This hardline stance is not surprising for oil companies that want the world to use fossil fuels for as long as possible. What’s even more remarkable is that these activists filed similar resolutions year after year, hoping for significant progress, even though they received little support from shareholders. The lesson for many activists bent on forcing American companies to reduce their greenhouse gas emissions is that no matter how legitimate their cause, relying on internal strategies and corporate goodwill will not get you much results. That’s not likely.
If activists want to influence something important, such as emissions of carbon dioxide and other greenhouse gases, their efforts to get policymakers to create regulations, incentives, and constraints that bring companies into line. should be devoted to the political process.
As it stands, even the most high-profile investor activists are doing little to change the status quo. The divestment movement, which relies on 1,550 organizations representing more than $40 trillion in assets committed to divesting fossil fuels, has proven pointless or even counterproductive.
It has failed to achieve its main goal of depressing the stock prices of fossil fuel companies and raising the cost of capital to levels that make investment and survival difficult. A recent study by economists at Stanford University and the University of Pennsylvania concluded that “the effect on the cost of capital is too small to meaningfully influence actual investment decisions.”
Somehow activists overlooked that each stock sold by green investors was purchased by someone with green credentials and less concern for climate change. This alternative could actually increase rather than reduce carbon emissions.
As the California Public Employees’ Retirement System pointed out last year when it opposed California’s divestment bill (which ultimately failed), “the companies in question could easily replace CalPERS with new investors. Investors are less likely to speak out as loudly or consistently as they have in the past.” There is an urgent need to move towards a low-carbon economy. ”
Given the poor track record of divestments, it’s not surprising that so-called impact investors are trying to do something else: influence boards by buying stocks rather than selling them. This has a somewhat good track record, but it’s far from a huge success.
Shareholder preferences may encourage companies to reduce emissions. One study found that companies cut emissions when their holdings in Democratic-controlled public pension funds increased, but not when their holdings in Republican-run funds increased. This suggests that public pressure on shareholders may be only marginally helpful in changing corporate behavior.
Still, the overall track record of such pressures is unimpressive. A study of companies in the S&P 500 Index found that they received the second-highest rating for carbon reduction from CDP (formerly known as the Carbon Disclosure Project, the oldest and largest nonprofit organization that makes voluntary carbon disclosures). Companies receiving (B) have reached the following conclusions: More carbon than others.
Does such a thing ever happen? A separate study of highly polluting companies found that companies are adopting standard practices from the Environmental Good Governance Toolkit, such as recognizing climate change as a business risk, and their progress in reducing greenhouse gas emissions. It was found that there was little or no correlation between In other words, trying to look green doesn’t necessarily mean actually being green.
Compare this with the impact of policy. The 2010 Greenhouse Gas Reporting Program had immediate effect by requiring large emitters to report factory-level emissions to federal regulators. The rule did not mandate emissions reductions. Still, power plants covered by the rule cut their carbon dioxide emissions by an average of 7%. Public pressure was important, but it required regulations that required transparency from all companies in the sector.
Certainly, activism is not useless in all cases. Public pressure through customers and investors can impose costs on companies, even if it only creates stigma or depresses brand value. This could change the cost-benefit analysis and make climate-friendly corporate adjustments worthwhile.
But environmentalists shouldn’t expect large-scale changes. Pressuring the Securities and Exchange Commission to impose corporate emissions reporting rules on publicly traded companies is likely to be far more effective than activist skirmishes with ExxonMobil.