Climate-aware investors might want to back businesses that implement a variety of climate policies, rather than just those that highlight isolated policies, as indicated by recent research.
Climate-aware investors might want to consider supporting firms that adopt a diverse array of climate policies rather than those that focus on select individual policies, based on a study released on November 13, 2024, in the open-access journal PLOS Climate by Lena Klaaßen from ETH Zurich, Switzerland, and her colleagues.
Policymakers view the private sector as a significant player in combating climate change. As investors become increasingly interested in effective strategies for climate action, they are anticipated to shift their investments toward companies with robust climate policies. More businesses have begun to publicly share their climate strategies over the years, yet there is limited research examining the connection between these corporate policies and actual reductions in greenhouse gas emissions across the entire company.
In this study, Klaaßen and her team analyzed policy and emissions data from the CDP dataset, focusing on over 1,700 companies that shared their climate policies between 2010 and 2022. Some companies detailed individual climate agreements, while others provided a broader range of policies that addressed various aspects, including emission targets, financial incentives, and monitoring standards. The findings reveal that singular climate policies do not significantly correlate with emission reductions, whereas companies with a diverse set of policies enjoyed an average reduction in emissions of more than 20% throughout the study period.
These findings imply that isolated corporate climate policies hold little value for policymakers and investors who are eager to promote climate initiatives. Instead, the data suggests that policy frameworks and reporting requirements should concentrate on combinations of synergistic policies. The authors also indicate that more research is needed to evaluate the impact of corporate policies compared to local government regulations, as well as to validate the reliability of corporate disclosures.
Ms. Klaaßen remarks: “Our research indicates that while single corporate climate policies offer limited insight into a company’s climate performance, a well-rounded policy mix demonstrates a stronger connection to lower overall emissions. These results underscore the importance of comprehensive climate disclosures that aid investors in identifying companies genuinely committed to reducing emissions, while also warning against solely relying on disclosures to effectively channel investment.”
