Climate governance and carbon risk in the global energy sector: Insights into corporate environmental initiatives

Abstract

This study examines the influence of sustainable governance, specifically climate governance, on carbon risk within the global energy sector. Additionally, we investigate the role of eco-innovation as a mediating factor in this relationship. By analyzing a dataset comprising 13,376 publicly listed energy companies from 91 different countries and employing Baron and Kenny's (1986) four-step mediation model, our research shows that improved climate governance mechanisms result in decreased carbon emissions from energy firms. This reduction can be primarily attributed to their increased participation in eco-innovation initiatives. Furthermore, these main findings are more pronounced in companies with robust environmental, social, and governance (ESG) practices. Our results also reveal various firm-level and country-level characteristics that moderate our identified relationship. Moreover, our results remain consistent even after addressing potential concerns related to endogeneity and sample selection bias. This research provides valuable insights for policymakers and managers who seek to mitigate carbon emissions within the global energy sector while fostering environmentally responsible practices to combat the impacts of climate change.