Do corporate sustainability initiatives improve corporate carbon performance? Evidence from European firms

Abstract We contribute to the business strategy and the environment literature by investigating the influence of corporate sustainability initiatives and corporate carbon performance of European listed firms. We use three‐way fixed‐effects model, and our sample comprises of 2444 firm‐year observations from 12 European countries, covering a 16‐year period (2004–2019). First, we find that corporate sustainability initiatives, a composite measure comprising of emission reduction initiatives, environmental innovations and efficient use of resources, has a positive relationship with corporate carbon performance, in terms of reduced greenhouse gas (GHG) emission intensity. Second, we find that the relationship between corporate sustainability initiatives and corporate carbon performance is stronger for firms in polluting industries. Overall, our evidence lends support for the efficiency‐oriented arguments of the neo‐institutional theory in that organisations respond to climate‐related risks by making substantive engagements in corporate sustainability initiatives, such as emission reduction initiatives, environmental innovations and efficient use of resources, which in turn facilitates organisations' effort to reduce GHG emission and improve corporate carbon performance.