The Lack of Corporate Collective Action to Take Real Climate Actions

As the semester draws to a close and we are frantically trying to finalize our client presentation, I wanted to reflect on just how much I have learned and advanced through this course. Learning in classroom has been compounded by collaborating with my incredible teammates who have shared my passion for sustainability and my interest in how corporations can yield their power for the benefit of our planet.

One of the project deliverables was to explore the extent to which large multinational corporations come together in collective action to reduce carbon emissions and before taking this course, I would have looked at publicly available information to determine the company’s course of action. During the last few months of project and teamwork, I have seen first-hand how few and far in between examples of corporate collective action are, and that is in the face of ever-increasing number of companies making claims about their goals of reducing their carbon footprint. I asked myself – what can explain the lack of collective action if (at least on paper) all these corporates are so dedicated to the same cause? Is competition really that big of a hurdle to overcome if companies (and their management) are truly dedicated to making a positive impact? While a full answer to these questions still eludes me, I realized that every corporate action has two sides – the corporate PR side that aims to position the firm in the best light with the goal of attracting new or keeping existing clients, shareholders, etc., and the “what really happens behind closed doors” side. This closed door is where ambitious climate proposals end up locked away, gathering dust. And while corporations make progress towards emission reduction, it is nowhere near the scale it needs to be in order to truly achieve the goal of keeping temperature rise in line with the Paris accords. I realized that climate action is done only and if it does not negatively impact profitability. When the two come to a head, short term gains in the form of share price increase and management compensation. And the only way companies will decide to take the type of urgent and extensive action that is needed to reduce emissions will be if they suffer financially.

This realization was further cemented when our team did the financial analysis that aimed to quantify climate risk. When incorporating costs associated with climate change in financials of Airbus, Deere, and Nike, the reduction in their EBITDA was up to 67%. While each of these companies tracks and reports emissions and emission reductions, our analysis showed that if Airbus continues reducing emissions (Scope 1 and 2) at the prevailing rate, the company will fall substantially short of its own goal of net zero by 2050. So, given the financial risk due to climate change and the fact that reductions at their current rate will not prevent these financial damages, why is Airbus not accelerating the rate at which it reduces emissions? Same holds true for Deere and Nike, and the answer I have been able to come up with is that the short-term Capex it would require to reconfigure the business so it is less carbon intensive (and in the case of Airbus, completely redesign the planes it produces) is perceived to be prohibitive when taken in conjunction with shareholder return expectations and management’s dependence on these returns for their compensation. One development that gives me hope is that large shareholders are prioritizing ESG and system level investing and pushing their investees to take aggressive measures to reduce emissions. Though these shareholders are few in numbers, I hope that as climate change continues to become a stark reality for everyone on this planet, more investors realize that the days of business as usual are long over and push for sustainability above short-term financial returns.

Project aside, I wanted to say that I have had an incredible semester thanks to Professor Flammer. I have learned tremendous amount in such a short period of time. Thank you for such an amazing learning experience and for sharing your expertise with all of us. That has been truly invaluable.