Win-Win Is Not Winning Enough These Days
How to Accelerate Corporate Decarbonization
A rash of recent reports are sounding the alarm about greenwashing. The basic argument is that companies are intentionally trying to fool the public by exaggerating their decarbonization progress, thereby squandering our opportunity to actually achieve the net-zero emissions the world so badly needs.
Want to know our take?
Concerns over greenwashing are generally overblown.
What the critics get right is that most corporate decarbonization efforts are behind schedule. This is a big deal. Voluntary climate initiatives by the private sector are an important part of the overall strategy to address the climate emergency, so it’s important to bring these delays to light.
But the delays don’t mean fraud. Most companies that have pledged to reach net zero are sincere about wanting to pull it off. They’re just finding it difficult to do so in commercially viable ways.
Our ask to environmentalists and business leaders: rather than debate greenwashing, please focus on a more important question — how can we accelerate corporate efforts to reach net zero?
But first, let’s recap how we got here.
A Quick History of the Win-Win Strategy:
Starting in the early 2000s, many climate-concerned business people (myself included) began encouraging companies to pursue “win-win” environmental opportunities.
Our notion was that environmental initiatives did not have to be loss leaders – they could yield both business and environmental returns. Hence win-win.
It also meant that investors and other stakeholders (including environmentalists) should support these actions because they would be in everyone’s best interest.
How exactly would companies find these win-wins? By seeking out environmental initiatives that also boost revenue, cut costs, reduce risks, rally stakeholders (i.e., shareholders, customers, employees etc.) or improve business outcomes in some other way.
This was and remains a very good strategy. But it was never meant to represent the entire solution for private sector environmental challenges.
Ambitious environmental strategies are challenging and expensive. This point may seem obvious, but it's important to make. Corporate efforts to achieve positive environmental outcomes like decarbonization often:
reduce profits (at least in the short-term)
raise costs
require large capital outlays
lengthen time horizons
pose big risks, and
sometimes even require that companies ditch important lines of business.
That doesn’t sound so win-win, right?
Fast forward to the 2015 Paris Climate COP. Developed nations concluded that their top climate priority would be to attain net-zero carbon emissions by 2050. Everyone agreed that companies should try to do the same. So, leading companies around the world — encouraged by various NGOs — started making pledges to reach net zero 25 and 35 years into the future (2040 and 2050). And as progress on the policy front continually lagged, the pressure on business to move forward on its own only grew.
All of this is fine of course. It is absolutely appropriate to ask the private sector to lead on the global net zero campaign. But we shouldn’t act like there was ever a fully developed “theory of change” on exactly how companies could reach net zero.
Rather, the implicit thinking seemed to be something along these lines:
We have time (i.e., until 2050) to figure this all out. Public policy will likely improve over that timeframe and provide much of the support and momentum we’ll need. New technologies should emerge too and they will keep lowering the costs of decarbonization. And customers and investors will help by insisting that this progress happen and rewarding companies who lead.
To be sure, much important progress along these lines is, in fact, underway. But for most companies to reach their decarbonization goals on schedule, we will need to see a dramatic acceleration.
How Do We Improve Corporate Efforts to Reach Net Zero?
There are two main actions we think will help most:
Advocate for Better Public Policy (i.e., Mandatory Rules).
This is — and likely always will be — the top priority. We can’t rely primarily on voluntary efforts. This is too important. We need regulations and public policy to solve collective action problems and achieve what voluntary strategies are not likely to accomplish on their own. For example, we need some combination of:
regulations to limit fossil fuel use (i.e., carbon tax, methane leakage rules)
mandates to accelerate the clean energy transition (i.e., EVs, building and appliance codes)
tax incentives (for clean energy, storage, EV charging)
government-funded R&D (to achieve breakthroughs in affordable green hydrogen, ccs, clean steel/cement)
procedures to streamline and accelerate investments in clean energy infrastructure (i.e., transmission lines)
requirements for better corporate disclosures
border adjustment taxes (so that carbon policy doesn’t just send corporate climate polluters abroad).
Public policy is difficult to pass, particularly in these fractious times. But it is still the most critical need. The recently enacted IRA bill, which does a lot — mainly through subsidies and tax incentives — to make clean energy cheap energy, is a huge step forward on this front. Expect announcements of major deals and investments as companies start taking advantage of the new opportunities the bill generated. But we can't let up in pursuing more policy wins at all levels of government.
For those of you who want to keep your focus on companies, that's fine. With an eye on public policy, do the following:
Push companies to disclose more clearly what policies would allow them to speed up progress. Push them to advocate for such policies.
Raise hell when they oppose smart policy.
Ask them to push back strongly when their industry groups campaign against policies we need.
Encourage them to take full advantage of the many opportunities the IRA bill offers, even if that requires longer investment horizons and entering new lines of business.
Advocate for “Quasi” Public Policy (i.e., Voluntary Rules).
Unfortunately, it's very difficult to get necessary public policy enacted now. Politics seem to be broken. We shouldn’t despair, and we certainly shouldn’t give up. This work should remain the top priority. But what else should we do in the meantime? Our advice is to do everything we can to make voluntary guidelines work more like official regulations.
Take corporate customers, for example. They can push and/or help suppliers to decarbonize, almost like a regulator might do. We’ve written before about how Apple and Walmart are using their clout as huge and important B2B customers to push hard for decarbonized supply chains. If they’re willing to push hard enough, this will feel like regulation to their suppliers.
Our ask to the corporate leaders here is to disclose more about how this supply chain management effort is going. That way we can encourage other big B2B customers to do the same with their supply chains. This could scale nicely. But we first need to know more about exactly what is going on. Corporate customers can also signal more clearly that they need, and will pay premiums for, critical emissions-reduced products (like green steel, for example).
Retail customers can also help by rewarding climate leaders with greater loyalty or by paying higher prices. Take Patagonia: they have long stood as one of the leading climate-addressing companies. They've now gone much further by restructuring so that all future profits will be donated to environmental NGOs. If climate-concerned consumers reward Patagonia by shifting all of their germane purchases to the company, that will get the attention of other companies in the field and encourage them to step up their own climate initiatives. Consumers can also recognize companies like Apple and Walmart to reward them for their supply chain leadership. We need to show the private sector once and for all that climate-concerned customers will favor true leaders.
Institutional investors have an even bigger opportunity to augment corporate climate strategies by stretching what “winning” really means. Many of the big fund complexes have already done a lot by strongly encouraging companies to make long-term net-zero pledges. Many big fund complexes have said (or have come close to saying) that they will only invest in companies that make net-zero pledges. That almost feels like a regulatory requirement to a company. And companies have responded.
But now we need specific guidance by actual fund managers (not fund company CEOs) for the companies where they are investors. What should the companies do more of? What should they do less of? Will investors support long-term climate-abating investments even at the expense of near-term returns? Are investors in favor of companies offsetting their emissions by making carbon removal investments? If so, how far should they go? Should companies define winning differently now in the context of the climate emergency?
The most important thing is for investors to speak up loudly. CEOs need to know the extent to which you really support decarbonization. (We at The Instigator have been known to peruse the transcripts of corporate earnings calls in our free time. It’s clear that investors and analysts are beginning to ask more questions about climate topics, but there is still a long way to go).
Other Ways to Accelerate Decarbonization Efforts:
Improve Corporate Climate Disclosure.
What often gives rise to greenwashing allegations are ESG reports that, even when well intentioned, tend to be slick and self-congratulatory while thin on actual details about what is being done and/or achieved. This is exactly the wrong way for companies to proceed.
Our advice: Drop the glitz. Tell the truth. Be humble. Keep it simple and be very clear.
What are your long term decarbonization goals?
What are your annual milestones to measure progress toward the long term goals?
How are you doing against these goals?
What is most difficult and why?
What public policy would help most?
Support Carbon Removal.
There is a lot of noise out there about carbon removal, but we shouldn’t overdo this. Let's not discourage investments in carbon removal (and remember, companies are for the most part making these investments voluntarily). The IPCC has been perfectly clear: We need carbon removal to reach our global net-zero goal. And, of course, the atmosphere won’t know the difference between a ton of emission reduction versus a ton of carbon removal.
True, there have been sloppy carbon projects as well as sloppy oversight of them in the past. We can and must do much better. But critics go too far when they denounce all such projects. We should want companies who can afford to do so to invest in such projects today. Such demand will help this nascent but critical market develop fully.
Employees can have an important voice here.
CEOs and business leaders are listening to them like never before. Use those voices! Speak up. Identify decarbonization opportunities.
And critics, you too are an integral part to this entire process.
You’re making a big difference. Keep holding companies accountable. But if you want the private sector to do things at scale that don’t make business sense under current rules and regulations, then we really do need to change the rules.
Onward,
