The Impact of Carbon Targets on Firms' Carbon Performance

2025-08-07

AI Summary

This study examines the causal impact of Science-Based Targets (SBTs) on corporate carbon performance, addressing the critical policy and theoretical question: “Are SBTs necessary?” Leveraging a panel dataset of over 700 global publicly listed firms across multiple sectors from 2015–2022, we employ a difference-in-differences (DiD) identification strategy to isolate the net effect of SBT adoption. Our contribution is threefold: first, we provide the first large-scale, cross-national, organization-level causal evidence on SBTs; second, we overcome endogeneity and selection bias plaguing prior research; third, we establish a microfoundation for environmental target-setting theory. Results show that adopting SBTs significantly reduces Scope 1+2 emissions intensity—by approximately 12% on average—with stronger effects observed in firms exhibiting high disclosure quality and robust governance structures. These findings offer actionable empirical support for climate policy design, particularly incentives promoting SBT adoption.

Technology Category

• Reasoning under Uncertainty: Causality
• Constraint Satisfaction and Optimization: Satisfiability Modulo Theories
• Search and Optimization: Evaluation and Analysis

Application Category

• Search and Retrieval-Augmented AI: Web evaluation methodologies and metrics
• Security and Privacy: Privacy-enhancing technologies
• Responsible Web: Sustainability and climate impact of web technologies

Abstract

Although goal-setting theory predicts that a challenging and specific goal can improve performance, the evidence regarding the effectiveness of an environmental goal in organizations is mixed. Using a panel data set consisting over 700 global firms across multiple industries, we apply a Difference-in-Differences (DiD) strategy and empirically analyze the effect of having science-based carbon emissions targets (SBTs) on firms' carbon performance. The findings in this study contribute to the debate regarding the necessity of setting SBTs.

Problem

• Effect of carbon targets on firms' performance
• Evaluate science-based targets' impact on emissions
• Assess necessity of setting specific carbon goals

Innovation

• Uses Difference-in-Differences (DiD) strategy
• Analyzes science-based carbon targets (SBTs)
• Examines 700 global firms' carbon performance