Association for Public Policy Analysis & Management

International efforts to govern climate change have had mixed results, and alternative transnational and/or private solutions are becoming more salient (Nordhaus 2013; Nordhaus 2015; Potoski 2015; Jira and Toffel 2013). The flexibility as well as the weakness of multilateral arrangements have given a “premier voice [to] the business community” (IETA 2014). Despite this, there has been little scholarly attention paid to the role of global businesses in proactive climate action. Proactive climate action include voluntary commitments by corporations to reduce emissions, increase energy efficiencies and invest in renewable energy sources. Moreover, few scholars have evaluated whether these private voluntary efforts reduce the carbon footprints of global businesses. This paper seeks to answer two questions related to the scope and effectiveness of proactive climate action by corporations: Why do some firms participate in proactive climate action and not others?  Do these voluntary initiatives lead to real changes in firm-level and industry-wide behavior?    

This paper focuses on the Global 500, which are the world’s largest companies with respect to revenue, to examine how they contribute to mitigating global climate change without government directives. The Global 500’s sheer size, economic contribution, and carbon footprint worldwide warrant a need to investigate the factors that motivate their proactive climate action. Moreover, the Global 500 provides a coherent universe of participants and non-participants, which precludes the need for restrictive assumptions about businesses that could have engaged in proactive climate action but do not.

To model the decisions of global businesses to engage in proactive climate action and their CO2 emissions, we employ Cragg’s (1971) double-hurdle model, which is a two-stage econometrics model that allows the participation decision and CO₂ emissions of firms to be determined by different processes, while accounting for selection bias. Analysis is based on original data collection: firm-level characteristics include voluntary commitments to climate mitigation, emissions, firm size, industry sector, revenues, assets, environmental R&D, corporate management, and sustainability leadership. Political economy controls, such as civil liberties, federalism, GDP per capita, and Environmental Performance Index (EPI) are included to adjudicate between explanations about voluntary climate actions based on international processes of diffusion, domestic political economy, and firm-level management structures and incentives.