companies engagement in cheap talk about climate change

Research by Shirley Lu and her colleagues shows that many companies set goals to engage the right fans but never achieve them. But what if investors held companies accountable for implementing climate plans?

Most companies have set security goals, but these plans often end up like most people's New Year's resolutions: the quiet failure of surprise.

While companies often get good press by announcing climate plans to reduce greenhouse gas emissions, many countries do not track weather targets and this is rarely reported in the media. A new study from Harvard University shows that there is little accountability and transparency regarding the outcomes of these targets, and that many stakeholders, including entrepreneurs and rating agencies that measure environmental, social and governance (ESG) risk, do not penalize non-compliance with these targets. them by Shirley Lu., Assistant Professor, School of Business Print

Companies collectively emit millions of tons of greenhouse gases and face growing pressure to address climate change to reduce impacts on ecosystems, weather patterns, and global threats to vulnerable communities is facing.

Just teaching is not enough. How to promote accountability if no announcement is made?

Lu points out that when it comes to corporate profits, the market holds companies accountable for their forecasts. Public companies are required to report their results, and when numbers fall short of expectations, investors often sell stock, share prices suffer and top executives lose their jobs.

Currently, companies that cannot meet their 2020 security targets cannot achieve this. Lu and his co-authors, Xiaoyan Jiang, a doctoral candidate at Harvard Business School, and Shaun King, an assistant professor at the Haas School of Business at the University of California, Berkeley, say there will be no disruption to similar effects. This makes it easier for companies to make profits by setting high goals without actually achieving them, which involves a lot of "cheap talk," the researchers wrote.

Lu says the world needs better reporting and monitoring if it hopes to meet the goals of the 2015 Paris Agreement, the global climate agreement that calls for keeping global warming below 2 degrees Celsius.

But the map is not enough. How to promote accountability if no announcement is made? "Lu said: "If we don't start solving this problem by 2030, it will be too late."

What happens if the company fails to meet its 2020 targets?

The research team determined the company's 2020 security goals by examining the data collected by CDP. CDP is a non-profit organization with the largest database in the securities industry. Researchers identified 1,041 companies that collectively emit 2.5 billion tonnes of greenhouse gases and pledged to reduce emissions by an average of 3% per year as part of a 2020 brand target.

Researchers then achieved their goals by analyzing these companies' company and CDP data, as well as company news, nature reports and safety information. Of the 1,041 companies examined, 721 companies submitted information on their 2020 emissions targets, meaning 31% of plans were missed. Many companies that have remained silent have already followed suit, and none of them came from social media.

Some companies (88 out of 721 reporters) failed to achieve their 2020 targets. But the news only mentions three companies that failed: FedEx, Kraft Heinz and Gildan Activewear. Shares of all three companies fell at the time of the report, but researchers warned that no decisions would be made due to minor events.

In total, investors haven't heard 88 stories about companies failing to meet their climate targets and their prices are changing immediately. Share prices are also not affected by companies meeting their targets or remaining stable. The answer is less clear, the paper finds.

Researchers also analyzed commercial products to see whether the advantages and disadvantages of climate targets could be balanced. In other words, if different investors react differently to the release of profits, researchers will see an increase in trading volume. Investors appear to be stepping back as analysts do not view the economy as unusual.

The fact that we did not see any trading volume after the results were announced supports the concern that investors will not use the information provided or their findings to provide important information. "No problem."

Additionally, the fact that the company's environmental score has not changed much after failing to meet its target of reducing emissions by 2020 shows that environmental monitoring by rating agencies does not penalize companies for missing targets.

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Although the media do not report on most failures to meet climate targets, they tend to report on companies that report emissions targets. For example, Microsoft's proposal to become carbon neutral by 2030 made headlines. According to reports, 3,904 companies have set emission reduction targets by the end of 2022.

Conflict in advertising can lead to security: Companies can advertise brands knowing they will not be held responsible, Lu said.

Rain or shine, there has to be a statement.

The problem, he said, is that corporate climate reporting is optional in many countries, and when there is no obligation some companies choose to stay silent rather than deny the bad news. To change the situation, companies need to report their climate performance the same way they report their financial health, Lu said. “There needs to be a statement, come rain or shine,” he said. - This will allow outsiders to review the company's progress. -

The United States will apply soon. In early 2022, the U.S. Securities and Exchange Commission proposed a security alert for publicly traded companies. Final regulations are expected to be made next year.

Currently, Lu said that the company has announced the release date of the profit target in advance, similar to the profit announcement. When companies lose sight of their goals and publicly admit their failures, this encourages investors, analysts, and the media to give them some credit for their claims.

In a world of voluntary reporting, he said, companies "may be better off not setting targets." - We don't want to prevent this. We don't want companies that fail to provide transparency to have problems. "