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Journal of Business Ethics

Erschienen in:

23.06.2017 | Original Paper

Going Beyond Climate Change Risk Management: Insights from the World’s Largest Most Sustainable Corporations

verfasst von: Evangeline O. Elijido-Ten, Peter Clarkson

Erschienen in: Journal of Business Ethics | Ausgabe 4/2019

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Abstract

In this study, we investigate whether firms recognised as superior sustainability performers respond differently to climate change regulatory, physical and other risks/opportunities and examine whether such differences predict sustainability performance in subsequent years. Further, we seek to gain insights from climate change programs and strategies of both superior and inferior sustainability performers. Adopting mixed methods, we use a merged sample from the Top500 world’s largest firms and the Global 100 Most Sustainable Corporations. Our quantitative analyses show that greater awareness of physical and other climate change opportunities is what sets superior performers apart, and that superior future sustainability performance is related to a firm’s stated awareness of these two types of opportunities. Qualitative content analysis of narrative disclosures confirm that superior performers provide more detailed description of climate change strategies that go beyond managing climate change risks. Our study contributes to the limited amount of research highlighting the value of proactively seeking opportunities rather than merely focussing on risk management.

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A signalling role for these narratives implies, in line with voluntary disclosure theory (VDT), that good performers (proactive firms) signal their superior type through better or more informative voluntary disclosures that cannot be mimicked easily by their poorer performing industry peers (Clarkson et al. 2008).

For example, Larcker and Zakolyukina (2012) find that the language used by deceptive managers in conference calls to analysts is much more general in nature.

Sourced from the CDP website (https://www.cdp.net/en-US/Respond/Pages/companies.aspx).

The latest iteration to GRI guidelines, specifically in G4-EC2: Financial Implications and Other Risks and Opportunities for the Organization’s Activities Due to Climate Change, states that firms should report and describe risks and opportunities posed by climate change and its classification as either physical, regulatory or other (sourced from: https://www.globalreporting.org/resourcelibrary/GRIG4-Part1-Reporting-Principles-and-Standard-Disclosures.pdf).

Sourced from the Corporate Knights website (www.corporateknights.com/reports/global-100). For more details, see “Appendix 1”.

To illustrate, in assessing a firm, the rating of its ‘carbon productivity’, the measure of direct interest to this study, is based solely on a weighted combination of: (1) the industry percentile rank of the ratio of its current revenue to the total of its current Scope 1 and Scope 2 emissions; and (2) the industry percentile rank of the most recent two-year change in this ratio.

These five conceptual classifications are analogous to Roome’s (1992) five environmental strategic options: noncompliance; compliance; compliance plus; and commercial/environmental excellence and leading edge. Henriques and Sadorsky (1999) provide a concise summary of a number of typologies found in the literature.

Hart’s (1995) NRB framework describes four strategies. The first is a reactive strategy termed end-of-pipe pollution control such as trapping, treating and disposing wastes. The other three are interconnected proactive strategies including: pollution prevention which necessitates the reduction of emissions using continuous-improvement methodology; product stewardship which requires an environmentally proactive stance over the entire value-chain and integrating life-cycle analysis into product development processes; and sustainable development which is characterised by a dedication to a long-range social-environmental purpose portrayed in a shared vision or ‘intent’ requiring a strong moral leadership filtering through the management ranks.

To capture the sustainability performance of the target firms, we surveyed Corporate Knights’ G100 list from 2005, the first year it commenced the ranking exercise, until 2010, the last available year when the initial data collection was conducted. Importantly, by considering this extended 6-year window, we are able to clearly distinguish between firms that have recently been identified as superior sustainability performers and those that have not been at any point during this window. As a caveat, however, given this strategy for ensuring a clear distinction in sustainability performance between the two groups of firms, we are unable to fully exploit insights that might become available through an analysis of temporal trends.

While a matching strategy such as that based on a propensity score matching (PSM) strategy is frequently employed in the literature, within the context of our study we do not view PSM as applicable. Specifically, PSM is one of the well-accepted approaches for confronting potential self-selection bias. However, in our study, firms do not choose to be included on the list; rather, as previously described, the firm’s historical performance is investigated by Corporate Knights which then selects their top 100 list for firms. As stated, our interest is in the content and tone of the narrative disclosures made by the sample G100 firms and their matched counterparts. Herein, our concern when matching is that the matched pair of firms have the same core exposure to carbon risks and opportunities, and thereby inherently have the same issues to discuss holding their carbon-related strategies constant.

While another category comprising of G100 firms that answered “Yes” to all three risk questions and “No” to all three opportunity questions was also intended, none of the sample firms fell into this category.

Given sample size concerns in this category, we also included one firm that responded Yes to one risk and Yes to one opportunity (i.e., equal).

We are grateful to one of the anonymous reviewers for these valuable insights and suggestion for further study.

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Titel: Going Beyond Climate Change Risk Management: Insights from the World’s Largest Most Sustainable Corporations
verfasst von: Evangeline O. Elijido-Ten
Peter Clarkson
Publikationsdatum: 23.06.2017
Verlag: Springer Netherlands
Erschienen in: Journal of Business Ethics / Ausgabe 4/2019
Print ISSN: 0167-4544
Elektronische ISSN: 1573-0697
DOI: https://doi.org/10.1007/s10551-017-3611-6

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