Issue #24                                                                                        January 2021
Real Versus Rhetorical Environmental Actions: What’s Their Impact on Corporate Reputation? 
by Professor Pascual Berrone

Amid a barrage of alarming news on extreme weather, air pollution, and rising sea levels, global businesses have felt mounting pressure to do more protect the environment. While many companies now include ESG (environmental, social and governance) factors as part of their corporate purpose, their real-world impact runs the gamut. These range from superficial greening campaigns to complete production overhauls aimed specifically at reducing the firm’s environmental footprint. 

Environmental actions also have repercussions beyond the operational realm, playing a key role in shaping the firm’s reputation – for better and for worse, depending on the audience. Before the general public, for instance, symbolic actions might suffice to enhance corporate image, since most people will lack the time, expertise and inclination to cross-check and validate their claims. But what about highly informed industry peers, better equipped to separate the wheat from the chaff? This is where the benefits of symbolic actions might turn into liabilities. 

By the same token, might the standing of firms with costly environmental investments grow among their peers? Effectively communicating these initiatives – whether big or small – is also critical since actions alone aren’t enough to cut above the noise. When it comes to moving the public-image needle, do symbolic and substantive environmental actions reap the same reward? These are the questions my recent research sought to answer. 

Conducted in collaboration with Profs. Yann Truong and Hamid Mazloomi of the Burgundy and Rennes Schools of Business, respectively, the study gathered longitudinal data from 213 publicly traded companies in 21 polluting industries over a six-year timeframe (2006 to 2013) to evaluate the reputational impact of their environmental actions among industry peers.

To this end, corporations were divided into two camps based on the intensity of their environmental agendas. On one end of the spectrum are symbolic actions, including greenwashing and window-dressing tactics that have little bearing on the firm’s daily operations and long-term strategy. Inexpensive to employ, they convey the illusion of environmental compliance, such as ceremonial committees or eco-certifications with no requirement of third-party audits to confirm their application. 

Substantive actions, on the other hand, are interwoven into corporate operations with the overriding mission of decreasing the firm’s environmental impact. In support of this commitment, firms will realign their strategic goals and integrate performance indicators to monitor their progress, sometimes at the expense of operational efficiencies. Unlike symbolic actions, they require significant structural changes and financial resources to reach their end objective. 

In today’s world, symbolic actions are extremely widespread, making it difficult for general public to distinguish between truly environmentally conscious firms and those which merely pay lip service. Based on our findings, however, symbolic actions backfire before an audience of industry peers, significantly damaging their corporate reputation. That said, when combined with a solid – albeit deceptive – communication strategy, this negative impact was somewhat mitigated. 

Substantial environmental actions, on the other hand, bolstered corporate reputation among industry peers by nearly the same degree. And what role did communication play? Did these eco-friendly firms earn an additional reputational boost by coupling their actions with solid reporting? In a word, no. In these cases, perhaps actions alone speak for themselves.

As the iconic U.S. president Abraham Lincoln observed, “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” Global firms would be wise to remember his sage advice when designing their long-term environmental agendas.

​​​​​Pascual Berrone 
Professor of Strategic Management 
IESE Center for Corporate Governance


*For further information on the matter you can read our recent study “Understanding the impact of symbolic and substantive environmental actions on organizational reputation”, Yann Truong, Hamid Mazloomi, Pascual Berrone, Industrial Marketing Management, 2020.


IESE CCG-ECGI Corporate Governance Conference (ONLINE)

In the context of the current shareholder vs. stakeholder debate, the IESE Center for Corporate Governance (IESE CCG) and the European Corporate Governance Institute (ECGI) organized the “Can Purpose Deliver Better Corporate Governance?” Conference, which took place on October 28-30, 2020

Leading scholars together with prominent CEOs and board directors, delved into some of the pressing issues surrounding corporate purpose and governance. Over 1,900 people participated in the conference. 

The conference sessions are now available for viewing and you can download the conference report. Find all the papers and presentations on the conference website under the tab "Program & Papers". 

Corporate Governance News

HSBC’s shareholders urge bank to cut fossil fuel financing 
According to Reuters, Europe’s largest bank and second-largest financier of fossil fuels faces a vote to ramp up its climate commitments… read more ​​
A scar on the business landscape in Germany
According to MP Florian Toncar, the Wirecard case highlights the erosion of shareholders’ rights in Germany’s corporate landscape and advocate for the protection and strengthening of investors rights and the introduction of class actions in Germany’s legal system… read more
Ryanair to restrict voting rights of non-EU shareholders over Brexit
Ryanair announces to “take steps” to ensure the company would remain majority EU-owned and controlled to comply with European regulations… read more ​​​​​
Toshiba’s largest investor calls for emergency meeting to investigate July AGM
Effissimo Capital Management has requested that Toshiba call an Extraordinary General Meeting of Shareholders to elect a team of legal experts to investigate whether the Ordinary General Meeting of Shareholders held on July 31, 2020 was conducted in a fair and impartial manner… read more ​​​​​

In Case You're Interested...

Are Large Institutional Investors Actually Effective in Getting Companies to Reduce Their CO2 Emissions?

Large institutional investors have been accused of not doing enough to reduce CO2 emissions. However, a new study conducted by four IESE Professors finds that firms like BlackRock, Vanguard, and State Street Global Advisors try to influence CEOs of companies in their portfolio to reduce their CO2 emissions via interactions other than voting. The higher the ownership by the Big Three in a company, the authors find, the greater the reduction of its carbon emissions… read more

It’s Time to Replace the Public Corporation

Critics charge that in today’s heavily traded capital markets, executives are increasingly incentivized to manage in tiny, short-term windows, with an eager eye on their stock-based compensation and a fearful one on activist hedge funds. In this article the author tracks the decline of the public corporation and explains why its most important shareholders -retirement investors- and the most critical part of its workforce, namely knowledge workers, are ill-served by this model. He proposes a new structure, which he calls the long-term enterprise (LTE): a private company in which ownership is limited to those two groups of stakeholders, who have the greatest interest in long-term value… read more ​​​​​

Stakeholder Capitalism: The Case For and Against

As part of the ECGI's recent series of events on the topic, this debate by two ECGI Fellows, Alex Edmans (London Business School) and Lucian Bebchuk (Harvard Law School) will explore in-depth views on stakeholder capitalism, providing an opportunity to gain different perspectives on this widely debated issue. Professor Edmans will present the case for corporate leaders serving goals other than shareholder value, and Professor Bebchuk will question this approach. They will then challenge each other on their positions. Gillian Tett (Financial Times) will moderate the debate and Q&A… watch here ​​​​​

IESE's Recent Research on Corporate Governance 

“Predicting Employee Wrongdoing: The Complementary Effect of CEO Option Pay and the Pay Gap”

Journal article (January 2021)

Authors: Stephen J. Smulowitz, John Almandoz 
Journal: Organizational Behavior and Human Decision Processes
Read more

“The Big Three and Corporate Carbon Emissions Around the World”

Journal article (December 2020)

Authors: Azar, J., Duro, M., Kadach, I., Ormazabal, G. 
Journal: Journal of Financial Economics
Read more

“General Equilibrium Oligopoly and Ownership Structure”

Journal article (Forthcoming)

Authors: Vives, X., Azar, J.
Journal: Econometrica
Read more

“Alliance Governance Mechanisms in the Face of Disruption”

Journal article (Forthcoming)

Authors: Keller, A., Lumineau, F., Mellewigt, T., Ariño, A. 
Journal: Organization Science
Read more

Upcoming Programs

Executive Program: “Consejos de Administración Responsables”

Date: March 16-18, 2021

Location: IESE, Madrid Campus

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Executive Program: “Mujeres en Consejos de Administración”

Date: April 12-13 and May 10-11, 2021

Location: IESE, Madrid Campus

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Executive Program: “Value Creation Through Effective Boards”

Date: May 24-27, 2021

Location: IESE, Barcelona Campus

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