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Shareholder Value in a Burning World

The best way to address climate change is not through wishful thinking but by using the tools we have – and that includes the established corporate model of maximizing shareholder value. Already, many companies are showing the way, having recognized that going green can generate immediate profits.

CAMBRIDGE – Does solving the climate crisis mean we need to change how publicly traded firms are run? Most corporate leaders believe they have a legal and moral duty to maximize shareholder value, and that they will be fired by angry investors if they do not. But many others worry that an obsession with profits is incompatible with environmental objectives.

After all, if fossil fuels are cheaper than renewables, maximizing shareholder value would seem to require the use of dirty energy. And if you are a fossil-fuel company, it is “rational” to spend hundreds of millions of dollars denying the reality of climate change and actively lobbying against regulation that addresses it.

Should we insist, then, that firms become “stakeholder-oriented,” generating “returns” not just for investors, but also for employees, customers, suppliers, and the broader community? It’s been done before. In the 1960s and 1970s, most firms claimed to have a responsibility to all of the constituencies they interacted with. And just last year, the Business Roundtable, representing the CEOs of America’s largest and most powerful corporations, offered a new definition of corporate purpose: “to promote an economy that serves all Americans.”

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