Should companies or individuals bear the burden of the green transition?

The green transition will be costly. Investment in green technologies, transitioning our supply chains and our production to sustainable, local processes, and shifting our energy dependencies take time, resources, and money. When governments and international bodies set climate goals and commit to certain targets, they must translate these goals into policies and concrete actions that actors in society will follow. One important question for effective policymaking is who these policies should target. Who’s actions have the power to spur greater change?

On one hand, companies as legal entities are responsible for far more pollution than any average citizen. The leaders of big companies effectively make decisions about how the company produces, transports, and sells its goods. All of these processes cause large pollution. This could be smoke from factory chimneys or CO2 emissions from shipping products around the world. Comparatively, the everyday actions taken by an individual going about their day. Choices like taking the bike instead of the car wouldn’t have the same massive effect that a large company decided not to use fossil fuels in their production would. It would require much more complex communal action for individual consumers to create the same emissions reduction that one company could create with single top-down decisions.

On the other hand, companies are partially beholden to the wants of the consumer. At its core, the basic goal of a company is profit. If consumers change their habits and thereby demand and prioritize sustainable products, it becomes profitable for companies to cater to these wishes and shift to sustainable production. This logic assumes that consumers won’t fall for attempts to greenwash products, but also that it is possible to make individuals change their daily habits at a mass scale.

Motivating actors to take action on climate change is another complex issue. Some actors have more intrinsic motivation than others because climate change directly affects their livelihood and existence. For example, farmers all over the world are facing more extreme heat and weather events, and in general, see their yields dwindling every year, so their very jobs are endangered by the effects of climate change. The severity of these consequences varies with the country's general financial stability. If the local government can subsidize farmers or help fund their adaptation to difficult weather, they will be less vulnerable than farmers in poor and developing countries who have no additional support when their crops fail.  

In contrast to this, sometimes, climate change policies may threaten people’s livelihoods. Traditional “blue collar” workers like miners, manufacturing workers, and transportation employees may see their jobs as being sanctioned, outsourced, or reduced as part of the green transition. When we outphase dependence on fossil fuels, everyone who works in the fossil fuel industry must also be relocated into different sectors. This is easy for highly evicted individuals, but for the people working unskilled manual jobs in these fields,  they can lose their entire livelihoods and risk long-term unemployment. This is a common reason for climate scepticism and objection to climate policies, and thus something politicians and climate activists must consider when deciding what the green transition should look like. 

Companies are inherently profit-motivated. If climate change is threatening their profits. Extreme weather events, such as hurricanes, floods, and droughts, can damage infrastructure and disrupt supply chains. For example, a company that relies on agricultural products may face shortages or price increases if crops are damaged by drought or floods. However, this doesn’t necessarily mean that these companies will shift towards more sustainable options, they might opt for cost-saving in other ways, such as firing employees to cut down on wages. Pushing them towards a sustainable direction might thus require political incentives, for example through setting mandatory emissions reduction goals for companies, etc.  

Some argue that it is not only about the power to create change but about who has greater responsibility for climate change. Inevitably, climate change policies will affect both companies and trickle down to individual consumer behavior, the question is, who should fund these expensive changes? The taxpayer or the bottom line of big companies? This line of argument assumes a moral aspect to climate change action, not just a practical one. It is a principled argument, that those more responsible for the mess, ultimately should clean it up. Companies, through their collective decision to emit greenhouse gasses, have contributed significantly more to emissions, with the top 20 companies being responsible for 35% of all CO2 and methane emissions since 1965.

This alone can be used to justify climate policies targeting companies rather than individuals. This logic of responsibility could also be turned on individuals. The aggregate effect of habits like overconsumption are key drivers of climate change. Without changing these habits the green transition becomes significantly more difficult. In the end, it is a chicken and egg question. Are companies’ unsustainable practices driven by the habits of individuals, or are individuals led to their unsustainable habits by profit-driven companies trying to minimize costs and maximize sales?

One of the most important contemporary debates within the business world is that of stakeholder vs shareholder capitalism. Shareholders are the people who own stocks in a company. By buying these, they own a tiny part of the company and are thus directly invested in its success. By comparison, stakeholders are all individuals or groups that are affected by or can affect a company's actions, decisions, and overall success. This includes not just shareholders, but also employees, customers, suppliers, communities, and the environment. In other words, the community around a company that they rely on for their functioning. The customers who buy their products, the infrastructure provided by the government which they use to transport these products, and the earth and environment give them the resources to create these products.

This debate is about the fundamental purpose of a business. Those who argue that it is to create value for its shareholders by creating as much profit as possible poses that this is ultimately good for the stakeholders too. A profitable business provides jobs, pays taxes, and has money to invest in the development of better, more sustainable technologies and products that better the lives of consumers. They also argue that sustainability is ultimately as profitable as destroying the natural resources that a company depends on is short-term and bad for business.

Proponents of stakeholder capitalism argue that companies have a greater responsibility and duty to care for the environments that make their business possible in the first place. Shareholders ultimately only reflect a tiny portion of stakeholders, so what is good for them is not always good for all. When faced with a situation where shareholder and stakeholder interests do not align, a shareholder business will always choose the shareholders, to the detriment of the environment and other citizens. 

Game theory is a way of studying how people or groups make decisions when their choices affect each other. In the context of climate change, game theory can help understand how different actors decide whether to take action on reducing emissions or not. Ultimately everyone wants to benefit from others reducing emissions without making sacrifices themselves. Climate change policies are expensive, but if everyone else implements them, one company or country can choose not to do it, and benefit from the reduced emissions of others. This is called a "free-rider" problem. The idea of game theory is that acting alone, in your own corporate or individual interest, can lead to worse outcomes for all, similar to how individual choices in a game affect the group as a whole. Game theory shows that cooperation, like international agreements, is needed to ensure everyone contributes fairly. Tackling climate change is thus a problem of coordination. The different incentives of all the actors do not align naturally, and coordination policies and laws are thus needed to ensure everyone acts in the interest of the group, which is also in their own long-term interests. 

This is an ethical theory that advocates for actions that result in the greatest good for the greatest number. In the context of the green transition, it can be used to argue that companies, with their larger impact on emissions and resource use, should bear the greater burden as this would lead to more substantial overall benefits. This can be related to the concept of the Capability Approach. This framework emphasizes that the responsibility for action should fall on those with the greatest capacity to make a difference. This often points towards companies, as they generally have more resources, technology, and influence to drive significant changes compared to individuals.

Is it fair for national governments to mandate that private, often multinational companies pay for specific policies with their profits? This relates to both the framework of responsibility, and capability, that you analyze the situation through.

Are individuals more motivated by laws and regulations or by intrinsic beliefs?Due to resource constraints, governments face a tradeoff between making effective policy that accurately targets the right outcomes and educating individual on these outcomes and how they can change them on their own.

On one hand, national governments are democratically elected and thus accountable to voters in the policies they create. This can help them create large unified policies that affect as many industries as effectively as possible. On the other hand, the businesses that have more access to information about what types of green transition make the most sense for them, and what consequences other policies would have. Governments might also be held back by bureaucracy and internal division, which limits their efficiency in creating good policies.

Who has more power over the other, consumers or companies? Is the pressure of climate-aware consumers enough to make multimillion-dollar companies change their practices, or will these companies find loopholes or excerpt pressure on individuals to avoid paying the cost of the green transition?

As discussed above, some workers are inherently more vulnerable to the effects that climate change policies could have on their industry. Lower-skilled and lower-income workers will have a much harder time finding new work and financially surviving if their jobs are lost in the green transition. This is thus a question of who the government has most responsibility towards Is it okay to sacrifice more vulnerable groups for the greater good?

Harvard Political Review (2020)

A deeper dive into the discussion of responsibility

The Guardian (2016)

An essay about game theory and its relation to climate change

European Commission

What industries and sectors contribute most to climate change, and which individual choices are they related to?

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Point 1
‍Principally, companies benefit from and influence stakeholders. They thus have a principled obligation to give back to anyone who has stakes in their cooperation. Companies are not isolated entities that exist apart from the rest of society. They don’t only benefit from the investment of shareholders, but also the investment of stakeholders: employees who work to improve the company, customers who buy and promote their products, and suppliers who deliver the materials that allow for their production to continue. ‍

Counterpoint 1
‍The thesis of this point is that CEOs are funded by the money that shareholders give them by investing in the company. They thus have a principled duty to act in their interest. The vast majority of shareholders are not the wealthiest of billionaires. Most stock is held by pension funds, insurance companies, union funds and other large institutional investors. This is important, shareholder capitalism does not JUST mean acting in the interest of the 1% -- but also in the interest of those millions of people who own shares as part of their retirement funds for instance.  

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Point 2
‍Stakeholder capitalism takes into account and caters to the interests of stakeholders, and through this system, we are able to create social and economic benefits for all citizens in society. I.e. companies now act in the interest of the general population. In shareholder capitalism corporations are forced to cater to the interests of shareholders, these are interests that do not align with the social good, as it is solely focused on creating profit, which can be at odds with public goods like the climate.‍

Counterpoint 2
‍The pursuit of profit for shareholders, grows the economy which benefits all of society. This is because the pursuit of profits leads companies to try and attract customers through cheaper products and more innovative products that consumers like. It also creates higher wages for its workers because being driven by profit means that there is an increase in productivity, to meet customers' demands as quickly as possible. Innovation and productivity mean companies sell more which creates economic growth. Economically speaking this is generally associated with higher wages for workers.

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Point 3
‍In a climate of general distrust in institutions in many countries, stakeholder capitalism is a good way of ensuring trust in the system. if companies are viewed to act in the interest of most people, it builds trust and collectivist thinking around the economy. The more buy-in and trust there is in an economic system, the more stable it is overall. 

Counterpoint 3
‍Stakeholder interests will also inevitably diverge. It is impossible to define one single thing that would be good for everyone. As described in the paragraph on individual consequences sometimes even climate policy has negative consequences for stakeholder groups. Stakeholder capitalism is thus inherently hard to execute in practice because companies can never do good by everyone.

Point 1
‍Business leaders can provide valuable insights into the feasibility and practicalities of proposed climate actions. They also have the resources and have substantial influence over global emissions and supply chains. Including them in climate conventions can lead to more effective and immediate implementation of climate policies and solutions.

Counterpoint 1
‍Heads of large companies will have conflicts of interest, prioritizing profit over the environment. Giving them an official seat will lead to policies that favor business interests over genuine climate action, undermining the effectiveness of international agreements.

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Point 2
‍By having an official seat, company leaders would be more accountable for their commitments and actions regarding climate change. Their involvement could drive more transparency and commitment from the corporate sector. The alternative is that they just lobby, which is harder to track and much less transparent 

Counterpoint 2
‍Allowing unelected business leaders into these climate forums undermines their democratic legitimacy. Climate conventions are primarily a forum for governments and public representatives. Including business leaders may undermine the democratic process and shift power away from elected officials, potentially skewing decisions toward corporate agendas. This thus gives voters less influence over the decisions made here and makes these forums less accountable to them. Even if this is not actually the case, they will be perceived as less democratic, which can erode public trust in and support for their decisions. 

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Point 3
‍Including heads of companies fosters better collaboration between the public and private sectors, which is essential for tackling climate change. This partnership could lead to more comprehensive strategies that involve all major players in the fight against climate change. Companies are more invested in this collaboration too, once they’re officially included

‍Counterpoint 3
‍There is a risk that companies might use their seat to engage in greenwashing. Because international agreements aren’t typically legally binding, companies can make superficial commitments without meaningful action. This could mislead the public and slow down real progress on climate goals.