When corporations announce they’ll cut their carbon emissions to help fight climate change, do they stick to the plans they lay out? Not always—and it’s not always obvious when those plans have been changed.
That’s according to recent research by Eun-Hee Kim, Ph.D., a Gabelli School of Business professor who studies the tensions between businesses’ climate pledges and shareholders’ concerns about costs and the bottom line.
While the carbon reduction plans of corporations have been widely studied, “we know less about what happens after companies adopt carbon targets” and how they may adjust them, said Kim, a professor of strategy and statistics.
Carbon Reduction Versus Profits
Companies have been setting carbon emission reduction targets for the past few decades because of pressure from climate-conscious investors, customers, their local communities, or regulators
After taking advantage of “low-hanging fruit” like energy efficiency improvements, companies may have to turn to more expensive efforts, like overhauling their technologies or business processes, Kim said, noting that these practices may eat into profits.
Moving the Goalpost
Faced with pressure to appear environmentally friendly while also controlling costs, companies will sometimes deceptively tweak their targets: while maintaining an “eye-catching” overall goal, like a 20% reduction in greenhouse gases, companies will quietly lengthen the timeline for meeting it, Kim said.
A five-year timeline might become a 10-year timeline, “effectively ‘kicking the can down the road’” and reducing the effort required per year, the study says.
Deceptive Changes
She and a colleague from the University of Vermont examined this practice in a study of 546 firms’ carbon targets from 2011 to 2019. Published last fall, the study showed that this kind of deceptive change was most likely among firms struggling to meet an ambitious target, but also among firms with smaller targets who decide to adopt bigger ones.
And a new study they are conducting casts a wider net, looking broadly at companies who changed their targets, whether or not they were deceptive about it.
Unsurprisingly, it found that carbon emissions grew among companies that relaxed their carbon targets. But, similar to the findings in their earlier study, they found that emissions also grew among companies that strengthened their targets, since they tended to stretch the timeline for meeting them and didn’t face “immediate pressure,” Kim said. Also, these firms didn’t make greater investments in carbon reduction after strengthening their targets.
Aiming for Transparency
Her research shows the need for climate-concerned investors to look closely at a company’s carbon reduction targets and practices, and could inform regulatory efforts aimed at greater disclosure, she said.
Media scrutiny can also be helpful: Her study from last fall found that if media outlets covered controversies around companies’ carbon emissions practices, the companies were less likely to deceptively change their targets.
Companies have recently become less enthusiastic about carbon targets, in part because of the priorities of the Trump administration in Washington, she said. But students’ interest in the topic remains strong, said Kim, who teaches a class in sustainability and business strategy.
“As long as younger generation are interested, I feel that the research around [climate targets]would continue,” she said.
