Fighting the Future: Short-Term Investors and Business Opposition to Climate Policy with Jared Finnegan

During this Sustainability Colloquium Jared Finnegan, Lecturer of Public Policy at University College London (UCL) will present research on "Corporate ownership, short-termism, and climate policy preferences." Following the presentation, attendees will have the chance to discuss and ask questions. This session will be moderated by Christian Flachsland.

Abstract: Government efforts to address long-term policy challenges often entail that business bear short-term costs today for greater long-term benefits. What explains firms’ preferences in the context of such policies? Existing research emphasizes the role of costs. However, we theorize that institutions are a key mediating variable that shape the way that firms perceive such costs. The ownership structure of a firm shapes the extent to which managers are focused on short-term profitability over long-term business and social goals, and therefore how resistant they are to short-term policy costs. Because they are exposed to capital market pressures to meet quarterly profit expectation, publicly-traded firms should be more short-term oriented than privately-owned firms. Amongst traded companies, those that are owned by impatient investors should be more opposed to long-term policies than those with patient owners. We test our arguments in the US in the context of one important long-term policy area: climate change. Using an original measure of firms’ opposition to climate policy based on firms' political contributions to Republicans, we show that publicly-traded companies are more likely to oppose climate policy than private ones. In addition, publicly-traded firms with high levels of ownership by impatient investors oppose climate policy more. More broadly, we show that ownership structure drives variation in climate policy stringency across countries. Where firms access finance primarily through stock markets, policy is less stringent than in countries where firms tend to be privately owned and rely on patient capital from banks. The theory and findings help to explain why business in countries like the US has been so intensely opposed to long-term policies to address climate change.