This week we ask which companies oppose climate action — and whether ownership structures make a difference.
Most people see action on climate change as essential. But powerful lobbies continue to push the other way. Understanding what drives corporate opposition to climate policy therefore matters enormously.
New research examines one underexplored factor: company ownership structures. Are publicly listed firms more likely to oppose climate action than privately held ones? Does it matter how concentrated a company's ownership is, or how short-term its investors' horizons are? And what are the implications for governments trying to advance climate policy?
Joining host Alan Renwick to discuss the findings is Jared Finnegan, Lecturer in Public Policy at the UCL Department of Political Science and one of the study's co-authors.
Mentioned in this episode:
[00:00:04] Alan Renwick: Hello, this is UCL Uncovering Politics, and this week we ask which companies oppose climate action. In particular, does who owns a company make a difference? And what are the implications for government policy?
Hello, my name is Alan Renwick, and welcome to UCL Uncovering Politics, the podcast of the School of Public Policy and Department of Political Science at University College London.
And we're returning this week to one of the major issues of our age, namely climate change. Most of us see action on climate change as essential, but there are powerful lobbies pushing the other way. So understanding what fuels these lobbies matters. Some recent research examines one aspect of that, asking what factors influence whether companies oppose climate action or not, and it finds that company ownership structures make an important difference.
Well, one of the authors of that research is Jared Finnegan, who is lecturer in public policy here in the UCL Department of Political Science, and I'm delighted that Jared joins me now. Welcome back, Jared, to UCL Uncovering Politics. It's fantastic to have you on. And before we get into the details of this particular study, it would be great to hear a bit more about your broader research agenda that this work is part of.
I tend to think about your overall agenda as seeking to understand how we can incentivise long-term thinking on climate policymaking. Would that be a fair characterisation?
[00:01:43] Jared Finnigan: Yes, and, let me also say thanks very much, Alan, for having me. I'm delighted to be here. Yes, that's broadly right. I'm interested in how governments can govern for the long term.
Governments around the world are facing many long-term policy challenges. We could name a long list of them I'm particularly interested in the case of climate. And so the question there is: how can governments, especially democratic governments, think about, invest, pass quite stringent or strong policies that provide for, that provide long-term benefits and the politics of doing that. So both in terms of how voters respond to those and how voters think about long-term policymaking. There's a whole interesting literature on that, and I tried to contribute there, especially how they react once governments adopt long-term policies. Do they kind of vote in support of governments that do that, or do they punish them?
How do political parties themselves think about long-term policymaking? How do politicians that are facing re-election constantly think about something beyond the next election? As us as political scientists know, this is something that's very difficult for politicians to do. And indeed, more pessimistic views of democracy think, you know, argue that it's sort of inherently short-termist and myopic because elected politicians are so obsessed with, with what's, what's going, you know, poll numbers going into the next election.
And then the third part of my research is around firms and businesses and how they think about long-term policies, how they react when the government wants to do something for the long term and their sort of behaviour towards government efforts, and that's what this paper is about.
[00:03:27] Alan Renwick: Yeah. And to what extent do firms matter in this overall mix? To what extent do firms make a difference to outcomes on climate policy?
[00:03:36] Jared Finnigan: So we can say things generally. In general, firms are very important. And so those three actors that I mentioned, voters, politicians, and firms, firms are a really crucial part of, at least in my thinking, of the political economy of climate.
And that's because firms have lots of resources. I mean, all the money that's generated in a society is generated in the private sector, and so they have huge amounts of resources. But also they have technical expertise. They have information around their own internal costs, say, when it comes to certain policy, you know, the cost of complying with a certain policy.
That's information the government wants to know and firms are quite strategic in how they frame and disclose that information. And so there's a lot of expertise, a lot of resources, and politicians care a lot about what firms think. I mean, they employ lots of people, and that's really important to any society, that people have jobs.
And so business or governments are often in a tough position of trying to get firms to think about the long term, address long-term challenges, while at the same time being quite cognisant that these things could have short-term-- They impose short-term costs. That's what the paper will get into that more, and that could be costs in terms of, you know, changes in employment, et cetera.
So firms are really important, and we could go through a long list of sort of specific examples. I won't go through them all, but of firms making their preferences known, what they want known when it comes to climate. I mean, right now there's a big debate in the EU around reforming the emissions trading scheme.
And businesses are facing quite high energy costs because of the war in Iran, or with Iran. And there's loud voices from industry calling for a weakening of the EU emissions trading scheme. And Ursula von der Leyen is paying close attention to those. I mean, the EU does not want to de-industrialise any further, and so how do you protect firms to some extent, but also push them, again, towards that long-term objective? And it's a really tricky, it's a really tricky balancing act.
[00:05:38] Alan Renwick: And I guess firms might have impact on climate outcomes partly through their own actions as firms within the market and what they do in terms of their own energy consumption and these kinds of things. And also in terms of their impact upon government policy and the degree to which they're able to lobby effectively for governments to shift their policies in the direction that they want.
And I think it's the second of those that you're primarily focused on in this paper at least. Is that right?
[00:06:06] Jared Finnigan: That's exactly right. So we're interested in what we're calling firms' political behaviour, which are the things you mentioned, so lobbying. I mean, there's lots of different things that companies do.
Here we're looking very microscopically at campaign contributions, but it's because we could measure that, and we can talk more about that. But more broadly, the concept is around firms' political behaviour, which could be campaign contributions, lobbying, lawsuits, PR campaigns.
I mean, firms do all different kinds of things to try to influence the policymaking process. So that's what we're interested in because we see a lot of variation. So why is it that some companies are quite vociferous in their opposition to climate policy and other firms are more accommodating, even firms in relatively similar sectors? So that's the kind of puzzle that we're trying to work through here.
[00:06:54] Alan Renwick: Okay, so that's the puzzle. How much do we know about this already? So do we already know some of the features of firms that are likely to make them more or less likely to oppose climate action?
[00:07:06] Jared Finnigan: Yeah. So there's a really rich literature in this area that we're trying to contribute to.
And that literature's uncovered variables that are intuitive and make sense and put some really great empirical grounding behind those intuitions. So the first one, the kind of overriding one, is that firms oppose policies that impose high costs on them. You know, the basic model of the firm that we have in political economy is that managers of companies want to increase profits.
And so any policy that cuts into profits or generates losses will be generally opposed by firm managers. So we have good evidence of that in the case of climate. And so that's things like fossil fuel companies obviously will incur costs by climate policy. But also, what I think is actually clear at this point in the kind of popular imagination.
But I mean, carbon-based energy is, you know, in sort of fossil fuels, and these are so widely diffused in the economy that many sectors rely on these. So not only fossil fuels, which we always think about, but of course automotive and the internal combustion engine, steel, chemicals, agriculture, other transport technologies.
Fossil fuels are everywhere. And so all different kinds of companies will incur cost to varying degrees when governments try to decarbonise. And so that's the first big one that we know is that cost is a big driver here. And the way we've tended to think about cost, which we don't disagree with in the paper, which we think is right, is that it's all about just kind of short-term costs, right?
Firms oppose when they have these big costs put on them today. It doesn't really matter if there are some benefits that could be associated with those costs in the future. So that's what we're trying to look at in the paper, and we can talk more about that. But in terms of other factors that shape firms' preferences, so there's also evidence that companies and sectors that are trade exposed, so some companies trade in products that are internationally traded.
Steel is one of them. And so they're subject to cheaper imports that maybe aren't, especially from China, that don't have an extra cost of regulation attached to them. And so this can undercut the domestic market, which is what we've seen in the West, is that cheaper Chinese imports for different goods can undercut domestic manufacturers and so the trade exposure of an industry.
And there are others, but also, I mean, interesting work on, you know more idiosyncratic factors, you know, CEO preferences. Some CEOs are just kind of greener than others.
[00:09:34] Alan Renwick: Just in terms of their own personal individual politics.
[00:09:36] Jared Finnigan: Right.
[00:09:36] Alan Renwick: Uh-huh.
[00:09:37] Jared Finnigan: Yeah. Uh, and we saw this with BP. I'm now forgetting his name, but, BP's recent CEO, who was just, actually which fully fits with our story. The shareholders just got rid of him because he wanted to decarbonise BP. He was quite committed, I think, on some personal level. I think Looney is his last name if I remember correctly. And shareholders didn't like that, and so he was kicked out.
And now BP has doubled down on oil and gas. And so that actually fits very much with what we're trying to say in the paper. But going back to your question, yeah, there's a rich literature here. I mean, it's, it's an emerging literature. A lot, I mean, a lot more attention in political science has been paid to climate politics in the last five to 10 years.
And so you have this real kind of explosion of literature thinking about how firms are reacting to this changing landscape.
[00:10:22] Alan Renwick: So let's follow up on exactly what you were hinting at there. So as I said in the introduction, you're interested in investigating the impact of company ownership structures. And why should we expect these to matter?
[00:10:34] Jared Finnigan: I mean, this paper starts with kind of anecdotes about companies saying things like... so for example, I think Elon Musk tweeted in 2018-2019, he wished Tesla was private and not publicly traded because investors were putting all this pressure on him to change what he wanted to do with the company.
And so it sort of started with this idea that thinking about that shareholders and the owners of firms can shape how managers of the companies respond and behave.
[00:11:09] Alan Renwick: And there's an idea that whether you oppose climate action or not is going to depend, for many companies, companies for which climate action imposes short-term costs, it's going to depend on the degree to which that company has a short time horizon or a long time horizon, and that that is influenced strongly by ownership.
[00:11:29] Jared Finnigan: That's exactly right. Yeah, that's the idea, is that there's a lot of work in from scholars of business and also scholars of political economy that how a company is owned has a big influence on the time horizon of the managers-
[00:11:45] Alan Renwick: Yeah ...
[00:11:46] Jared Finnigan: of that company.
[00:11:46] Alan Renwick: And what are the specific ideas there? So what are the specific features of ownership that can make a difference?
[00:11:52] Jared Finnigan: So the big one, the first one which we cover in the paper, is whether the company's publicly traded on a stock exchange. So publicly traded just means that the stock is listed on a stock exchange, and individuals of the public can buy and sell those shares. So many companies-- Well, actually, it's a proportion of the overall economy.
Actually, it's a minority of companies that are publicly listed, mainly the very large ones. And then, companies, if they're not publicly listed, we consider them privately owned. And there's a lot of work, and we build on this, that shows that when companies are publicly traded, they face quite a bit of pressure from their shareholders to maximise oftentimes quarterly profits.
Firms will release quarterly earnings expectations... Actually, our analysts will release these. And kind of the CEO and the man, the kind of, the C-suite of a company will be oftentimes judged quite harshly on, whether they hit these earning expectations per share. And so when the firm is publicly traded, you have this kind of intense pressure to meet these profit expectations. So that's one.
But then there are things like, um, whether a company has blockholders or not, and blockholders are basically owners that have a high concentration of shares. And so in some companies, you might have a family. The firm might be publicly traded on stock exchanges, but only some small proportion of the shares are publicly traded.
A family might own a majority. So this is the case with Porsche and Volkswagen, that the family owns most of it, but then you have some residual amount of shares that are publicly traded. And, again, we build on evidence and theory that suggests that when you have blockholders, the firm can take a more-- it's less-- It's facing less pressure from markets, less pressure from the other shareholders because one shareholder has a majority and can resist the minor- what are called minority holders. So that plays a role as well.
And then specific owner types, which we talk about in the paper. So for example, going back to families, so there's evidence that when families own a company, even if it's publicly traded, but oftentimes family-owned firms are not publicly traded, they can have longer time horizons because the family wants to pass something down to future generations, and so they're working on a different time horizon than the kind of CEO that just came in with a, you know, a S&P 500 firm that is only thinking about the next three months. So those are some specific owner types and how they relate to time horizons.
[00:14:20] Alan Renwick: And you suggest in the paper that there are particular categories of owners that might be particularly short-termist. So specifically you talk about actively managed funds, where they're trying to trade in the short term and make short-term gains, and they're particularly likely to oppose climate action because they have such short time horizons.
[00:14:41] Jared Finnigan: That's the theory. So that's our argument, is that you have some types of owners. So I mentioned families as being more long-term oriented, and so you have some that are more short-term oriented. And again, there's good theory and evidence that we build on to make these arguments. And so you're right.
What are called actively managed funds, these could also be hedge funds, investment banks. These investors are under intense pressure themselves to make returns for their clients. And so what they're doing is they're basically investing on behalf of clients, and those clients want high returns, and they want them now oftentimes.
And so what happens is that pressure just basically rolls downhill, and so the client puts pressure on the actively managed, you know, the mutual fund or some investment vehicle, and then that investment vehicle's putting pressure on the firm to make sure that those profits are, that there's no sort of dip in profitability.
[00:15:28] Alan Renwick: Okay. Great. So that's the theory underlying all of this. Then, of course, you do some research, you apply some methodology in order to investigate these ideas. And as ever on UCL Uncovering Politics, we love a bit of methodology, so really interesting to explore how you go about testing these ideas.
And I guess in essence you so you look at company ownership structures, you look at whether those companies support or oppose climate action, you see whether there's a relationship between these things, and you draw out conclusions. That's essentially what you're doing.
[00:15:59] Jared Finnigan: That's right.
[00:16:00] Alan Renwick: And do you want to fill in a bit of the detail on that?
[00:16:04] Jared Finnigan: Yeah. So and I'll try to not be too boring too boring and long-winded here.
[00:16:08] Alan Renwick: Listeners to UCL Uncovering Politics are never bored by, by discussion of methodology, I promise.
[00:16:13] Jared Finnigan: So methods are very important. I should just say that first of all. You know, good methods and sound empirical analysis is really important to back up any argument, so all the kind of students out there that are, I don't know, writing their dissertations, research design and methods are critical.
So you're right. So what we do is we have this argument, and we have some hypotheses around how we expect firms to behave when they're owned in different ways.
And so the question is, how do we test this? And this was actually... This took years. I'm not joking. This took years. Because what was critical for us and what's hard to come up with is if you're trying to explain firm-level preferences for climate, you need a variable that measures at the firm level how it's thinking or behaving when it comes to climate policy.
There's not a lot of this data already available, there's not a lot of data publicly available. And then on the other hand, firms have strategic incentives to actually hide exactly how they feel about a policy. We know that firms oftentimes will say all types of things when it comes to... because that's part of their political strategy. And so it's difficult to rely, say, on just on what firms say for that reason.
[00:17:25] Alan Renwick: Of what they say publicly, presumably.
[00:17:26] Jared Finnigan: Yes.
[00:17:26] Alan Renwick: Because, I mean, we're talking about lobbying, so it, it, it's all about what they say in a sense, but they may be saying things privately that are different from what we can see publicly.
[00:17:33] Jared Finnigan: That's fantastic. Yeah, that's absolutely right. That's the right, that, that distinction. So it's hard to glean from public accounts or publicly available data how firms are actually-- their kind of genuine preferences, basically. And so we went through a number of options here. One, we thought we would try to survey companies and send them a survey and try to get them to reveal what they wanted.
That ran into a number of challenges, again, for obvious reasons, because they have an incentive to, I mean, to put it crudely, to lie basically or to misrepresent the firm's preferences. We then thought we could start talking to companies and see if maybe we could get them to divulge something.
So we had an RA call up a bunch of companies, but that didn't go. That didn't work either. And also with quantitative research, which this paper is, it's we needed a big dataset. And so what we started thinking about is what kind of behaviours can we measure that could tell us something about how the firm...
its preferences, what it wants. And behaviours are better, especially costly behaviours, in our case, campaign contributions, because you're actually putting money on the table there. It's not a kind of costless cheap talk. And so we thought, okay, in the US you have all this data on campaign contributions, very transparent. You have all this data on campaign contributions that companies make.
[00:18:57] Alan Renwick: This is to Democrats and Republicans for election campaigns.
[00:19:00] Jared Finnigan: That's right. Yep. And they have to mandatorily file. The political parties have to mandatorily file basically where they're getting their money from and, and have quite detailed information on where the money's coming from.
At least for campaigns. I mean, of course, I think there are other ways that money comes into the system, which is not always accounted for, but at least in terms of what we can measure through these campaign contributions. And so then we start to think, okay- And also with the US, you have such a polarised party system in general, but also when it comes to climate.
The parties are actually really far apart. And we show in the paper, we do some research going back to the early '90s, looking at their manifestos, the Republicans and the Democrats, and we see this widening divergence over time. And it's quite clear to anyone that knows US politics and US environmental and climate politics that the Republicans have basically become the party of fossil fuels and anti-climate regulation and policy, and the Democrats have become the pro-climate party.
And we tried to show, we tried to make the argument that we see that the parties are quite far apart. We measure that, and so we say that then presents companies with a pretty clear choice. And I should be clear about this. We're looking just at polluting companies, which are companies in energy and emissions-intensive sectors.
So the companies that are really gonna bear the cost. So when you're thinking about the research we've done, think about companies that are actually gonna bear costs. These are companies, these are fossil fuel companies, but also companies in the chemical sector, steel, some food processing as well. I forget now all the sectors in the paper, but there's a nice table in the paper that readers can look at.
And so this is not kind of like the mom-and-pop shop on the road, and not those sorts of companies, or even sort of big tech companies, which aren't necessarily going to bear a big cost from climate policy. This is really the cost bearers.
And so we say, okay, if you're one of those sorts of companies, you're really gonna be paying attention, we think, to what's going on in terms of climate and energy policy because it has a huge effect on your profits. And so therefore, because the parties are so different on this one issue, they're giving you a really stark choice.
And so basically, the measure we came up with is the more you give to Republicans, the more anti-climate you are. The more you give to Democrats, the more pro-climate you are. So that's was the first step, and that again took us a few years. But then to now then we had a measure of what firms, individual firms actually. It's a proxy base. We have a proxy measure for what individual firms are thinking about.
[00:21:27] Alan Renwick: And can we be confident in that proxy measure? I guess some readers of the article, some listeners to the podcast might think, "Well, maybe companies are deciding which party to donate to on the basis of other policies, on policies on overall levels of taxation or labor market regulation or something like that." Can we be confident that the climate bit of this is important?
[00:21:50] Jared Finnigan: So that's a fantastic question, and something that was always a concern with this measure. And so not only when we would present it, but also the reviewers, this was a major concern. And for us as well, we want to make sure that we're actually measuring something real.
And like you said, there could be threats to the validity. And so what we do is we collect other measures that we think are quite good, but we think ours is a bit better. So one is lobbying. So there's also data on lobbying expenditure by companies, publicly available data.
Now, the problem, we don't just use that. The reason why we don't just use that, the problem with that data is that it doesn't reveal the direction of the preference. It's just how much money was spent. So you don't know if they spent that money for or against a particular policy, just the overall amount.
So we real-
[00:22:40] Alan Renwick: So you can see that they were spending on a particular policy, but not what side they were on, on that policy.
[00:22:45] Jared Finnigan: Exactly. Yeah, that's exactly right. And so we thought that's not really a great measure for us. That gets close. That's measuring political behaviour, the kind of intensity of political behaviour, but it's not giving us a direction.
[00:22:56] Alan Renwick: So specifically, you're looking at lobbying on climate-related issues and how much companies spend on climate-related issues, and you're supposing that if they're big fossil fuel companies, then probably if they're lobbying on climate issues, they're gonna be lobbying against climate action. But you can't be sure that that is what they're doing. They could somewhat counterintuitively be lobbying in favour of climate action despite being fossil fuel companies.
[00:23:22] Jared Finnigan: That's right. And also because our data set has fossil fuel companies, but also companies that could go...
It's not-- It wasn't exactly clear what their preference might be. So, you know, companies in other parts of the economy, again, food processors or construction companies that build energy systems, et cetera. And so but we still collect that data, and then we would basically correlate it with our measure.
Then we collected another data set on whether firms are members of business coalitions that oppose climate. So this is a data set from Michael Lerner and co-authors. A great paper came out a few years ago, and they have this measure of basically, has a company ever joined one of what are called ad hoc business associations in the jargon. But it's basically these groups of companies that get together to lobby and to try to persuade the public and government to not pass a particular thing on climate change. So we had data on whether companies were ever part of those.
So we have now three measures, and we basically triangulate between them, and our measure predicts those other ones and is predicted by them. And so basically, they're all correlated with each other. So we think that gives additional validity, but people are gonna have to make up their own mind. I mean, read the paper, see what you think.
So that's one step we do, is that one, to make sure these measures are correlated. And then secondly, we basically rerun all the results using these other variables, and we get the same findings. And again, because we were concerned about this, and so we did as much as we could to triangulate data, rerun the analysis and it all fits together. And so that gave us confidence that this measure using campaign contributions is a good way forward.
And it's actually a source of data that hasn't been used before in this kind of research. And so we're hoping that it also maybe opens up channels for future work. Other researchers can pick this up and refine it and... Because again, you have lots of publicly available data here on how firms are actually giving money, which could be useful for all types of studies on climate politics.
[00:25:17] Alan Renwick: So we have data on the various different aspects of company ownership. That's not problematic to measure. That's all fine. And then we've got data on the company climate policies through these three different measures. Listeners will be keen to know, what do you find? What are the results of the analysis?
[00:25:34] Jared Finnigan: So, as you just mentioned, Alan, we look at different measures of ownership, and what we find is that first we look at publicly traded versus privately held companies. And again, if you remember there, the idea is that when you're publicly traded, you're facing a lot of pressure to meet shareholders' short-term profit expectations.
And there's a lot of work on this. This is not just us plucking this out of the air. There is-- Going back to the '70s, business scholars have been concerned about the role that stock markets are having in forcing managers to be myopic and short-term oriented.
And so we say, okay, if you're a publicly traded comp... We do some other fancy methodological things which we don't need to get into, but basically we try to also control for everything to only be looking at differences in ownership. And so we say, so whether you're publicly traded or privately owned, we compare these two sets of companies, and on average, we find that the publicly traded companies are more oppositional.
So they behave in a more oppositional way to government policy, and that fits with our arguments, and we'd expect to see that if our arguments are correct. And then we look at blockholders. As I mentioned, these are individuals that have a high concentration of shares. And here the argument is that when you have these sorts of owners, they can actually insulate management to some extent and help them to think more long term, and that's what we find. So when companies have blockholders, they're actually less oppositional than similar companies that don't have blockholders.
And then we look at these active investors that I mentioned to you, which in the literature and previous research are thought to be really impatient. And so we basically find when companies have a high degree of ownership by these sorts of funds, then they oppose climate policy more.
And then lastly, we look at what are called passive asset managers. And for those of you that, that are into finance and markets, these are the big three, Vanguard, State Street, and BlackRock. And basically, these are ETFs that where Vanguard will put together a fund to track an index, and they can't necessarily buy and sell companies if it's part of the index. So they can't just drop a stock if it's not performing necessarily.
And so one theory is that, okay, these could actually be very long-term owners because they don't buy and sell like these other kinds of funds do. And then there are other scholars that argue that actually these companies are just as sort. I mean, Vanguard's putting just as much pressure on the companies that it's holding to make sure they're profitable in the short term.
So it's kind of mixed, and so we try to wade into that. So we also look at these passive owners, and we find that companies that are owned by these passive owners are very similar. They behave in the same way in terms of opposing policy more, just like when they're owned by these more active, what were called active owners.
And then actually the last thing we test then is we try to get at this time horizon mechanism because that's kind of at the core of our argument, of our theory, that it's really about companies not being able to think long term or managers aren't able to focus on long-term gains at the expense of short-term costs.
And so to get at that, we use a proxy for. Because you can't measure a manager, what's in their head in terms of how they think about the future. I mean, you could maybe if you have a lot of money and you got them all to take a survey and... But we didn't have that much money. And so there's a lot of work by business scholars around share buybacks and, dividends and basically what are thought of as sort of shareholder payouts, so sending money back to your shareholders instead of reinvesting that in the company.
This basically doesn't do anything for the long-term health of the firm, but what it can do is that dividends make your shareholders happy, so they don't keep knocking on your door, and then share buybacks basically can increase the stock price. So you take your profits, and companies have been doing this since the financial crisis, you know, a ton.
They take their profits. Instead of reinvesting that for the long-term health of the firm, they basically buy back a bunch of their own shares, which means you reduce the supply in the market, and the price goes up, and everybody's happy. This was considered illegal for a long time and now is standard corporate practice.
And so we think that companies that are doing a lot of these shareholder payouts, we call them, are exhibiting more short-term-oriented behaviour than companies that aren't participating in these things. And so we think that's a way, at least a try, to get at this mechanism about time horizons.
And so we collect data on that and on basically how much these companies are in terms of their dividends and their, and their buybacks. And we find that it's indeed that when companies are sending out more money to, just in terms of shareholder payouts, these companies are also opposing climate policy more.
And so basically, it's a kind of overall takeaway from the paper is that short-term market behaviour is also predicts short-term political behaviour. And the piece about how ownership shapes short-term market behaviour, that's been well established.
And so what we're trying to do now is bring that into political science and say, "Look, these ownership structures are not just shaping how businesses behave in the market, they're also shaping how businesses behave politically."
[00:30:46] Alan Renwick: Fantastic. So you have very clear evidence in favour of all three hypotheses regarding the different aspects of company ownership and their impact upon whether companies oppose climate action.
And you also have evidence that the causal mechanism is indeed the one that you think it is through this kind of short-term focus that some companies have. How big are these effects? Do the effects substantively make a difference? Are they effects that are substantial enough for us to really care about them?
And I guess that then leads on to what's probably going to have to be my final question, because we're running out of time, which is that should governments pay attention to your findings here, and should they change policy as a result of these findings? So is the ability to use policy in order to influence companies' ownership structures ones that governments might usefully pull this lever in order to affect climate outcomes? Or is this just maybe an effect but a small effect that governments wouldn't want to pay that much attention to?
[00:31:52] Jared Finnigan: So within the research design, what we can do is we can compare the effects to the average levels of opposition. And what we find there is that they're quite large effects compared to the average level, the background level of opposition. Whether you're publicly listed, this has got a large determinant within the sample.
But more broadly, I would make the argument that this matters. So that's within the research design. But to think about how you scale up to a society and what's happening in a country like the UK or the US that then maybe it's unsatisfactory to some, but so you can rely on more anecdotal evidence or thinking about cases.
And there I think markets and market pressure plays a huge role in shaping the way that companies respond to not just climate policy, but other kinds of long-term policy challenges. And, I mean, if you read the Financial Times, I mean, there's lots of anecdotal evidence every other week about how a company is being-- it wants to do something which is gonna eat into profits now, but it's gonna be good in 10 years' time, and shareholders are just going crazy about it and just pushing back on management.
I mentioned the case of BP, but there are lots of, there's lots of instances of this. And not just, again, not just in terms of climate. I mean, anything, I mean, long-term innovation, right? So if a company's going to totally change its product range, it needs to invest now, which means profits are gonna be low or is, you know, there is going to be losses in the short term, but the benefits, you get the benefits in the future.
[00:33:19] Alan Renwick: So that gets back to what we were saying at the start, that there are multiple reasons why we should care about companies having long time horizons. So their lobbying behaviour is part of it, but their behaviour as companies in their own sectors and what they do in their market activity is really important as well.
[00:33:33] Jared Finnigan: Yes, that's right. That's right. And so, I mean, your last question around what can governments do, I'll try not to be too pessimi- too pessimistic here. So the backstory is that this has been an anxiety. So certain countries are considered to have more impatient capital and more impatient owners compared to others, and these are countries where companies rely especially on stock markets, and that's places like the UK and the US.
So in the UK, for example, there was a lot of anxiety going back to the '80s about how this obsession with short-term profits, hostile takeovers, mergers and acquisitions, this kind of market for corporate control, which meant that, you know, foreign companies can come in and take over a UK company if the stock price was underperforming, et cetera, et cetera.
These were known to be putting a lot of pressure on managers and that then weren't making long-term capital investments that could really increase productivity and grow the economy. And so you have Treasury reports, parliamentary committee reports going back to the '80s and '90s on this. This connection between ownership and short-termism is a kind of perennial issue in the UK and in the US.
So that's the reason why there's no sort of quick fix to this. Often because you basically have to try to get company owners, there's lots of money at stake, and you have to try to get owners especially to sign on to a policy that could decrease their control or decrease their profits.
And going back to our model of political economy, anything that eats into a firm's or an individual's profits or gains will be resistant. So there's another political economy battle there to reshape laws that can incentivise firms to be more long-term.
But there are lots of proposals. And so, for example, there's proposals to tie... In many companies, especially in the UK and the US, CEO pay is tied to the stock price. And so when the stock price goes up, CEOs make more money. That's an obvious incentive to focus only on the stock price, only on quarterly earnings.
You could try to tie that pay to other things. There's suggestions, so long-term decarbonisation plans or long-term innovation. You could tie it to other metrics. That's one kind of option that's out there. Inviting other stakeholders onto the board that might be more long-term oriented.
And so one theory is that if you have workers and unions represented on the boards, this is called co-determination in Germany and Germany's kind of a clear example of this. That's a kind of a more long-term interest on the board, which could counterbalance the short-term interests on the board.
And there are others. But again, there's a whole political economy to those sorts of reforms. And so I think there's plenty of policy options out there that governments could choose from. But I'm not very hopeful that this will be high on the agenda. Also, because it's not very salient.
You know, this is quite niche. Corporate governance reform doesn't win elections and it doesn't rise to the top of the policy agenda. Although, strangely enough, Trump had this thing for about two days. He was obsessed with changing how often companies reported. So instead of reporting quarterly, because that puts a lot of pressure on companies to always be thinking in basically three-month intervals, he said we should move to annual reporting.
So you just have one reporting on profits. That actually is a strategy for trying to increase long-termism. And so who knows? Maybe Trump will, uh... Although I'm not holding out much hope.
[00:36:59] Alan Renwick: Well, at least we know that Ed Miliband cares about these things, so hopefully he has been listening, or at least his advisors have been listening, and maybe you will get the call.
Jared, thank you so much. This has been a really great conversation and you're researching incredibly important matters and you've given our listeners a great insight into them.
We've been discussing the article, "Fighting the Future: Short-Term Investors and Business Opposition to Climate Policy" by Jared J. Finnegan and Jonas Meckling, just published in the British Journal of Political Science. As ever, we will put the details in the show notes for this episode.
We'll be back next week when we'll be looking at transparency in non democracies. Why are even some authoritarian governments willing to let their citizens know when things go wrong?
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