Competitors drive carbon reductions at companies, finds study

Research establishes causal relationship between carbon intensity and competing firms.

Researchers have found evidence that a company’s carbon intensity is influenced by that of its competitors.  

An academic study of roughly 3,500 non-financial firms from across regions and sectors identified a causal link between peer-to-peer relationships and decarbonisation.  

“We know from earlier research that corporate networks are important – that companies don’t decide on many policies and activities independently, they look at what others are doing,” explained Michał Dzieliński, assistant professor of finance at Stockholm Business School and one of the report’s authors. “So we wanted to see the peer influence when it came to environmental action.”

The researchers established timeframes during which the companies perceived each other as either customers, suppliers or competitors. These were described as ‘active periods’. Times when no such relationship was perceived were designated ‘inactive periods’.

“Having these two periods for each pair of firms allowed us to make a comparison and see how much these relationships influence environmental performance over and above things like common industry trends,” said Dzieliński.

Environmental performance was measured as carbon intensity and ESG scores.

The data showed that, when firms consider themselves to be competitors, they were more likely to see correlating changes in their carbon intensity. A secondary test using absolute emissions showed similar results.

The link was less significant for supplier-customer relationships and for ESG scores.   

Dzieliński said the results could help regulators and activists identify the most worthwhile businesses to engage with on climate issues.

“Certain companies will stimulate more widespread change,” he explained. “It’s most promising to focus on highly concentrated industries where there are relatively few competitors, for instance. Similarly, companies with larger market share exert a greater influence.”

For those working inside companies, he continued, the study demonstrates the importance of internal decarbonisation efforts for entire industries.    

The researchers also tested whether carbon intensity could increase as a result of competitors.

“That did show up in the results, but the effect was less significant than for decreases in carbon intensity,” noted Dzieliński.

The study is available here.