Literature Review– Summary

There has been an increased awareness of the dangers posed by climate change. This has forced people globally to rethink their approach in life and business so as to mitigate the effects of climate change. Among these people are the stakeholders in the world of business. The pressure on businesses from these stakeholders has in turn required that the businesses put climate change and its effects in mind while operating the businesses.

The resultant effect of the stakeholder pressure has been the integration of climate change into the business strategies of businesses globally.

Apart from the individual external stakeholders such as the customers, institutional external stakeholders such as lending banks and governments have also applied pressure. Institutions such as governments have passed laws that mandate business to give consideration to climate change. This has further pushed more businesses into developing, implementing and including environmental sustainability strategies into their business strategies.

In addition to passing laws, governments around the world are also involved in climate change campaigns. The campaigns are meant to convince businesses to move to more environmental sustainable strategies in order to manage the effects of climate change. Whereas penalties can be set for any business that does not adhere to the laws passed on climate change, it is important to remember that the governments get their revenues from taxes collected from the businesses. This therefore means that more amicable ways have to be found to convince the businesses to move to more environmental sustainable strategies.

The governments in their campaigns offer incentives to businesses for climate management. This incentives, unlike penalties, convince the businesses to move to more environmental sustainable strategies. Whereas the penalties would discourage operations in the particular country enforcing a law on climate change mitigation.

Western countries have been the biggest contributors to carbon emissions and hence climate change since the industrial revolution(Crafts, 2011). Since they are the biggest contributors, these countries also bear the biggest responsibility in the mitigation of climate change.

This research paper interrogates the role that business strategies on climate change and climate management incentives have in carbon emission reduction for the case of five western countries. The purpose is to observe the climate change mitigation among, historically, the biggest contributors to climate change through carbon emissions.

The western countries selected in this research paper are: Two countries from the Nordic States; Denmark and Sweden, one from mainland Europe; France, one from outside continental Europe; United States of America, and the United Kingdom in continental Europe.

Consideration was given to the diversity in the socio-economic systems among the western countries. This is key since climate change affect both the social and economic aspects of human life. The Nordic States; Denmark and Sweden are largely welfare states(Fraggina, 2015). The United Kingdom and France have more restricted systems which has been regulated to a great extent by the European Union(Pinder & Usherwood, 2013). The United Kingdom has however started the process of leaving the European Union in what is popularly known as Brexit. The United States of America has a capitalistic system with markets having control over the economy the social life in general(Schram, 2015).  

Conceptual Model

Climate change mitigation has become an important area research work in recent times. Numerous research works have been done on the impacts of business strategy on climate change on carbon emissions reduction as well as the impacts of climate management incentives on carbon emissions reduction.

The integration of climate change into the business strategies is important for firms (Anthoff, et al., 2009). Presently, external stakeholders such as governments and customers may cease associating with a firm if it does not integrate climate change into its business strategy. (Anthoff, et al., 2009) Outlines the importance of this integration not only for the firm but also for the climate.

The reduction in pollution in general, including reduction in carbon emissions, is the net result of this integration. This integration enables firms to be able to balance their climate change mitigation obligations and profits (Anthoff, et al., 2009). It proves to be both environmental and economical beneficial way of mitigating the effects of climate change.

In recent times governments globally have tend to prefer incentives to penalties as a means of bringing companies into the discussions on the climate change agenda (Jacobson, 2009). The governments are preferring understanding over enforcement of the climate change policies.

The purpose is mainly to keep the environment clean while at the same time keeping the companies in business (Jacobson, 2009). Data from countries such as United States of America and United Kingdom has shown promising outcomes on the effectiveness of the use of incentives.  

Firms should focus more in having renewable energy technology to replace the pollutant technologies (Jacobson & Delucchi, 2009). This is the long-term goal in the mitigation of climate change. Effort should not only be in managing the climate change but also in setting targets to completely stop climate change (Jacobson & Delucchi, 2009). This will only be possible if firms integrate renewable technology into their strategies.

This research paper builds on the above works on the impacts of both business strategies on climate change and climate management incentives, on the carbon emissions reduction. This will be done by focusing specifically on the case of the western countries. The research will provide impact that is specific for the case of the western countries.  

Hypotheses: (Not assessed)

H₀: Business strategy on climate change and climate management incentives have no impact on carbon emissions reduction.

H₁: Business strategy on climate change and climate management incentives have an impact on carbon emissions reduction.

The dataset considered for the analysis in this research paper consists of a sample size = 699 firms. The sample of firms was drawn from five countries among the western economies. Two countries were drawn from the Nordic States; Denmark and Sweden, one from mainland Europe; France, one from outside continental Europe; United States of America and the United Kingdom in continental Europe.

The choice of the countries is not only meant to include countries from the western economies. These countries represent the different socio-economic systems that are present in the western world. By considering the different socio-economic systems in the western world, we ensure that this research accommodates all of the western world economies.

Hypotheses

The Nordic States; Denmark and Sweden are largely welfare states(Fraggina, 2015). The United Kingdom and France have more restricted systems which has been regulated to a great extent by the European Union(Pinder & Usherwood, 2013). The United Kingdom has however started the process of leaving the European Union in what is popularly known as Brexit. The United States of America has a capitalistic system with markets having control over the economy the social life in general(Schram, 2015).

The firms in the sample cut across all the industries in the five countries. These are the industries in the CDP dataset that are available in the five selected countries.

In terms of generalisability, the conclusions on the analysis of the impacts that the business strategy on climate change and climate management incentives have on the carbon emission reduction, can be applied for all the countries in the western world. The research puts into consideration the diversity in socio-economic systems among the western economies, this therefore means that the conclusions are applicable for the western countries regardless of the socio-economic systems.

The conclusions are however limited to the western countries and cannot be applied for other countries globally. Although this is true, the analysis can still be used for reference by countries that aim to emulate western economies. Hence the conclusion, in this view, becomes a critical pointer for such countries as far as the impacts that the business strategy on climate change and climate management incentives have on the carbon emission reduction is concerned.

The firms having been drawn from across all industries, makes the results from this research paper referable for all firms. This means that any firm in the any of the western countries can reference the results without necessarily having to come from specific industries.  

The independent variable is the Business Strategy on Climate Change. It is measured as the integration of climate change into the business strategy in the CDP dataset. This variable is a categorical data variable: 1 (Yes, integration of climate change into the business strategy has been done) and 2 (No, integration of climate change into the business strategy has not been done). 

Table 1

Table 1 above shows that the sample had a total of 699 entries on the Business Strategy on Climate variable from the firms with no missing entries (Source SPSS). 

Table 2

Table 2 above shows 604 firms (86.4%) have integrated climate change into their business strategies, while 95 firms (13.6%) have not integrated climate change into their business strategies (Source SPSS). 

Dependent Variable

The dependent variable is the Carbon Emissions Reduction. This variable is the percentage reduction in the carbon emissions for the year 2012 in the CDP dataset.  

Table 3 above shows the minimum percentage reduction in carbon emissions for the year 2012 was -87.90%, while the maximum percentage reduction in carbon emissions for the same year was 77%. The mean for the dependent variable was -5.3342% and the standard deviation was 15.03458 (Source SPSS).  

The moderating variable is the Climate Management Incentive. It is measured as the incentive for management of climate in the CDP dataset. This variable is a categorical data variable: 1 (Yes, there is incentive for climate management) and 2 (No, there is no incentive for climate management). 

Data Collection

Table 4

Table 4 above shows that the sample had a total of 699 entries on the Climate Management Incentive variable from the firms with no missing entries (Source SPSS). 

Table 5 above above shows in 482 firms (69%) there is incentive for climate management, while in 217 firms (31%) there is no incentive for climate management (Source SPSS) 

Normality 

The normality analysis for the Carbon Emission Reduction is given below:

Table 6

For firms that have integrated climate change into their business strategies:

Table 6 shows that for these firms the Range = 164.90, Interquartile Range = 12, Skewness = -0.033 and Kurtosis = 6.907 (Source SPSS).

For firms that have integrated climate change into their business strategies:

Table 6 above shows that for these firms the Range = 115, Interquartile Range = 8.60, Skewness = 0.533 and Kurtosis = 6.910 (Source SPSS).

The firms that have integrated climate change into their business strategies have more range in their data, as well as their data being more normally distributed (from the kurtosis) compared to data from firms that have not integrated climate change into their business strategies.

The data from the firms that have integrated climate change into their business strategies is slightly skewed downwards (or to the left), while data from the firms that have not integrated climate change into their business strategies isskewed upwards (or to the right).  

The graphs below show the description of the dependent variable, Carbon Emissions Reduction, in terms of the independent variable, Business Strategy on Climate Change.   

The above 20 identified outliers in Table 7 above must be omitted from the dataset. The outliers are likely to result in outcomes that are a misrepresentation of the analysis of the sample data (Source SPSS).    

The testing of the hypothesis in this research involves three variables; Business Strategy on Climate Change, Carbon Emissions Reduction and Climate Management Incentive. Hence, the most appropriate statistical test would be a multivariable regression analysis from which the test parameters can be obtained. And also my Dependent and Independent Variable does not appear propagatenormally so I will be using Paired T Testas well as ANOVA and I will also be using Pearson Correlation for my both variables and also Linear connection to measure them.

The Business Strategy and Climate Management Incentive variables are measured on the ordinal scale, therefore categorical, while the Carbon Emission Reduction variable is measured on the ratio scale therefore numerical. This implies that the best multivariable regression analysis would be the logistic regression analysis.

The assumptions for the logistic regression analysis are:

1. At least one of the variable is categorical in nature(Hosmer, 2013).
2. The sample size for the sample data is sufficiently large(Hosmer, 2013).
3. The cases in the sample data are independent(Hosmer, 2013).
4. There is no multicollinearity among the independent variables(Hosmer, 2013).

The sample dataset for this research satisfies the assumptions for the logistic regression analysis.

Data analysis for the data in this research has been done using regression analysis. Regression analysis is a powerful and most important statistical tool which allows the researchers to find out the relationship between two or more variables. They are used to examine the impact of one or more independent variables on the dependent variable(Sen & Srivastava, 2012). In this research, reduction in carbon emission is the dependent variable and the Business Strategy on Climate Change is the independent variable. Management Incentive for Carbon Emission Reduction serves as the moderating variable.  

The two hypotheses developed for this research are-

H₀: Business strategies on climate change have no impact on carbon emissions reduction.

H₁: Business strategies on climate change have an impact on carbon emissions reduction.

From these hypotheses, it can be stated that the impact of integration of climate change and management incentives will be  analysed n carbon emissions reduction.

For testing the hypotheses, the t-testing has been used. First, the independent t-tests were conducted. The main aim of conducting the independent t-tests is comparison of means between the two independent or unrelated variables on same dependent variable(Morgan & Griego, 1998). The results of independent t-test are depicted in table 2.

Table 1: Group Statistics

This table provides the value of mean and standard deviation of carbon reduction for companies integrating climate change in business strategy and companies not integrating climate change in business strategy. The values of mean for both types of companies are -5.605 and -3.803 and values of standard deviation are 15.183 and 14.314 respectively. From the mean values, it can be seen that carbon reduction is higher in companies integrating climate change in business strategy (Lund Research Ltd, 2018). However, to test the significance there is need to do independent T-test. The result of independent T-test is discussed in coming paragraphs.  

Table 2: Independent Samples Test

The test was conducted to check whether the integration of climate change in business strategy have any significant impact on the reduction in carbon emission(Hatcher, 2003). The significant level in this case is taken as 0.05. But the p-value obtained for using independent T-Test is higher than 0.05. Since p value is greater than 0.05, it can be said that there is no difference in carbon reduction of companies integrating climate change in business strategy and companies not integrating climate change in business strategy. Or in other words, it can be said that the integration of the climate change policy on business strategy is not a significant predictor of the reduction in the carbon change in future(Weisberg, 2005).

The p-value for Levene’s test is found to be 0.972, which is greater than 0.05. It shows that the variances are equal across the two groups of independent variables. Thus, this data contains equal variances and hence, this data can be used for the t-test analysis. Also, the samples are randomly selected and are independent and unrelated. 

Table 3: Variance between the subject factors

Table 4: Variance between the subject effects

The R-square value can be termed as the Coefficient of determination. It shows how many points fall on the regression line(Wooldridge, 2008). The R-square value for this regression analysis is 0.005 which shows that the independent variables explain only 0.5% variability in the dependent variable or 0.5% of the variability of the dependent variable fits the model. This value is very low which shows that management incentives and integration of climate change in the business strategy do not explain or predict the reduction in the carbon emission for a company(Kahane, 2007).  

The above table represents the results of two-way ANOVA which indicates the interaction between the two independent variables(MacFarland, 2011). The p-value obtained through two-way ANOVA is greater than 0.05 which shows that there is no significant interaction between the two independent variables in this case. The p-value for management incentives is p = 0.337 and the p- value for integration of the climate change in the business strategy is 0.662. Both of these values have no significant impact over the dependent variable “reduction in carbon emission”.

Keeping the results in mind as indicated by the t-test, it can be said that in this case, the null hypothesis is accepted and H1 is rejected. Hence,“Business strategies on climate change and climate management incentives have no impact on carbon emissions reduction.”These variables lay only 0.5% impact on the carbon reduction in the companies and thus, the future researches must focus on other variables as well while analyzing the impact on the carbon emission reduction on the firms.

The aim of thus research was to examine the role of the business strategies on climate change, on the carbon emission reduction in the companies representing different industries in the five western countries- the USA, the UK, Denmark, Sweden and France. It will also discuss the impact of the management incentives on the interaction between the IV and DV. All these five countries represent different continents; hence, the research will highlight the carbon reduction practices, factors affecting them and climate change initiatives taken by the selected companies in these major nations. The purpose of this research was to observe the climate change mitigation measures among the biggest contributors in the world to climate change through carbon emissions (Crafts, 2011).

The research used two hypothesis constructs to analyze the impact on the carbon emission reduction- one is climate change incentives (MV) and integration of climate change in the business strategy (IV). The impact of both these variables on carbon emission reduction was not found to be significant enough. These two variables caused only 0.5% impact on the reduction in the carbon emission reduction. There are many other important factors which affect the carbon emission reduction such as integration of technology, compliance with the government policies and legislations and such which may impact the carbon emission reduction strongly(IPCC, 2011).

The use of incentives for reduction in carbon emission has received mixed reviews from the researchers. Some researchers agree to the results of our research that incentives do not impact the carbon emissions much. Jacobson in 2009 said that the governments all across the globe prefer using the penalties over the incentives as they believe that the penalties lay more impact on the companies to take effective measures for reducing the carbon emissions. The governments in the countries have understood the importance of enforcement of climate change policies now as they understand that the lenient ways will not be sufficient enough to bring the focus of the companies completely towards the climate change (Jacobson, 2009).

The results of this research, however, are not comparable to a few previously established literatures. Some authors stated that theeffective use of management incentives have resulted in carbon emission reduction in companies of the USA and the UK. The incentives motivate the managers of the companies to look deeply into the matters related to environment cleanliness(Jacobson & Delucchi, 2009). However, incentives have been useful in managing the effective land use in certain areas and it has impacted the climate change positively as well (Nordic Council of Ministers, 2009).

The integration of the climate change policies in the business strategy has proved to be beneficial for the companies and the nations (Anthoff et al., 2009). This has been claimed by many researchers in their studies. The studies which have been conducted concluded that the integration of climate change in the business strategies is extremely important for the companies to achieve the goals of carbon emission reduction. They believe that the stakeholders do not want to integrate themselves with a firm which does not have a climate change strategy linked to it. This, in turn, affects the overall profit and reputation of the organization (Anthoff et al., 2009). The results of this research are quite different front the result of research done by the previous researchers as our research indicates that integration of climate change in the business strategy does not impact the carbon emission reduction in the country. The reason for this difference can be data set. The companies chosen for the research and their data may have resulted in the variation in the results. The similar research can be conducted using a different set of companies in different regions.

However, there are many factors apart from these two which affect the carbon emission reduction. A few of them include the use of renewable energy, use of technology in the firms, strict enforcement of the climate change policies, regular vulnerability assessments and regulations imposed by the government (Great Britain: Parliament: House of Commons: Environmental Audit Committee, 2008). The climate change integration  into the business policies and climate management incentives impact only 0.5% carbon emission reduction, which means the other factors mentioned above have a very considerable impact on the reducing the carbon emissions from the companies(CDP, 2015). This gives an idea for the future researches which can be conducted. The future researchers can conduct the research using the other factors such as use of renewable energy, use of technology in the firms, strict enforcement of the climate change policies, regular vulnerability assessments and regulations imposed by the government, to check their impact on the dependent variable. 

Since, these two factors are not very influential in reducing the carbon emissions, the companies can use a few other methods to reduce the carbon footprint. First, the companies need to evaluate the current carbon consumption either by hiring an expert or using technology software which reviews and warns the company if its carbon emissions reach beyond standard levels. If the companies are able to evaluate their current carbon consumption, they can develop measures to improve their future practices(Inhabitant, 2018). The benchmarking of the emission of the greenhouse gases from the company with the standard levels and with other companies may help the company in developing new effective strategies(O’Rourke, 2012). The energy upgrades involving renewable sources of energy are very effective and are not very expensive upgrades. It must be ensured by the electrical equipments are unplugged every time they are not in use(The Telegraph, 2017). The government can also play a very important role in controlling the carbon footprints of the companies (Pearce, 1991). The government must try to encourage the companies to use the renewable sources of energy. The regulations or legislations passed by the government must be strictly implemented. The government can issue heavy penalties on the companies which do not follow the rules. The government must also conduct regular audits to ensure that the companies are following legislations and if the companies are not found to be effectively implementing the legislations, the government can even cancel their licenses of operation as climate change is a very big issue today and the efforts must be put by every individual to reduce their share of carbon emissions(Pearce, 1991). Use of renewable energy in the companies has become very crucial for these companies. Many companies across the world, including the Asiancountries, are now switching to installation of solar energy for fulfilling the electricity demands of any organization(Goodall, 2016). The western countries are technologically very advanced and thus, they must use their technology in reducing the carbon footprints. Using the amplification of the solar or wind energy must be done using sufficient tools so that the demands of all the companies can be fulfilled and government must introduce subsidies and awards for implementing these changes to motivate them(Williams et al., 2012). 

However, this has been kept in mind during the entire course of research that it covers almost all the possible research areas within its scope with complete reliability and provides the most valid results. But all the researches have certain limitations and same is the case with this research. The first limitation of this research is thatthe industries or the companies which have been chosen for study belong to only five countries. Therefore, the research results cannot be generalized to all the nations across the world. Secondly, the industries which are chosen represent a very limited population and thus, the results of this research cannot be generalized for all industries across the five countreies. The impact of business strategy on climate changecan be measured only in limited sectors across these five countries only. Also, the CDP data for different companies and different companies is different. The CDP data that has been used for this research only considers the management incentives, integration of climate change policies in business strategy and scope 1 and scope 2 carbon emissions. There are a number of other factors which impact the carbon emission policy and output of the companies in these nations. They are not considered in this research. However, the results can be generalized for other industries in these five nations on a very broad scale but the results of this research must not be the only factors to determine the CDP data for those industries. On more limitation of this research is that it has not included any Asian industry in its study. Asia has been emerging as the hub of industrial growth and the industrial revolution in these countries has been comparatively new. Thus, a research on these countries can prove to be highly beneficial. Apart from this, the research has taken care of all the potential limitations and has tried to overcome them in the best possible manner to make the results most reliable and valid.

As the limitations of this research suggest, the future researches can be carried out by taking more number of companies as samples and conducting the research on them to make the results more generalized. Along with the number of companies the future researchers can also increase the number of countries from where they choose their industries and organizations. This will help in finding out which industries are adopting the best possible measured for carbon accounting and reducing carbon emissions.  This will also open the scope for the country-wise comparison as well and will highlight that which company has been the most active in reporting their carbon emissions and taking practical measures to implement them. Large number of companies will help in providing a generalized opinion for the specific country and specific industry. It will further help in providing recommendations or solutions for the problems companies are facing in reporting and reducing their carbon emissions. Further, the qualitative approach can also be taken for this research where the managers of the company or the accounting officers can be interviewed to get an in-depth establishment of the research objectives (Pope & Mays, 2013). The future researchers can also consider the company data for the Asian countries as well as these countries have been emerging out loud on the industrial scale and cover a huge geographical area which makes them a very high contributor of carbon to the environment. Also, it will prove to be better to analyze the problems within the industrial systems of these countries with regard to carbon emissions as it will help to control a highly significant amount of carbon emission in environment.

References

Anthoff, D., Tol, R.S.J. & Yohe, G.W., 2009. Discounting for Climate Change. Economics, 3(2009-24), pp.1-24.

CDP, 2015. CDP’s Guidance for Companies Reporting on Climate Change on Behalf of Investors & Supply Chain Members (2015). Lulu.com.

Crafts, N., 2011. Explaining the First Industrial Revolution; Two Views. European Review of Economic History, 15(1), pp.153-68.

Goodall, C., 2016. The Switch: How solar, storage and new tech means cheap power for all. London: Profile Books.

Great Britain: Parliament: House of Commons: Environmental Audit Committee, 2008. Reducing carbon emissions from UK business: the role of the climate change levy and agreements, second report of session 2007-08, report, together with formal minutes, oral and written evidence. The Stationery Office.

Hatcher, L., 2003. Step-by-Step Basic Statistics Using SAS: Student Guide. SAS Institute.

Inhabitant, 2018. 6 Simple Ways to Reduce Your Company’s Carbon Footprint. [Online] Available at: https://inhabitat.com/6-simple-ways-to-reduce-your-company%E2%80%99s-carbon-footprint/ [Accessed 13 October 2018].

IPCC, 2011. The IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation. IPCC.

Jacobson, M.Z., 2009. Review of Solutions to Global Warming, Air Pollution, and Energy Security. Energy and Environmental Science, 2(2), pp.148-73.

Jacobson, M.Z. & Delucchi, M.A., 2009. A Plan to Power 100 Percent of the Planet with Renewables. Scientific American, 301(5), pp.58-65.

Kahane, L.H., 2007. Regression Basics. US: SAGE Publications.

Lund Research Ltd, 2018. Two-way ANOVA in SPSS Statistics. [Online] Available at: https://statistics.laerd.com/spss-tutorials/two-way-anova-using-spss-statistics-2.php [Accessed 13 October 2018].

MacFarland, T.W., 2011. Two-Way Analysis of Variance: Statistical Tests and Graphics Using R. London: Springer Science & Business Media.

Morgan, G.A. & Griego, O.V., 1998. Easy Use and Interpretation of SPSS for Windows: Answering Research Questions with Statistics, Volume 1. Psychology Press.

Nordic Council of Ministers, 2009. Enhanced incentives for mitigation efforts in the Land Use. UK: Nordic Council of Ministers.

O’Rourke, L., 2012. Handbook on Applying Environmental Benchmarking in Freight Transportation. Transportation Research Board.

Pearce, D., 1991. The Role of Carbon Taxes in Adjusting to Global Warming. The Economic Journal, 101(407), pp.938-48.

Sen, A. & Srivastava, M., 2012. Regression Analysis: Theory, Methods, and Applications. Springer Science & Business Media.

The Telegraph, 2017. How can your business reduce its carbon footprint and what is a REGO supply? [Online] Available at: https://www.telegraph.co.uk/business/energy-efficiency/how-to-reduce-your-carbon-footprint/ [Accessed 13 October 2018].

Weisberg, S., 2005. Applied Linear Regression. California: John Wiley & Sons.

Williams, J.H. et al., 2012. The Technology Path to Deep Greenhouse Gas Emissions Cuts by 2050: The Pivotal Role of Electricity. Science, 335(6064), pp.53-59.

Wooldridge, J.M., 2008. Introductory Econometrics: A Modern Approach. London: Cengage Learning.