Three essays on corporate climate activism of non-financial firms

This PhD thesis investigates the climate activism of non-financial firms. It focuses on UK and US firms to examine whether and how climate activism influences firm-level substantive environmental performance measures and financial outcomes. This thesis comprises three standalone essays. Taken together, it offers new insights into the climate activism of non-financial firms that are exposed to direct and indirect carbon emissions. Below is a summary of each essay.

The first essay examines the effect of climate risk governance and green transformation initiatives on carbon mitigation performance. Based on a unique dataset of compliant, non-financial carbon-sensitive, UK-listed firms, this essay provides evidence that climate risk governance mechanisms and green transformation initiatives enhance actual carbon performance by lowering actual carbon emissions. Further analysis shows that the combined effect of climate risk governance and green transformation initiatives helps attain sustained carbon mitigation performance. To put it plainly, the combined effect of both drivers indicates the quality of institutional transformation that is responsible for reducing carbon emissions. This study has significant implications for board members, CEOs, regulators, and other stakeholders regarding reforms in governance mechanisms and sustainable transformation.

Utilizing the non-financial components of the S&P 500 index, the second essay provides novel empirical evidence that climate risk governance is associated with environmental innovation. We find that firms with resilient climate risk governance appear to engage more in eco-driven innovative approaches to lower environmental costs and the burden on customers. This essay also demonstrates the channel through which climate risk governance supports environmental innovation. The empirical outcomes of this study contribute to the global debate on eco-friendly innovations that encourage sustainable business avenues and help limit the adverse impact of climate change.

The third essay looks into the effects of firm-level actual environmental investment, a fundamental aspect of tangible environmental engagement and risk management, on firm financing decisions and the cost of debt in US firms. Reusing the sample employed in the second essay, this study shows that firms that spend on environmental initiatives tend to boost their use of financial leverage. We also find evidence that a higher level of environmental investment is negatively related to the cost of debt. However, this negative association between environmental investment and the cost of debt financing is more pronounced for small firms as opposed to their larger counterparts. The empirical outcomes of this essay provide noteworthy insights for socially responsible investors, executive management, and regulators regarding firm-level substantive environmental engagements and financing decisions.