Introducing a system for Shareholder responsibility could facilitate a shift to more sustainable options.
Following post is adopted from http://www.iiasa.ac.at/web/home/resources/mediacenter/PressReleases/PNAS–Shareholder-responsibility.en.html
Allowing shareholders to be held liable for the damages that companies cause to the environment and people could help transform the world’s energy system towards sustainability, according to new research published today in Proceedings of the National Academy of Sciences (PNAS).
Reference: Dangerman ATCJ & Schellnhuber HJ (2013). Energy Systems Transformations. Proceedings of the National Academy of Sciences, 8 January 2013.
The research carried out at IIASA in collaboration with the Potsdam Institute for Climate Impact Research demonstrates that there is fundamental rigidity, known as lock-in, within the energy economy that favors the use of fossil fuels and nuclear power despite their large environmental and social costs. The researchers identify that this rigidity of the existing energy economy could be considerably reduced by introducing new rules that hold shareholders of companies liable for the damages caused by the companies they own. Allocating the liability between the company and its shareholders could spur a shift toward a sustainable energy system.
“The world’s energy system today relies heavily on fossil fuels and uranium, and its output regularly causes damage to the environment in the form of pollution, oil spills, or nuclear leaks,” says Jérôme Dangerman, lead author of the study and Research Scholar at IIASA at the time of writing the article. But while companies can be penalized for damages to the environment, their owners are not. “As a shareholder you are generally speaking never liable for those damages,” says Dangerman.
The paper examined the historical transitions of the energy system, examining the factors that led to previous transitions in energy use, for example from wood to coal, and then from coal to oil. The researchers argue that the 1970’s represent a time period in which a new large-scale transition towards renewable energy may have been kick-started by the then unfolding technological revolution.Instead, since the early 1970s the global system has ‘frozen’, with fossil fuels and nuclear remaining the major energy sources. “From a healthy resilience point-of-view you would normally expect a system to adapt to a situation which is causing so much damage,” says Dangerman. “But it’s not fundamentally changing.”
In the study, Dangerman and co-author Prof. Dr. Hans Joachim Schellnhuber, Director of the Potsdam Institute for Climate Impact Research, explored the reasons for the rigidity in today’s energy system. “It’s dominant positive feedback,” says Schellnhuber. Heavy investments in fossil fuels have led to big profits for shareholders, which in turn leads to greater investments in technologies that have proven to be profitable. While, in parallel, the chances of success for sustainable alternatives diminish. “It’s called Success to the Successful,” says Dangerman.
Comment from René von Schomberg: the introduction of a system which requires some sort of share-holder responsibility would indeed mark a signficant change. The problem is ofcourse that the absence of such a responsibility is deliberate: e.g. to stimulate “risky” investments without need to worry about any responsibility. A direct relation between share holder investment and negative impacts may well also be difficult to establish and to operationalise. Maybe some form of collective reponsibility could be operationalised by setting up funds to which all investors should proportionally donate(which would create an equal playing field), managed by independent organisations.