Does recognition of climate change related risks and opportunities determine sustainability performance?

Climate change has continued to dominate both the political and business agenda for many years now. This research aims to provide empirical evidence on the determinants of sustainability performance. It draws upon prospect theory and resource-based-view framework to understand whether sustainability performance is driven by corporate recognition and framing of climate change issues, i.e. as risks and/or opportunities. Recognising the wide visibility and strong economic impact of large corporations, the world's largest 500 companies (Top500) is the focus in this study. To facilitate the investigation, the Top500 list is merged with Corporate Knights' list of the 'Global 100 Most Sustainable Corporations in the World'. Climate change data are taken from the Carbon Disclosure Project survey. Findings confirm that recognition of climate change as a net risk is significant and negatively correlated to sustainability performance supporting prospect theory predictions. The five-year average profitability of firms and their recognition/anticipation of climate change opportunities are also found to be significant and positively related to sustainability performance. These imply in a manner consistent with the resource-based-view argument that proactivity is determined by a firm's commitment to look for opportunities that, while necessitating deployment of substantial resources, creates unique competitive edge.