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May 31, 2023

MNCs fail to align capital plans with sustainability

The World Bank has exposed the outsized role of MNEs in emissions and the lack of investment plans to tackle it. Sustainability is not front and centre.

By Adrian Murdoch

net zero, sustainability, mars bar
Not the healthiest option. Mars Incorporated may be embracing recyclable paper for its namesake chocolate bar, but how sustainable is the business really? (Photo by Chris Dorney via ShutterStock)
  • 157 large global corporations account for 60% of global industrial emissions, with their supply chains responsible for 50% of emissions.
  • Only a quarter of these companies have committed to net zero by 2050.
  • While none have a capital allocation strategy that aligns with net zero.

Let’s admit it, personal choice has very little to do with it. US multinational confectionary manufacturer Mars Incorporated announced that its Mars bars in the UK would be wrapped in recyclable paper rather than plastic starting from this week.

It is an admirable move, but essentially achieves little in the grand scale of things. Rather, the move appears as part of the broader attempt by corporations to push both attention and responsibility of sustainability onto the consumer, away from the little that they are doing. 

“What are you willing to do to help reduce emissions?” was the tagline from a now-infamous advertising campaign from Shell last year. What its directors were prepared to do, was to invest a fraction in renewables than the oil producer was claiming.

Go vegan, fly less and buy your clothes in a second-hand store. Few of the bien pensant would disagree, but as Assaad Razzouk, the Singapore-based entrepreneur and board member of Client Earth, points out in the introduction of his book, Saving the Planet Without the Bullshit: “We are scraping together mere pennies reducing reusing and recycling… while oil companies burn hundred-dollar bills.”

The report published in late May by the World Bank that looked at the effect of multinational enterprises on climate change put this perverse dynamic into focus.

“One of the striking, yet unsurprising, points to come out of this latest World Bank Research… is how a handful of large corporates, and their supply chains, are responsible for the bulk of global industrial emissions,” writes the report’s authors, Victor Steenbergen, senior economist in the investment climate unit, and Abhishek Saurav, senior economist in the finance, competitiveness and innovation global practice, both at the World Bank.

They found 157 large multinational enterprises jointly account for 60% of global industrial emissions. While 10% comes from their direct activities, their supply chains account for 50% of global emissions.

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The report doesn’t name names, instead, it uses data from 157 of the 166 companies identified by the investor-led Climate Action 100+ Initiative. It focuses on those corporations for which supply chains jointly make up most of the world’s carbon emissions and where it could identify full ownership status.

Sustainability: regional climate commitment disparity

The World Bank report finds only a quarter of the companies it looks at have committed to net-zero emissions by 2050. Overall, few of them have a long-term strategy (20%), even less a medium-term strategy (13%) and almost a microscopically small proportion have a short-term strategy (5%) about emissions.

None of the companies have a capital allocation strategy that aligns with net-zero emissions by 2050. “The lack of short-term plans to decarbonise production and supply chains raises credibility concerns about the realism of multi-national enterprises’ (MNEs) long-term commitments,” the report says.

It is worth noting that the figures are very much skewed towards Europe.

The eight countries where more than 75% of its largest MNEs have committed to net-zero emissions by 2050 are all based in Europe. Most of those headquartered in other regions – North America, South America, Africa or Asia – remain uncommitted to net zero by 2050.

Take, for example, Saudi Aramco, the world’s largest oil company and the world’s largest polluter. According to the Climate Action report on the firm, it meets none of the sustainability criteria to be net zero by 2050; short, medium or long-term emissions reduction targets; climate governance or policy engagement; or capital alignment. The firm is responsible for 3.1% of global annual greenhouse gas emissions.

“Cheap talk” and “purposeful misreporting”

A particular problem that the report flags up is greenwashing – as the report defines it, giving an overly flattering representation of a company’s climate actions.

The two particularly pernicious examples that the report highlights are, what it calls, “cheap talk” and “purposeful misreporting”. The former is where companies show climate commitment via public relations initiatives rather than actual climate strategy and targets.

This draws on research by Julia Anna Bingler, a fellow at the Centre of Economic Research at ETH Zurich. Looking at the share of precise versus imprecise climate commitments from 14,584 annual reports of the MSCI World index firms from 2010–2020, she and her team found public support of climate initiatives is associated with more cheap talk.

“Companies may have the incentive to use vague language in their climate disclosures to reduce the risk of being sued for potentially misleading information,” she writes.

The latter example shows the extent to which many companies report their emissions very selectively. Based on the work of Eun-Hee Kim, CSR and sustainability research initiatives fellow at the Gabelli School of Business at Fordham University, and Thomas Lyon, Dow professor of sustainable science, technology and commerce at the University of Michigan Ross School of Business, they looked at the US Department of Energy voluntary greenhouse gas disclosure registry.

This showed that although more than two-thirds (68%) of participants in the programme reported significant reductions in greenhouse gas emissions, they had in fact increased.

While there was some political pressure to conform to sustainability, they conclude firms did so based on the possibility of obtaining emissions reduction credits from the US government.

Companies are still playing at sustainability; there is little sense that they are serious about either emissions or proper engagement.

“The outsized role these companies have acts both as a risk and opportunity to mitigate the worst impacts of climate change, and their ambitions will determine the environmental performance of many countries,” the report concludes.

Until they do so, don’t worry too much about eating a hamburger.

[Read more: Big stakes in polluters belie Vanguard’s climate statements]

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