Carbon management practices and associations with firm performance

In this research, we categorize carbon management practices of firms into three coherent bundles derived from the natural-resource-based view: (1) engagement of employees, (2) long-term orientation, and (3) measurement and disclosure. We validate these bundles through confirmatory factor analysis on data from the Carbon Disclosure Project. Next, including data from additional sources, we study the associations of the practice bundles with firm performance, measured as Return on Assets and Tobin's Q, using the Heckman selection model to correct for potential self-selection bias. In addition, we use a constraining factor model positing measurement and disclosure as the constraining factor. Results from our analyses suggest that greater levels of adoption in two practice bundles, engagement of employees and long-term orientation, are associated with higher firm performance. The constraining factor model shows that a high level of measurement and disclosure is critical for deriving the benefits of engagement of employees and long-term orientation. Overall, our results add specificity to the value of carbon management practices based on adoption patterns, providing insights for firms to select areas in which they should concentrate their efforts.