New research explores how U.S. corporate climate change plans shifted following Paris Agreement exit

Newly published research by Assistant Professor Drew Peabody and colleagues examines how carbon-intensive corporations reacted to the U.S. withdrawal from the climate change agreement in 2017.

The decision by President Donald Trump to withdraw the United States from the Paris Agreement on climate change in 2017 was met with speculation that the move could prompt many in carbon-intensive industries to pull back on their environmental improvement plans. The general consensus was that these entities might backtrack on their environmental improvement efforts without the cohesiveness of a global climate accord.

Drew Peabody, assistant professor of finance

But new research by a team including Elon Assistant Professor of Finance Drew Peabody found that wasn’t the case. In fact, most high-profile carbon-intensive corporations, including ExxonMobil, General Motors and Duke Energy, outpaced other industries in their efforts to be more environmentally friendly after the U.S. had withdrawn from the Paris Agreement, which seeks to limit global warming by reducing carbon emissions.

“Companies, especially carbon-intensive companies who have a bad reputation for pollution and for pushing back against global warming, used this as an opportunity to show public goodwill,” Peabody says. “They kept with their efforts and used the withdrawal by the U.S. to signal to the public that they are with the rest of the world on climate change.”

The eye-opening research was recently published in the peer-reviewed journal European Financial Management by Peabody with fellow researchers Philipp Klaus of Bentley University and Hirofumi Nishi and Carolyn Reichert of The University of Texas at Dallas.

To reach their conclusions, Peabody and his colleagues examined the corporate social responsibility (CSR) reports of the sectors most responsible for greenhouse gas emissions in the U.S. for the three years leading up to the Paris Agreement withdrawal in 2017 and the three years following. The research team used corporate social responsibility reports in the areas of carbon dioxide emissions and eco-efficient solutions related to their operating activities, and resource use scores for those areas provided by global financial market data provider Refinitiv.

“The timing worked out perfectly because we had three years of data before the announcement, and three years after to work with,” Peabody says. “Using those baseline measures before the announcement, we examined if carbon-intensive companies improved their CSR efforts more than companies in other sectors. They did and, interestingly, our findings are stronger for carbon-intensive firms receiving more public attention than those with less public exposure.”

Contrary to what many observers were saying following the withdrawal, Peabody and his colleagues expected to see these high-profile carbon-intensive corporations increase their carbon mitigation investments faster than those in non-carbon-intensive sectors. That’s due in large part to the steps these companies had already taken before the Paris Agreement.

“Once a firm made an investment, it would be too costly and short-sighted for it to discontinue its efforts, especially if the exit decision could be overturned,” the authors write in the recently published study. “Furthermore, carbon-intensive firms faced intense social pressure from the exit announcement, which tends to increase CSR reporting. Greater CSR investments give carbon-intensive firms more to report and serve as a strong signal of firm commitment.”

Peabody and the team also found that U.S. firms increased their investments more than their counterparts in Europe. Although those carbon-intensive firms in Europe continued to spend more on mitigation efforts than those in the U.S., U.S. firms narrowed the gap following the 2017 withdrawal.

The study also found that the public gaze served as a powerful motivator for carbon-intensive firms in the U.S. after they were no longer bound by the requirements of the Paris Agreement. To assess how much attention the public was paying to various firms, the research team used the number of Google searches as a proxy. The authors write that “these firms must maintain trust, since reputation increases slowly but drops quickly” and “by maintaining or increasing investment in emissions reduction, these firms show their internal commitment to CSR, strengthening their image.”

Peabody says he is hoping that the team’s work will help inform policy discussions and decisions related to climate change, and the role that both previous investments and public scrutiny can play in encouraging change.