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In the past few decades, carbon emission has been increased drastically which is a serious problem to the mankind. (Mangla & Ahuja, 2014) The main sources of carbon emission are large business organization. This paper seeks the answer to the question that why some firms reduce carbon emission more than other firms? The carbon emission is today’s main problem and it is important to identify the cause of the problem and taking actions to reduce it. One way to reduce carbon emission is by investing in carbon technology. This research report attempts to study the co-relation between capital investment in carbon technology and reduction in carbon emission. Moreover, this report tends to seek the impact of the financial status of the firms on investment that is made by firms in green/carbon technology.
According to Martin (2007), climate change is the result of an increasing amount of carbon emission which is a serious problem to the world. The main sources of carbon emission are various business organizations, and Queensland Government (2014) reports that the firms who are not concerned about climate change should bear the risks, for example, increase in the cost of insurance, decrease in product’s demand. However, firms are now giving more emphasise to climate policies, including emission trading schemes and taxation of carbon emissions and promotion of carbon-efficient technologies (Bottcher & Muller, 2015). The firms realising that the efforts towards achieving a low-carbon society is a challenge and an opportunity to increase their financial performance and achieve competitive advantage (Bottcher & Muller, 2015). The regulators are more aware of the consequences of carbon emission to the environment and society. Hence, this issue is important to practice to accountants, managers, regulators, the public for the sustainable development and for the better financial status of the firms.
In the research, it is stated that investment in carbon technology has a significant impact on the reduction in carbon emission. (Simnett, et al., 2009) Therefore, investing in carbon technology becoming more important as this has been a matter of concern to the stakeholders. To control the carbon emission the stakeholders, for example, the government, customers, managers are adopting strategies such as carbon reduction technology (Simnett, et al., 2009) and formulating policies like carbon tax. The stakeholder theory gives more emphasise to carbon emission reduction through its parameters: power, legitimacy and urgency (Westrenius & Barnes, 2015). The importance of stakeholder plays a significant part in stakeholder needs (Rajagopal, et al., 2016). The degree of salience is measured by the firm’s circumstances and depends on the levels of urgency, legitimacy and power controlled by stakeholder (Westrenius & Barnes, 2015).
The research shows that the United States and EU have been investing on carbon technology by significant amount (Gavard, et al., 2016) and my research paper studies investment in carbon technology and reduction in carbon emission.
Carbon emission reduction is a serious challenge and all the stakeholders are concern about it. CDP, a non-profit organization has conducted a survey among 1,826 different organizations and series of questions asked to the firms which are directly and indirectly related to carbon emission. This report aims to study regarding investment in carbon technology and its impact on carbon emission.
One research shows that the United States (US) aims to reduce emission below 2005 its level by 26 to 28% which targets to reduce by 2025 (Gavard, et al., 2016). To achieve its goal the US has given more priority to renewal energy. On the other hand, under 2030 climate and energy framework, Europe planned emissions cuts of 40% by 2030, below 1990 levels (Gavard, et al., 2016). European Union (2018) states that they have set the objective to reduce emission by 80-95% below 1990 level by 2050. Moreover, McKinsey & Company reports that if United States (US) use carbon technology it can reduce carbon emissions by 3 to 4.5 gigatons in 2030 (Toptal, et al., 2013). The US and EU agree the fact that capital investment in carbon/green technology is one of the keys to achieving their objectives to reduce carbon emission. Investing in green technology, for example, environment friendly manufacturing processes, energy-efficient warehousing helps to reduce carbon emissions significantly (Toptal, et al., 2013). This research report shows the impact of capital investment in carbon emission reduction and the relationship between capital investment in carbon technology and the financial status of the firms.
(Toptal, et al., 2013)states that the world is more sensible regarding the environment and evidence indicates that firms who consider the interest of the stakeholders in business decision making will succeed. This report is based on Stakeholder salience and its three parameters; power, legitimacy and urgency. (Westrenius & Barnes, 2015) Stakeholder theory states that the identification of stakeholders helps in business decision making eventually financial performance increases and leads to sustainable development (Poplawska, et al., 2015). If an organization’s objective is to increase financial performance and sustainable development, understanding and integrating the needs of stakeholders become an asset to organizations.
Stakeholder theory reduces and categorize the list of stakeholders in terms of their needs, concerns, interest and most significantly their importance. In the stakeholder theory, ‘power’ is defined as an ability to influence in various ways to an organization (Poplawska, et al., 2015) and, moreover, legitimate stakeholders are those shareholders whose actions and opinions are desirable and valuable to an organization’s decision-making. ‘Urgency’ defines that if the needs and concerns of the stakeholder are urgent and critical, firms should take an immediate attention to maintain the healthy relationship with the stakeholders. (Poplawska, et al., 2015).
The firms who have better financial performance have more carbon emission and tax burden. Some European Nations (EU) including Denmark and Finland have imposed a carbon tax aiming to reduce the carbon emission (Wang, et al., 2018). The idea is that firms have to face additional carbon tax costs that leads an increase in production cost and to deal with carbon tax burden firms are supposed to take actions on carbon emission reduction. One measure the firms can consider reducing carbon emission is by adopting carbon reduction technology (Wang, et al., 2018).
The research report gives emphasis on the capital investment in green technology and reduction in carbon emission. The dependent variable for the study is capital investment in carbon technology which is positively co-related with the reduction in carbon emission. The proxy measure for the dependent variable i.e. capital investment is CDP 2014 Q CC11.1 “what percentage of your total operational spend in the reporting year was on energy?” and it is measured on percentage. Moreover, the financial performance of the firms is an independent variable (IV) and sales is taken as the proxy measure for IV which is measured in Dollar ($). Moderating variable is Carbon Tax and the proxy measure is CDP 2014 Q CC5.1 “Have you identified any inherent climate change risks that have the potential to generate a substantive change in your business operations, revenue or expenditure?” The pictorially, Financial performance (IV) -> Capital investment (DV) -> Carbon emission.
Capital investment in carbon technology causes firms to reduce carbon emission
Bottcher, C. F. & Muller, M., 2015. Drivers, Practices and Outcomes of Low-carbon Operations: Approaches of German Automative Suppliers to Cutting Carbon Emissions. Business Strategy and the Environment,24(6), pp. 477-498.
Gavard, C., Winchester, N. & Paltsev, S., 2016. Limited trading of emissions permits as a climate cooperation mechanism? US-China and EU-China examples. Energy Economics,Volume 58, pp. 95-104.
Mangla, S. K. & Ahuja, J., 2014. Carbon Emission in BRICS Countries: Trends, Issues and. FIB Business Review, New Delhi,3(2), pp. 3-12.
Poplawska, J., Labib, A., Reed, D. M. & Ishizaka, A., 2015. Stakeholder profile definition and salience measurement with fuzzy logic and visual analytics applied to corporate social responsibility case study. Journal of Cleaner Production,Volume 105, pp. 103-115.
Rajagopal, V., Dyaram, L. & Ganuthula, V. R. R., 2016. Stakeholder salience and CSR in Indian Context. Decision,Volume 43, pp. 351-363.
Simnett, R., Nugent, M. & Huggins, A. L., 2009. Developing an International Assurance Standard on Greenhouse Gas Statements. Accounting Horizons,Volume 23, pp. 347-363.
Toptal, A., Ozlu, H. & Konur, D., 2013. 'Joint decisions on inventory replenishment and emission reduction investment under different emission regulation'. International Journal of production Research,52(1), pp. 243-269.
Wang, Z., He, S. & Zhang, B., 2018. Optimizing cooperative carbon emission reduction among enterprises with non-equivalent relationships subject to carbon taxation. Journal of Cleaner; Atlanta,Volume 172, pp. 552-565.
Westrenius, A. & Barnes, L., 2015. Managing complex business relationships: small business and stakeholder salience. The Journal of Developing Areas,49(6), pp. 481-488.
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