Senior corporate executives are increasingly seeing emissions reductions initiatives as strategic business opportunities, but their ambitious proposals get degraded over time due in large part to criticism from shareholders, according to an Australian study published in the Academy of Management journal.
Christopher Wright, professor of organizational studies at the University of Sydney Business School, and Daniel Nyberg, professor of management at the University of Newcastle Business School, did a detailed analysis of five major Australian corporations from 2005 to 2015. Although the corporations represent different industries — banking, media, insurance, manufacturing, and energy — the professors discovered a common pattern, they write in an article for The Conversation.
“Initial statements of climate leadership degenerated over time into more mundane business concerns,” they wrote. “Corporations’ ambitious pro-climate proposals are systematically degraded by criticism from shareholders, media, governments, other corporations, and managers.”
The journal article outlines three phases based on the corporate case studies. In the first phase, senior executives present tackling climate change as a strategic business decision, the researchers note. Executives use words like “innovation,” “opportunity,” and “win-win outcomes” to describe their strategies.
In the second phase, executives lay out the business case. “Managers sought to make their proposals more concrete through eco-efficiency practices such as reducing energy consumption, retrofitting lighting, and using renewable energy; “green” products and services, and promoting the need for climate action,” the researchers wrote. This is accompanied by efforts to communicate the benefits of new measures to employees.
Finally, the researchers found that corporate climate initiatives attracted renewed criticism over time from groups that included shareholders as well as politicians and journalists. During the third phase, corporate leaders dialed back initiatives under pressure and went back to “business as usual.”
“For example, new chief executives were promoted who advocated ‘back to basics’ strategies,” the authors explained. “Meanwhile, climate change initiatives were diluted and relegated to broader and less specific ‘sustainability’ and ‘resilience’ programs.”
With such a bubble-bursting finding, where do corporate executives go from here? Wright and Nyberg urge a broader acceptance of regulatory restrictions on carbon emissions and fossil fuel extraction rather than over-reliance on market solutions. They also suggest “a reconsideration of corporate purpose and the dominance of short-term shareholder value as the pre-eminent criteria in assessing business performance.”
In a separate study published earlier this month, Wright and Nyberg looked at how companies construct climate risk. They offer the example of energy companies getting caught off guard by political resistance from communities and landowners over fracking. The professors advise corporations to include non-market factors in their risk calculations.