One response to today’s climate crisis has been a belief that markets and corporate innovation will provide the solution. But is that the case? In a study of five Australian companies over a 10-year period, researchers found that initial bold statements about a commitment to addressing climate change often deteriorate over time, acquiescing to shareholder demands. This process follows three stages: framing, localizing, and normalizing. In the end, relying solely on a market response to the climate crisis might be misguided; increased regulation and a shift in thinking about shareholder primacy may also be in order.



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One response to today’s climate crisis has been a belief that markets and corporate innovation will provide the solution. As business tycoon Richard Branson has proclaimed in 2012, “our only option to stop climate change is for industry to make money from it.” So while businesses are major contributors to escalating greenhouse gas emissions, they are also presented as offering innovative ways to decarbonize our economies. But how much faith can we place in business to save us from climate change?

In a recently published paper in the Academy of Management Journal, we explore how major business corporations translate the grand challenge of climate change into strategies, policies, and practices over an extended period of time. Our research involved a detailed cross-case analysis of five major corporations operating in Australia over 10 years, from 2005 to 2015. Through a detailed qualitative analysis, we examined company reports, media releases, policy statements, and over 70 interviews conducted with senior managers from these companies. During this period, climate change became a central issue in political and economic debate, leading to a range of regulatory, market, and physical risks and opportunities. Each of these five companies were at the leading edge of corporate engagement with this issue.

Despite operating within different industry contexts (energy, manufacturing, banking, insurance, and media), we found a common pattern of response over time: initial statements of climate leadership degenerated into the more mundane concerns of conventional business activity. In other words, talk of addressing climate change because it was the right thing to do eventually became a conversation about how climate change initiatives affected the bottom line. A key factor in this deterioration of corporate environmental initiatives was ongoing criticism from shareholders, the media, governments, and other corporations and managers. This “market critique” continuously revealed the underlying tensions between the demands of radical decarbonization and more basic business imperatives of profit and shareholder value.

Our research found that the corporate translation of climate change involved three key phases. In the first framing phase, senior executives presented climate change both externally and internally as an urgent social and strategic business issue and identified how their businesses could provide solutions. Here, managers associated climate change with specific meanings such as “innovation,” “opportunity,” “leadership,” and “win-win outcomes” while ruling out more negative or threatening understandings like “doom and gloom,” “regulation,” and “sacrifice.” As a global sustainability manager of one of our case organizations argued, “We’re eliminating the false choice between great economics and the environment. We’re looking for products that will have a positive and powerful impact on the environment and on the economy.”

While these general statements of intent acknowledged the tension between corporate and climate interests, convincing stakeholders of the benefits of climate initiatives was never assured. We found that, in response to the framing phase, critiques emerged among stakeholders and customers who felt that organizations’ environmental efforts lacked sincerity or business relevance. In a second localizing phase, then, managers sought to make these initial framings directly relevant by implementing practices of improved eco-efficiency (such as reducing energy consumption, retrofitting lighting, and using renewable energy); “green” products and services; and promoting the need for climate action. Internal measures of corporate worth were also developed to demonstrate the business case for climate responses, including but not limited to savings from reduced energy consumption, measures of increased employee satisfaction and engagement, sales figures from new “green” products and services, and carbon pricing mechanisms. Companies also sought to communicate the benefits of these measures to employees internally through corporate culture change initiatives, as well as advocating the need for climate action to external stakeholders such as customers, clients, NGOs, and political parties.

However, we found that, over a period of years these initiatives attracted renewed criticism from other managers, shareholders, the media, and politicians. In a third normalizing stage, climate change initiatives were eventually wound back and market concerns were prioritized. In this stage, the temporary compromise between the market and social/environmental concerns was broken, as corporate executives sought to realign climate initiatives with the dominant corporate logic of maximizing shareholder value. Catalysts for this change included declining corporate fortunes, new CEOs who promoted a “back to basics’ strategy,” a shifting political context which unwound climate-focused policy measures, new fossil-fuel related business opportunities, and the dilution of climate initiatives within broader and less specific “sustainability” and “resilience” programs. As one senior manager in a major insurance company acknowledged, ‘Look, that was all a nice thing to have in good times but now we’re in hard times. We get back to core stuff.”

Our study highlights the policy limitations of relying solely on market responses to the climate crisis. Today, businesses often operate on short-term objectives of profit maximization and shareholder return. Avoiding dangerous climate change requires the radical decarbonization of energy, transportation, and manufacturing on a scale that is historically unprecedented. Because of these two facts, we need to imagine a future that goes beyond the comfortable assumptions of corporate self-regulation and “market solutions” and instead accept the need for regulatory restrictions on carbon emissions and fossil fuel extraction. We also must reconsider corporate purpose and the dominance of short-term shareholder value as the pre-eminent criteria in assessing business performance.

Our research highlights an inconvenient truth, if you will, for politicians and businesspeople alike: we can’t simply depend on corporations and markets to address one of the gravest threats to our collective future.