Assessing the Effects of Carbon Disclosure Project on Minimizing Carbon Emissions

Introduction
Climate change have become an issue of concern to both the developed and emerging
economies. The economic growth is important in eradicating poverty but it comes with some
challenges such as increased carbon emission from the companies (Panel, 2013). Development
and expansion of companies in a country lead to creation of job opportunities to the local
population (Katzenbach, and Smith, 2015). Carbon emission have led to great effect on the
climate change such as the global warming. Countries and companies are bringing their efforts
together to reduce the level of carbon emission to the environment (Hansen et al., 2013; Zhang,
Wang and Song, 2013). Developed countries are the high emitters of carbon dioxide gas to the
environment. For instance, the United States’ industrial and commercial sources were reported to
have emitted carbon dioxide gas three times more than the residents in the year 2010 (Nordhaus,
2010). Continued increase of carbon emission led to the emergence of Carbon Disclosure Project
that required the companies to be keeping records of carbon disclosure and reporting the records
within a certain period of time (Ascui and Lovell, 2012; Andrew, and Cortese, 2013). Even
though the companies are keeping records and reporting the carbon emission, they do little in
minimizing the emissions. Reports addressing the climate change challenges considered the
growing markets for products and services’ effects on the companies’ responses to the climate
change (Saka and Oshika, 2014). Despite the efforts and pressure mounted by the non-
governmental organization (CDP) on the companies’ report on carbon emissions, not all
companies respond to the provided emissions and climate change questionnaire on their next
course of action towards combating carbon emissions (Matsumura, Prakash and Vera-Muñoz,
2013). The rising concern from both private and public sectors help the CDP in mounting
pressure and encouraging companies to adopt and mitigate carbon emissions that lead to climate

change. This research is then aimed at assessing the effects of CDP towards minimizing carbon
emissions.
Summary of literature review
This research adopted legitimacy theory in the examination of carbon disclosure by both private
and public sectors. No theory has come clear in explaining corporate social responsibility
disclosure practices until when legitimacy theory came about and had wide dependence by the
researchers (Fernando, and Lawrence, 2014). Environmental and social disclosure can easily be
explained currently by using legitimacy theory (Deegan, 2014). Due to legitimacy ability of
providing disclosing strategies, legitimacy theory is preferred over other theories (Bakker, Raab,
and Milward, 2012). The strategies identified by the legitimacy theory can be adopted by the
organizations which might legitimize the existence of the organizations hence could be
empirically tested (Maier, Meyer and Steinbereithner, 2016). Agency theory on the other hand
provides the assumption details of the relationship between business agents and principals
(Westley et al., 2013). Through the adopted legitimacy theory, the existing problems in the
carbon disclosure can be somewhat resolved with ease and keeping all the set goals at check.
Business organizations and companies are the major sources of carbon emissions as in the
previous reviews (Huisingh, Zhang, Moore, Qiao and Li, 2015; Böttcher, and Müller, 2015). The
so referred companies are supposed to adopt new techniques that are aimed at minimizing carbon
emissions and keep it at the lowest level possible. The climate change made the companies and
other business organizations suffer some significant risks whose effects are felt in the value of
the organizations’ investments of shareholders (Okereke, Wittneben and Bowen, 2012). The
earlier researches show that there is existence of correlation between the share price and the
environmental performance (Eccles, Ioannou and Serafeim, 2014; Edwards, 2014). Performance

evaluation in conjunction with performance based incentives are used to protect shareholders’
interests. The levels of carbon emissions is almost unmanageable due to the companies’
managers’ lack of sufficient experience to manage emissions. As a result, the set target have
been difficult to be achieved.
Further studies on financial performance exhibited targets and incentives effects without
including the non-financial performance (Sierzchula, Bakker, Maat and van Wee, 2014.). Being
that carbon emissions and climate change is a bother to all the sectors, non-financial performance
and target operations was the identified gap. Furthermore, future research should be on the
relationship between non-financial performance and the environmental performance. Strategic
importance still remain hanging and sidelined in the firms’ management and operations since
firms are not quite familiar with it. Challenging targets might lead to increase in the number of
targets completed and less weight given to environment related targets.
Hypothesis development
Seminal articles have been covered in legitimacy theory on the control and separation of
ownership. Society can operate in the funny manner by revoking the contract awarded to an
organization if the society feel unsatisfied with organizations’ services (Marcuse, 2013). The
behavior of the agents can be bonded with the guide of principals’ interest related to incentive
performance and setting targets (Fayezi, O'Loughlin and Zutshi, 2012). Legitimacy theory plays
a vital role in explaining environmental and social disclosures in regards to carbon emissions. In
the hypothesis development, it is important to consider the advantages of legitimacy theory that
is not in other theories. One such advantage is providing disclosure strategies that companies
adopt to make their existence legitimate. Slacks are created due to available information
asymmetry that is targeted by the agents. In regards to aforementioned theory in the operational

proxies, slack formed the dependent variables (DV) while the incentives provided by the
managers and budgetary process in setting easy targets are referred to in the past researches. In
order to understand carbon emissions, there is dire need for incorporating slack literature in the
operationalization and its application in carbon emissions. Independent variable in this research
will be information asymmetry even though there is their decrease with time. The numbers in the
organization for the past years in which no targets have been set are collected to measure the
information asymmetry on carbon emissions. Greater performance have the effects of greater
completion and the effects are moderated using the performance incentives. Managers in their sit
in the management role of the organization know the potentials of the organizations than the
shareholders or investors. Inverse proportionality exist between information asymmetry and the
created slacks by the managers.
Data collection
In order to exhaust the companies and countries’ response to climate change due to carbon
disclosure, electronic methods was applied to obtain CDP data from their database which
covered the period of six years from 2009 to 2015. In that regards therefore, the data used in this
research were secondary and covered a total population of 5,054 companies from various
countries such as China, Colombia, France, Mexico, South Korea, United Kingdom, USA,
Australia, Canada etc. the data consisted of bot categorical and numerical variables which led to
both categorical and numerical data. It was in the aim of CDP for all the companies from all
countries to comply and report their actions towards carbon disclosure. As a result therefore, this
research took a sample of companies from three developed countries i.e. Belgium, UK and
Germany. The sample size used was 30 companies from the three stated countries and have their
efforts evaluated in the period of the past seven years from 2009 to 2015. From the entire data