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Can corporate greenwashing be proven empirically? Maybe.

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Can corporate greenwashing be proven empirically? Maybe.

In a first-of-its-kind global assessment, researchers found that having a sustainability board or an official climate-change initiative has little effect or even worsens a company's carbon emissions.
February 28, 2023

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About 80% of corporations analyzed in a new study of greenhouse gas emissions have a board sustainability committee. The presence of such a committee tends to increase a company’s market value – but it has little effect on greenhouse gas emissions, the study revealed.

Businesses are under increasing pressure to address their contribution to climate change. Board sustainability committees and initiatives to change corporate practices with the aim of reducing greenhouse gas emissions have become common strategies to do this. But there hasn’t been much research on how effective these strategies actually are. The new findings suggest that too often, they basically amount to greenwashing.

To reach that conclusion, researchers gathered information from various existing databases on corporate climate-change initiatives, the presence or absence of board sustainability committees, greenhouse gas emissions, and market value for 592 firms operating in 35 countries between 2002 and 2019.

They used a mathematical model to examine the interrelationships among these various factors – the first study to comprehensively do so. It’s also one of the first studies to analyze corporate responses to climate change at a global scale.

The largest amounts of data come from firms in Japan, the United States, and the United Kingdom. The industrial, materials, and consumer discretionary sectors are the most heavily represented parts of the economy.

“The yearly average of carbon emissions shows a declining trend from 2003 to 2005 and from 2007 to 2010, followed by a stable pattern between 2010 and 2014, and again a further reduction from 2015 onwards,” the researchers report in the British Journal of Management. The prevalence of corporate climate-change initiatives has increased over time.

 

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Companies with higher greenhouse gas emissions also tend to have lower market value, the researchers found. That’s a signal that the market looks askance at firms that don’t rein in their climate impact.

Firms with corporate climate-change initiatives tend to have higher market value. So do firms with board sustainability committees. In other words, the market smiles on companies that are doing something about their climate impact.

But here’s where things go sideways. Companies with corporate climate-change initiatives also tend to have higher levels of greenhouse gas emissions, the researchers found. And the presence of a board sustainability committee has little effect on greenhouse gas emissions.

“Overall, our evidence supports the symbolic legitimation/greenwashing view, in that firms are likely to employ process-based climate change initiatives under a symbolic approach to create positive impressions among stakeholders and protect their legitimacy,” the researchers write.

But public policy and regulations can help nudge corporations from performative to substantive climate action. The researchers found that companies with high greenhouse gas emissions take a bigger hit to market value in countries that are part of the European Union’s cap-and-trade system than in other countries. And companies operating under the EU’s cap-and-trade system tend to have lower emissions overall.

To increase and extend these benefits, regulators and policymakers could develop guidelines for corporate climate-change initiatives, standards for reporting on corporate greenhouse gas emissions, and mandatory targets for emissions reductions, the researchers suggest.

Source: Orazalin N.S. et al.Board sustainability committees, climate change initiatives, carbon performance, and market value.” British Journal of Management 2023.

Image: elkhiki via Flickr.

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