Aligning firms with SDGs and COP30: the comparative power of voluntary and regulatory climate commitments

Abstract

This study aims to examine the comparative and joint association of voluntary and regulatory climate governance mechanisms with firm-level carbon emission intensity. Specifically, it investigates whether participation in the Science Based Targets initiative (SBTi) is associated with stronger reductions than exposure to the European Union Emissions Trading Scheme (EU ETS), and whether the two mechanisms operate as complements. The study uses an unbalanced panel of 1,265 European firms observed from 2015 to 2023, compiled from Refinitiv ESG, CDP, Refinitiv financial statements, the official SBTi database and EU ETS sector classifications. The empirical strategy combines difference-in-differences estimation, firm fixed effects, nearest-neighbor matching and event-study diagnostics to assess the estimated associations of SBTi adoption, EU ETS exposure and their interaction with firm-level emission intensity. SBTi adoption is negatively and statistically significantly associated with firm-level emissions intensity across the baseline difference-in-differences, matching, and firm fixed-effects specifications. The estimated SBTi coefficients correspond to an approximately 25–28% lower emissions intensity, depending on the specification. EU ETS exposure is associated with a smaller reduction of approximately 7%. The negative SBTi × EU ETS interaction indicates an additional but modest reduction among firms exposed to both mechanisms, supporting a complementary rather than substitutive relationship. The placebo estimate is statistically insignificant, and the negative SBTi association remains present in both ETS and non-ETS subsamples. However, significant pre-adoption differences in the event-study analysis limit strong causal interpretation; the results are therefore presented as robust comparative associations rather than definitive causal effects. The sample is limited to European firms with available emissions and financial disclosures, which may reduce generalizability and tilt the sample toward larger and more transparent firms. Although the design combines multiple quasi-experimental tools, unobserved differences in firms' climate strategies cannot be ruled out fully. The findings suggest that hybrid climate governance may be more strongly associated with lower emission intensity when voluntary commitments and regulatory mechanisms operate together. Firms and policymakers may achieve stronger decarbonization outcomes when science-based target setting is embedded within broader regulatory, governance and accountability structures. The study adds firm-level evidence on how voluntary climate commitments and carbon-pricing exposure operate separately and jointly in shaping corporate decarbonization. By comparing SBTi and EU ETS within a unified empirical framework, it offers an integrated perspective on climate governance relevant to SDG 13 and post-COP30 policy debates.