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Firms’ response to climate change
and digital technologies –
insights from an international
comparative study
Dr Anastasia Ri
Background and research question
Productivity in transition –
an international comparative analysis of the twin transition,
its enablers, and productivity implications
This 2-year project aims to explore relationships between the digital and net-zero transitions, on the one
hand, and between this twin transition and firm productivity, on the other.
+other underlying conditions (previous investment, finance)
+incentive structures – which are the most supportive?
Quantitative Perspective
In partnership with the European Investment Bank
(Luxembourg)
Qualitative Perspective
In partnership with Grenoble School of Management
(France)
Firms’ response(s) to climate change
Climate Adaptation
strategies designed to increase business resilience and
ensure business continuity in the face of changes in climate
related risks have benefits which are largely private.
Climate Mitigation
strategies designed to reduce greenhouse gas (GHG)
emissions may have more limited private benefits but are
likely to have substantial public benefits linked to reduced
climate impacts
Background and research question
“Incentives to adapt are already in place… need not be
created by governments” (Toll, 2005)
Preconditions (access to information, knowledge, skills,
financial resources) may be facilitated by governments –
conducive environment (Fankhauser et al, 1999)
“Even though individuals (firms) will mitigate their
emissions, the incentives to do so are to be provided by
governments” (Toll, 2005)
Matter of national governments in the context of
international negotiations
RQ: Do digital technologies facilitate adaption and mitigation?
i.e. do digital technologies make businesses better equipped to tackle climate change
challenges, both through adaptation and mitigation strategies?
Background and research question
Why adaptation too?
• While there is a growing body of literature on business
mitigation, the knowledge of adaptation decision-making is still
very limited (Bleda & Pinkse, 2023; Clement & Rivera, 2017;
Linnenluecke, Griffiths, & Winn, 2013; Peregrino de Brito,
2021).
• Linnenluecke et al. (2013) highlight the lack of empirical studies
on firm adaptation to climate change.
• Most empirical studies focus on most exposed to climate
change impacts sectors: tourism, agriculture, winery, ski
resorts, energy sector (Peregrino de Brito, 2021). For firms in
less exposed sectors, the decision-making process is more
“ambiguous” (Bleda & Pinkse, 2023).
Twin net zero and digital transition is believed to be
an important pathway to sustainable recovery (Bai et
al. 2020; Hanelt et al. 2017).
Yet, little is known about how these two transition
processes relate to each other and how organisations
may leverage digital technologies and capabilities to
innovate for environmental sustainability.
Crucially, empirical quantitative micro-evidence of
their connection is scarce, especially in the context of
SMEs (OECD, 2021).
Conceptual framework
Adaptation
Mitigation
Digital
innovativeness
Constraints
Recognition
of the need /
opportunity
Incentives
Constraints
Incentives
Recognition
of the need /
opportunity
Capabilities
Business environment: natural,
regulatory and policy, social norms,
knowledge, customers, network…
Strategy Actions
Hypothesis 2.
More advanced digital adopters are more intensively engaged in climate
adaptation actions
More advanced digital adopters are more intensively engaged in climate
mitigation actions
Hypothesis 1. More advanced digital adopters have better ability to access and
process information and hence more likely to recognise the need of climate
response(s) by making strategic choice of adopting climate adaptation or climate
mitigation measures, or both.
Probability of climate response(s)
Intensity of climate response(s)
Hypothesis
Data overview
Type of climate response (0 to 3):
0 – No climate response;
1 – Adaptation only;
2 – Mitigation only;
3 – Both Adaptation and Mitigation
Probability of climate response(s) Intensity of climate response(s)
ICA - Intensity of
Climate Adaptation
(0 to 3)
measured by number
of CA practices
adopted
ICM - Intensity of
Climate Mitigation
(0 to 5)
measured by number
of CM practices
adopted
European Investment Bank Investment Survey, 2022-2023,
pooled cross-section ~25,000 firms across 27 EU countries and USA
Data overview
0.00
0.10
0.20
0.30
0.40
0.50
Intensity of Climate Adaptation (ICA)
Manufacturing Construction Services Infrastructure
0.00
0.50
1.00
1.50
2.00
2.50
Intensity of Climate Mitigation (ICM)
Manufacturing Construction Services Infrastructure
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Intensity of Climate Adaptation (ICA)
Micro Small Medium Large
0
0.5
1
1.5
2
2.5
3
Intensity of Climate Mitigation (ICM)
Micro Small Medium Large
Data overview
𝑥 𝑥 + 𝑠𝑑
𝑥 − 𝑠𝑑 𝑥 + 2𝑠𝑑
𝑑𝑖𝑔𝑖𝑡𝑎𝑙 𝑖𝑛𝑛𝑜𝑣𝑎𝑡𝑖𝑣𝑒𝑛𝑒𝑠𝑠
Innovators
2.5%
Early
adopters
13.5%
Early
majority
34%
Late
majority
34%
Laggards
16%
Respect Venturesome
Deliberate
Sceptical
Traditional
Digital innovativeness (0 to 8):
Constructed as a composite measure based on information for each of
the 4 ‘state-of-the art for the sector’ digital technologies
0 – Firm did not adopt the technology;
1 – Adopted partially;
2 – Adopted fully
Digital adopters’ categories (1 to 5):
1 – Digital Laggards
2 – Digital Late majority
3 – Digital Early majority
4 – Digital Early adopters
5 – Digital Innovators
European Investment Bank Investment Survey, 2022-2023,
pooled cross-section ~25,000 firms across 27 EU countries and USA
Data overview
Digital adopters’ categories by firm size
53%
48%
34%
19%
23%
23%
25%
23%
14%
15%
21%
24%
8%
10%
16%
28%
2%
3%
3%
6%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Micro
Small
Medium
Large
Laggards Late majority Early majority Early adopters Innovators
Data overview
Digital adopters’ categories by sector
In Information and Communication sector,
percentage of digital innovators is over 10%
36%
56%
41%
35%
24%
25%
24%
22%
19%
13%
19%
20%
18%
5%
13%
17%
3%
1%
3%
5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Manufacturing
Construction
Services
Infrastructure
Laggards Late majority Early majority Early adopters Innovators
Data overview
Type of climate response(s) by digital adopters’ categories
24%
14%
11%
10%
14%
2%
2%
2%
2%
2%
55%
55%
52%
46%
49%
18%
29%
35%
43%
35%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Laggards
Late majority
Early majority
Early adopters
Innovators
No climate response Adaptation only Mitigation only Adaptation and Mitigation
Results
Probability of climate response(s)
Probability of climate
response(s) conditional on
perception of climate change
impact on business
Digitally more advanced firms are more
likely to formulate simultaneous
adaptation and mitigation response to
climate change.
e.g. Digital early adopters are 12.6
percentage points more likely than
digital laggards to undertake CA and CM
simultaneously.
Probability of simultaneous climate
response is higher for firms saying that
climate changes currently have impact
(minor or major) on the business.
Results
Intensity of climate response(s)
Predicted intensity of climate
adaptation (ICA) conditional
on perception of climate
change impact on business
Digitally more advanced firms are more
intensively engaged in climate
adaptation actions.
Non-linear relationship: Digital early
adopters show higher ICA compared to
digital innovators.
Climate change perceptions play a
moderating role: firms experiencing
climate change impact on the business
are more intensively engaged with CA.
Results
Intensity of climate response(s)
Predicted intensity of climate
mitigation (ICM) conditional on
risk/opportunity perception of
transition to stricter climate
standards and regulations in
the next five years
Digitally more advanced firms are more
intensively engaged in climate mitigation
actions.
Perceptions of risk/opportunity play a
moderating role: firms perceiving a
risk/opportunity of green transition in
the future are more intensively engaged
with CM.
Results
Results are robust to other specifications.
To address potential endogeneity issue, additional IV analysis was conducted. We instrument digital adopters’
categories by variables related to the performance of digital infrastructure at NUTS2 level: fixed average download and
upload speed, latency, etc.
The results confirm positive relationship between the stage of digital advancement and ICA and ICM.
Results
More advanced digital adopters are more intensively
engaged in climate adaptation actions across all
sectors, i.e. effect is rather homogeneous.
More advanced digital adopters are more intensively
engaged in climate adaptation actions across all firm sizes
with some nuances.
For micro and small businesses even a small improvement
in digital passing from Digital laggards to 2nd and 3rd groups
have much higher impact on ICA compared to medium and
large businesses.
Idem.
In Manufacturing and Services, there is an increasing
benefit of progressing on digital ladder on ICM, which
cannot be observed in Construction and Infrastructure
where first stepping from laggards to digital late majority
has already substantial benefits.
Idem
Intensity of Climate Adaptation (ICA) Intensity of climate Mitigation (ICM)
Sector
Size
Concluding remarks
• Robust evidence of Twin digital and green transition at firm level
• Low uptake of adaptation measures – low resilience?: despite private benefits of
climate adaptation (business continuity and resilience), the rate of uptake of CA
measures is very small.
• Double importance - role of digital in:
• Ability to recognise the need/opportunity to develop climate response(s)
leading to a climate response strategy
• Ability to act on this choice by intensifying engagement
• Not a substitution: digitally enabled businesses choose to do both Adaptation and
Mitigation in response to climate change
• Shaped by perceptions: the relationship between digital and CA and CM is also
shaped by perceived business exposure and vulnerability to climate change and
perception of risk/opportunity associated with transition to stricter climate standards
and regulations.
Link to the manifesto for small business growth
and productivity
Increase the adoption of digital technologies
…by increasing digital literacy and awareness
“We need more UK businesses to adopt digital technologies that can in turn
improve their productivity. ERC research has shown that digital adoption is
important for improving productivity in small firms. Targeted support
programmes and peer networking have been shown to be helpful in raising the
confidence of business leaders in terms of technology adoption. However,
digital readiness is key to adoption, and creating more ‘digitally ready’ firms
should be a policy focus. There are potential productivity benefits in targeting
those firms that do not currently recognise the benefits of digital
transformation for their businesses.”
Link to the manifesto for small business growth
and productivity
Improve the provision of quality, actionable information on net zero
…and develop agreed standards for measuring environmental impact
“The UK’s small businesses urgently need access to information and advice to
help them adopt net zero practices and measure their effectiveness. Small and
medium sized businesses are estimated to account for around half of all UK
business emissions, and as such they will play a crucial part in the net zero
transition. ERC research has shown, however, that there is much room for
improvement when it comes to the adoption of net zero practices in small firms
in the UK, especially amongst the smallest firms. The evidence shows that the
problem with adoption is not around intentions when it comes to sustainability
– but more around bandwidth, prioritisation and capability. At present the net
zero support landscape is fragmented, with only a small minority of firms
receiving support. Access to trusted and actionable information is vital in
supporting firms to implement sustainability practices, with government,
professional and industry associations all playing potentially important roles.
There are also potential advantages in designing future policy support that
grasps the complementary benefits of net zero and digital adoption.”
Thank you
For further details please visit :
www.enterpriseresearch.ac.uk
@ERC_UK

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Firms’ response to climate change and digital technologies – insights from an international comparative study Anastasia Ri

  • 1. Firms’ response to climate change and digital technologies – insights from an international comparative study Dr Anastasia Ri
  • 2. Background and research question Productivity in transition – an international comparative analysis of the twin transition, its enablers, and productivity implications This 2-year project aims to explore relationships between the digital and net-zero transitions, on the one hand, and between this twin transition and firm productivity, on the other. +other underlying conditions (previous investment, finance) +incentive structures – which are the most supportive? Quantitative Perspective In partnership with the European Investment Bank (Luxembourg) Qualitative Perspective In partnership with Grenoble School of Management (France)
  • 3. Firms’ response(s) to climate change Climate Adaptation strategies designed to increase business resilience and ensure business continuity in the face of changes in climate related risks have benefits which are largely private. Climate Mitigation strategies designed to reduce greenhouse gas (GHG) emissions may have more limited private benefits but are likely to have substantial public benefits linked to reduced climate impacts Background and research question “Incentives to adapt are already in place… need not be created by governments” (Toll, 2005) Preconditions (access to information, knowledge, skills, financial resources) may be facilitated by governments – conducive environment (Fankhauser et al, 1999) “Even though individuals (firms) will mitigate their emissions, the incentives to do so are to be provided by governments” (Toll, 2005) Matter of national governments in the context of international negotiations
  • 4. RQ: Do digital technologies facilitate adaption and mitigation? i.e. do digital technologies make businesses better equipped to tackle climate change challenges, both through adaptation and mitigation strategies? Background and research question Why adaptation too? • While there is a growing body of literature on business mitigation, the knowledge of adaptation decision-making is still very limited (Bleda & Pinkse, 2023; Clement & Rivera, 2017; Linnenluecke, Griffiths, & Winn, 2013; Peregrino de Brito, 2021). • Linnenluecke et al. (2013) highlight the lack of empirical studies on firm adaptation to climate change. • Most empirical studies focus on most exposed to climate change impacts sectors: tourism, agriculture, winery, ski resorts, energy sector (Peregrino de Brito, 2021). For firms in less exposed sectors, the decision-making process is more “ambiguous” (Bleda & Pinkse, 2023). Twin net zero and digital transition is believed to be an important pathway to sustainable recovery (Bai et al. 2020; Hanelt et al. 2017). Yet, little is known about how these two transition processes relate to each other and how organisations may leverage digital technologies and capabilities to innovate for environmental sustainability. Crucially, empirical quantitative micro-evidence of their connection is scarce, especially in the context of SMEs (OECD, 2021).
  • 5. Conceptual framework Adaptation Mitigation Digital innovativeness Constraints Recognition of the need / opportunity Incentives Constraints Incentives Recognition of the need / opportunity Capabilities Business environment: natural, regulatory and policy, social norms, knowledge, customers, network… Strategy Actions
  • 6. Hypothesis 2. More advanced digital adopters are more intensively engaged in climate adaptation actions More advanced digital adopters are more intensively engaged in climate mitigation actions Hypothesis 1. More advanced digital adopters have better ability to access and process information and hence more likely to recognise the need of climate response(s) by making strategic choice of adopting climate adaptation or climate mitigation measures, or both. Probability of climate response(s) Intensity of climate response(s) Hypothesis
  • 7. Data overview Type of climate response (0 to 3): 0 – No climate response; 1 – Adaptation only; 2 – Mitigation only; 3 – Both Adaptation and Mitigation Probability of climate response(s) Intensity of climate response(s) ICA - Intensity of Climate Adaptation (0 to 3) measured by number of CA practices adopted ICM - Intensity of Climate Mitigation (0 to 5) measured by number of CM practices adopted European Investment Bank Investment Survey, 2022-2023, pooled cross-section ~25,000 firms across 27 EU countries and USA
  • 8. Data overview 0.00 0.10 0.20 0.30 0.40 0.50 Intensity of Climate Adaptation (ICA) Manufacturing Construction Services Infrastructure 0.00 0.50 1.00 1.50 2.00 2.50 Intensity of Climate Mitigation (ICM) Manufacturing Construction Services Infrastructure 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Intensity of Climate Adaptation (ICA) Micro Small Medium Large 0 0.5 1 1.5 2 2.5 3 Intensity of Climate Mitigation (ICM) Micro Small Medium Large
  • 9. Data overview 𝑥 𝑥 + 𝑠𝑑 𝑥 − 𝑠𝑑 𝑥 + 2𝑠𝑑 𝑑𝑖𝑔𝑖𝑡𝑎𝑙 𝑖𝑛𝑛𝑜𝑣𝑎𝑡𝑖𝑣𝑒𝑛𝑒𝑠𝑠 Innovators 2.5% Early adopters 13.5% Early majority 34% Late majority 34% Laggards 16% Respect Venturesome Deliberate Sceptical Traditional Digital innovativeness (0 to 8): Constructed as a composite measure based on information for each of the 4 ‘state-of-the art for the sector’ digital technologies 0 – Firm did not adopt the technology; 1 – Adopted partially; 2 – Adopted fully Digital adopters’ categories (1 to 5): 1 – Digital Laggards 2 – Digital Late majority 3 – Digital Early majority 4 – Digital Early adopters 5 – Digital Innovators European Investment Bank Investment Survey, 2022-2023, pooled cross-section ~25,000 firms across 27 EU countries and USA
  • 10. Data overview Digital adopters’ categories by firm size 53% 48% 34% 19% 23% 23% 25% 23% 14% 15% 21% 24% 8% 10% 16% 28% 2% 3% 3% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Micro Small Medium Large Laggards Late majority Early majority Early adopters Innovators
  • 11. Data overview Digital adopters’ categories by sector In Information and Communication sector, percentage of digital innovators is over 10% 36% 56% 41% 35% 24% 25% 24% 22% 19% 13% 19% 20% 18% 5% 13% 17% 3% 1% 3% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Manufacturing Construction Services Infrastructure Laggards Late majority Early majority Early adopters Innovators
  • 12. Data overview Type of climate response(s) by digital adopters’ categories 24% 14% 11% 10% 14% 2% 2% 2% 2% 2% 55% 55% 52% 46% 49% 18% 29% 35% 43% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Laggards Late majority Early majority Early adopters Innovators No climate response Adaptation only Mitigation only Adaptation and Mitigation
  • 13. Results Probability of climate response(s) Probability of climate response(s) conditional on perception of climate change impact on business Digitally more advanced firms are more likely to formulate simultaneous adaptation and mitigation response to climate change. e.g. Digital early adopters are 12.6 percentage points more likely than digital laggards to undertake CA and CM simultaneously. Probability of simultaneous climate response is higher for firms saying that climate changes currently have impact (minor or major) on the business.
  • 14. Results Intensity of climate response(s) Predicted intensity of climate adaptation (ICA) conditional on perception of climate change impact on business Digitally more advanced firms are more intensively engaged in climate adaptation actions. Non-linear relationship: Digital early adopters show higher ICA compared to digital innovators. Climate change perceptions play a moderating role: firms experiencing climate change impact on the business are more intensively engaged with CA.
  • 15. Results Intensity of climate response(s) Predicted intensity of climate mitigation (ICM) conditional on risk/opportunity perception of transition to stricter climate standards and regulations in the next five years Digitally more advanced firms are more intensively engaged in climate mitigation actions. Perceptions of risk/opportunity play a moderating role: firms perceiving a risk/opportunity of green transition in the future are more intensively engaged with CM.
  • 16. Results Results are robust to other specifications. To address potential endogeneity issue, additional IV analysis was conducted. We instrument digital adopters’ categories by variables related to the performance of digital infrastructure at NUTS2 level: fixed average download and upload speed, latency, etc. The results confirm positive relationship between the stage of digital advancement and ICA and ICM.
  • 17. Results More advanced digital adopters are more intensively engaged in climate adaptation actions across all sectors, i.e. effect is rather homogeneous. More advanced digital adopters are more intensively engaged in climate adaptation actions across all firm sizes with some nuances. For micro and small businesses even a small improvement in digital passing from Digital laggards to 2nd and 3rd groups have much higher impact on ICA compared to medium and large businesses. Idem. In Manufacturing and Services, there is an increasing benefit of progressing on digital ladder on ICM, which cannot be observed in Construction and Infrastructure where first stepping from laggards to digital late majority has already substantial benefits. Idem Intensity of Climate Adaptation (ICA) Intensity of climate Mitigation (ICM) Sector Size
  • 18. Concluding remarks • Robust evidence of Twin digital and green transition at firm level • Low uptake of adaptation measures – low resilience?: despite private benefits of climate adaptation (business continuity and resilience), the rate of uptake of CA measures is very small. • Double importance - role of digital in: • Ability to recognise the need/opportunity to develop climate response(s) leading to a climate response strategy • Ability to act on this choice by intensifying engagement • Not a substitution: digitally enabled businesses choose to do both Adaptation and Mitigation in response to climate change • Shaped by perceptions: the relationship between digital and CA and CM is also shaped by perceived business exposure and vulnerability to climate change and perception of risk/opportunity associated with transition to stricter climate standards and regulations.
  • 19. Link to the manifesto for small business growth and productivity Increase the adoption of digital technologies …by increasing digital literacy and awareness “We need more UK businesses to adopt digital technologies that can in turn improve their productivity. ERC research has shown that digital adoption is important for improving productivity in small firms. Targeted support programmes and peer networking have been shown to be helpful in raising the confidence of business leaders in terms of technology adoption. However, digital readiness is key to adoption, and creating more ‘digitally ready’ firms should be a policy focus. There are potential productivity benefits in targeting those firms that do not currently recognise the benefits of digital transformation for their businesses.”
  • 20. Link to the manifesto for small business growth and productivity Improve the provision of quality, actionable information on net zero …and develop agreed standards for measuring environmental impact “The UK’s small businesses urgently need access to information and advice to help them adopt net zero practices and measure their effectiveness. Small and medium sized businesses are estimated to account for around half of all UK business emissions, and as such they will play a crucial part in the net zero transition. ERC research has shown, however, that there is much room for improvement when it comes to the adoption of net zero practices in small firms in the UK, especially amongst the smallest firms. The evidence shows that the problem with adoption is not around intentions when it comes to sustainability – but more around bandwidth, prioritisation and capability. At present the net zero support landscape is fragmented, with only a small minority of firms receiving support. Access to trusted and actionable information is vital in supporting firms to implement sustainability practices, with government, professional and industry associations all playing potentially important roles. There are also potential advantages in designing future policy support that grasps the complementary benefits of net zero and digital adoption.”
  • 21. Thank you For further details please visit : www.enterpriseresearch.ac.uk @ERC_UK