Decoding Emissions Performance

Firms face intensifying pressure to curb carbon emissions—from regulatory instruments (e.g., taxes, caps, border adjustments) to investors. Capable managers can translate climate goals into operating routines and process improvements, yet progress also depends on how firms recognize and mobilize new technology to monitor, optimize, and reconfigure carbon-relevant activities. In the paper presented in this ZEW Research Seminar, the authors focus on AI technology, and examine how managerial ability (MA) interacts with a firm’s AI orientation—AI strategic orientation (whether firms discuss AI in 10-K filings, via a text-mining approach) and AI human capital (the share of employees with AI-related skills, estimated from the Cognism resume database)—in meeting carbon-emission goals. Using panel data on public firms’ Scope 1–2 GHG emissions, they find that higher MA is associated with lower emissions. They also find that AI strategic orientation and AI human capital strengthen the association between MA and lower emissions. Our results suggest that emissions performance not only depends on whether firms talk about or invest in AI, but to how capable managers steer and integrate AI. For practice, firms should build organization-wide AI understanding and empower AI talent to embed AI into operations, enabling managers to better leverage their capability on emissions.