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Multinational firms headquartered in countries with strict environmental policies choose to conduct their polluting activities in foreign countries with relatively weaker policies. These effects are stronger for firms in pollution-intensive industries and firms with poor corporate governance. But while firms based in countries with strict policies are more likely to export pollution abroad, they nevertheless produce fewer overall carbon emissions globally.

These are among the findings of a new research report by Itzhak Ben-David (Ohio State University, Stefanie Kleimeier (Maastricht University) and Michael Viehs (University of Oxford). Their results highlight the importance of collective action to combat climate change given the global scale of many firms’ operations.