Climate Change and the Governance of Corporations

Lessons from the Retail Sector

Rory Sullivan, Andy Gouldson

• Publisher: Routledge
• Year: 2020
• Print ISBN: 9780367497187
• eBook ISBN: 9781000075557
• Topic: Business
• Subtopic: Business General
• Index: Business

Climate change represents the most important environmental challenge of our time. Organisations are responding by implementing governance processes and taking action to reduce their own emissions and the emissions from their supply chains and value chains. Yet very little is known about how these efforts contribute to reducing greenhouse gas emissions (if, indeed, they make any substantive contribution at all) or about how they might be harnessed to deliver more ambitious reductions in emissions.

This book explains when and where particular forms of governance intervention – including internal governance processes and external governance pressures – are likely to impact climate change. From this analysis, it offers practical proposals on the climate policy frameworks that need to be in place to facilitate or accelerate changes in corporate behaviour.

The book is truly global: it focuses on the world's 25 largest retailers (including Walmart, Tesco, Carrefour, Sears and Aldi) and is based on detailed interviews with senior managers from these corporations, and with key global and national NGOs, corporate responsibility experts, politicians and regulators. These interviews provide clear insights into how external governance pressures and actions (public opinion, regulation, incentives) interact with internal governance conditions (management systems and processes, corporate policies, board/CEO leadership) to change and shape corporate actions on climate change and, in turn, the climate change impacts of these corporations.

This book can be used as a core reference for any courses dealing with corporate governance and business strategy, in particular those relating to climate change and to environmental management more generally. It is also of relevance to business practitioners, public policy makers, investors and NGOs interested in ensuring that companies play a constructive role in the transition to a low-carbon economy.

1Introduction

Climate change represents the most important environmental challenge of our time. There is societal, political, investor and corporate understanding that the climate crisis is accelerating, with profound implications for our lives, and the lives of our children and grandchildren.

The role and contribution of business is now central to debates about how we as society act on climate change. Companies emit large quantities of greenhouse gases from their own activities and operations. The goods, products and services that they produce and the behaviours that they encourage or enable have direct implications – which may be positive or negative – for global greenhouse gas emissions. Companies themselves are also affected by climate change. Efforts to reduce greenhouse gas emissions may create opportunities, such as for renewable energy or for new energy-saving technologies. These efforts may result in particular products or services no longer being viable, as a consequence for example of changes in regulation (e.g. taxes and charges on petrol and diesel-fuelled vehicles), in the economics of alternative products (e.g. in many locations, solar and wind power generation technologies are now cost competitive with traditional fossil fuels) or changes in consumer demand (e.g. the rise of vegetarianism and veganism). The physical impacts of climate change bring further challenges; companies may need to invest to ensure that their assets are protected from flood risk and extreme weather conditions, they may need to diversify their supply chains to avoid disruption, and they may benefit from investments made by governments and other companies in flood protection.

In parallel to the growth in understanding of the importance of companies to climate change and the importance of climate change to companies, we have seen a growth in enthusiasm among policymakers and other stakeholders to harness the power and influence of corporations to deliver or support the delivery of societal goals on climate change, as set out in the Paris Agreement on Climate Change. We have seen an upsurge in policy interventions including traditional regulatory interventions such as energy efficiency standards, market-based instruments such as emissions trading schemes and environmental taxes, disclosure requirements such as corporate greenhouse emissions reporting and integrated reporting, and voluntary initiatives such as science-based targets and collaborative investor engagement programmes. Some of these have been focused directly at companies; others have been indirect, focused on changing the incentives provided to companies or enabling other actors to press companies to take action. Some have been mandatory, and others have been voluntary. Some have involved government, whereas others have been led by others (e.g. NGO campaigns, investor engagement, voluntary corporate initiatives).

Some elements of this changing context for the governance of corporations are comparatively well understood. Research on political science and public policy tells us a lot about the influence of different forms or policy or regulation on business behaviour. Research on management and business studies offers important insights into the influence of the structures, systems and cultures that exist within corporations. However, we know much less about the actual or potential influence that other forms of governance can have on corporate behaviour. We know even less about the ways in which all of these different forms of governance interact or conspire to shape the broader climate for the governance of corporations, about the effectiveness of different forms of governance or about the extent to which we can rely on them to deliver social objectives.

Despite how little is known about how these governance mechanisms work (or indeed whether they work at all), we appear to be seeing an acceleration in the rate at which they are being deployed by governments. This acceleration is driven, at least in part, by the desire of many governments to avoid introducing regulation, instead looking to other actors or to companies themselves to fill the regulatory role that has traditionally been played by government. It is also driven by some of the perceived advantages of these new forms of governance: more efficient, lower transaction costs, empowering consumers and other actors, flexibility, speed of implementation.

The consequence is that, in many contexts, we are embarking on wholesale experiments with new forms of governance without really knowing whether, to what extent or under what conditions, they might actually work. Similarly, relatively little is known about the role that corporate action could play in the fight against climate change. There are multiple case-studies of the actions taken by individual companies but limited analysis of the role that could be played by the corporate sector as a whole, or by distinct sectors within the wider economy in the fight against climate change. There is a vague sense that ‘something must be done’ but no clear sense about how companies might be engaged with or of the outcomes that might be delivered through this engagement. Put another way, we are searching for companies to play their role in helping solve the climate crisis, with only the vaguest of understandings of what role they might play, what the limits to their role might be, how we might enable them to play this role, or who need to be involved.

The central question considered in this book is whether, to what extent and under what conditions new forms of governance can ensure that corporations make a fuller contribution to the realisation of public interest objectives, with a particular focus on public interest objectives relating to climate change.

In this book, we focus on a particular sector (the supermarket/retail sector) and the evolution of its response to climate change over a 15-year period, from 2000 through to 2015. This was a period characterised by significant change in the regulatory/policy context within which this sector operated, by significant experimentation and innovation within these firms, and by a dramatic change in the corporate narrative around climate change.

Why retail?

Why is the retail sector important and why is it relevant? There are a number of reasons. Retailers touch the lives of billions of people every day, through the goods that they purchase and provide and through the relationships they have with their suppliers, employees and customers. Retail is one of the most economically significant sectors in virtually every country in the world. Retailers, individually and collectively, have a huge carbon footprint; this comprises both their own direct footprint through their buildings, their logistics and their other infrastructure and the wider footprint associated with the goods that they provide and the manner in which these goods are used, consumed and disposed of by their customers. How big is this footprint? In the UK it is estimated that the sector's own footprint accounts for approximately 1% of the UK's greenhouse gas emissions but that emissions from its value and supply chains could be ten times larger.

The sector is of interest because, despite being comparatively unregulated through traditional forms of government policy, the sector as a whole and individual companies within the sector have made commitments to and delivered substantial improvements in their environmental/carbon performance. The obvious factors that have led to them making these commitments and delivering these changes have included competitive pressures and the need to achieve competitive advantage, the indirect consequences of regulation in other sectors of the economy (e.g. energy sector regulation), consumer pressure and NGO campaigns. But there have also been other factors at play, many of which sit relatively unseen within these corporations; these include the personal motivations and interests of senior leaders within the organisation, internal governance processes that enable or hinder change, and the consequences of building knowledge and expertise within the organisation.

Finally, many companies have characteristics that are similar to those in the retail sector; they have long and complex supply chains, they have extensive interactions with and influence on their customers, and they face relatively little regulatory attention on their environmental or climate change performance. Retailers are both the source and the objects of numerous other non-state governance pressures; they govern themselves, their supply chains and the choices and impacts of their customers, but they are also governed by market conditions, societal expectations, media representations, customer concerns, various private standards and voluntary codes and so on. As such, many of the wider conclusions about how governance processes function within the retail sector are likely to be highly relevant to many other sectors and companies.

An overview of the structure and content of this book

We have divided this book into three main parts. In the first part – Chapters 2 and 3 – we provide a framework for analysing how governance processes might influence corporate practice and performance. Chapter 2 discusses and describes the relationship between the state and the corporation. It discusses the influence and the strength of the influence that the state might exert, and discusses how this has changed and might be changing. It also reflects on the corporation's view on social responsibility and the corporation's own internal (or corporate) governance processes, defines how the corporation might respond to the influence exerted by the state and, in turn, considers the impact the corporation has on society. Chapter 3 extends this analysis to consider the potential influence of other actors (e.g. NGOs), and presents a model of the interaction between external governance processes (or pressures) and internal governance systems. This analysis of the interactions is used to explain how corporations are likely to respond, the actions they will take and the impacts that they will have.

In the second part we present two empirical case-studies, both of which focus on the retail sector. In Chapter 4 we discuss and analyse how the major UK retailers have responded to climate change in the period 2000 to 2015. We analyse the policy and other drivers for action, the internal factors that have affected the corporations’ responses, the actions they have taken and the impacts these actions have had on each company's current and future greenhouse gas emissions. In Chapter 5, we present a similar analysis for the world's largest retailers. We break this chapter down by geography, considering each of the United States, France, Germany, Japan and Australia. The full list of companies we cover is presented in Table 1.1, and we discuss our research process and analysis in Appendix 1.

Table 1.1 List of companies covered

Aeon (Japan) ALDI (Germany) Best Buy (US) Carrefour (France) Co-operative Group (UK) Costco (US) CVS Caremark (US) E Leclerc (France) Edeka (Germany) Groupe Auchan (France) Home Depot (US)

J Sainsbury (UK) Koninklijke Ahold (Netherlands) Kroger (US) Lowe's (US) Marks and Spencer (UK) Metro (Germany) Morrisons (UK) REWE Group (Germany) Safeway (US)

Schwarz/Lidl (Germany) Sears (US) Seven & I (Japan) Target (US) Tesco (UK) Waitrose (UK) Walgreen Company (US) Walmart/Asda (US) Wesfarmers (Australia) Woolworths (Australia)

In the third part, we discuss the implications of our analysis. Chapter 6 discusses the implications for the governance of corporations, asking what lessons we can draw about the design and implementation of policy, campaigns and other programmes directed at driving change within corporations, and about the design and implementation of internal governance processes. Chapter 7 reflects on the specific case of climate change and what the theoretical analysis and empirical evidence tell us about the potential contribution that companies can make to action on climate change, and how governments and other stakeholders can maximise the contribution that is made by companies. In this chapter, we also reflect on how governance mechanisms and processes need to evolve over time, to enable us to respond effectively to climate change while avoiding the risk of being locked in to current business models and practices.

2Understanding the governance relationship between the state and corporations

What do we mean by governance?

At its simplest, governance refers to the ability of any public, private or civic actor to regulate or influence either its own behaviour or performance or those of another. When we look at corporations, this definition recognises that corporations can be governed by multiple forms of government policy, by the actions of private actors such as investors, insurers and trading partners and by those of civic actors such as pressure groups, the media or local communities. The definition also recognises the importance of self-regulation and the influence that the corporate governance structures, systems and cultures can have on business behaviour.

Of course, all of these governing influences have long existed. But in many contexts the governance roles played by actors around and within corporations are evolving. This is especially evident where governments are unwilling or unable to regulate in traditional ways and where private or civic actors are trying to step in to exert influence in different ways.

Why do we need to govern corporations?

Clearly, there are some areas where private and public ...

Table of contents

• Cover
• Half Title
• Series
• Title
• Copyright
• Dedication
• Contents
• List of illustrations
• Acknowledgements
• Acronyms
• About the authors
• 1 Introduction
• 2 Understanding the governance relationship between the state and corporations
• 3 Understanding the relationship and interactions between internal and external governance processes
• 4 Governance and corporate action on climate change: The UK supermarket sector
• 5 Governance and corporate action on climate change: International experiences
• 6 Designing and deploying effective internal and external governance processes
• 7 The implications for climate change
• Appendix 1: Some notes on methods and data
• Appendix 2: About CCCEP and the climate governance beyond the state project
• References
• Index