GREEN CAPITALI$M

How the 137 million Americans who own stock can force climate action

The two best ways to hold companies to their climate commitments.

By Michael O'Leary and Warren Valdmanis Updated Oct 15, 2020

Oil giant BP has said it will cut oil production by 40 percent in the next decade and reach net zero emissions by 2050. Getty Images/iStockphoto


With the US presidential election weeks away, we have the tempting possibility of a viable political solution to the looming climate crisis. If elected, a Biden administration may deliver sweeping climate legislation. But there is no guarantee of what that might ultimately look like or when it will happen. And under the current administration, the Department of Energy has started referring to natural gas as “molecules of US freedom.” Not quite the prelude to a carbon tax, a policy Republicans have shown some support for.

So where is immediate, needle-moving action on climate change going to come from? We need corporations to step up.

Some appear to be doing so. For example, BP may finally be making good on its decades-old promise to move “Beyond Petroleum.” This August, it announced it would cut oil production by 40 percent in the next decade and reach net-zero emissions by 2050.

It now joins hundreds of others in setting science-based targets for cutting emissions. A group of nearly 300 companies, ranging from automotive to apparel, have committed to reducing their emissions by 35 percent, a substantial goal given that these companies currently account for more emissions than France and Spain combined.

For their part, tech giants are seemingly in a sustainability arms race. Last year, Amazon pledged to buy 100,000 electric delivery vans as part of its effort to go carbon neutral by 2040. Not to be outdone, this summer Microsoft committed to go carbon negative by 2030 — and to remove enough carbon from the atmosphere to offset all of its historical emissions. Microsoft is part of Transform to Net Zero, a group of private companies including Maersk, Unilever, and Starbucks committed to achieving net-zero global emissions no later than 2050.


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This latest slate of climate commitments has elicited both cynicism and hope — hope that change at this scale can make a difference, but also cynicism about whether these commitments are real.

We’re two impact investors, and we think what’s too often missing from the conversation is that to make corporations sustainable, we must first make them accountable.


As we describe in our new book, Accountable: The Rise of Citizen Capitalism, this requires two things. First, accountability requires mandatory, standardized social and environmental metrics, built off the template of our mandatory, standardized financial reporting system. And second, it requires a more aggressive culture of engagement from citizens to hold corporations to account — in our capacities as consumers, employees, voters, and, yes, shareholders.

In all, 137 million Americans own stock, either directly or through an investment fund — that’s 15 million more people than voted in the last national election. We can use that position as shareholders to push companies to our long-term interests and our deeper values.

As impact investors, we’re often met with skepticism that private companies can be oriented around the public good. We helped launch Bain Capital’s impact investing fund, and now one of us leads Two Sigma Impact, a business that makes investments focused on workforce impact. We’ve seen the power of building companies around a deeper purpose as the broader impact investing field has grown to $715 billion under management.

But we’ve also seen every hollow promise and dead-end trend in this movement. It doesn’t help when companies adopt a posture of social responsibility without actually becoming more responsible. In the fight to reform capitalism, we risk winning the battle of ideas and losing the war of substantive action.    

Depending on whom you ask, Facebook is either one of the most or least environmentally responsible companies. Mladen Antonov/AFP/Getty Images

We need metrics to separate greenwashing from measurable progress

In 2018, Chevron announced it would invest $100 million that year in lowering emissions through its new Future Energy Fund. The same year, it invested $20 billion in traditional oil and gas. It’s hard to argue that you’re committed to change if you’re spending 99.5 percent of your budget doing the same old thing.

For those who put their faith in corporate social responsibility (CSR) as a panacea for our ailing society, we have the unfortunate reality: This kind of allocation of efforts is not uncommon. Superficial public commitments on issues like sustainability and diversity are much easier for companies than substantive action.


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Corporations publicize every climate-conscious dollar they spend, with press releases, glossy reports, and expensive advertising. Eighty-six percent of S&P 500 companies now issue sustainability reports of some type, up from only 20 percent in 2011. They talk about the importance of the environment. They talk about focusing on all of their stakeholders: employees, customers, and communities. They talk about corporate citizenship and shared prosperity. They talk.

But the average company spends just 0.13 percent of its revenue on CSR. Corporations may dominate our world, but not through their CSR departments. CSR is often small and superficial, a Potemkin village constructed to appease capitalism’s critics. It is far easier for business leaders to sign on to lofty statements like the Business Roundtable’s on the purpose of a corporation or the Davos Manifesto than publicly commit to specific environmental or social targets.

New climate targets like BP’s make news not just because they are important and specific, but also because they have been historically rare. Many companies still fail to disclose their emissions, and despite the progress noted above, few have set reduction targets. Measurement of environmental, social, or governance (ESG) performance is notoriously unreliable. Companies self-report without external verification. Nearly all decide for themselves the style, format, and content of their reporting rather than following a common framework.

Look up the five largest companies in the world by revenue, and every list will be the same. Look up the most socially responsible, and there’s no agreement. In 2018, only one company made it into the top five of both Barron’s 100 Most Sustainable Companies and Newsweek’s Top 10 Green Companies.

If we look at a company’s credit rating, there is an almost perfect correlation between how different ratings agencies evaluate them. But between a company’s various ESG ratings, the correlation may be zero. Depending on whom you ask, Facebook is either one of the most or least environmentally responsible companies, and Wells Fargo is either one of the best or worst governed.

This makes holding companies to their commitments difficult and benchmarking across companies almost impossible. It also impairs our ability to connect environmental or social performance to financial performance, a critical need if we are to convert more corporations to this approach.

Compare this Wild West of ESG reporting with the staid and standardized world of financial accounting. In the United States, all public companies comply with Generally Accepted Accounting Principles, which are set by the Financial Accounting Standards Board as overseen by the Securities and Exchange Commission and audited by private accounting firms such as Ernst & Young and PricewaterhouseCoopers. It’s an alphabet soup of accountability, but for the most part, it works. Though each company is unique, all financial statements are reported according to the same standards and thus can be reliably compared against one another

We need mandatory, standardized, audited ESG metrics for large public companies. This is an area where government and industry can work together to create more accountability, as they already do on financial reporting.

There are hopeful moves in this direction elsewhere: The European Union is currently considering a set of common standards, while many of the emerging standards bodies in the ESG world like the Sustainability Accounting Standards Bureau and the Global Reporting Institute recently committed to work together to create comprehensive reporting metrics. The World Economic Forum also followed up the Davos Manifesto with its recommendation for a common set of metrics.

These sorts of clear standards are key for keeping companies on track. Last year, Irving Oil, which operates Canada’s largest oil refinery, abdicated its climate targets, silently removing commitments from its website. As part of Irving’s backtracking, the company changed the metrics by which it would be judged, choosing instead a muddier system that would allow it to claim progress despite higher emissions.

This is the risk with voluntary commitments: They’re voluntary. Nothing stops corporations setting voluntary targets from voluntarily resetting them. What if the next CEO of BP is less committed to clean energy? To hold corporations accountable, we need mandatory, independent metrics by which to judge them. 

NRG Energy’s Joliet Station power plant in Joliet, Illinois, shown in 2015. Getty Images

All investors can and should demand “stakeholder capitalism”

But better metrics will only get us so far. Who, exactly, will be holding these corporations to account? While some corporate leaders say they are more focused on society and the environment, there is one stakeholder group they cannot ignore: shareholders.


In a capitalist society, the capitalist is king. Unless investors and shareholders support these transformations, they will ultimately be perpetually superficial or only temporarily substantive.

Take the case of NRG, one of the largest power producers in the US. NRG suffers from sustainability whiplash. The public company sells electricity across the country, and under its former CEO David Crane, NRG began to transform. In a 2014 letter to shareholders about climate change, Crane wrote, “The day is coming when our children sit us down in our dotage, look us straight in the eye … and whisper to us, ‘You knew … and you didn’t do anything about it. Why?’”

And so NRG announced it would cut its carbon dioxide emissions by 50 percent by 2030 and 90 percent by 2050 — real commitments that would lead to substantive change.

But in 2017, Crane found himself deposed when the activist hedge fund Elliott Management forced him out. Elliott named new members to the board of directors, including a former Texas energy regulator who had called climate change a hoax. Two years later, NRG announced it was once again accelerating its carbon emissions goals. Today, the sustainability section of its website is bannered with the feel-good slogan, “Becoming a voice and an example of change.” They’ve got that right.

After he lost his job, Crane reflected that there’s all this “happy talk coming out of the senior ranks of major pension funds, sovereign wealth funds and university endowments about investing their money in a climate positive way,” but when it came time to make hard choices, he found only “money managers who are, at best, climate-indifferent.”

Elliott was able to force change at NRG because it owned part of the company. That’s how ownership works in a capitalist economy. But Elliott didn’t own the whole company. The fund owned only 6.9 percent of the shares. Even with its partner — the private investor Bluescape Energy Partners — it could speak for only 9.4 percent of the ownership.

Where were the other 90.6 percent of shareholders? Where were all the shareholders who cared about climate change, about the long-term viability of carbon power, about the need to transform our electrical grid? Why didn’t they speak up, supporting Crane and forcing Elliott to back off?

Without the support of these other shareholders, NRG’s transformation could not last.

As investors, we’ve seen how corporate leaders are pulled in opposite directions. Boards and shareholders want companies to hit their quarterly profit targets, while customers and other stakeholders want more sustainability and social responsibility.

Against these conflicting demands, the rational response from business leaders is hypocrisy: Say different things to different audiences and then continue to serve the priorities of shareholders — those bringing the money — above all. This enables companies to pacify reformers without sacrificing investors. It’s easier to fake good works than good returns.

But here too we are beginning to see hopeful progress. Climate Action 100+ is a group of investors representing over $47 trillion in assets and committing to use their power to push companies toward better disclosure and management of climate risk. Chris Hohn, who runs a $30 billion hedge fund in the United Kingdom, has publicly committed to voting against directors who don’t improve pollution disclosures and dramatically reduce greenhouse gas emissions. They join other shareholder activists like Ceres, As You Sow, and the Interfaith Council for Corporate Responsibility.


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These organizations recognize that focusing on sustainability is not just the right thing to do, it’s also actually in the best interests of most shareholders. Many critics of capitalism frame the problem as shareholders benefiting at the expense of stakeholders, but that misunderstands the interest of a vast majority of shareholders.

Of the 137 million Americans who own stock, the median shareholder is 51 years old with $65,000 in a retirement account. The median shareholder won’t withdraw that money for decades. If they’re invested in index funds, they likely hold thousands of stocks worldwide. Their economic interests — let alone their moral or political ones — aren’t best served by maximizing quarterly earnings at specific companies today. They’re best served through policies and practices that ensure the long-term, sustainable development of the global economy in a safe and stable climate.


With more and more investors joining the fight, there is greater potential for corporations to take the historically radical change required to make meaningful progress and greater potential to hold them accountable even when such progress is no longer in the best short-term interests of corporate managers.
Restoring trust with accountability

Nearly two-thirds of people worldwide want CEOs to lead on change rather than to wait for government. At the same time, two-thirds of people don’t trust most of the brands they use. Four out of five don’t trust business leaders to tell the truth or make ethical decisions. No wonder recent climate targets have been met with equal parts cynicism and hope.

This distrust doesn’t exist with smaller businesses. Three out of four people have very little or no confidence in big business, but the opposite is true for small companies: Three out of four people trust them. This is partly because externalities don’t exist in the same way for small, local companies. If a local company pollutes the river or fires its workers, it’s their river they’ve polluted and their neighbors they’ve let go.

It’s also because there’s greater accountability at the local level where, measured or not, local stakeholders have a better sense of each company’s impacts.

We’re also seeing more small businesses embrace explicit social and environmental goals through the B Corp certification process. This process allows stakeholder-minded companies to opt in to a rigorous set of standards. Certification is still voluntary, but it approximates the sort of accountability that mandatory metrics would provide. In our experience, adherence to these standards makes for better companies overall — both socially and commercially. There are currently more than 2,500 B Corps in over 50 countries, most of them very small.

To make meaningful progress toward sustainability, we must restore the trust that smaller companies have and larger corporations have lost. And to do that, we need better accountability — from mandatory metrics and engaged stakeholders, shareholders included.

Just because corporations are stepping up doesn’t mean the rest of us should be stepping down. It is up to us to hold them accountable through the laws we choose to pass, the jobs we take, the products we choose to buy, and the demands we make on them as investors. To the threadbare question of, “Can companies do well by doing good?” we have our answer: It’s up to us — as voters, consumers, employees, and savers — to decide.

Are these climate commitments harbingers of a new era of capitalism? Or just the latest collection of hollow promises? Only time will tell. But with an uncertain political future in a country suffering from heat waves, wildfires, and hurricanes exacerbated by climate change from coast to coast, time is running out for corporations to do what must be done.

Michael O’Leary and Warren Valdmanis are the co-authors of Accountable: The Rise of Citizen Capitalism. They were on the founding team of Bain Capital’s impact investing fund. Valdmanis is now a partner with Two Sigma Impact. The opinions expressed are their own and do not reflect the views or opinions of their employers.