Multinational firms drive growth but can come with steep environmental costs, study finds
Tracking firms across borders reveals ripple effects on forests, crops and local economies
Multinational companies can boost local economies but often come with higher environmental costs than domestic firms, according to new research by UBC faculty of land and food systems associate professor Dr. Frederik Noack in Nature Climate Change. Based on data from across Africa, the study links multinational activity to greater deforestation and biodiversity loss, even as it drives economic growth.
We spoke to Dr. Noack about the findings.
What were you trying to understand through this research?
There’s a long-running debate about multinational firms. Some argue they bring investment, jobs and new technologies. Others say they shift environmentally harmful activities to countries with weaker regulation.
The challenge is that firms go where resources and opportunities exist. If environmental damage occurs where they operate, it’s not clear whether they caused it or simply followed it.
We wanted to isolate that effect: what actually happens when multinational activity increases, all else equal? We tracked multinational firms through their global networks and looked at how shocks to their headquarters—like changes in access to credit—affect how much they expand abroad. Because those changes are unrelated to local conditions, they gave us a way to isolate what happens to the environment when multinational activity increases.
What did you find?
We found a clear pattern: as multinational firms expand, environmental damage increases.
Using data across Africa, we linked millions of firms to satellite measurements of forest cover and land use. Areas with more multinational activity saw about 24 per cent more deforestation, along with declines in forest cover. We also see a 0.6-per-cent drop in crop diversity, a key indicator of biodiversity and food security. These effects also persist over time.
There are economic gains as well. Each new multinational affiliate increases local GDP by about 0.3 per cent—roughly $106 million.
But those gains come with significant environmental costs. The associated forest loss is equivalent to about 10,200 hectares per additional affiliate, and when accounting for carbon emissions and related damage, the cost is roughly $693 million—several times larger than the economic gains.
How do multinationals compare to domestic firms?
Even after accounting for size and activity, multinational firms have a much larger environmental impact than domestic firms.
This is partly because multinational firms are more concentrated in sectors like mining, large-scale agriculture and manufacturing—activities that reshape land and ecosystems.
Another reason is that because these firms operate across countries, they can shift production to places with less stringent environmental rules, known as the “pollution haven” effect. So, multinationals may be especially harmful to the environment in the least regulated places.
We see clear evidence of this: stronger regulation is associated with lower impacts, while weaker regulation is linked to higher environmental damage.
What do these findings mean beyond Africa?
While the study focused on Africa, the underlying mechanism applies more broadly: multinational firms respond to differences in environmental regulation across countries.
For countries, including Canada, this suggests that stronger environmental standards don’t necessarily stop investment, but they do shape the kind of investment a country attracts. Stricter rules can reduce the likelihood of attracting the most environmentally damaging activities.
At the same time, governments often worry that stricter regulation will put them at a disadvantage. One way to address that is through policies like those used in the European Union, where some imports—such as agricultural products or fish—must meet sustainability standards, including limits on deforestation. Products that don’t meet those standards cannot enter the market. This reduces the incentive for firms to relocate production to avoid environmental rules, because they still have to meet those standards to sell their goods.
The broader takeaway is that attracting investment and protecting the environment are not mutually exclusive—but the outcome depends on how policies are designed.
Journal
Nature Climate Change
Method of Research
Data/statistical analysis
Subject of Research
Not applicable
Article Title
The environmental impact of multinational firms in Africa.
Article Publication Date
22-May-2026
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