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 Abstract:

We examine the effect of country-level regional social capital on the firm adoption of Environmental Management Control Systems (EMCS) and its impact on the firms’ environmental outcomes: carbon mitigation, ESG controversies, and CSR rewards. Using a large dataset of 53,797 firm-year observations from 7,243 individual firms from 33 different countries for the period 2007-2021, we demonstrate a positive association between social capital (i.e., institutional trust, interpersonal trust and social networks) and EMCS development. We find this positive association to be more pronounced when firms invest more in corporate eco-innovation and have stronger monitoring mechanisms (board gender diversity, board independence and CEO duality). We also find the effect to be stronger in countries with better formal institutions and higher national environmental performance. Furthermore, we demonstrate the significance of firms from high social capital regions to develop better EMCS, as it leads to reducing carbon emissions, having a higher probability of winning CSR awards, and reducing firms’ exposure to the ESG controversies. Our findings are robust to potential endogeneity concerns mitigated through 2-stage least squares (2SLS) regressions, propensity score matching and entropy balancing. Our findings provide several implications for the managers towards better alignment with the Net Zero 2050 target achievement.

 Bio:

https://www.flinders.edu.au/people/gm.waliullah

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