Searching for Internal Legitimacy in Climate Risk Management - A Case Study of Commensuration in A Swedish MNC

Abstract

Climate change is one of the biggest issues of modern times and due to potential significant economic impacts, climate change is nowadays considered to be one of the 21st century’s most critical areas in corporate risk management. Previous research stress legitimacy from external stakeholders as the main driver in the adoption of standardized frameworks in corporate sustainability. An increasing investor engagement has resulted in a growing trend of quantification, comparability and measurability in climate risk management. However, research indicate that organizations face challenges when trying to quantify the impact of climate risks. To investigate how climate risks are managed and assessed, a company case study was conducted. In addition, investor demands on sustainability and climate risk information was examined. In line with previous research, our findings show external legitimacy as a main driver for adopting climate risk management in general and standardized frameworks in particular. However, in addition to external legitimacy, internal legitimacy was found to be a major driver for quantification of climate risks in the case company. By leveraging the legitimacy in numbers and the superior position of financial information, internal actors could imitate and incorporate climate risks into processes developed for financial information in a strive to further the status of sustainability and climate issues. Even though the quantification resulted in uncertain numbers, the numbers was of great worth to facilitate organizational action. Consequently, our study complements previous research by showing that both the external and internal dimensions of legitimacy are central drivers of climate risk management. In addition, and contradictory to previous research, a mismatch was identified as investors seek qualitative information as quantification models was argued to be insufficient to capture the complexities associated with sustainability.