Academic journal article Journal of Business Strategies

Climate Change Strategies and Firm Performance: An Empirical Investigation of the Natural Resource-Based View of the Firm

Academic journal article Journal of Business Strategies

Climate Change Strategies and Firm Performance: An Empirical Investigation of the Natural Resource-Based View of the Firm

Article excerpt

Abstract

There is widespread consensus that human activity has had a significant impact on global climatic patterns which will have important consequences for much of society. Although there has been much research on the relationship between corporate environmental performance and corporate financial performance, empirical testing of the association between proactive corporate climate-change strategies and financial (or accounting) performance is still in its infancy. Based on the logic embodied in the Natural Resource-Based View (NRBV) of the firm, firms that successfully implement strategies to lessen their effect on climate change should outperform competitors who are less proactive in such efforts. This study uses a matched-pair design to empirically demonstrate that firms with proactive climate change strategies achieved significantly higher levels of accounting performance than competitors that were less proactive, thus providing additional support for the NRBV.

Introduction

To satiate the needs of capital market stakeholders, firm managers are compelled to identify, formulate, and implement strategies aimed at achieving sustainable competitive advantage (SCA) and superior profitability. Unfortunately, traditional corporate strategies used in market-based economies have negatively impacted the natural environment in ways that threaten the ecosystems supporting mankind's existence. The multiplicity of problems resulting from climate change and the requisite measures needed to decrease (or stabilize) the atmospheric levels of carbon dioxide and other greenhouse gases has become one of the most widely discussed environmental issues among journalists, politicians, environmentalists, academics, businesses, and other stakeholders.

Indeed, the consequences of global climate change, such as rising sea levels due to melting glaciers, the spread of non-native pathogens, drought in some areas and greater flooding in others, are well documented (IPCC, 2007; McKibbin & Wilcoxen, 2002); and the United States' abstinence from the Kyoto Protocol will not protect it from the environmental and economic consequences of global climate change. If atmospheric carbon dioxide doubles by 2050, it will cost the U.S. an estimated $68 billion annually and the annual global cost will be approximately $304 billion (Hoffman, 2005).

Although there has been much research examining the association between corporate environmental performance and organizational outcomes (e.g., Bansal & Hunter, 2003; Margolis & Walsh, 2003; Orlitzky, Schmidt, & Rynes, 2003; Russo & Fouts; 1997; Sharma & Vrendenburg, 1998), there are no published empirical studies that specifically examine whether firms pursuing proactive climate change strategies financially outperform competitors that are less proactive. To-date, the extant literature has focused on firm motivations for pursuing climate change strategies (Levy & Kolk, 2002; Kolk & Pinske, 2004, 2005, 2007b; Okereke, 2007; Porter & Reinhart, 2007), corporate political lobbying strategies regarding climate change (Kolk & Pinkse, 2007a), and the degree to which global firms voluntarily commit to reducing their impact on climate change (Stanwick & Stanwick, 2006). The purpose of this study is to examine the relationship between proactive climate change strategies and accounting performance.

In this paper, we describe how highly proactive firms typically engage in three broad climate-change initiatives aimed at reducing carbon dioxide and other greenhouse gas emissions: (1) by developing energy substitutes for oil and coal, such as wind and solar power, (2) by developing renewable energy sources (e.g., hydrogen and other fuel cells), and (3) by working collaboratively with firms, governments, Non-Governmental Organizations (NGOs), and other stakeholders toward large-scale climate-change solutions. We then show how these three climate-change initiatives are consistent with the logic embodied in the NRBV, a unique perspective of SCA based on the inter-relationship between the firm and the natural environment (Hart, 1995). …

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