Connected boards echo climate rules, yet many firms move pollution instead

Connected boards echo climate rules, yet many firms move pollution instead Lisa Lock Scientific Editor Andrew Zinin Lead Editor The good news: When environmental rules pressure one company, the effect can spread through shared boardroom ties, leading connected firms to reduce emissions, too. The bad news: The positive impact on the climate is limited, as these firms often shift polluting activities elsewhere, research from Radboud University and Stockholm University shows. The findings were published in Business Strategy and the Environment. The researchers studied how links between boards—such as when directors sit on multiple boards—affect how companies respond to climate regulations. To find out, they analyzed roughly 2,000 companies around the world, looking at how the firms operated between 2003 and 2020. Shifting, not reducing emissions Results were encouraging at first glance: "Our assumption was that if you know companies you're connected to are making improvements in sustainability, your company will do so as well. Partly because you have information to act on this, partly because of peer pressure," explains Katarzyna Burzynska, an economist at Radboud University and one of the authors of the paper. "And what we saw in the data is that many of these companies did, in fact, reduce their total emissions when other firms in their network faced stricter environmental laws." "However, we also found that they do not reduce their emission intensity. That's a measure of how much a company emits relative to the size of its business, which tells us how cleanly or sustainably a company operates," Burzynska adds. "That points to most of these companies selling off the parts of their company that pollute the most, rather than investing in cleaner technologies or improving day-to-day operations. The pollution doesn't actually stop; it's just moved somewhere else." Choosing the quicker solution According to the researchers, this finding reflects the role of most boards. Directors are focused on the bigger picture, rather than on the technical details involved in the production process. "They're in charge of monitoring and strategy. As such, when you give them a new sustainability target, they will often choose a relatively quick solution to achieve that target—divesting part of the business, rather than investing in a cleaner process, lacking the knowledge to examine that process more deeply." More connections, higher ESG scores, limited results The researchers also found that boards that are highly connected typically have higher environmental scores. These so-called environmental, social and governance, or ESG, scores are often used by investors to determine how environmentally friendly a company is. Burzynska explains that ESG scores partly rely on what these companies self-report about their plans and ambitions, rather than on their actual emissions. "If a company promises to improve in the future, it'll improve its score. To some extent, it's about what they say they're doing, rather than what they're actually doing." The paper shows that companies do respond to pressure and that firms connected through boardroom networks may take similar steps when climate regulation affects others in their network. "But as we see in our data, reducing emissions for one company doesn't mean they're completely gone. It's a challenge for policymakers: A policy that focuses entirely on emission targets simply encourages companies to shift their emissions rather than eliminate them completely. Companies respond to pressure, but not always in the way that you would hope." More information Katarzyna Burzynska et al, Board Networks and Corporate Carbon Emissions: A Cross‐Country Analysis of Causal Effects, Business Strategy and the Environment (2026). DOI: 10.1002/bse.70878 Provided by Radboud University