The answer is pretty obvious. Without enforced governmental regulations, most companies are unlikely to incur serious extra costs to push forward environmental goals. Simply, they do not want to be placed at a disadvantage against competitors. If environmental costs make their products more expensive, unless they are on a level playing field where their competitors are equally challenged, very senior managers are unlikely voluntarily to pay for environmental upgrades if their share price falls. Large, heavily polluting companies, particularly in the world of fossil fuels, are more likely to spend money on flashy but ineffective environmental programs with glitzy “green” public relations campaigns than they are at repenting and fixing their sins.
For example, Chevron’s public statements show a full commitment to reducing their carbon footprint, embracing the policies set out in the Paris climate accords, and stating underlying goals to implement its program. But some – like AwakeCanada.org (Robert Kennedy writing on 4/13/21) – are basically telling us that Chevron is simply “greenwashing” its behavior without truly making inroads towards its stated environmental goals: “According to an analysis by Richard Heede published by The Guardian in 2019, Chevron is responsible for more carbon emissions since 1965 than any other investor-owned fossil fuel company… In early March [2021], Chevron announced new climate goals and published a new climate report, which said Chevron intends to reduce its global warming emissions by about 5% over the next seven years. Underwhelming to say the least.
“No wonder my colleague Nicole Pinko says Chevron is in a fight for second-to-last place with ExxonMobil on climate action… And in its new Net Zero Company Benchmark, the investor-led Climate Action 100+ initiative found that Chevron met none of the criteria related to net-zero ambition by 2050 or short-, medium-, and long-term emissions reduction targets toward that aim.
“While Chevron’s climate actions are decidedly understated, its climate ads are dangerously overstated. That’s why Earthworks, Global Witness, and Greenpeace USA, represented by Richman Law and Policy, filed a greenwashing complaint to the Federal Trade Commission against Chevron.
“The complaint argues that Chevron’s ads are unlawfully deceptive because they overstate the company’s investment in renewable energy and its commitment to reducing fossil fuel pollution. The groups are asking the commission to require Chevron to remove the ads, refrain from placing similar ads in the future and face relevant penalties.” But while Big Oil is an obvious target for those seeking to stem climate change, what might not be so apparent is that even companies founded with a genuine “green mandate” also succumb to pulling back environmental processes under pressure to report profits, even if that means accepting the very pollution-elimination mandate upon which they were built.
Yale School of Management Accounting/Finance Professors Jacob Thomas and X. Frank Zhang, noted in the October 5th Yale Insights, discovered some surprising practices: “The short-term pressure on companies to hit quarterly and annual earnings targets can drive their leaders to acts of desperate accounting. It’s called real earnings management, or REM—companies might cut prices to increase sales, slash advertising or research and development budgets, or attempt various other financial maneuvers in an effort to meet or beat their targets.
“The factors fueling this desperation are no mystery. Companies receive swift and harsh market punishment when they report a miss. In April, Amazon announced a first-quarter revenue figure that narrowly missed consensus analyst estimates, and its stock price promptly dropped by 10%.
“A growing body of research suggests this short-term-fixated accounting can be harmful for firm stakeholders, like investors and employees. [Zhang and Thomas] suspected that the detrimental impacts of real earnings management might extend all the way into the physical environment… In a new paper, Zhang, Thomas, and their co-authors—Wentao Yao of Xiamen University and Wei Zhu of the University of Illinois Urbana-Champaign—investigate whether the short-term threat of missed earnings targets can override companies’ long-term efforts to reduce their pollution.
“The researchers’ analysis of records from the EPA’s Toxic Release Inventory database revealed that, indeed, firms significantly increased toxic chemical pollution in the years when they just barely hit annual earnings targets, suggesting that they cut back on pollution-abatement measures as part of a larger effort to shunt funds from the costs column to the earnings column in close-call years.
“But in a twist that surprised even the researchers, it turned out that the companies most likely to increase pollution when faced with a possible missed earnings target were those companies rated most environmentally responsible overall. In other words, companies with a recognized long-term focus on their own environmental sustainability were especially likely to cut corners to serve their short-term financial goals… ‘Many hope that this type of long-term focus would curb managerial short-termism, and our paper shows that it’s not going to help,’ says Zhang. ‘When companies want to meet or beat short-term earnings targets, they will pollute more to do that.’” It can be pricey to implement emissions containment, retooling and recycling.
Yes, it’s unfair to narrow-focus the climate crisis-blame on Big Oil, even if they are an obviously large and appropriate target. But as we are witnessing during the soaring cost at the pump promulgated by factors like Putin’s war, the resulting sanctions against Russian oil and gas production and the OPEC reduction of 2 million barrels of oil output a day, governments facing political pressure are quite willing to look the other way to increase oil and gas output, even as greenhouse gasses necessarily increase. The problem is that voters are focused on here-and-now-bread-and-butter issues even as the costs of leaving climate change uncontained is massively destructive. Hurricane Ian was just one more in a litany of mega-disasters caused or exacerbated directly by climate change.
Yet as traditional polluters are enjoying double and triple increases in their annual profits because of these temporary anomalies, taxing those companies’ windfall profits – and using that money in lieu of gasoline/diesel taxes, even on a temporary basis – would seem obviously more effective in easing inflation without sacrificing environmental regulations. Emissions are now existential threats to humanity itself. We have run out of excuses to implement the rich-job-creation opportunities in alternative energy… and those politicians who still marginalize or deny climate change need to be shoved out of the way.
I’m Peter Dekom, and GOP lockstep votes against serious climate change containment and easing our emissions restrictions when it become expensive or inconvenient, are a recipe for more mega-“natural” disasters that will cost us all so much more in the immediate future.
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