Are Firms' and Governments' Emission Reduction Commitments Aligned? The European Case

Drawing on more than 89,000 firm-level observations from 94 countries across Europe, other advanced economies, Africa, Asia, Latin America, and the Middle East, sourced from the World Bank and the European Bank for Reconstruction and Development, we examine whether ambitious national climate commitments translate into greater corporate adoption of CO2 monitoring and energy management practices. The results show that an ambitious national net-zero target, defined as 2050 or earlier, compared with a later or no target, is associated with a statistically significant increase in corporate climate mitigation action once firm-level characteristics and country fixed effects are considered. When we focus on Western European countries with net-zero targets of 2050 or earlier, the positive effect is larger and remains statistically significant, especially for energy management practices. Firms with audited financial reports are the most likely to adopt these measures, while SMEs are the least likely. A regional disparity also emerges: firms in Eastern European countries outside the European Union (EU) that have experienced climate-related physical events with economic consequences are the most likely to adopt energy management measures. By contrast, firms in energy-intensive sectors in the same Eastern European countries, mainly industry and transport, are less likely than their EU peers to adopt these practices and show substantially lower probabilities of adopting climate measures.