Company Specific Determinants of Adopting Internal Carbon Pricing As Carbon Management Strategy

Abstract

Environmental sustainability and climate change have been considered as two of the burning issues across the globe and require an inclusive approach to manage the same. Regulators and policymakers are constantly pressurizing business corporations to adopt emission management practices to control their carbon footprint. To respond to this, corporate houses have progressively institutionalized internal carbon pricing (ICP) as a climate management strategy to control carbon footprints in operations and business models. The purpose of the study is to examine the firm-specific determinants of adopting ICP among companies operating in an emerging economy context. Current research takes a three-dimensional look at the reasons behind the use of ICP by combining factors related to finances, corporate governance, and the environment. Using panel data from 107 firms for 10 years (2013–2022), the study employs binary logistic regression analysis. Further, the study also uses the generalized method of moments (GMM) to control for potential endogeneity. Findings indicate that profitability, firm size, leverage, board size, and environmental sensitivity are the significant factors affecting the adoption of ICP among the sample firms. Further, the results also depict that even though the number of firms using ICP has increased, the current mean adoption rate is only 23%. The present study contributes to the scarce literature on carbon management practices in emerging contexts and describes several important implications for managers and policymakers.