Carbon Reduction Pledges and Renewable Energy Adoption in East Asia’s Early Corporate Energy Transition

This paper examines the relationship between corporate carbon-reduction pledges and the subsequent adoption of renewable energy by pledging firms, and whether this relationship depends on the institutional conditions in which they operate. We propose a pressure-capacity model, highlighting two different institutional dimensions, (1) environmental policy stringency (institutional pressure) and (2) renewable energy infrastructure (institutional capacity), that may shape when firms’ symbolic pledges lead to observable change in their energy procurement behavior. We estimate random-effects logistic regression models with panel data on 552 publicly listed firms in South Korea, China, and Japan from 2002 to 2017. We find that the relationship between carbon-reduction pledges and renewable energy adoption is strengthened by both the stringency of environmental policy and the availability of renewable energy infrastructure. The marginal effects analysis indicates that the pledge effect is close to zero when institutional capacity is low. However, it increases to about 13 percentage points when policy stringency is high and 9 percentage points when renewable supply is high. The country-specific subsample analysis further uncovers that the conditional effect of institutional capacity is particularly pronounced among Japanese companies. The analysis of correlated random effects shows that these patterns remain robust even after controlling for between-firm confounding. Overall, our findings indicate that the extent to which voluntary corporate climate change commitments translate into actual green implementation depends on the regulatory and infrastructural environment in which firms operate.