Corporate Climate Risk and Membership of Emission Trading Schemes

Adamolekun, Gbenga; Ahmed, Ammar; Kwansa, Nana Abena; Lawal, Rodiat; Sakariyahu, Rilwan

Abstract

Using a sample of 5364 firms from 65 countries, we demonstrate that membership in the scheme increases firm climate risk. Further analysis reveals that the positive impact of membership on climate risk is pronounced among firms in carbon-intensive industries. Our findings demonstrate that continental differences and legal origin could moderate or exacerbate the relationship between emission trading schemes (ETSs) and corporate climate risk. Similarly, the positive relationship between ETSs and corporate climate risk is only significant in the period after the Paris Agreement. This indicates that public interest in climate change discussions may have driven membership in the initiative rather than reflecting a real commitment to reducing carbon emissions. Additionally, we show that membership has short- to medium-term effects on corporate climate risk. Our results are robust to a battery of tests such as propensity score matching (PSM) and generalized method of moments (GMM).

Citation

Adamolekun, G., Ahmed, A., Kwansa, N., Lawal, R., & Sakariyahu, R. (online). Corporate Climate Risk and Membership of Emission Trading Schemes. Business Strategy and the Environment, https://doi.org/10.1002/bse.4286

• Journal Article Type: Article
• Acceptance Date: Mar 27, 2025
• Online Publication Date: Apr 13, 2025
• Deposit Date: Apr 18, 2025
• Publicly Available Date: Apr 22, 2025
• Journal: Business Strategy and the Environment
• Print ISSN: 0964-4733
• Electronic ISSN: 1099-0836
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1002/bse.4286
• Keywords: carbon emission mitigation, climate change, emission trading scheme, firm climate risk
• Public URL: http://researchrepository.napier.ac.uk/Output/4242678