OnlySky Quick Take
Snapshots of major issues
Traditionally, the public has viewed corporations as primarily focused on their own profits. And not for nothing: economists have long held the same view. But in recent years, corporations have started thinking beyond their bottom line. Two types of corporate governance programs have made sustainability a larger issue: corporate social responsibility (CSR) and environmental social governance (ESG).
Today, most major corporate and investment decisions are made not just on profit or competitive concerns, but also on the basis of sustainability. Corporations are going to great lengths not to be seen as damaging the local communities and environments they exist in. But are corporations truly serious about sustainability? Or are corporate sustainability efforts just for show?
The shift in corporate sustainability is in large part driven by investors. A recent Bank of America Merrill Lynch survey found that nearly 25% of corporate shares are held by investment firms employing a sustainable investing strategy. Sustainable investment strategies prioritize corporations which have low carbon footprints and do not have a track record of violating environmental regulations. There is growing demand for sustainable investing from pension funds and other asset managers who control large amounts of capital. Corporations have rushed to become more sustainable in part to be able to attract these investors.
Corporate leaders are also responding to a political environment where there is more pressure to use renewable energy and limit emissions. Corporate sustainability efforts are potentially a way for the corporate world to reduce the probability of legal or regulatory changes that could cut deep into profit margins.
This also calls into question how serious big businesses actually are about sustainability. A recent study found that 215 companies in the S&P 500 Index actually had no target for reduced emissions. Certain industries, such as meat and dairy, have been particularly slow to commit to net-zero emissions.
While there are certainly some big name companies embracing sustainability, such as Apple, Google, and Amazon, there are still major questions on whether these efforts will be enough. Climate change isn’t just an American issue, it is an international one. China remains the world’s largest emitter, emitting nearly 2.5 times more than the U.S. in 2019 alone. That means even if American companies were serious about climate change, it will still take international cooperation on the geopolitical stage to get the job done.
There is evidence that corporations are taking climate into consideration now. Profit matters, but corporations understand that they need to show investors, regulators, and the public that they care about reducing emissions. Corporate sustainability might be primarily driven by investors and political concerns, but it doesn’t mean that the changes aren’t legitimate.
Corporate changes are happening, but it is possible they aren’t happening fast enough to keep the planet from warming. There’s also the real possibility that American companies’ reduction efforts are dwarfed by emissions in other parts of the world. But it is safe to say that corporations are making major changes on climate.