Effectiveness Of CDP In Minimizing Greenhouse Gas Emissions: A Legitimacy Theory Perspective

Theoretical Background

In the preset years climate change have been a great issue and center of concern for the expertise in different fields of professions. Extreme new weather patterns could be resulted to as a result of the global temperature rise in the current century to about 3.4⁰C (Marcott, Shakun, Clark and Mix, 2013; Kosaka and Xie, 2013). This comes even after the convened meeting in Paris and have the carbon emissions management reached (Hale, 2016; Worldwide, C.D.P., 2014). The trend of temperature increase had rose since late 1970s due to increase in industries that resulted to increased fossil emissions in the world’s industrial revolution (Otto, Grube, Schiebahn and Stolten, 2015). The effects of global warming worldwide was felt mildly back in 1880s since the average temperature rose by about 0.8⁰C (Mohr, Wang, Ellem, Ward and Giurco, 2015). Back then, the number of industries that emitted fossils to the atmosphere were low unlike in the 20^th century when the number of industries had rose drastically resulting to adverse effects on the climate change (Perlmutter, 2017).

In response to that therefore, awareness had been created by the CDP, a non-profit organization to those causing the great emissions and appropriate advice given for the way forward to manage the global warming. Since the shift and reliance upon industries and industrialization for jobs creation, companies have tremendously increased with which they increased the amount of carbon emissions to the atmosphere (Matisoff, Noonan, and O’Brien, 2013). In that regards, Environment friendly sources of energy are encouraged for use such as the solar energy and electricity dependent vehicles as a way of minimizing the greenhouse gas emissions into the atmosphere (Sureshkumar, Manoharan and Ramalakshmi, 2012). This research in therefore focused in the effectiveness of the CDP towards the minimization of greenhouse gas (GHG) emissions.

All the attention and news are on the emerging issues on effects of climate change and what the world is doing in response to ameliorate the changes (Rice, and Garcia, 2011). Due to that, researches and theories have been developed to help understand and critically examine the carbon disclosure across all sectors i.e. public and private sectors (Hahn, Reimsbach, and Schiemann, 2015; Luo and Tang, 2014). Among the developed theories, agency theory develops assumptions that explains in details the associations between the business agents and the principals (Bosse, and Phillips, 2016) and legitimacy theory that explains the social responsibilities and disclosure practices (Pereira Eugénio, Costa Lourenço, and Morais, 2013). This study adopted and incorporated the legitimacy theory that has been widely depended on by the researchers when it comes to providing the disclosure strategies that organizations need to adopt for their existence legitimization (Luo, Tang, and Lan, 2013). This theoretical perspective aids in offering the explanation of carbon disclosure by the organizations since organizations have been believed to be the key sources of carbon emissions (Chiu and Wang, 2015). Consequently, organizations can make necessary major changes that are aimed at minimizing the Greenhouse gas emissions thus maintaining the global temperatures at the minimum acceptable possible limit (Pachauri et al., 2014). Share price and environmental performance have been shown to have some relationship between them from the previous literatures (Ducassy, 2013). Performance evaluation in corporation with performance based incentives are one of the methods used in protecting the interest of shareholders in the organizations (Michelon and Parbonetti, 2012; Stout, 2012).

Research Design and Methodology

Development of hypotheses in this research took into account the legitimacy theory on the ownership separation control. At times, societies can revoke contracts awarded to the organizations if the organization fail to satisfy the society with the services the organization provide (Chen et al., 2015). Information asymmetry leads to the creation of slacks that targets the agents. Slacks in this research was the dependent variables (DV) whereas the incentives from the managers and the process of budgetary useful in setting targets easily formed are referred to in the previous researches. Slack literatures are then incorporated for better understanding of carbon emissions for its proper operationalization and application in carbon emissions. One of the major independent variables (IV) in this research is the information asymmetry however they decrease with time. Greater performance is essential in greater completion and performance incentives used in their moderation.

Rules have been set by CDP that require companies to file their reports in response to global warming due to greenhouse gas emissions. Data that were used in this research were secondary data retrieved from CDP database that contains the companies’ carbon disclosure report from different countries across the globe from the year 2011 to the year 2017. CDP supplied the companies with the questionnaires that they were required to be filled regarding their actions towards carbon emissions. Each company was required to be filling the questionnaire and providing their carbon disclosure records for carbon emissions records checking. The research covered a population of 16,690 companies from different parts of the world particularly from Asia, Europe, North America, South America, Australia and Africa covering countries such as USA, UK, Argentina, Japan, etc. from the obtained data. The collected data consisted of both numerical variables and categorical variables which will be used in carrying out descriptive statistics of the data. From the referred population of companies, a sample size of 30 companies were randomly selected from the population for only two countries i.e. France and Germany. Random selection was opted for since it provided all the countries and the companies’ equal chances of being selected in the sample. The data analysis that was conducted in this research in exhausting the data sample was descriptive statistics analysis that enabled the calculation of mean, standard deviation etc. in regards to carbon disclosure. Inferential statistics such as the two sample t-test was used to test for the mean difference of the total percentage of operational spent in reporting energy among the selected countries and the Pearson’s correlation coefficient for the test of correlation between variables. Excel was the statistical software used in the analysis of the sample data. Finally, frequency statistics will as well be used in the representation of data in the frequency graphs and tables for better and easy understanding and interpretation to extract meaning from the data.

Results and Analysis

Figure 1

In regards to the question on of how the gross global emissions for both scope 1 and scope two combined compared with the previous year’s report in the year 2017, the majority of companies represented by 76.67% confirmed that their gross global emissions decreased as compared to that in 2016 against some companies represented by 23.33% that realized an increase in their gross emissions in 2017 as compared to gross emissions in 2016.

Figure 2

The CDP was also interested on whether the companies were incorporating the climate change in their daily operations or not out of which all the sampled companies agreed (responded with yes) that the issue of climate change was considered in the business operation and production process.

Table 1: Descriptive statistics

The maximum normalized additional intensity metrics that were appropriate to the business operations in Germany and France was 230.05 with the mean of 33.9939 and the standard deviation of 63.24635. Related to the same in the year 2016, the additional intensity metrics that were estimated appropriate for the operations of business had the mean value of 32.51074, maximum value of 201 and the standard deviation of 57.79834. The metric denominator total units had the maximum value of 5.6E+09, mean = 1.9E+08 and standard deviation of 1.02E+09. The 2016 percentage change from the previous year had the maximum change of 28 with the mean of 8.294333 and standard deviation of 7.181305. The combined gross global combined for scope 1 and scope 2 for the reporting year of the metric tons of carbon dioxide gas per full time equivalent (FTE) employee had the mean = 39.67271 and SD = 90.01288 with the minimum and maximum of 9.88E-06 and 443 respectively. The percentage change in 2015 from the previous year hade the mean and standard deviation of 8.457667 and 8.15305 respectively. The gross global emissions for the reporting year 2014 had the mean of 25.9987 metric tons, standard deviation of 48.63357 metric tons with the maximum metric tons recorded at 207 metric tons. The 2014 percentage change from the previous year had the mean percentage of 6.587667 and standard deviation of 8.726437. The gross global emissions in 2013 had the mean and standard deviation of 132.5164 and 581.113 metric tons respectively. In regards to the same, the 2013 percentage change had the mean and standard deviation of 11.67533 and 15.45758 metric tons respectively. The percentage change from the previous year in 2012 had the mean of 6.667and standard deviation of 7.448619 metric tons respectively. Finally, the percentage change for the year 2011 in regards to the previous year had the mean of 12.841 and standard deviation of 17.2881.

Implications and Conclusion

The test if normality of the used sample data was obtained using the skewness measure. From the skewness measures, the values of skewness were all positive as from descriptive statistics table above (table 1). This showed that the sample data used was positively skewed and had longer tail to the right hand side of the mean value. This therefore further confirmed that the data was not normally distributed thus asymmetrical.

This is the statistical analysis carried out on the numerical data to draw conclusion from the hypothesis tested using statistical tests. In this research, two sample t-test and Pearson’s correlation coefficient will be used in conducting the inferential statistics analysis. The dependent variable was metric denominator total unit and the independent variable was additional intensity normalized metrics with companies as the control variables.

H₀: There is no correlation between companies’ metric denominator total unit and companies’ additional intensity normalized metrics

H₁: There is correlation between companies’ denominator total unit and companies’ additional intensity normalized metrics

Table 2: Pearson’s correlation coefficient between variables

The strong positive correlation coefficient (r=0.943082) existed between normalized gross global emissions for both scope 1 and scope 2 metric tons of carbon dioxide per the FTE employee in the companies for the year 2017 and that in the year 2016. Weak negative correlation existed between total unit metric denominator and the normalized gross global emissions for combined scope 1 and scope 2 metric tons of carbon dioxide in 2017 and 2016 at (r=-0.09854 and -0.10726) respectively. In that regards therefore, the null hypothesis was rejected and the alternative hypothesis favored and conclusion made that there was correlation between denominator total unit and additional intensity normalized metrics. The hypothesis was then not supported.

H₀: There is no significant mean difference between companies’ 2016 percentage change from previous year and companies 2015 percentage change from the precedent years

H₁: There is significant mean difference between companies’ 2016 percentage change from previous year and companies’ 2015 percentage change from the precedent years

The percentage change values for the companies for the years 2016 and 2015 was collected in regards to their previous years metric tons of carbon recorded. As a result, the t-statistic (-0.08234) and t_(57,0.05) =2.002465; the p-value (0.934664) which was greater than the significant value (0.05), being that the rejection criteria was not met, we then failed to reject the null hypothesis and conclude that there was no significant mean difference between the companies’  2016 percentage change from the companies’ previous year 2015 percentage change from its precedent year. In regards to the test, the null hypothesis was supported

H₀: There is no significant mean difference between companies’ 2016 percentage change from previous year and 2014 percentage change from the precedent years

H₁: There is significant mean difference between 2016 percentage change from previous year and 2014 percentage change from the precedent years

The test was further conducted between the percentage change for the year 2016 and 2014 previous years’ change out of which, t-statistic (0.827136) and the t-critical i.e. (t_(56,0.05) = 2.003241) and the p-value (0.411671) which was greater than the significant p-value (0.05), since all the test values suggested that we should fail to reject the null hypothesis, we failed to reject the null hypothesis and concluded that there was no significant mean difference between 2016 percentage change from its previous year and 2014 percentage change from its precedent year. From the test, the null hypothesis was supported.

H₀: There is no significant mean difference between 2015 gross global emissions in metric tones’ report per full time equivalent (FTE) employee and 2014 gross global emissions in metric tones’ report per FTE employee.

H₁: There is significant mean difference between 2015 gross global emissions in metric tones’ report per full time equivalent (FTE) employee and 2014 gross global emissions in metric tones’ report per FTE employee.

The significance of mean difference between the gross global emissions for combined scope 1 and 2 for the years 2015 and 2014 was tested. From the test, the p-value was (0.46794) which was much greater than the p-significant value (0.05). Consequently, we failed to reject the null hypothesis and concluded that there was no significant mean difference between 2015 gross global emissions in metric tones’ report per full time equivalent (FTE) employee and 2014 gross global emissions in metric tones’ report per FTE employee. The null hypothesis was supported since it was not rejected.

From the results, strategies put in place by the CDP on giving the understandings regarding the minimization of carbon emissions seem to have success as most of the companies in their response to the questionnaires stated that their companies recorded decreased gross global emissions as in their present years as compared to their previous years’ records on gross global emissions. This was represented by 76.67% against some of the companies that still recorded increase in their global emissions. This could mean that this companies that were still recording increased gross global emissions were most likely not employing the environmental measures to carbon emissions. Furthermore, people could stay optimistic in completely eradicating the effects of climate change since each company from the sampled countries i.e. Germany and France recorded to be considering climate change in their daily operations (ref; figure 2). From this report’s results, the highest percentage change of gross global emissions for the reporting year in metric tons of carbon dioxide per full time equivalent (FTE) employee was 72% recorded in 2013 in relation gross carbon emissions in 2012. This showed that as time grew, the level of gross carbon emission was being drastically reduced. The mean total unit metric tons of carbon dioxide was still high even though the companies were recording lower carbon emissions as compared to their previous years. This shows that more efforts are still needed to keep the total unit of carbon dioxide gas metric tons as low as possible by applying effective practical measures to be adopted by companies. From the inferential statistics, no significant mean difference was recorded between the 2016 percentage change of gas emissions with it previous year (2015) to the percentage changes in 2014 and 2015, thus the null hypothesis was supported. No significant mean difference was recorded for the 2016 percentage and 2014 percentage change. In that regard, the null hypothesis was supported since the alternative hypothesis was not taken in its favor. From this it could be seen that the effect of the changes from the applied measures to deal with greenhouse gas emissions was not still satisfactory as the change was too small between years that could be neglected.

This study did not exhaust all the features and effects of greenhouse gas emissions as measured by gross global emissions as the independent variable (DV). Further, the study gave no directions on how the companies that had still not adopted the CDP clean environmental measures on how they should join and adopt the proposed carbon emissions measures. This could be seen from the high emissions metric denominator unit total tons (IV) of greenhouse gas emissions as from the sample data from the selected companies. The size of the sample chosen for use in this report was 30 whereas the suitable sample size in relation to the population of the companies (16690) was 1004 with the margin of error of 0.03. the small sample size (30) used in this report might result to lower power which would lead to negative effect on the hypothesis testing that might lead to type II error. From the CDP data used in this report, challenges were still recorded by the companies in adopting CDP proposed strategies and still recorded high gross carbon emissions in relation to the metric denominator unit total.  This could further affect the targets set by the CDP and the companies at large in the reduction and minimization of gross global emissions. Moreover, the study was greatly based on the emissions by the companies within the companies whereas, there are also emissions during the transportation of the products by the trucks which also add to the adverse effects of global warming and climate change.

Since this is the sensitive part that have been making experts from different sectors of the world sleepless nights, further researches are supposed to be conducted on the directive steps by companies to adopt the CDP proposed clean environmental measures towards eradicating carbon emissions. This research will help the management board of the companies with ideas (IV) that can be adopted and incorporated in the companies’ daily activities towards minimizing the greenhouse gas emissions (DV) in their manufacturing and transportation process.  Furthermore, researches should be conducted on the advanced revised effective strategies on the minimization of gross global emissions since the existing strategies are seen not effective enough being that companies were still recording increased gross global emissions. In order to fully meet the CDP objectives, such areas need to be addressed and made clear for the companies for effectiveness when adopted. Further research should as well be conducted in the role of an individual in the minimization of greenhouse gas emissions in the companies’ activities in the manufacturing process. This will assist in providing the additional effects in the reduction of the gross global emissions into the atmosphere hence keeping the levels of emissions reduced further in the companies.

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