Addressing climate change challenge through institutional quality mechanisms: the case of carbon emissions of private sector entities

Purpose The current study aims to examine the nexus between institutional quality and carbon emissions performance of private sector entities (PSEs) from the perspective of legitimacy theory and the theory of institutional isomorphism. Design/methodology/approach Using a panel research design, we analyse a sample of high-ranking multinationals over a 15-year period from 2009 to 2023. We use the year 2024 Forbes list of 2000 companies as the sampling frame. Our combined dataset has 3,559 firm-year observations. Findings Results suggest that the impact of institutional quality on carbon emissions and emission types (i.e. scope 1, 2 and 3) is dissimilar. Government effectiveness, rule of law and control of corruption diminish carbon emissions. However, regulatory quality consistently encourages carbon emissions both at the aggregate level and the three emission types. Our results persist after running various robustness checks. Research limitations/implications Regulatory quality consistently encourages carbon emissions both at the aggregate level and for the three emission types. Practical implications The study empirically validates legitimacy theory and the theory of institutional isomorphism. Originality/value The current study contributes to knowledge by addressing a gap in literature with respect to the impact of institutional factors on the carbon emissions performance of PSEs. The study reveals how institutional mechanisms affect total emissions and emission types differently. By using a unique data set of top multinational companies covering the 15-year period from 2009 to 2023, the international approach used for the study enhances the generalisability of results. The study also empirically validates legitimacy theory and the theory of institutional isomorphism.