Carbon Behaviour, Carbon Reputation and Corporate Economic Performance: A Comparative Study of Carbon Intensive and Non-intensive Industries

Climate change and global warming have received heightened attention over the last few decades across different societies. As one of the biggest polluters of CO2e, companies can play an important role in tackling climate change and global warming. Despite such an important role, a limited numbers of studies have been conducted in the carbon accounting discipline. The major concern that this study addresses is whether voluntary carbon disclosure, and especially self-serving (symbolic) information, may actually hinder future improvements in corporate carbon performance. This study investigates this concern by proposing a model that investigates the interrelationships between carbon performance, carbon disclosure, carbon reputation and a firm‟s economic performance within a single inclusive model. Following previous studies suggesting that the relationship between corporate environmental behaviour and a firm‟s environmental reputation may vary across environmental sensitive and non-sensitive industries, and in line with the aim and objectives of this study, separate path analysis models have been run for carbon intensive and non-intensive industry sectors. Therefore, a comparative study was employed to understand the similarities and differences between these two different industry sectors. Based on the pooled cross-sectional time series data of 95 UK firms (40 carbon intensive companies and 55 non-intensive companies) over the period 2009 to 2014 and by employing a time sequence design, this study found that poor carbon performers disclose more carbon information in non-intensive industries. The results showed that corporate carbon performance is not reflected in corporate carbon reputation and, more interestingly, the worst performers in carbon non-intensive industries have a better carbon reputation. The results also showed that, unlike carbon non-intensive companies where only the quality of carbon disclosure improves carbon reputation, the quantity of such disclosure (irrespective of its quality) enhances the carbon reputation of the firms with greater carbon exposure (i.e. carbon intensive companies). No direct and indirect (through carbon reputation) relationship was found between carbon performance, as well as carbon disclosure and a firm‟s economic performance, plus carbon reputation as an intangible asset only improves economic performance of carbon intensive companies. Finally, the bootstrapping method indicated that carbon reputation fully mediates the impact of the quantity of carbon disclosure in carbon intensive companies on corporate economic performance. In other words, by disclosing more carbon information (irrespective of its quality), carbon intensive companies can improve their carbon reputation and subsequently enjoy better economic performance. This study has several implications for corporate managers, investors, media and policy makers. The results showed that carbon reputation appears to be an important factor in the decision making of investors who invest in carbon intensive companies. Since carbon reputation of these companies is not based on either real carbon performance or quality of carbon disclosure, investors need to be cautious when making a decision. The results also showed a certain degree of naivety on the part of the media in evaluating corporate carbon behaviour. Such investors and media behaviour can actually reduce management‟s incentive to improve their real carbon performance in the future. The results send a clear message to regulatory bodies whose current policy for voluntary carbon disclosure is not sufficient enough to address the heart of climate change and global warming. Finally, the results also send a massage to corporate managements that improving corporate carbon performance does not come out of shareholders' pockets.