The role of science-based targets on carbon mitigation: Addressing the tension between net zero anxiety and economic growth

Abstract

Despite the growing importance of science-based targets (SBTs), our knowledge of their impact on corporate decarbonisation commitment is extremely limited due to inadequate research. To address this gap, we investigate the relationship between SBTs and corporate carbon reduction. Our empirical results reveal the following insights: First, the adoption of an SBT leads to significant subsequent carbon reduction in our sample companies. Second, decarbonisation does not occur until SBTs have been adopted for several years. Third, our findings show that the adoption of SBTs does not harm these companies’ profitability. Overall, our results suggest that SBTs are long-term investments that do not generate immediate but long-term and more sustainable outcomes. In sum, SBTs seem to be a strategy that can help management achieve a win-win situation: achieving a carbon reduction target without reducing economic growth. This justifies the need to study SBTs in future research in the field of carbon-accounting.