Wolf-Georg Ringe is Director of the Institute of Law & Economics at the University of Hamburg and Visiting Professor at the University of Oxford Faculty of Law; Alperen A. Gözlügöl is Assistant Professor at the Law & Finance cluster of the Leibniz Institute for Financial Research SAFE. This post is based on their recent paper.
Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders?, both by Lucian A. Bebchuk and Roberto Tallarita; and For Whom Corporate Leaders Bargain (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID, both by Lucian Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).
Global consensus is growing on the contribution that corporations and financial markets must make towards the net-zero transition in line with the Paris Agreement goals. Regulatory measures and shareholder or stakeholder initiatives now abound to create a more sustainable economy. Crucially, however, the focus of those initiatives largely remains on public companies. In a new paper, we show why we should be concerned about the role of private companies on the path to net zero and explore ways to address this gap.
Public companies had once constituted a large part of the economy, especially in the United States. This no longer holds true with a decreasing number of IPOs and a strong surge in delistings (see, e.g., Asker et al., 2015). Private companies also impose significant externalities on the environment in the U.S. A recent report from the Clean Air Task Force and Ceres provides the most damning evidence. Hilcorp Energy Co., a private oil and gas company in the U.S., is the largest methane emitter in the country, reporting almost 50 per cent more methane (a pernicious type of greenhouse gas (GHG)) emissions than the largest public counterpart, ExxonMobil. For other GHG emissions, Hilcorp is only slightly edged out by ExxonMobil, with this pair taking second and first place respectively. Overall, in the top 10 methane emitters in the U.S., there are five private companies. In terms of other GHG emissions, there are six private companies in the top 20. A cursory look at the website of these companies reveals that they neither report their environmental impact nor do they have any climate strategy and targets.