Climate change

Study finds US companies talk cheap about climate change

Compelling academic articles

The Global Research Alliance for Sustainable Finance and Investment is a collaboration of universities committed to producing high-quality, interdisciplinary research and teaching programs in sustainable finance and investment. In this series, we highlight compelling papers presented at the last GRASFI conference, with commentary from a BNP Paribas Asset Management ‘practitioner’.

As the sustainable investor for a changing world, BNP Paribas Asset Management supports GRASFI’s efforts to bring academic rigor to the challenges of sustainable finance and investment. Thanks to its patronage, BNPP AM is able to access cutting-edge academic research on sustainable finance and investment, helping to inform the wider debate. Our goal is to share these thoughts with customers and the industry. Visit the GRASFI conference website.

US companies are circumventing their environmental, social and governance responsibilities by passing their greenhouse gas emissions along the supply chain, according to academic research.

In the newspaper Externalize climate changewriters [1] find that public corporate commitments to a better environment are not what they appear to be, with some companies “reducing carbon emissions in local markets at the cost of increased emissions abroad”.

Analysis of 73,966 company-country-year observations from 1,254 US companies and 178 exporting countries (after merging two key databases for the period 2006-2018) found that instead of truly targeting the transition to net zero as set out in the Paris agreement, companies increase their greenhouse gas emissions as they grow.

However, rather than declaring an accurate representation of their shows, they push the responsibility further down the supply chain.

Outsource pollution throughout the supply chain

The authors cite evidence suggesting that companies maintain a reasonably stable carbon footprint (scope 1 emissions) over time while increasing indirect emissions through suppliers (upstream scope 3) to support business growth and production needs. The increase in indirect emissions generated by suppliers, especially after the Paris Agreement, indicates that pollution is being externalized throughout the supply chain while reducing self-generated emissions.

The document uses Proctor & Gamble as an example. the Natural Resources Defense Council (NRDC) reports that P&G’s commitments to halve pollution by 2030 only apply to Scope 1 and 2 emissions. [2]

The NRDC claims that if P&G were to include all of its emissions from the production of its raw materials to the disposal of its products, its carbon emissions would be approximately 215 million metric tons of GHGs per year. Only 4.3 million would be attributed to Scopes 1 and 2, indicating that P&G’s GHG target only applies to 2% of its total emissions. [3]

Without accounting for Scope 3 emissions through supply chains, companies fail to fully account for the total GHG emissions attributable to their products.

Target emerging markets as emissions sinks

Disturbingly, the document reports that US companies are exploiting poorer countries by taking advantage of weaker legislation to offload GHG emissions abroad.

The authors state: “We argue that less developed countries are more concerned with economic survival than environmental issues and therefore have weaker environmental regulations and weaker social consciousness towards environmental protection. These countries would be cheaper alternatives for companies that face quite intense regulatory and social pressure in the United States.

The paper found evidence that, rather than regulation, stakeholder engagement could be a more effective way to drive positive and authentic environmental behavior.

The paper states, “Our results suggest that companies engage less in carbon outsourcing when they have more concentrated government customers, green corporate customers, and green institutional shareholders. The results support these external mechanisms that underpin corporate environmental policies.

Conversely – and perhaps counterintuitively – the research suggests that companies with overt green credentials and a positive reputation for ESG risk management were motivated to outsource emissions to maintain the illusion of a green credibility.

The authors state: “By maintaining these advantages, companies with higher ESG ratings and more ESG-oriented CEOs and directors face greater internal pressure to maintain their national reputations by moving pollution-intensive production to the environment. overseas through the upstream supply chain.

The authors further find that a firm’s likelihood to invest in pollution reduction activities and its incentive to develop green technologies decreases as its carbon exports increase.

Outsourcing emissions appears to be a faster and cheaper way for companies to manage their own carbon footprint, allowing them to adopt a lean production process to reduce direct emissions domestically and improve profitability.

However, such outsourcing is also associated with an increase in the cost of equity and a reduction in the value of the firm. These companies have a higher reputational risk (measured using RepRisk data). Therefore, investors can attach a carbon premium to the outsourcing risk of these companies.

Fighting greenwashing

To overcome greenwashing, the authors recommend that “environmentally conscious investors and consumers not only carefully consider a company’s Scope 1 emissions, but also all emissions produced by its operations and products. to better gauge how green the company really is.”

They call on policy makers to review their climate change legislation and improve international cooperation. They argue that one country alone cannot solve the climate problem, “even if it can achieve a carbon neutral economy”.

They state, “Our findings call for international commitments among policymakers and other stakeholders to support cost-effective policy actions to mitigate global climate risks and support low-carbon investments. These results could also be useful for nations to revise their climate action plans as defined under the 2015 Paris Climate Agreement and to close the gap between what they have promised and what is needed.

he authors are clear that while investors and governments have an important role to play in both encouraging green behavior and controlling corporate reporting, it is up to the companies themselves to do the right thing. . “Companies must take full responsibility for their climate footprint.”

Thibaut Heurtebize, Senior Research Analyst at BNP Paribas Asset Management, said: “As the sustainable finance sector continues its journey towards net zero, this research is an important reminder of the need to improve disclosure models and/or or estimating carbon-focused business scope 3. emissions.

The references

[1] Rui DaiWharton Research Data Services (WRDS); Rui DuanYork University – Schulich School of Business;

Hao Liang, Singapore Management University – Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI); Lilian Ng, Schulich School of Business, York University; European Corporate Governance Institute (ECGI)

[2] See P&G, you can’t outsource sustainability to

[3] P&G claims that since 2010, it has reduced absolute Scope 1 and 2 emissions by 56% in its global operations through energy efficiency and renewable energy supply; go to


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