Analyzing The Effect Of Climate Change On Corporate Performance: A Framework Based On Legitimacy Theory And CDP Disclosure

The Importance of Risk Management and Legitimacy Theory for Climate Change

Climate change is one of the important business issues, which is related with the firm’s regulatory obligations, legal responsibilities, financial reporting, supply chains, operations and most importantly, it affects the firm’s reputation (Intergovernmental Panel on Climate Change 2015). Difference in temperature, weather and climate has direct implication on the firm’s strategic positioning and risk profile. Climate change not only affects the performance of the firm adversely, sometimes it creates opportunities to introduce new product and services (Linkov et al. 2014). Since the early 90s’, there have been several attempts to introduce risk management into the firm’s structure in order to deal specifically with the climate change. Legitimacy framework is one of the tools that have been considered by most of the researchers to relate the corporate environmental disclosure with the performance of the firm. It considers both the opportunities and risks related to climate change and performance of a business (Najah and Cotter 2012). This research proposal is focused to discuss the research framework to analyze the effect of climate change using the Climate Disclosure Project (CDP) data and integrate legitimacy theory for the analysis.  

Main aim of introducing risk management is to address the risks and opportunities that a firm can face due to change in climate in various places of its operations. According to the international standard ISO 31000:2009, risk management with special attention to the climate change need to be embedded with the firm’s structure (Bromiley et al. 2015). Figure 1 shows the United Nations Development Programme (UNDP) framework of risk management that has been introduced back in 2006 for the government and business houses in order to assess the opportunities and risks in front of the firms caused by the climate change (Howes et al. 2015). Besides this, UK Climate Impacts Programme (UKCIP) guidance for uncertainty and risk along with the legitimacy theory argues that risk management is necessary for the firms because it can help to assess the threats and opportunities on behalf of the firm during long run (Leung et al. 2015). CDP disclosure takes care of the firm’s performance from the accounting, managers, public and regulators perspective (Hajat et al. 2014)

There have been climatic occasions every year regarding the danger to associations and individuals. These dangers emerge from the typical every day, occasional, and inconstancy in atmosphere and in addition regional atmosphere contrast (Muis et al. 2015). Most links have techniques and practice set up to handle this usual atmosphere inconstancy. For these links, atmosphere inconstancy will lead to keep raising problems what is more; hazards that need to be oversee. Legitimacy theory argues that, while overseeing atmosphere changeability later on, links cannot just depend on the supposition that the predominant atmosphere will be pretty much the same as it was in the course of the last 50 or 100 years (Howard-Grenville et al. 2014). With the change of both the seriousness and recurrence of climate change, environmental variation may tend to discredit the proposition. It is expected that, Atmosphere that dynamically will move toward becoming unique in relation to the present atmosphere in numerous courses. Environmental alteration is probably going to have unavoidable effects (Klein 2015). Each individual will feel these influences somehow and each association, open or private, furthermore, at all levels, from key administration to operational exercises. The influences will affect crosswise over ecological issues, financial execution, social conduct, foundation and different parts of human presence. Changes are liable to grow slowly however could be unexpected.

CDP Disclosure and Its Importance for Analyzing Corporate Performance

Climate change is an unequivocal phenomenon as outlined by the IPCC 4th evaluation Report and without noteworthy changes in policy, the pattern in worldwide outflows of ozone depleting substances and related environmental change will proceed. These progressions will prompt boundless effects and financial expenses crosswise over various parts and areas. At the same time, there is an expanding acknowledgment of the potential effects of environmental change in urban communities (Aven and Renn 2015). Around half of the total populace right now live in urban communities and the extent is set to rise promote in future years. Urban areas are likewise the focal point of financial and political movement, and there is a developing reverberation in considering city-level issues as a way to advance atmosphere approach exchanges. The trend of studying climate change has been swinging from urban to rural areas. One of the basic advantages of introducing worldwide environmental alteration that it can easily assess the dangers and opportunities related with the world environmental changes from a broader perspective ((Epstein and Buhovac 2014).

The confirmation base identifying with environmental change effects and adjustment at the city scale, with an emphasis on whether this has been communicated in quantitative terms. It likewise audits how this data has been utilized, for instance: as a metric with which to convey the conceivable the seriousness of environmental change affects; as a contribution to the utilization of choice help devices, (for example, money saving advantage, or cost-viability examination); or to help assess potential adjustment choices and methodologies. Here, real world urban communities principally intrigue us however; a considerable lot of the discoveries of this writing audit have pertinence to littler urban areas. Their accord discoveries are that the most imperative impacts of environmental change on urban communities are probably going to be (Intergovernmental Panel on Climate Change 2014):

• Effects of ocean level ascent on seaside urban communities
• Effects of outrageous occasions on assembled foundation (e.g. from wind tempests and surges from substantial precipitation occasions, warm extremes and dry seasons)
• Effects on wellbeing (from warmth and frosty related mortality and harshness, nutrition and waterborne illness, vector-borne infection) emerging from higher normal temperatures or potentially outrageous occasions;
• Effects on vitality utilize  
• Effects on water accessibility and assets

Less vital direct effects are thought to incorporate those on tourism and social legacy, urban biodiversity and the subordinate impacts of air contamination. While they are not the concentration of this audit, there is additionally an arrangement of auxiliary consequences for urban communities identified with the grouping of monetary movement in urban communities and their between conditions with encompassing areas (Kunreuther et al. 2013). These issues incorporate the potential impacts that environmental change may have on the physical resources utilized inside urban communities for monetary generation as well as administrations, on the expenses of crude materials and contributions to monetary creation, on the resulting expenses to organizations, and hence on intensity and more extensive financial execution, and work designs in the sub-locale and past.

The Impacts of Climate Change on Urban Areas

The CDP disclosure audit considers contrasts in methodological methodologies, especially identifying with evaluation and monetisation of city-scale environmental change effects and adjustment. The methodologies used to create quantitative data are found to vary generously and need consistency with each other. Consequently to a few zones are featured to enhance strategies and support consistency between thinks about, including the treatment of atmosphere demonstrating, financial situations furthermore, financial valuation of market and non-advertise impacts, where equivalence in methodologies may serve to all the more effortlessly encourage valuable exchange of discoveries between urban communities. By the by, and in spite of the constraints in scope and strategies, a few conclusions important to strategy procedures can be drawn. Most versatile activity to date has concentrated on mindfulness raising, however advance in urban communities, for example, London and New York proposes that environmental change effects can likewise be all the more formally fused into current arranging and basic leadership insofar as there exists the institutional structure and coordination limit (Rowlinson, YunyanJia and ChuanjingJu 2014). The current super city thinks about demonstrate that foundation of an assigned lead association or unit inside an association is a powerful methods for co-ordinating introductory perusing exercises, and that engagement with key sector partners is basic if the advantages of these introductory exercises are to be expanded.

The research proposal considers that it has two hypotheses, which are mentioned below:

Hypothesis 1:  In the first year, when targets are set, target slack will be greater

Hypothesis 2: Performance based incentives of the firms will be the key determiners, which will decide the target slack

Conclusion:

Legitimacy theory and considering the CDP disclosure, it is quite clear that Climate change has the potential to have huge consequences for the governments, customers, and the general population (Falkner 2016). Research on the climate change issues can aid to alter the present situation of the climatic disaster around the world. Research and innovation can help to uncover the dangers related with the climate change and the opportunities aligned with the atmosphere framework, which will aid to bolster the basic leadership of environmental change administration. From the above analysis it can be perceived that there are various issues related with the climate change and past, present researches has found that it can effectively affect the productivity and efficiency of the firm. Information base development can additionally uncover new scope for diminishing the dangers of environmental change. Accordingly, approaches to extend the information base can support and bolster the proactive hazard administration procedures portrayed above.

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