Abstract
There has been a continuous and controversial debate about the relationship between carbon performance, carbon disclosure, and economic performance. This study investigates whether corporate economic performance is influenced by carbon performance and disclosure and whether carbon (media) legitimacy mediates such relationships. This study provides a broader understanding of the relationship between carbon performance, disclosure, and economic performance by investigating the mediating role of carbon (media) legitimacy, and offers further evidence from the UK context. Based on a balanced panel data of 95 UK firms between 2009 and 2014 (amounting to 475 observations in total) and using path analysis, we find that improving the company’s carbon performance is not financed by shareholders, and carbon (media) legitimacy as an intangible asset enhances the economic performance of the firm. We also find that while carbon disclosure does not directly improve economic performance, it indirectly does so via carbon (media) legitimacy. Finally, the results show while carbon performance is not reflected in carbon (media) legitimacy, carbon disclosure as a legitimizing tool strongly enhances carbon (media) legitimacy. Overall, our results suggest that voluntary carbon disclosure, regardless of the firm’s underlying carbon performance, is an effective tool to manage corporate (media) legitimacy, and subsequently improve economic performance. Thus, voluntary carbon disclosure in the UK may hinder future improvements in a firm’s carbon performance.  Â
Highlights
Social and political concerns have been raised regarding carbon footprint-related issues over the past decade, which were reflected in the introduction of carbon tax and carbon offset schemes, growth in emissions trading, voluntary initiatives such as Carbon Disclosure Project, and so forth (Hrasky, 2011)
We argue that since carbon information disclosed in annual and/or sustainability reports, and carbon emissions provided by Carbon Disclosure Project (CDP) are available at the end of the year, the effects of carbon disclosure and carbon performance are not reflected in carbon legitimacy and economic performance in the same year
We found that while carbon legitimacy is not influenced by carbon performance, carbon disclosure positively and significantly enhances firm's carbon legitimacy
Summary
Social and political concerns have been raised regarding carbon footprint-related issues over the past decade, which were reflected in the introduction of carbon tax and carbon offset schemes, growth in emissions trading, voluntary initiatives such as Carbon Disclosure Project, and so forth (Hrasky, 2011). Prior studies asserted that environmental legitimacy can be a key informal driver of carbon disclosure (Hrasky, 2011; Luo et al, 2012) Researchers investigating this relationship (see, Li et al, 2018) have not considered the potential reverse association between carbon disclosure (or performance) and carbon legitimacy. Our findings show that improving the company's carbon performance is not financed by shareholders, and carbon (media) legitimacy as an intangible asset enhances the economic performance of the firm They report that voluntary carbon disclosure can be an effective tool to manage corporate (media) legitimacy. It extends prior empirical research via investigating the indirect effect of carbon performance and carbon disclosure on economic performance via carbon (media) legitimacy. Discussion and conclusion are presented in the last section of this paper
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