Climate clubs and firm environmental performance: A regional institutional perspective

This research focuses on informal club-based institutions to boost a firm's engagement in environmental practices. Specifically, we investigate the effect of a firm's climate club membership on its corporate environmental performance. Our empirical analyses rely on a sample of firms from 142 Western European regions during 2011-2019. Results show that stronger climate club engagement of firms within a same region of a focal firm may act as an informal institution, improving the latter's environmental performance. We also find that the impact of those informal club-based institutions outsizes the effect exerted by the quality of formal regional institutions, and that strong informal climate club-based institutions might be able to partly replace the role of regional formal institutions in that ESG domain. Finally, we delve into several mechanisms potentially driving the observed impacts of regional formal and informal institutions on firms’ environmental performance.