Incorporation of Climate Change in Business Strategy: A Legitimacy Theory Perspective

Assigned research question: Is climate change integrated into your business
strategy.
Introduction
Climate changes have significant influences on the visions and profit maximisation strategies of
the organisation. The awareness of the climate changes is increasing day by day throughout the
world in almost every industry. Every organisation has its distinctive opportunities, challenges
and integrating climate change which plays a key role in the policy-making process. The
fundamental issue we want to address here is the incorporation of climate change in the business
strategy. Furthermore, we will relate this issue to the legitimacy theory which means an
organisation seeks to ensure that they operate within the bounds and norms according to the local
societies. To put in simple words, the business activities are perceived to be legitimate. The
bounds and norms are not static so the organisation has to be responsive and the best way is to
rely on the notion of a social contract.
Literature Review –
A plethora of research is available which deal with the issue of climate change and its
incorporation in the process of business policymaking. In this section, we will cover some
important previous studies that deal with the issue of climate change as well as with the

perspective of legitimacy theory. An important study conducted by the McKinsey & Company
which dealing with the generalised perspective on climate change risk that varies industry to
industry. This research is covering almost all major sectors like oil and gas, Chemicals,
agriculture, transport etc. The best way to compile that report is show with the help of the
following chart;
Figure 1. Impact of McKinsey & Co on carbon disclosure. Source: McKinsey & Company
(2017)
Legitimacy theory also aids to assess the Green House Gas emission and social performance of
the firm making it one of the best tool analyse and compare the firm’s performance with climate
change.
A research study had highlighted the issue of legitimacy gap and concluding that this gap arises
when there is a clash between expectations of society and actions of an organisation. There is a
strong correlation between the expectations of society and legitimacy gap. To put in other words,

it means the gap will increase when the expectations of society changes or the unknown
information become known to the society (Set
hi, 1975).
Figure 2. Legitimacy gap. Source: Sethi (1975)
Another research is suggesting the climate change action plan that can be used as a proactive
management of risk that is associated with the climate and also discussing the opportunities and
impacts. This study is based on five stages where the first stage is deal with the understanding
footprints which means mapping the emissions and improving the reporting and accuracy. The
second step is describing the implementation of suitable measures to reduce these emissions. The
next stage is dealing with the engaging externalities which mean for instance to develop methane
and shale development communication or take part in the process of global legislation and
regulations. The final stage is dealing with the building capacity which means to give proper
attention to research and development to form an action plan to incorporate the climate change in
business strategies (Mousa and Hassan, 2015).
Conceptual Model:

Integration of climate change in business
Internal price of carbon
Future consideration of risk
Carbon disclosure score
Independent Variables
Control variables: Size of the firm
Dependent Variables
The conceptual model of this study which is dealing with the issue of climate changes
incorporation in the business policymaking process can be presented with the help of the
following chart explicitly;
Figure 3. Conceptual model of the research.
In this research framework, there are three independent variables and one dependent variable
along with a control variable. It has been considered that carbon disclosure score is the
dependent variable, which is according to the CDP disclosure is dependent upon the integration
of climate change in business, internal price of carbon and future consideration of risk, making
them the independent variable for this research framework. This research framework considers
that size of the firm is one of the main factors that control the carbon disclosure score, this it will
be considered as the control variable.