Why corporates join the Science Based Targets initiative

Abstract

The global wicked problem of climate change forces us to policymaking, implementation, and climate action. In a hopeful attempt to reach the ambitious Paris Agreement goals, science indicates that collaborative action and science-based targets are required. Consequently, the political arena recognizes the importance of actors beyond national governments for collaborative climate action. These non-state and subnational actors could have a great impact on global emissions reductions, but current targets and pledges are often subject to a lack of transparency and greenwashing practices. In addition, current commitments and actions are often too modest in ambition to close the emission gap. As a response, a plethora of International Cooperative Initiatives (ICIs) has arisen. This research focuses on the promising and important role of corporates in non-state climate action, by assessing corporate determinants for participation in the Science Based Targets initiative (SBTi). To date, the SBTi is the most prominent ICI in the corporate landscape with more than 1,500 companies that are committed to science-based targets. Due to its popularity and rapid growth of the initiative, the SBTi evidently contributes to global emission reductions.

With their step-wise process to science-based target commitment, development, and validation, the SBTi promises to prevent ”the worst effects of climate change”. To track the progression of this hopeful promise, a handful of studies have been conducted on the SBTi’s emission mitigation. However, the literature on the SBTi has remained inextensive. Furthermore, why corporates participate in the initiative was unaddressed. This thesis work is pioneering in the sense that it creates a novel, important, and relevant contribution to fulfilling this knowledge gap, by identifying determining factors for participation in the SBTi. Thereby, assessing associations be- tween firm characteristics and SBTi participation, in addition to whether and how these firm characteristics and several motives, reasons, and drivers cause a corporate to participate.

To this end, we have constructed a mixed-method study with a sequential explanatory design that entailed econometric statistical analysis and interviews. The group of corporates selected for the study was the Fortune 500 of the year 2015, which marks the start of the SBTi. We conclude that this research design is a good fit for the type of study which aims to find relations between firm characteristics, motives, reasons, drivers, and SBTi membership, or climate action in general. Mostly because our approach allowed for a more comprehensive picture of relevant factors to participate in the SBTi, compared to extant literature that is often lacking on detailed information due to exploratory designs that assess association rather than causation. We, therefore, want to shed light on the added value of semi-structured interviews in this work and potential future work, despite some of our main limitations of data availability, relatively small sample sizes, and selection bias.

We found that determining factors for corporates to participate in the SBTi relate to the concepts of Legitimacy, Market Success, Social Insurance and Organizational Culture. The latter added an angle that did not seem covered by the concepts derived from previous studies, while this concept became one of the most influential but controversial in management and organization studies. Our findings show that the pressure of stakeholders such as investors, competitors, the U.S. government, employees, end-consumers, and purchasers is an important determinant for corporates to participate; whereby we have shown that joining the SBTi is unexpectedly mainly driven by purchasers rather than end-consumers in the U.S. at this point. In addition, competitive pressures cause a company to join since corporates want to maintain their front-running position, find peer benchmarking important, and are experiencing peer pressure within their sector. Furthermore, a corporate’s perception of internal and external leadership is important in deciding to join the SBTi. In particular, a firm’s strategy and CEO determine whether the corporate wants to be a leader by joining the SBTi or not. On top of that, we found that the presence of a sustainability committee increases the likeliness of a firm becoming a SBTi member since it connects sustainability expertise in the organization that is needed to feed top management so that sustainability decisions can be made.

Interestingly, contrary to our expectations, our results show that corporates in the energy sector are not the most likely to join the SBTi. Albeit those companies are facing impressive stakeholder pressures, they often choose to lobby against future policies rather than set science-based targets. Moreover, we expect conservative corporate culture and the maturity of a sustainability program to influence the decision to join the SBTi. To specify, we believe that conservative corporates, possibly with a mature sustainability program, tend to stick to their system-centric targets and management processes rather than participating in the SBTi.

Overall, our pioneering research outcomes contribute to the inextensive body of academic literature on the SBTi, and it enriches the extant literature on ICIs participation, voluntary initiative participation, and corporate climate action in general. Moreover, the implications of this research are important to policymakers, government, as well as corporates, and the SBTi, in terms of responding to the determinants for SBTi participation. Especially because it is expected that the number of SBTi members will exponentially grow soon, thereby further enhancing the initiative’s prominent character. In addition, we argue that SBTi membership is and will not be a form of corporate greenwashing. We also think that SBTi members will environmentally and financially perform better in the long term, due to continuously aligned targets with science, and growing pressure and recognition of the SBTi by stakeholders.

Our study implies that the SBTi will most likely see a pattern of early adopters, the frontrunners; and late adopters, the followers or the firms that experience difficulties with emission identification. However, one should also be aware that there will be a group of outliers, identified as the corporates that will not voluntarily participate in this initiative, or corporate climate action in general. Yet, it requires global collaboration of the entire corporate landscape to close the emission gap. Therefore, our findings are valuable in the sense that they can aid different stakeholders to develop more effective strategies for encouraging businesses to develop a sustainability agenda. Thereby, understanding what motivates corporates to take climate action is important for policymakers, since the effectiveness of policies also depends in large part on how firms will respond to them.

To reach the tipping point in which companies cannot deny joining the SBTi, we recommend the SBTi to focus on targeting new sectors, firms with conservative corporate cultures, and mature sustainability programs. As well as responding to this expected growth within their own organization and establishing a network of experts and corporates which aids in scope 3 identification. In turn, we advise corporates to join forces that support emission identification and disclosure in comprehensible language. Furthermore, our results encourage corporates to establish an organizational structure that enhances collaborative action and sustainable decision-making, for instance with a sustainability committee and dedicated leadership. Additionally, purchasing companies should use their power to trigger a cascade of science-based targets amongst the supply chain. Moreover, corporates should always lobby for science-based climate policies, even when forms of voluntary climate action are already present. It is thereby up to the government to engage with corporate communities that promote climate policy formation, formulate policies on compulsory emission identification, and join forces with the SBTi to promote the advantages of standardized science-based targets by understanding what truly drives corporates to take voluntary climate action. Following our work, there is abundant room for formulating more detailed policies, investigating additional external pressures that affect corporates to join, and zooming in on each individual sector to account for existing sector differences.