Too Invested to Change: The Role of Uncertainty Avoidance on Corporate Contribution to Global Warming

Abstract

Climate change due to the emission of greenhouse gases (GHGs) is a global problem yet there is no consensus on how to resolve this problem. Although prior studies have primarily focused on firm-level determinants of GHG emissions, we explore whether the culture of a firm's host country also influences its propensity to control GHG emissions. We posit and find a positive association between collective uncertainty avoidance (Hofstede, 1983) and firm-level GHG emissions using a sample of firms across 38 countries. To the extent that uncertainty avoidance reflects societies' adherence to norms and rejection of a change in the social order, societies with higher uncertainty avoidance would assign higher risk premiums to carbon abatement initiatives thus discouraging the firms to emit less. The positive relationship is accentuated by a firm's dependence on external funding as well as its investment intensity, host country's propensity for economic decline, and the resilience of the social fabric. These findings highlight important policy implications for nations’ carbon neutrality objectives.