. We summarize the workshops’ results regarding intertemporal discounting (a type of MCDM weighting judgment), visualization of impacts, how MCDM methods can help users to incorporate their background knowledge, and how MCDM can improve understanding of tradeoffs and the importance of value judgments. A key result is that the interest rates IA experts recommend for discounting future impacts depend strongly on what type of impact is being discounted, as well as upon the exact phrasing of questions used to elicit rates from the experts.     

Intra‐Sectoral Differences in Climate Change Strategies: Evidence from the Global Automotive Industry

Companies are increasingly challenged for action on climate change. Most studies on business responses to climate change focus on cross‐sector comparisons and neglect intra‐sectoral dynamics. This paper investigates the influence of supply chain position and regional affiliation on climate change strategies within a particular industry. We present a generic framework integrating both market and non‐market responses to climate change. We argue that climate change strategies comprise several corporate activities that have different foci of interaction and four main objectives: governance, innovation, compensation and legitimation. Using a global sample of 116 automotive companies, we conduct a cluster analysis and identify four types of strategy. We find that the sophistication of automobile manufacturers' strategies significantly differs from that of suppliers. Regional affiliation and firm size prove to be determinants of the strategy type pursued. We cannot find evidence for a relationship between financial performance and a company's strategic approach to climate change. © 2017 The Authors. Business Strategy and the Environment published by ERP Environment and John Wiley & Sons Ltd     

Stakeholder engagement and environmental strategy – the case of climate change

Many management studies analyze stakeholder pressures and corresponding corporate strategies in the context of the natural environment. This study investigates the role of the sources of stakeholder pressures and additional contextual factors for choosing an environmental strategy. By focusing on climate change as an important ecological challenge, four general response strategies to greenhouse gas (GHG) reduction pressures are empirically derived and discussed. The analysis is based on a global survey that includes 141 companies across eight different GHG emission‐intensive industries. It is found that organizations' response strategies do not relate to individual stakeholder groups, but rather the organization's level of pollution measured as its GHG intensity is identified to have an influence on the environmental strategy. We discuss important implications for stakeholder theory as well as policy makers and suggest areas for future research. Copyright © 2010 John Wiley & Sons, Ltd and ERP Environment.     

The natural environment as a primary stakeholder: the case of climate change

In this paper, we review the debate surrounding whether or not the natural environment should be considered an organizational stakeholder. We argue for a broad definition of stakeholders, and present a case for the natural environment being an easily identifiable primary stakeholder when climate change is brought into the debate. We develop a conceptual stakeholder identification framework by combining and extending the work of Mitchell, Agle and Wood, and Driscoll and Starik. We approach the stakeholder issue from a strategic rather than moral or ethical perspective. In particular, we contend that power, legitimacy, urgency and proximity are combined when climatic changes, such as increasingly frequent anomalous extreme weather, can damage business infrastructure, resources, products and market, overshadowing moral and ethical aspects of the debate. We also identify key implications for business and policymakers, and highlight opportunities for future research. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.     

Does political propaganda matter in mitigating climate change? Insights from the United States of America

Some research on climate change has been the basis of climate change denialism (hereafter, CCD is used to refer to denial, denialism, and deniers). There is formative knowledge about the role of political propaganda in climate policies and resulting outcomes. To contribute to the understanding of political ideology and the extent of CCD, we adopt econometric techniques to study the impact of the United States of America's withdrawal from the Paris Agreement. The results show that ideological political propaganda has psychological and philosophical consequences that impact climate change policies. In addition, we find that the effect of a state's economic growth on climate change is mediated by CCD. In particular, low-income capitalist states have a higher propensity to become CCDs because they are more likely to engage in economic expansion even at the expense of environmental sustainability. Global climate change policies depend on high-income nations and industries' willingness to adopt economic policies to achieve sustainable future development. Thus, this study fills the literature gap on the relationship between political ideology and climate change. The findings show that CCD significantly influences voting patterns and socioeconomic outcomes. It impedes states from achieving net-zero emissions and carbon neutrality and it is used as a political propaganda. Subject to these findings, relevant policy suggestions are offered.     

Banks' business strategy and environmental effectiveness: The monitoring role of the board of directors and the managerial incentives

The purpose of this paper is to investigate how banks' climate strategies affect environmental performance. To extend this line of research, the carbon disclosure of worldwide banks is examined. In particular, we focus on specific governance strategies: board of director monitoring and managerial incentives. Panel data are employed on a sample taken from 330 bank-year observations in the period after the financial crisis. The results show an increase in environmental performance through the implementation of managerial incentives related to climate change, associated with the highest level of responsibility of the board of directors. Overall, the present study contributes to both the academic literature and corporate governance, highlighting the importance of banks' business strategy on climate change risks and opportunities with respect to environmental performance goals.     

Corporates' strategic responses to economic policy uncertainty in China

Using a novel news‐based index of economic policy uncertainty, this paper studies the impact of economic policy uncertainty on corporate strategic positioning and corporate risk in China from 2009 to 2015. The study also investigates the impact of corporate strategic positioning on corporate risk. The results show that corporate strategic positioning and economic policy uncertainty have a significant positive impact on corporate risk. The results also explain that economic policy uncertainty increases the market risk of the firms irrespective of their corporate strategy. However, it increases the business risk of prospector firms and decreases the business risk of defensive firms. The study may help the firms to formulate and improve their strategic positioning while considering economic policy uncertainty. Our results are robust to alternate proxies of economic policy uncertainty and corporate risk.     

Building responses to sustainable development challenges: A multistakeholder collaboration framework and application to climate change

The affirmation of open innovation and collaborative systems is enabling unprecedented opportunities to create business value while facilitating multistakeholder conversation on sustainability issues. In particular, platform‐based models are emerging as organization archetypes able to facilitate cooperative dynamics among industrial actors, policy makers, academicians, scientists, and citizens. In this article, we use interdisciplinary business management and collaborative innovation literature to build the conceptual framework of a multisided platform as a collaboration environment gathering actors willing to define responses to sustainable development challenges. We present five dimensions or “genes,” that is, the focus and strategic intent or orientation of the platform (what), the participating sides, actors and groups (who), the actions, flows and coordination mechanisms (how), and the value drivers, benefits and externalities (why), and the rules regulating the affiliation and interaction processes (governance). We also present and discuss 30 subtopics or management items that are associated with the five dimensions defined. We then apply the conceptual model to analyze a case in the climate change endeavor and to show how competitive and cooperative dynamics can be virtuously integrated to provide individual‐ and company‐driven responses to a timely socioenvironmental issue. The article provides a new perspective on collaboration to enhance social development, and it offers theoretical and practitioner insights for a broad interdisciplinary audience including scholars, practitioners, business, and platform managers.     

Firms’ Response to Climate Change: The Interplay of Business Uncertainty and Organizational Capabilities

With climate change emerging as one of the most important issues increasing uncertainty in the business circle, firms have shown different reactions. Why do firms differ in adopting and implementing carbon management practices (CMPs) in response to the global warming issue? This paper attempts to explore this question with particular attention to two factors: external business uncertainty and internal organizational capabilities. This study investigated whether business uncertainty, organizational learning and lean production capabilities influenced the adoption and implementation of CMPs as well as examining how organizational capabilities moderate the relationships between business uncertainty and the level of CMPs. The results of a cross‐sectional survey and hierarchical regression analyses indicate that perceived business uncertainty decreases the adoption of CMPs, organizational learning and lean production capabilities strongly facilitate the adoption and implementation of CMPs, and lean production capability positively moderates the impacts of business uncertainty on the adoption of CMPs. This study provides guidance for managers and academics considering how to identify, design and manage the dimensions of a firm's practices in response to the global warming issue within the organization as well as with other organizations. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment     

Human values and beliefs and concern about climate change: a Bayesian longitudinal analysis

The aim of this study was to investigate the influence of human values on beliefs and concern about climate change using a longitudinal design and Bayesian analysis. A sample of 298 undergraduate/master students filled out the same questionnaire on two occasions at an interval of 2 months. The questionnaire included measures of beliefs and concern about climate change (i.e., perceived consequences, risk perception, and skepticism) and human values (i.e., the Portrait Values Questionnaire). After controlling for gender and the respective baseline score, universalism at Time 1 was associated with higher levels of perceived consequences of climate change and lower levels of climate change skepticism. Self-direction at Time 1 predicted Time 2 climate change risk perception and perceived consequences of climate change. Hedonism at Time 1 was associated with Time 2 climate change risk perception. The other human values at Time 1 were not associated with any of the measures of beliefs and concern about climate change at Time 2. The results of this study suggest that a focus on universalism and self-direction values seems to be a more successful approach to stimulate public engagement with climate change than a focus on other human values.     

Does social trust promote behaviour aimed at mitigating climate change?

Using international data from the Life in Transition Survey, I analyse the role of social trust on pro-environmental behaviours aimed at helping to fight climate change. Social trust might increase pro-environmental behaviour by reducing the free-rider problem, restraining opportunistic behaviour, and enhancing cooperation. The results suggest that social trust increases the probability of individuals taking personal actions aimed at helping to fight climate change; the results are robust to using different sets of control variables, and to controlling for country and region fixed effects. The results also indicate that social trust is positively and significantly associated with environmental actions that are time-consuming, but there is no significant relationship with environmental actions that impose monetary costs on individuals.