Many companies talk big about cutting down on climate-warming emissions, but, just like how most people struggle with keeping New Year’s resolutions, these plans often don’t pan out.
Even when companies boast about their green initiatives, many end up missing their climate goals without much notice from the media. A study from Harvard Business School found that companies don’t face much consequence when they fall short of their environmental targets. Investors and rating agencies, who usually keep an eye on a company’s overall performance, don’t seem to penalize them for not meeting these goals.
Reducing their load
Big companies together pump out a huge amount of greenhouse gases. They’re under pressure to commit to reducing these emissions to tackle the global threat to the environment. For context, in 2016, experts estimated that if every company in the S&P 500 wiped out their emissions, it would be like canceling out all the emissions from France, Germany, and the United Kingdom combined.
When it comes to financial performance, companies get held to their promises by the market. If they don’t meet expectations, investors might sell their stocks, which can hurt the company’s value, and even lead to executives losing their jobs. But when it comes to climate goals, it seems like companies are getting a pass for falling short.
On the flip side, companies that fell short of their climate goals for 2020 didn’t face similar consequences. This makes it too convenient for companies to talk big about their ambitious goals without facing any real consequences for not meeting them – what the researchers call a lot of “cheap talk.”
Missing the mark
To figure out which companies missed the mark in 2020, the research team analyzed data from the CDP, a nonprofit with a huge collection of companies’ climate disclosures. They pinpointed 1,041 companies responsible for a whopping 2.5 billion tons of greenhouse gas emissions. On average, these companies pledged to cut emissions by 3 percent per year as their 2020 targets.
The researchers then checked whether these companies actually achieved their goals by looking at their CDP reports, corporate press releases, and sustainability reports. Out of the 1,041 companies, 721 gave updates on how they did against their 2020 targets. That means 31 percent of these goal-setters basically went silent. Interestingly, many of these silent companies were already falling behind on their targets, and the media didn’t say a word about them.
Of the 721 companies that reported their progress, 88 didn’t meet their 2020 goals. However, the media only picked up on three of these companies: FedEx, Kraft Heinz, and Gildan Activewear. Their stock prices took a hit around the time of the coverage, but the researchers caution against drawing strong conclusions from just a few cases.
Lack of interest
Overall, investors didn’t seem bothered by the 88 companies that missed their climate goals. Their stock prices didn’t budge right away. Interestingly, stock prices didn’t react much to companies that met their goals or stayed silent either. The paper suggests that the overall reaction was pretty indifferent.
The researchers also checked stock trading volume to see if different investors had varied reactions to climate goals. In simple terms, if some investors liked or disliked how companies were doing on their emissions targets, you’d expect to see more trading. However, investors seemed to shrug off the outcomes, as there was no unusual increase in trading volume.
Moreover, when companies failed to meet their 2020 emissions reduction targets, their environmental scores didn’t see significant changes. This indicates that environmental rating agencies didn’t penalize companies for falling short of their goals either. In essence, the lack of consequences suggests that there was little impact on how these companies were rated in terms of their environmental performance.
“In a voluntary-reporting world, firms that set targets are likely better than those that don’t,” the authors conclude. “We don’t want to discourage that. Those that failed and then provided transparency, that’s good—we don’t want them to go dark.”
