IDEAS home Printed from https://ideas.repec.org/a/bla/bstrat/v31y2022i7p2854-2870.html
   My bibliography  Save this article

Climate change exposure and internal carbon pricing adoption

Author

Listed:
  • Walid Ben‐Amar
  • Mathieu Gomes
  • Hania Khursheed
  • Sylvain Marsat

Abstract

Governments and corporations around the world are increasingly pressured to manage climate‐related business risks and reduce their carbon footprint. Consequently, a growing number of corporations have started implementing internal carbon pricing (ICP) programs, assigning a monetary value to their carbon emissions as a mitigation and adaptation mechanism. This paper explores the motives underlying voluntary ICP adoption and examines whether a firm's exposure to climate‐related risks is a relevant driver of ICP adoption. Using a worldwide sample of firms reporting to the Carbon Disclosure Project between 2016 and 2018, we find that firm‐level climate change exposure is significantly and positively related to the likelihood of ICP adoption. More specifically, the probability of adoption is largely linked to regulatory shocks and opportunity exposure. Moreover, we find that board independence acts as a moderator in the climate change exposure–ICP adoption relation. The findings of this study shed light on the factors contributing to the acceleration in ICP implementation in the context of a coordinated effort between public and private sectors to reduce global emissions.

Suggested Citation

  • Walid Ben‐Amar & Mathieu Gomes & Hania Khursheed & Sylvain Marsat, 2022. "Climate change exposure and internal carbon pricing adoption," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 2854-2870, November.
    • Handle: RePEc:bla:bstrat:v:31:y:2022:i:7:p:2854-2870
    DOI: 10.1002/bse.3051
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/bse.3051
    Download Restriction: no
    File URL: https://libkey.io/10.1002/bse.3051?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jialu Ma & Jeffrey Kuo, 2021. "Environmental self‐regulation for sustainable development: Can internal carbon pricing enhance financial performance?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3517-3527, December.
    2. Eric W. Welch & Allan Mazur & Stuart Bretschneider, 2000. "Voluntary behavior by electric utilities: Levels of adoption and contribution of the climate challenge program to the reduction of carbon dioxide," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 19(3), pages 407-425.
    3. Patricia Kanashiro, 2020. "Can environmental governance lower toxic emissions? A panel study of U.S. high‐polluting industries," Business Strategy and the Environment, Wiley Blackwell, vol. 29(4), pages 1634-1646, May.
    4. Alberto Abadie & Guido W. Imbens, 2016. "Matching on the Estimated Propensity Score," Econometrica, Econometric Society, vol. 84, pages 781-807, March.
    5. Stephen Brammer & Stephen Pavelin, 2006. "Voluntary Environmental Disclosures by Large UK Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1168-1188.
    6. Zhenyu Jiang & Zongjun Wang & Yanqi Zeng, 2020. "Can voluntary environmental regulation promote corporate technological innovation?," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 390-406, February.
    7. Marco Caliendo & Sabine Kopeinig, 2008. "Some Practical Guidance For The Implementation Of Propensity Score Matching," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 31-72, February.
    8. Stephen Brammer & Stephen Pavelin, 2006. "Voluntary Environmental Disclosures by Large UK Companies," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7‐8), pages 1168-1188, September.
    9. Natalie Stoeckl, 2004. "The private costs and benefits of environmental self‐regulation: which firms have most to gain?," Business Strategy and the Environment, Wiley Blackwell, vol. 13(3), pages 135-155, May.
    10. Juhyun Jung & Kathleen Herbohn & Peter Clarkson, 2018. "Carbon Risk, Carbon Risk Awareness and the Cost of Debt Financing," Journal of Business Ethics, Springer, vol. 150(4), pages 1151-1171, July.
    11. Bui, Binh & de Villiers, Charl, 2017. "Business strategies and management accounting in response to climate change risk exposure and regulatory uncertainty," The British Accounting Review, Elsevier, vol. 49(1), pages 4-24.
    12. Raj Aggarwal & Sandra Dow, 2012. "Corporate governance and business strategies for climate change and environmental mitigation," The European Journal of Finance, Taylor & Francis Journals, vol. 18(3-4), pages 311-331, April.
    13. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    14. Boussemart, Jean-Philippe & Leleu, Hervé & Shen, Zhiyang, 2017. "Worldwide carbon shadow prices during 1990–2011," Energy Policy, Elsevier, vol. 109(C), pages 288-296.
    15. Elizabeth Stanny & Kirsten Ely, 2008. "Corporate environmental disclosures about the effects of climate change," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 15(6), pages 338-348, November.
    16. Luis Escobar & Harrie Vredenburg, 2011. "Multinational Oil Companies and the Adoption of Sustainable Development: A Resource-Based and Institutional Theory Interpretation of Adoption Heterogeneity," Journal of Business Ethics, Springer, vol. 98(1), pages 39-65, January.
    17. Niccolò Maria Todaro & Francesco Testa & Tiberio Daddi & Fabio Iraldo, 2021. "The influence of managers' awareness of climate change, perceived climate risk exposure and risk tolerance on the adoption of corporate responses to climate change," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 1232-1248, February.
    18. Sunhee Suk, 2018. "Determinants and Characteristics of Korean Companies’ Carbon Management under the Carbon Pricing Scheme," Energies, MDPI, vol. 11(4), pages 1-23, April.
    19. Andreas Andrikopoulos & Nikoleta Kriklani, 2013. "Environmental Disclosure and Financial Characteristics of the Firm: The Case of Denmark," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 20(1), pages 55-64, January.
    20. Georg Weinhofer & Timo Busch, 2013. "Corporate Strategies for Managing Climate Risks," Business Strategy and the Environment, Wiley Blackwell, vol. 22(2), pages 121-144, February.
    21. Pratima Bansal, 2005. "Evolving sustainably: a longitudinal study of corporate sustainable development," Strategic Management Journal, Wiley Blackwell, vol. 26(3), pages 197-218, March.
    22. Bruno Cassiman & Elena Golovko, 2011. "Innovation and internationalization through exports," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(1), pages 56-75, January.
    23. Azlan Amran & Say Keat Ooi & Cheng Yew Wong & Fathyah Hashim, 2016. "Business Strategy for Climate Change: An ASEAN Perspective," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 23(4), pages 213-227, July.
    24. Choi, Bobae & Luo, Le, 2021. "Does the market value greenhouse gas emissions? Evidence from multi-country firm data," The British Accounting Review, Elsevier, vol. 53(1).
    25. Stephan Hollander & Maarten Pronk & Erik Roelofsen, 2010. "Does Silence Speak? An Empirical Analysis of Disclosure Choices During Conference Calls," Journal of Accounting Research, Wiley Blackwell, vol. 48(3), pages 531-563, June.
    26. Bento, Nuno & Gianfrate, Gianfranco, 2020. "Determinants of internal carbon pricing," Energy Policy, Elsevier, vol. 143(C).
    27. Belaineh Legesse & Yared Ayele & Woldeamlak Bewket, 2013. "Smallholder Farmers’ Perceptions and Adaptation to Climate Variability and Climate Change in Doba District, West Hararghe, Ethiopia," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 251-265, March.
    28. Engels, Anita, 2009. "The European Emissions Trading Scheme: An exploratory study of how companies learn to account for carbon," Accounting, Organizations and Society, Elsevier, vol. 34(3-4), pages 488-498, April.
    29. Georg Weinhofer & Volker H. Hoffmann, 2010. "Mitigating climate change – how do corporate strategies differ?," Business Strategy and the Environment, Wiley Blackwell, vol. 19(2), pages 77-89, February.
    30. Haque, Faizul, 2017. "The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms," The British Accounting Review, Elsevier, vol. 49(3), pages 347-364.
    31. Trinh, Thoai Quang & Rañola, Roberto F. & Camacho, Leni D. & Simelton, Elisabeth, 2018. "Determinants of farmers’ adaptation to climate change in agricultural production in the central region of Vietnam," Land Use Policy, Elsevier, vol. 70(C), pages 224-231.
    32. Walid Ben‐Amar & Philip McIlkenny, 2015. "Board Effectiveness and the Voluntary Disclosure of Climate Change Information," Business Strategy and the Environment, Wiley Blackwell, vol. 24(8), pages 704-719, December.
    33. Belaineh Legesse & Yared Ayele & Woldeamlak Bewket, 2013. "Smallholder Farmers' Perceptions and Adaptation to Climate Variability and Climate Change in Doba District, West Hararghe, Ethiopia," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 3(3), pages 251-265.
    34. Luo, Le & Tang, Qingliang, 2014. "Does voluntary carbon disclosure reflect underlying carbon performance?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 10(3), pages 191-205.
    35. Erin M. Reid & Michael W. Toffel, 2009. "Responding to public and private politics: corporate disclosure of climate change strategies," Strategic Management Journal, Wiley Blackwell, vol. 30(11), pages 1157-1178, November.
    36. Erin Marie Reid & Michael W. Toffel, 2008. "Responding to Public and Private Politics: Corporate Disclosure of Climate Change Strategies," Harvard Business School Working Papers 09-019, Harvard Business School, revised Jun 2009.
    37. Liao, Lin & Luo, Le & Tang, Qingliang, 2015. "Gender diversity, board independence, environmental committee and greenhouse gas disclosure," The British Accounting Review, Elsevier, vol. 47(4), pages 409-424.
    38. Christian Gollier and Jean Tirole, 2015. "Negotiating effective institutions against climate change," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Natalie Kyung Won Kim & Sera Choi & Taejin Jung & Sohee Park, 2023. "How does demand uncertainty from climate change exposure affect the firms' cost structures? Examining the real effects of climate change on the firms' operational decisions," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(6), pages 2969-2989, November.
    2. Lei, Qiu & Huang, Weiyun & Zhao, Fang & Sarwar, Saima & Chaudhary, Muhammad Gulzaib, 2023. "The importance of public sector size and resources volatility in carbon emissions: Empirical evidence from OECD countries," Resources Policy, Elsevier, vol. 85(PA).
    3. Dewan Muktadir‐Al‐Mukit & Firoz Haroon Bhaiyat, 2024. "Impact of corporate governance diversity on carbon emission under environmental policy via the mandatory nonfinancial reporting regulation," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 1397-1417, February.
    4. Agoraki, Konstantina K. & Giaka, Maria & Konstantios, Dimitrios & Negkakis, Ioannis, 2024. "The relationship between firm-level climate change exposure, financial integration, cost of capital and investment efficiency," Journal of International Money and Finance, Elsevier, vol. 141(C).
    5. Ongsakul, Viput & Papangkorn, Suwongrat & Jiraporn, Pornsit, 2023. "Estimating the effect of climate change exposure on firm value using climate policy uncertainty: A text-based approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    6. Ding, Xin & Chourou, Lamia & Ben-Amar, Walid, 2024. "Carbon emissions and audit fees: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 60(C).
    7. Wang, Zongrun & Fu, Haiqin & Ren, Xiaohang & Gozgor, Giray, 2024. "Exploring the carbon emission reduction effects of corporate climate risk disclosure: Empirical evidence based on Chinese A-share listed enterprises," International Review of Financial Analysis, Elsevier, vol. 92(C).
    8. Maximilian Hettler & Lorenz Graf‐Vlachy, 2024. "Corporate scope 3 carbon emission reporting as an enabler of supply chain decarbonization: A systematic review and comprehensive research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 263-282, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Julián Andres Díaz Tautiva & Joana Huaman & Roberto D. Ponce Oliva, 2024. "Trends in research on climate change and organizations: a bibliometric analysis (1999–2021)," Management Review Quarterly, Springer, vol. 74(1), pages 227-261, February.
    2. Matthias Damert & Rupert J. Baumgartner, 2018. "External Pressures or Internal Governance – What Determines the Extent of Corporate Responses to Climate Change?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 25(4), pages 473-488, July.
    3. Maximilian Hettler & Lorenz Graf‐Vlachy, 2024. "Corporate scope 3 carbon emission reporting as an enabler of supply chain decarbonization: A systematic review and comprehensive research agenda," Business Strategy and the Environment, Wiley Blackwell, vol. 33(2), pages 263-282, February.
    4. Le Luo & Qingliang Tang & Hanlu Fan & Jamie Ayers, 2023. "Corporate carbon assurance and the quality of carbon disclosure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 657-690, March.
    5. Luo, Le & Tang, Qingliang, 2016. "Determinants of the Quality of Corporate Carbon Management Systems: An International Study," The International Journal of Accounting, Elsevier, vol. 51(2), pages 275-305.
    6. Kentaro Azuma & Akira Higashida, 2024. "Climate change disclosure and evolving institutional investor salience: Roles of the Principles for Responsible Investment," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3669-3686, May.
    7. Zahra Borghei, 2021. "Carbon disclosure: a systematic literature review," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5255-5280, December.
    8. Fan, Hanlu & Tang, Qingliang & Pan, Lipeng, 2021. "An international study of carbon information asymmetry and independent carbon assurance," The British Accounting Review, Elsevier, vol. 53(1).
    9. Binh Bui & Muhammad Nurul Houqe & Muhammad Kaleem Zahir-ul-Hassan, 2022. "Moderating effect of carbon accounting systems on strategy and carbon performance: a CDP analysis," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 33(4), pages 483-524, December.
    10. Mohammad Badrul Muttakin & Tarek Rana & Dessalegn Getie Mihret, 2022. "Democracy, national culture and greenhouse gas emissions: An international study," Business Strategy and the Environment, Wiley Blackwell, vol. 31(7), pages 2978-2991, November.
    11. Ozgur Isil & Rose Sebastianelli, 2020. "Arcs of carbon awareness in the value chain and their antecedents," Business Strategy and the Environment, Wiley Blackwell, vol. 29(2), pages 503-518, February.
    12. Agnieszka Karman, 2022. "The Homogenization of Carbon Management Practices: How Organizations Response to Isomorphic Pressures to Reduce GHG Emissions," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 148-173.
    13. Mumtaheena Anwar & Sohanur Rahman & Md. Nurul Kabir, 2021. "Does national carbon pricing policy affect voluntary environmental disclosures? A global evidence," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 23(2), pages 211-244, April.
    14. Mahmoudian, Fereshteh & Lu, Jing & Yu, Dongning & Nazari, Jamal A. & Herremans, Irene M., 2021. "Inter-and intra-organizational stakeholder arrangements in carbon management accounting," The British Accounting Review, Elsevier, vol. 53(1).
    15. Provaty, Sagira Sultana & Hasan, Mostafa Monzur & Luo, Le, 2024. "Organization capital and GHG emissions," Energy Economics, Elsevier, vol. 131(C).
    16. Mohamed Toukabri & Lamia Kalai, 2024. "How does sustainability leadership improve climate change reporting? The choices associated with a sustainable board- A management perspective," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 29(7), pages 1-48, October.
    17. Christian C. Blanco, 2021. "Supply Chain Carbon Footprinting and Climate Change Disclosures of Global Firms," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3143-3160, September.
    18. Ismail N.B. & Sébastien Alcouffe & Galy N & Ceulemans K, 2020. "The impact of international sustainability initiatives on Life Cycle Assessment voluntary disclosures: The case of France’s CAC40 listed companies," Post-Print hal-03082800, HAL.
    19. Grigoris Giannarakis & Andreas Andronikidis & Nikolaos Sariannidis, 2020. "Determinants of environmental disclosure: investigating new and conventional corporate governance characteristics," Annals of Operations Research, Springer, vol. 294(1), pages 87-105, November.
    20. Walid Ben‐Amar & Philip McIlkenny, 2015. "Board Effectiveness and the Voluntary Disclosure of Climate Change Information," Business Strategy and the Environment, Wiley Blackwell, vol. 24(8), pages 704-719, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:bstrat:v:31:y:2022:i:7:p:2854-2870. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-0836 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.