The Inability Of Small Companies To Fight The Climate Crisis
Many small companies cannot cover the costs of going greener. In some cases, they have too much leverage, too little shareholder support, or too much of their business is in operations that cause pollution. These are a few reasons businesses don’t do their part to save the environment, even if they want to. These companies are not in the same category as huge corporations with management that will do nothing because they want to save money, which they have in abundance.
A new study published in The Review of Corporate Finance looked at 2,547 U.S. firms between 2004 and 2020. The research found that “highly leveraged firms are vulnerable to climate change shocks and subject to stricter scrutiny from their stakeholders.” Shareholders override the ability of companies to make decisions that will benefit the environment.
This complex analysis shows how small leveraged companies may be forced to decrease their workforce, have difficulty fighting off the competition, and may not be able to afford adequate inventory. Two additional challenges that some of these companies face are climate disasters, which are often expensive, and their customers may want to do business with “greener” companies, which they cannot afford to become.
In summary, the authors found: “The empirical results provide valuable insights into how
climate change can affect firm value through the channels of customers, competitors, employees, and investors.”
The study further proves that the costs of mitigating climate change carry a big price tag. Many large companies with strong profit motives only invest to improve the environment if they are forced to. There are too few regulations with teeth that will force companies to comply. Governments do too little because of the cost to taxpayers and the complexity of policing tens of thousands of companies and millions of people. Additionally, many public officials read the tea leaves of upcoming elections to decide if saving the planet is worth alienating voters who may care more about their taxes, student debt, immigration, the age of candidates, or how far right or left their constituents lean.
Small companies are too small to push the world toward a greener future, but they are also part of a larger economic ecosystem that refuses to solve climate change problems.
