Big Firms May Retreat From Climate Goals Amid Weakening Regulations, Survey Finds

A survey of 353 senior executives at large enterprises by Verdantix, the independent research and advisory firm, reveals that easing climate regulations are prompting big businesses to scale back their decarbonization efforts, putting global net zero targets at risk.

In the wake of the recent watering down of the US SEC rules and UK net zero policies, the survey found that “weakening climate policies from governments” is reported as the most common external risk to corporate decarbonization targets. 70% of respondents reported difficulties justifying the business case for climate initiatives, indicating that weaker regulations are also undermining the financial case for corporate climate initiatives.

Most leaders lack investment and confidence in climate targets
Unsurprisingly, this missing regulatory support is being reflected in lack of business support for decarbonization, with the majority of respondents (69%) finding it difficult to ring-fence budget for climate initiatives. This reluctance to invest in climate initiatives, alongside the finding that most leaders are not highly confident about meeting short-term climate targets, suggests that without stringent regulations, the path to achieving net zero is increasingly precarious.

However, many show intent to link executive pay to climate goals
Despite weakening regulatory support for climate targets, the positive news is that corporate leaders are starting to react to the threat of reduced external decarbonization momentum with increased internal accountability; 4 in 10 are planning to link executive remuneration to performance against climate goals within 2 years. Remarkably, by 2026, 83% of leaders in Europe and 46% in North America expect to have these mechanisms in place, marking a shift towards internal governance driving climate action, outpacing regulatory mandates as a driver of climate initiatives. In a further indication that corporate leaders in some sectors are taking the reins on climate action, the majority (71%) of financial services leaders say a push from the CEO would be most likely to increase their firm’s ambition and activity levels on climate initiatives.

Trends more broadly indicate that regulations remain the prime driver for corporate decarbonization
Across the full sample, 61% said new regulations would be most likely to increase their firm’s activity and ambition on climate initiatives. Similarly, more respondents said climate strategies were focused on compliance rather than other priorities, such as achieving competitive advantage within their industry, indicating that a substantial proportion of corporate climate performance is driven by box-ticking over higher-order priorities.

Alastair Foyn, Analyst in the Verdantix Net Zero & Climate Risk practice notes: “The gap between corporate climate ambition and actual action raises a critical question: Are businesses truly committed partners in decarbonization, earnestly seeking guidance in a landscape of weakening regulations, or are they merely adherents to the bare minimum required by law? With compliance still the main focus of climate strategies, it's clear that many see decarbonization as a compliance tick-box rather than an integral business strategy. The inability to make the business case for change is compounded by a lack of in-house expertise to quantify financial impacts of climate risks, creating a $36 billion opportunity in climate consulting and risk software markets over the next four years.”

To access the Verdantix Global Corporate Survey 2024: Net Zero Budgets, Priorities & Tech Preferences, click here.