CSR activity in response to the Paris Agreement exit

• Published date: 01 June 2023
• Author: J. Philipp Klaus,Hirofumi Nishi,S. Drew Peabody,Carolyn Reichert
• Date: 01 June 2023
• DOI: http://doi.org/10.1111/eufm.12368

DOI: 10.1111/eufm.12368

ORIGINAL ARTICLE

CSR activity in response to the Paris

Agreement exit

J. Philipp Klaus

1

|Hirofumi Nishi

2

|S. Drew Peabody

3

|

Carolyn Reichert

2

1

Department of Accounting, Bentley

University, Waltham,

Massachusetts, USA

2

Naveen Jindal School of Management,

The University of Texas at Dallas,

Richardson, Texas, USA

3

Martha & Spencer Love School of

Business, Elon University, Elon,

North Carolina, USA

Correspondence

Hirofumi Nishi, Naveen Jindal School of

Management, The University of Texas at

Dallas, 800 W Campbell Rd., Richardson,

TX 75080, USA.

Email: hiro.nishi@utdallas.edu

Abstract

In 2017, U.S. President Donald Trump announced his

intention to withdraw the United States from the Paris

Agreement. Although there were concerns that the exit

would impede the global effort to reduce greenhouse

gas emissions, the environmental performance of U.S.

firms in carbon‐intensive sectors improved after the

announcement at a significantly higher pace than firms

in other sectors. Moreover, our findings are concen-

trated among firms exposed to higher public attention.

One implication is that firms under greater public

scrutiny used the United States' departure from the

agreement as an opportunity to credibly signal their

commitment to combating global climate change.

KEYWORDS

corporate social responsibility, environment, Paris Agreement,

signalling

JEL CLASSIFICATION

G14, G18, G30, M14

Eur Financ Manag. 2023;29:667–691. wileyonlinelibrary.com/journal/eufm © 2022 John Wiley & Sons Ltd.

|

667

EUROPEAN

FINANCIAL MANAGEMENT

This article has greatly benefited from the feedback provided by John A. Doukas (managing editor), two anonymous

referees and seminar discussants and participants at the 2020 Boca Corporate Finance and Governance Conference,

2020 Southern Finance Association Annual Meeting, 2021 European Financial Management Association Annual

Meeting, 2021 Ann & Jack Graves Foundation Conference on Sustainability as a Solution to Global Business Challenges

at UT Dallas and 2022 Workshop on Carbon Finance at Fernuniversität in Hagen, Germany. All errors are our own.

1|INTRODUCTION

The company believes “climate change is real and remains deeply committed to

reducing greenhouse gas emissions in our vehicles and our facilities”.

1

—Bill Ford, chair of the Ford Motor Co.

In December 2015, the Paris Agreement was adopted by 196 countries to combat climate

change and adapt to its effects. It was the world's first comprehensive climate accord and

requires that each country determine, plan and regularly report on its contribution to mitigate

global warming. The agreement imposed additional compliance costs to firms, particularly in

the energy, manufacturing, utilities and transportation sectors. The United States, a key

participant in developing the agreement, was the only country to sign and then withdraw its

support, providing an opportunity to investigate firm responses to the withdrawal decision.

On 1 June 2017, U.S. President Trump announced his intention to withdraw the United

States from the Paris Agreement, arguing that the Obama administration's pledge to cut carbon

emissions under the current deal was unfair and would “hurt the competitiveness”of the

United States.

2

Business leaders quickly condemned this decision to the press.

3

For example, a

spokeswoman for oil giant Chevron responded that Chevron “supports continuing with the

Paris Agreement as it offers a first step towards a global framework”.

4

Some businesses joined

websites such as We Are Still In

5

to voice their support for the Paris Agreement. Subsequently,

the Trump administration formally notified the United Nations as soon as it was eligible in

2019 and began the process of withdrawing from the agreement.

6

The United States' exit from

the Paris Agreement presents a unique opportunity to study a firm's corporate social

responsibility (CSR) reporting behavior amid increasing public expectations and a changing

regulatory environment.

7

This study focuses on the sectors most responsible for greenhouse gas

emissions in the United States and examines the impact of the United States' exit

announcement on their environmental efforts.

8

Before the exit announcement, mounting public pressure for corporate and government

action on climate change provided motivation for U.S. firms in carbon‐intensive sectors to

initiate significant investments to reduce emissions. Firms developed climate change plans and

communicated their actions. This strengthened public attention on firms to continue improving

their CSR. One of the 2016 campaign promises made by Trump—to leave the Paris Agreement

—clearly defies such public sentiment. Once in office, he did not immediately announce the

decision to leave and there were efforts, including some by business leaders, to convince him to

remain. Exxon Mobil chief executive officer (CEO) Darren Woods endorsed the Paris Accord in

February of that year, stating “I believe, and my company believes, that climate risks warrant

1

See https://www.cnbc.com/2017/06/01/auto-industry-titans-say-theyre-still-committed-to-cutting-emissions.html.

2

See https://trumpwhitehouse.archives.gov/briefings-statements/statement-president-trump-paris-climate-accord/.

3

See https://fortune.com/2017/06/01/paris-climate-agreement-business-leaders-react/.

4

See https://phys.org/news/2017-05-trump-businesses-climate.html.

5

See https://www.wearestillin.com/.

6

See https://2017-2021.state.gov/on-the-u-s-withdrawal-from-the-paris-agreement/index.html.

7

The more general term environmental, social and governance (ESG) has been used in the literature to include corporate

governance. In this paper, the terms CSR and ESG are used interchangeably.

8

We are aware that the Paris Agreement is a country‐level commitment and does not directly impact firms. However, it

can be considered a way of aggregating the impact of individual environmental regulations in the United States.

668

|

EUROPEAN

FINANCIAL MANAGEMENT

KLAUS ET AL.