Colloquium: Inside the Blackbox of Firm Environmental Efforts: Evidence from Emissions Reduction Initiatives

Using project-level data from the Carbon Disclosure Project, we show how firms actually reduce greenhouse gas emissions. Most firms take on projects that require small investments (median $127,000) and have short payback periods (at most three years). Firms experiencing short-term performance pressure, smaller in size, and with shorter decarbonization horizons are more likely to implement such projects. Short-term projects are mostly related to energy efficiency (e.g., LED upgrades) rather than involving transformative technology. They yield more annual CO2e and monetary savings and have greater NPVs than the average longer-term project, but exhibit less total CO2e savings over the projects’ lifetime. Firms with a greater share of short-term projects exhibit higher future environmental ratings, but it is a combination of short- and long-term projects that generates the most CO2e savings. Our evidence suggests that a typical firm’s climate engagements are not costly nor long-term oriented. In sum, firms tend to mitigate rather than adapt to climate change.