Determinants of firms' initiative and inertia in pursuing climate neutrality strategies - Theoretical explanations and empirical evidence

Abstract

In view of global warming and growing demands that economies, industries, and firms should be climate-neutral by mid-century, various sources complain that firms are still hesitant to implement a corresponding climate neutrality strategy (CNS). To date, however, there is little empirical evidence or explanation for such an alleged inertia. This study fills this void by analyzing key determinants that may explain whether a CNS is pursued at the firm level. We develop and test hypotheses grounded in theory using firm-level data from the 2021 European Flash Eurobarometer as well as country-level datasets to examine the impact of formal and informal institutions. Our results reveal that the majority of firms across many countries and industries have no explicit CNS. As predicted by institutional logics, the extent of a firm's home country's exposure to climate change, climate problem awareness, and regulatory enforcement has a significant positive impact on the likelihood of CNS being formulated and pursued by firms. Extending traditional structural inertia theory, internal factors cause large and old firms to be more likely to report having explicit CNS. We further find that these structural characteristics partially moderate the link between institutions and CNS. After a thorough discussion of the results, potential limitations, research opportunities, and implications for various stakeholders are highlighted.