Business strategies and carbon emissions
Mostafa Monzur Hasan, Xiaomeng Chen
Abstract
We investigate the relationship between business strategies and corporate carbon (CO2) emissions. Using a sample of US publicly listed firms, we document that firms following a prospector-type business strategy emit significantly less CO2 than those adopting a defender-type strategy. We also find that this relationship holds for Scope 1, Scope 2, and Scope 3 emissions. This connection is more evident in firms with greater board gender diversity, those operating in environmentally sensitive industries, and those headquartered in regions with high social capital. Our mechanism analysis demonstrates that the innovation culture of prospector firms plays a crucial role in reducing CO2 emissions. We conduct a series of robustness tests, including two-stage least-squares and difference-in-differences, and show that our findings are not influenced by endogeneity issues. Further analysis reveals that higher CO2 emissions by prospectors result in a decline in firm value. Overall, our results underscore the importance of strategic alignment with environmental objectives for both environmental sustainability and firm performance. • Prospector-type firms emit significantly less CO2 than defender-type firms • This link is stronger in firms with gender diverse boards and eco-sensitive industries • This link is more evident in firms in regions with high social capital • The innovation culture of prospector firms is key to reducing CO2 emissions • Higher CO2 emissions by prospector firms lead to a decline in firm value.