Poster #45 - Peer Effects in the Spread of Climate Pledges: a Look at Science-Based Targets

• In Event: Friday Poster Reception

Abstract

Voluntary climate pledges play an increasingly important role in international climate change mitigation. In the absence of strong federal momentum on climate policy, corporate pledges are an essential complement to subnational climate action that could enable continued progress towards international decarbonization goals. Because meaningful emissions reductions require decarbonization across entire value chains, the effectiveness of these pledges depends on whether firms can catalyze rigorous climate action among their value-chain partners and ensure that they share the same level of commitment. Applying a Cox proportional hazards model to 5,639 firms over 22 years of value-chain data, we examine whether Science-Based Target adopters influence their competitors and value-chain partners to also adopt Science-Based Targets. We control for a number of firm-level characteristics, including firm size, performance, capital intensity, and financial slack. We find that a firm’s likelihood of target adoption increases by 5.1% for each additional competitor with a target and by 9.2% for each additional partner with a target. Customers with targets also exert pressure on their suppliers: each additional target-adopting customer increases the likelihood of supplier adoption by 2.1%. We further observe that these peer effects vary across industries. In Real Estate, Materials, and Health Care, targets tend to diffuse through customers and partners, whereas in Finance and Consumer Products, adoption is driven more strongly by competitors. Our results also tell us that larger firms, which tend to receive more public attention and face more regulatory scrutiny, are significantly more likely to adopt climate pledges. Our findings suggest that international climate change mitigation efforts are creating new business norms around climate action, with firms responding to stakeholder expectations by adopting climate pledges. Furthermore, the dynamics of pledge diffusion differ between industries, with some being competitor-driven and others more cooperative. Hence, policies encouraging voluntary climate action should be tailored towards each industry. Additional research is needed on whether these pledges translate into substantive decarbonization outcomes.

Author

• Xinyi Gu, University of Maryland, College Park
  Presenting Author