When it comes to corporate climate action, a single policy is not enough

Climate-conscious investors should consider supporting companies with a wide range of climate policies, rather than companies that pick out specific individual policies, according to a study published on November 13, 2024 in the open access journal PLOS Climate by Lena Klaaßen of ETH Zurich, Switzerland and colleagues.

Policymakers view the private sector as an important influence on climate action. As investors become increasingly interested in effective climate strategies, they are expected to redirect their capital towards companies with promising climate policies. Over time, more and more companies are publicly announcing their climate policies, but limited research has examined the relationship between corporate climate policies and tangible improvements in company-wide greenhouse gas emissions.

In this study, Klaaßen and colleagues collect policy and emissions data from the CDP dataset for more than 1,700 companies that made their climate policies public between 2010-2022. Some companies reported one climate policy, while others reported a range of policies targeting different areas, including emissions targets, financial incentives and monitoring standards. The data shows that individual climate policies show no clear link to reduced emissions, but companies with a comprehensive mix of policies show emissions reductions of more than 20% on average over the period studied.

These results suggest that individual corporate climate policies have limited value to policymakers and investors interested in supporting climate action. Instead, the data indicate that policy decisions and disclosure mandates should focus on bundles of complementary policies. The authors note that further research will be needed to assess the effect of corporate policies compared to local government regulations, as well as the reliability of corporate reporting.

Ms Klaaßen added: “Our research suggests that while individual corporate climate policies provide limited insight into companies’ climate performance, a comprehensive policy mix shows a stronger link with lower absolute emissions. These findings highlight the value of comprehensive climate information to help investors identify companies with credible emissions reduction efforts, while also cautioning against relying solely on disclosure to effectively redirect capital flows.”