Your emissions or mine? Examining how emissions management strategies, ESG performance, and targets impact investor perceptions

Efforts to mitigate greenhouse gas emissions and curb climate change have recently become significant areas of concern to policymakers. We examine how management's focus on mitigating its direct versus indirect emissions influences the ability to attract capital from investors, and how this ability is moderated by the firm's environmental, social, and corporate governance (ESG) performance combined with adoption of an external emissions target. Using an experiment, we find that investors perceive a firm with a relatively poor ESG performance record as more socially responsible and are therefore more willing to invest when management focuses on mitigating direct versus indirect emissions. We also find that, regardless of ESG performance, adopting an external industry-based emissions target diminishes willingness to invest when management focuses on mitigating indirect emissions, but not when they focus on mitigating direct emissions. Our results provide insights for policymakers as to one impact of disaggregating direct (i.e. Scope 1) and indirect (i.e. Scope 2) emissions in ESG reporting.