Author: Elizabeth Glusman | UC Berkeley School of Law | J.D. Candidate 2019 | Posted: December 12th, 2018 | Download PDF
A wave of corporate commitment to reducing greenhouse gas emissions demonstrates the growing vitality of stakeholder theory in corporate governance, and a slow death of Milton Friedman’s shareholder primacy theory. While the formerly-sacrosanct shareholder primacy theory held that the “one and only one social responsibility of business [is] . . . to increase its profits,” companies are increasingly turning their backs on the past. They are affirmatively acknowledging the value in considering a wide array of stakeholders in corporate decision making beyond shareholders, including employees, customers, suppliers, and local communities. With hundreds of companies committing to reducing greenhouse gas emissions to stem climate change, Mother Earth has just become the largest stakeholder in the game.
In January, at the World Economic Forum in Davos, the leader of the Mahindra Group brought that reality front and center when he challenged corporations across the globe to commit to reducing their carbon emissions in line with established climate science. Anand Mahindra, who chairs the $20.7 billion multinational group with a presence in more than 100 countries,[1] committed all of the companies in his group to implement the Paris Agreement by joining the Science-Based Targets initiative (SBTi).[2] The SBTi aims to make science-based greenhouse gas target setting a standard business practice by 2020 to inform management decisions that protect both businesses’ growth and a climate-safe future.[3] At the time Mahindra issued the challenge, 300 companies had already joined the SBTi in order to meet the Paris Agreement’s goal to limit global warming to below 2 degrees Celsius compared to pre-industrial temperatures. He hoped that by the time of the Global Action Climate Summit nine months later, that number would be 500.
As the Global Action Climate Summit concluded in San Francisco, the world’s companies came close to meeting Mahindra’s challenge and largely embraced the planet as one of the most important stakeholders for corporate sustainability management practices. The three-day summit, which took place from September 12th to 14th, served as “a launchpad for deeper worldwide commitments and accelerated action . . . [to] put the globe on track to prevent dangerous climate change and realize the historic Paris Agreement.”[4] The Summit largely focused on decarbonizing the global economy by bringing together governmental and private actors, including scientists, students, nonprofits, and, importantly, businesses.
The role of national and multinational corporations in the Summit cannot be overstated. Anand Mahindra himself co-chaired the Summit alongside governmental and NGO leaders such as California’s Governor, Jerry Brown, and Patricia Espinosa, the Executive Secretary of the U.N. Framework Convention on Climate Change.[5] Sponsors included tech powerhouses such as Salesforce, Google, Amazon, Microsoft, and Facebook.[6] Board executives from companies such as Salesforce, Starbucks, Bloomberg, and BlackRock gave presentations and moderated and spoke on panels. Finally, a number of C-Suite executives came together at a high-level dialogue titled “Businesses Stepping Up with Science-Based Targets” to dispel myths about corporate participation in reducing greenhouse gas emissions.[7]
On the second day of the Summit, an Indian cement manufacturer that emits more greenhouse gases than Japan or Canada, Dalmia Cement, met Mahindra’s challenge and committed to joining the SBTi.[8] By doing so, Dalmia joined over 130 other companies that had also committed to the SBTi since Mahindra’s January challenge. This is almost a 40% increase in the number companies committing to reducing greenhouse gas emissions compared to the same nine-month period last year.[9] According to SBTi, “[c]ompanies representing around one-eighth of total global market capitalization are now using climate science to define their future direction of travel and align themselves with the goals of the Paris Agreement.”[10]
The wave of corporate commitment to climate explicitly acknowledges the growing role of businesses in environmental stewardship and demonstrates a marked shift away from companies’ former short-term focus on shareholder profit. Companies pledging to reduce greenhouse gas emissions signals another important shift: broadening the scope of “stakeholders” considered in corporate social responsibility efforts to now include the planet. By focusing on climate change, companies serve not only the local communities they directly impact, but also protect Earth’s environment and natural balance. Forests, rivers, and oceans far beyond the reaches of an individual company’s physical presence are implicitly being added to the stakeholder equation. It is no doubt that orienting corporate governance to help stem climate change may improve a company’s bottom line and/or public image. But, more importantly, including the planet as a key stakeholder will empower companies to be increasingly aggressive in their environmental stewardship. By implementing bolder strategies, companies will learn the most efficient and effective ways to reduce their negative impacts on the environment at large, anf improve the bottom line for their shareholders as well as stakeholders across the globe.
Endnotes:
[1] Mahindra, About Us, http://www.mahindra.com/about-us (accessed Sept. 19, 2018).
[2] We Mean Business Coalition, WEF: Mahindra challenges all companies to set science-based targets, Jan. 26, 2018, https://www.wemeanbusinesscoalition.org/blog/wef-mahindra-ceo-challenges-companies-set-science-based-targets/.
[3] Science-Based Targets, What is a Science-Based Target? https://sciencebasedtargets.org/what-is-a-science-based-target/ (accessed Sept. 19, 2018).
[4] Global Climate Action Summit, About the Summit, https://www.globalclimateactionsummit.org/about-the-summit/ (accessed Sept. 19, 2018).
[5] Id.
[6] Global Climate Action Summit, Sponsors, https://www.globalclimateactionsummit.org/sponsors/ (accessed Sept. 19, 2018).
[7] Global Climate Action Summit, Program, https://www.globalclimateactionsummit.org/program/ (accessed Sept. 19, 2018).
[8] Global Climate Action Summit, Surge in Global Business Embracing Climate Science to Navigate Low-Carbon Transition, Sept. 13, 2018, https://www.globalclimateactionsummit.org/surge-in-global-business/.
[9] Science-Based Targets, How high-emitting sectors are embracing climate science to build a low-carbon future, Sept. 13, 2018, https://sciencebasedtargets.org/2018/09/13/how-high-emitting-sectors-are-embracing-climate-science-to-build-a-low-carbon-future/.
[10] Id.