Background

The most vital part of a business is the business strategy. The manner in which the owners or founders of an entity intend to run their business. With the increased concerns of climate change, companies are preferring to integrate the climate change into their business strategies rather than fighting the reality of climate change. Integrating Climate change into the business strategy assures the companies an environmentally sound way of running operations without the risk of losing profits.

In order to address the concerns of climate change, incentives are also required. Incentives are meant to motivate individuals towards a given goal, in our case, climate change. With the provision of incentives for the management of the climate, companies are encouraged to have the management of climate as part of their operations and most importantly business strategy. The incentives are normally provided by the governments and made available for the companies. The governments can, not only offer incentive for the management of climate, but also add incentives for companies that achieve certain milestones and targets in climate change such as carbon emissions reduction.  

The BRICS is an organization of countries that are in general terms emerging economies (Carmody, 2013). The countries in this organization are: Brazil, Russia, India, South Africa and China (Graceffo, 2011). These are the countries that are most pressed to continue rapidly industrializing with the aim of overtaking the economies in the western world (Chun, 2013).

The BRICS countries therefore provide a good case study for observing and analysing the carbon emissions reduction trends. This research paper investigates the impact that business strategy, measured in terms of climate change integration into business strategy, has on the carbon emissions reduction among the BRICS countries for the year 2014. The incentive for management of climate will be a moderating variable in the analysis of this impact.

This study’s main objective is to determine the relationship between carbon emissions reduction and two other factors business strategy (in terms of climate change integration) and Incentives (in terms of incentive for management of climate). The study also tries explores the answer to the two questions; first, why climate change should be integrated in a business strategy and what affect does it have in reducing the carbon emissions? Second, does incentive for management of climate change impact reduction in carbon emissions? The CDP responses will help both the firms and all the users of information, as it provides opportunities for the firm to identify the strategy for management and reduction of emissions and the data should also benefit the investors and other stakeholders by providing information about company practices and initiatives regarding climate change (Andrew & Cortese, 2011).

The Role of Incentives in Climate Management

Climate change has been a major issue of concern for the companies worldwide. Extensive research has been done as to why companies have to include climate change in their strategy. Governments around the world are actively participating in response to the possibility of climate change somehow affecting their business prospects. For example: United States has introduced the renewable portfolio standards to most of its states which requires them to produce a given percentage of the state’s electricity from renewable sources.

The pressure from stakeholders to reduce the carbon emissions is high as they are concern with the environment. The stakeholders are increasingly requiring data on greenhouse gas emissions absolute level to be able to gauge the firms’ performance on climate change (Liesen, Hoepner, Patten, & Figge, 2015). Sales can be hurt by a poor reputation on climate, when we have incidents of consumer boycotts or local community protests (Engel, Enkvist, & Henderson, 2015).

The carbon emissions disclosure will not only increase the organization reputation amongst the investors and other stakeholders but will also create opportunity to better manage their business from physical (drought, flood, hurricanes) as well as financial risks.

Another important point of research in recent times has been on the effectiveness of the provision of incentives as a means of encouraging management of climate. Together with legislating laws on climate change, governments are also exploring the use of incentives to make the legislations on climate more popular among the companies. This attracts more companies into buying the idea of having sustainable processes for their operations (Herold, Lee, & Gunarathne, 2018, May). These incentives can therefore be considered as key in ensuring that climate change issue is addressed globally.

Most of the business firms are inclined towards the Corporate Social Responsibilities (CSR) practices. Various theoretical perspective has been applied over the years to establish the reason as to why firms engaged or did not engaged in CSR activities and CSR disclosure (Adams et al. 1998; Amran & Siti- Nabiha, 2009; Bayoud et al. 2012). There are multiple theories for explaining the corporate behaviour regarding the CSR practices. However, the corporate social performance can be analysed and evaluated effectively by using a Stakeholder theory approach. Freeman (1984) describes a stakeholder as follows; is “any group or individual who can affect or is affected by the achievement of the firm’s objectives,” Roberts (1992) categorizes stockholders, creditors, public interest groups, and governmental bodies, among others as stakeholders.

BRICS Countries as Case Study

In accordance to stakeholder perspective, an organization has to meet the expectations of its different stakeholders groups instead of only the expectations of shareholders as in the traditional shareholder theories. This is because the traditional theory failed to highlight the firm’s responsibility beyond financial performance. Stakeholder theory suggest that the management of an organization is expected to meet its obligations towards its stakeholders by undertaking activities that stakeholders deem important, and disclosing those information.

Among the various theories suggested under the CSR perspectives i.e. Social Theories, Economic Theories and Political Theories. The economic theories mostly considered only financial branch of the stakeholders, therefore to better understand the perspectives CSR practices we are focusing on the two branch of stakeholder theory which are Ethical (Normative or Moral) and Managerial (Positive) perspective.

Irrespective of the stakeholder power, all the stakeholders have the same right to be treated fairly by an organization, this is according to the ethical branch of stakeholder theory  (Fernando & Lawrence S, 2014). However, managers of an organization attempt to meet the expectations of stakeholders who control the critical resources required by the organization according to the managerial perspective of stakeholder theory.

The more vital the resources of a stakeholder to the organization (therefore, more important – salient, according to Mitchell et al (1997) –stakeholder to the organization), the greater the effort of the management of the organization to meet the expectations of those stakeholders should be (Fernando & Lawrence S, 2014). In other words, the managerial perspective meets the expectations of particular group of stakeholders which in return helps organization to meet their goals and only those particular groups of stakeholders are deemed important.

The degree of influence of stakeholders to the firm can be better understood by the Stakeholders Salience theory developed by Mitchell & Wood (1997). According to Mitchell & Wood (1997) the stakeholder possess one of the three key attributes namely, Legitimacy, Power and Urgency. The power refers to those groups of stakeholders who control the firm’s resources and have the power to enforce their will in organization. Likewise, Legitimacy is those groups of stakeholders who have the legitimate claims over the organization meaning that the action of stakeholders are either under the social construct or contractually or legally bounded.  Similarly, is related to the level of importance or attention attributed to the claim Mitchell & Wood (1997).

The study of my research is to identify the relationship between the business strategy and incentives, and carbon emissions reduction. In the case of climate change, it is crucial for companies to persuade stakeholders that the company’s operations are legitimate and are taking place in an environmentally responsible manner (Herold, Lee, & Gunarathne, 2018, May).

Objectives of the Study

A business strategy is generally the firm’s working plan to achieve its long term and short term goal with its business model which also shapes up the framework for entire organisation and relays those ideas and information to the different stakeholders through different medium. As stakeholders are concerned about the environment (Liesen, Hoepner, Patten, & Figge, 2015), to meet those pressure it is important for a firm to have a business strategy that has integrated climate change for the greater reduction in the carbon emissions and convince the stakeholder that the operation of the organisation is legitimate.

The governments of the various countries also form important stakeholders in any business entity. Governments that interested in addressing the climate change issue normally offer incentives on top of putting legislations in place. If such incentives are made available for a firm, they could incline the company to climate management in their operations. 

Business Strategy (in terms of integration of climate change) and provision of incentives for climate management have a significant impact on the reduction of carbon emissions.

Theoretical Construct	Proxy measure (From CDP survey provided)	Dependent (DV) and Independent (IV).   Control Variable (CV), Mediating Variable (MeV) or Moderating Variable (MoV). In a sentence explain why it is a DV, IV, CV, MeV or MoV	Measurement Scale: Nominal, Ordinal, or Scale (Ratio)
Carbon Emissions Reduction	Please describe your gross global combined Scope 1 and 2 emissions for the reporting year in metric tonnes CO2e per unit currency total revenue – % change from previous year +/-	Dependent variable.	Scale (Ratio)
Business Strategy	Is climate change integrated into your business strategy?	Independent Variable	Ordinal
Incentive	Do you provide incentives for the management of climate?	Moderating Variable	Ordinal

The sample dataset contains 150 observations from 150 firms. The firms in the sample were selected from the BRICS countries; Brazil, Russia, India, South Africa and China which reduced the number of observations from the initial 1777 for all the countries in the CDP data to 185 observations. The observations with non-responses which include entries like NA, 999 and blank entries were also filtered out to remain with the 150 observations.

The firms come from all the sectors available in the initial dataset, CDP data. The aim was to capture the entire picture of carbon emissions reduction among the countries in the BRICS. The BRICS is an organization of countries that are in general terms emerging economies (Carmody, 2013). The countries in this organization are: Brazil, Russia, India, South Africa and China (Graceffo, 2011). These are the countries that are most pressed to continue rapidly industrializing with the aim of overtaking the economies in the western world (Chun, 2013). The BRICS countries therefore provide a good case study for observing and analysing the carbon emissions reduction trends

The final sample data set had the following data variables:

1. Account Name (Company Name Variable): this data variable represents the name of the company from which the relevant data was collected.
2. Country Variable: this data variable represents the name of the country in which the observed company is located and does business in. This can also be the variable for the country where the company’s headquarters are located. Below is a table of the frequency for the observations from the companies in terms of countries.

COUNTRY	FREQUENCY (No of Companies)	PERCENTAGE
BRAZIL	36	24%
RUSSIA	3	2%
INDIA	38	25.33%
CHINA	7	4.67%
SOUTH AFRICA	66	44%
TOTAL	150	100%

Table 1: Distribution of Companies as per Countries

1. GRI (Sector Name Variable): this variable represents the name of the sector of business in which the observed company is.
2. Climate Change Integration (Business Strategy Variable): this variable is the Business Strategy Variable. It gives information on Climate Change integration into the Business Strategy of the observed company. 1 represents “Yes”, there is Climate Change integration into the Business Strategy of the observed company while 2 represents “No”, Climate Change has not been integrated into the Business Strategy of the observed company. This will be the Independent Variablein the analysis in this research paper.
3. Incentive Variable: this variable gives information on whether incentive was provided for the management of climate. 1 represents “Yes”, incentive has been provided for the management of climate for the observed company. 2 represents “No”, incentive has not been provided for the management of climate for the observed company. This will be the Moderating Variablein the analysis in this research paper.
4. CO₂ per unit Currency Total Revenue (Carbon Emissions Reduction Variable): this variable represents the percentage emissions of carbon by the observed company for the year 2014. This is the variable representing the Carbon Emissions Reduction. This will be the Dependent Variable in the analysis in this research paper.

The firms or companies analysed in this research paper were pulled from all the sectors of business that were available in the initial data, CDP dataset. This means that the results from the analysis in this research paper can be generalised for all companies irrespective of the sector the company is in within the BRICS countries.

Corporate Social Responsibilities and Stakeholder Theory

The BRICS countries: Brazil, Russia, India, South Africa and China represent the emerging economies of the world. These countries can be described as the industrializing economies. Hence, this implies that the results from the analysis in this research paper cannot be applied for the already industrialized economies or the countries in the third world that are still struggling to begin industrialization.

Statistics
Business Strategy (Climate Change Integration)
N	Valid	150
Missing	0

 Table 2: Descriptive Statistics (Business Strategy)

Table 2: Descriptive Statistics (Business Strategy) above indicates that the data variable had 150 valid observations with no missing observations.

Table 3: Descriptive Statistics (Business Strategy) above indicates the proportions of the “Yes” and “No” responses to the climate change integ

Statistics
Carbon Emissions Reduction (% Reduction in Carbon Emissions for 2014)
N	Valid	150
Missing	0
Skewness	1.387
Std. Error of Skewness	.198
Kurtosis	6.645
Std. Error of Kurtosis	.394
Range	195.13

Table 7: Normality of Carbon Emissions Reduction

From Table 7: Normality of Carbon Emissions Reduction above, we observe that the normality statistics for the carbon emissions reduction are: Range = 195.13, Skewness = 1.387, Kurtosis = 6.645. The data on the carbon emissions reduction can therefore be said to be slightly skewed to the right.

Above is the graphical representation of the description of dependent variable (Carbon Emissions Reduction) in terms of the independent variable (Business Strategy). Figure 4: Carbon Emissions Reduction in Terms of Business Strategy shows there are 5 outliers on the “No”: 3, 2, 13, 7 and 17, while on the “Yes” we have 11 outliers: 131, 102, 127, 118, 140, 128, 80, 93, 25, 106 and 100. Of the total 16 outliers, 2 can be classified as extreme outliers: 131 and 100. In order to have appropriate data for the analysis, the extreme outliers should be removed.

The Logistic Regression Analysis would be sufficient for the analysis due to the nature of the variables. Since one of the variable, the Independent Variable (Business Strategy), is measured on the ordinal scale, it makes the normal linear regression analysis insufficient.

Given the Independent Variable (Business Strategy) is measured on the ordinal scale, the Moderating Variable (Incentive) is measured on the ordinal scale and the Dependent variable (Carbon Emissions Reduction) is measured on the Ratio Scale, the Logistic Regression would work best for the analysis.

The assumptions for this statistical test are;

1. The observations in the provided dataset must be independent of each other (Freedman, 2009).
2. The independent variable(s) must not exhibit muliticollinearity (Freedman, 2009).
3. The sample size must be large, greater than 30 observations (Freedman, 2009).

The sample data is sufficiently large with 150 observations. The analysis for this research will focus on two independent variables. The Moderating and Independent variables are statistically and significantly different since they measure completely different values, hence there cannot exhibit multicollinearity. The observations are also independent of each other since they are collected from different firms. This therefore implies that the sample data satisfies the assumptions for the Logistic Regression. The normality will not be needed for this statistical test.

List of References

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Chun, K. (2013). The BRICS Superpower Challenge: Foreign and Security Policy Analysis. Farnham, UK: Ashgate Pub Co.

Engel, H., Enkvist, P.-A., & Henderson, K. (2015, July). How Companies can adapt to climate change? Retrieved from Mckinsey: www.mckinsey.com

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