Greening Up Their Act: When political risk drives real emissions cuts

Dr Sandip Dhole and Prof Cameron Truong, 2026

Purpose

Climate change has become a major political issue, with regulators and investors scrutinising firms' environmental impact ever more closely. Sandip Dhole and Cameron Truong, with Pradip Banerjee and Sudipta Bose, set out to test whether firms treat emissions reduction as a deliberate strategy to manage political risk, not just an environmental or compliance matter.

Practice

Studying US firms from 2002 to 2019, the team used multiple identification strategies – entropy balancing, instrumental variable analysis, and two exogenous shocks, the US-China trade war and the BP oil spill – to isolate the effect of political risk on emissions.

Output

The evidence is clear: firms reduce emissions when facing heightened political risk, and they do it by building environmental innovation capabilities. The study was published in Energy Economics (2025), an A*-ranked journal.

Outcome and impact

Firms build lasting competitive and regulatory strength rather than making one-off cuts, retaining investor confidence and avoiding heavier regulatory intervention. For policymakers, the findings show political risk can act as a soft governance tool – driving emissions reductions even without binding regulation.