Do Climate Policies Incentivize Firms to Commit to Setting a GHG Emissions Target?

Abstract

Since the 2016 Paris Agreement, firms have faced growing pressure to act on climate change, yet the influence of national climate policy frameworks on corporate target-setting remains underexplored. This paper examines whether advances in national climate policy are associated with firms' decisions to commit to setting greenhouse gas (GHG) reduction targets. To do so, we build a firm-level panel by matching public firms in the Science-Based Targets initiative to the national climate policy index, part of the Climate Change Performance Index, and green bond issuance from the Climate Bonds Initiative, covering 32 economies over 2017–2022. Moreover, the inclusion of firms from emerging economies contributes to the literature by recognizing the structural and institutional constraints that may hinder corporate commitments to set emissions targets. Using a correlated random effects probit model that accounts for unobserved firm heterogeneity, we find that stronger national climate policies are associated with a higher probability of commitment: a one-point increase in the policy index is associated with a rise of 8.3 and 8.9 percentage points for companies operating in advanced economies and emerging economies, respectively. Such results are concentrated in nonfinancial firms and low-emitting sectors. Green bond issuance is positively, though modestly, related to commitment. Taken together, the findings suggest that national climate policy advances are strongly associated with committing to set GHG emissions targets, but companies in high-emitting sectors may require additional, sector-specific incentives.

Received: 20 May 2025 | Revised: 15 October 2025 | Accepted: 7 December 2025

Conflicts of Interest

The authors declare that they have no conflicts of interest to this work.

Data Availability Statement

Firm-level information on corporate commitments and target validation is publicly available from the Science Based Targets initiative (SBTi) at https://sciencebasedtargets.org/target-dashboard. Aggregate green-bond issuance is obtained from the Climate Bonds Initiative (CBI) at https://www.climatebonds.net/data-insights/market-data/certified-climate-bonds-database. Due to confidentiality agreements, the raw CCPI data are not publicly available.

Author Contribution Statement

Marco Hernandez-Vega: Conceptualization, Methodology, Validation, Investigation, Resources, Data curation, Writing original draft, Writing – review & editing, Visualization, Supervision, Project administration. Eduardo Martinez: Software, Validation, Formal analysis, Resources, Data curation, Writing – original draft, Visualization.