Stimulating Corporate Climate Action

Abstract

Corporations’ economic activities put significant stress on the environment. In order to limit global warming to 1.5°C, companies need to significantly reduce their greenhouse gas emissions. However, shifting the responsibility of decarbonisation from being solely on governments to being shared with these companies is only a recent phenomenon. This study therefore explores how more companies can be stimulated to take climate action. To research this, the steel industry is taken as a case study. This particular industry is responsible for a large share of global emissions and includes many non-European firms which have been shown to trail behind their European counterparts considering climate action. The number of companies committing to the SBTi is defined as a quantifiable metric to track the development of climate action in the sector. Initial findings suggest that companies respond vigorously to financial stimulants like carbon pricing. Moreover, it is found that different stakeholder groups can stimulate the decarbonisation of heavy industry in various ways. Firms require certain factors to be at adequate levels before they commit themselves to deep decarbonisation. As such, governmental agencies can play an important role by ensuring that limiting factors like low-carbon electricity are abundant. Financial institutions can furthermore use their position to limit the financial risk for companies willing to decarbonise, while other stakeholder groups can focus on creating awareness and urgency. Altogether, the study results in a novel attempt to develop a useful agent-based model of a business ecosystem in light of the net zero energy transition. Apart from providing insights to stakeholders on how to effectively stimulate climate action, it functions as a foundation for future academic work on this topic.