Does corporate carbon performance converge in the global market? Evidence from a distribution dynamic approach

Abstract

Converging corporate carbon performance (CCP) to a higher level is necessary to achieve the global goal of controlling temperature rise. However, it remains uncertain whether all international firms endeavour to improve CCP. Using a panel of 19,913 public companies from 76 countries during the 2010-2019 period and two visual tools of the distribution dynamics approach, we conduct a nascent analysis of transitional dynamics and the long-run evolution of CCP. We find that regardless of investigated period (before and after Paris Agreement) and regional location, most firms converge towards the highest CCP of 10, thereby improving carbon performance over time. After Paris Agreement, the convergence to the top CCP is more significant, whereas more companies cluster around the mediocre CCP (a value of 6.7), thus evidencing an increased heterogeneity in convergence paths. Firms from East Asia & Pacific and the North American regions drive such heightened heterogeneity. Specifically, enterprises from East Asia & Pacific show the least convergence towards the highest CCP, probably because more manufacturing firms in the region primarily rely on fossil fuels and face loose environmental regulations. Therefore, further improving CCP may require substantial investments in equipment upgrades and would result in significantly higher costs. For North America, the results can be associated with Donald Trump's policy towards climate change and bid to withdraw from the Paris Agreement, reflecting firms taking a Republican stand, most likely diverging to mediocre CCP and experiencing a decline in future carbon management. The observed convergence towards the highest CCP is nearly twice as significant among firms from OECD than non-OECD countries, which aligns with global enterprises outsourcing emissions to developing countries. The study reveals the pattern of strong convergence to the highest CCP in the global firms as evidence of collective efforts in the transition to net zero. However, divergence and increased heterogeneity may occur in some regions due to politics, industrial structure and regulations.

Keywords: Convergence club; Corporate carbon performance; Distribution dynamics approach; OECD; Paris agreement.