Are Net Zero Commitments Greenwash?

Simon Dietz interviewed by Tim Phillips

Simon Dietz  00:04

We might just have creamed off the greenwash froth from the top of the climate action pint, and we’re left with something that we can actually drink.

Tim Phillips  00:16

When corporations announce a net zero target for 2050 — as most of them seem to have done — do they do anything in 2026? My guest today has found out whether long-term net zero is really greenwash. Welcome to Vox Talks Economics from the Center for Economic Policy Research. I’m Tim Phillips. In the last few years, big business has committed to net zero targets at astonishing speed, but that commitment is still more than two decades away. So, in corporate strategy terms, that’s several lifetimes. So, does the target spur them into action, or simply convince shareholders that they’ll take some action, but just not quite yet? Simon Dietz of the London School of Economics and CEPR has just published a discussion paper that tells us what these future commitments mean today. He joins me now. Simon, welcome to VoxTalks Economics.

Simon Dietz  01:29

Hello, Tim.

Tim Phillips  01:32

Simon, the net zero commitment that we’re talking about — in its very basic terms — what does it mean?

Simon Dietz  01:38

So, these are corporations that are committing to reducing their emissions of greenhouse gasses to net zero by a certain date in the future, usually 2050.

Tim Phillips  01:49

Uh huh. And what’s the origin of this commitment? When did it all start happening?

Simon Dietz  01:54

Well, at risk of oversimplifying history, the 2015 UN Paris Agreement on Climate Change included the target of limiting global warming to well below 2 degrees, and — slightly surprisingly — also included a stretch target of limiting warming to 1.5 degrees.

Tim Phillips  02:14

Yeah.

Simon Dietz  02:14

Subsequently, the Intergovernmental Panel on Climate Change, the IPCC, were tasked with exploring what 1.5 degrees would mean for global emissions pathways, and they concluded that in order to meet the 1.5 degrees goal, emissions should be net zero by 2050. Subsequently, a wide range of organisations ran with that goal and encouraged corporations to adopt long-term net-zero commitments. I’m talking about organisations like the Science-Based Targets Initiative, the UN Race to Zero, and the Glasgow Financial Alliance for Net Zero, or GFANS, as it’s called.

Tim Phillips  02:58

These organisations, though, they have been very persuasive, it seems. Who’s signed up? How many people have signed up?

Simon Dietz  03:03

Well, we collected data on about 2000 companies from all around the world. Large, predominantly publicly listed companies. And we found that an extraordinary 63% of those companies had made a net zero commitment in 2023.

Tim Phillips  03:21

That is a lot.

Simon Dietz  03:22

And that’s up from approximately none in 2018. So, our interest in this topic is partly motivated by this extraordinary diffusion of corporate net zero targets.

Tim Phillips  03:35

Yeah. Now, so we have all these corporations — they’ve signed up for it — what does that mean they have to do today? What options do they have to do today, having made that pledge?

Simon Dietz  03:46

I think you can think about this in terms of three steps. The first thing that one might expect a corporation that’s made a long-term net-zero pledge to do, is start making changes to its management and governance arrangements, in order to deliver it. Then, presumably, the corporation has to actually change its capital spending, its hiring. So, we might start to see differences in terms of — of the factors — of production. And then lastly, of course, is the thing that really matters, which is the company’s emissions. So, we’re interested in whether companies’ emissions start to go down because they’ve promised to bring them down to net zero in the long run.

Tim Phillips  04:23

Right, and who are the net zero police? Who is monitoring their progress?

Simon Dietz  04:29

That’s an interesting question. There is no official body responsible globally for policing this, and, and an important contextual fact is that a lot of the information provided by companies — and the commitments themselves — are mostly voluntary in nature. Yeah, and so what you then have is an ecosystem of organisations — some of which are for profit and some of which are not for profit — who are collecting information on what companies are doing and trying to hold them to account.

Tim Phillips  04:58

Now, I would think, if I was a Chief Executive and I’d signed up to this, my tenure as chief executive is not going to last until 2050. There must be a temptation to think, “Okay, we’ll stop doing something about this, but not yet”. If corporations sign up for this, they don’t do anything about it right now, and they kick the can down the road, is that bad for them? Is it bad for the planet?

Simon Dietz  05:25

Well, it’s unambiguously bad for the planet.

Tim Phillips  05:28

Ah ha.

Simon Dietz  05:28

And the reason for that is that global warming depends on cumulative carbon dioxide emissions. So, it doesn’t just depend on the end point. It depends on the pathway from now until the end point. So, if companies were to hypothetically do nothing until 2049…

Tim Phillips  05:46

Right.

Simon Dietz  05:46

…and then cut their emissions all at once to zero, that would actually deliver us a lot more warming than if companies were to gradually reduce their emissions between now and then. So, it’s cumulative emissions that matter, and that’s why postponing action is unambiguously bad for the planet. Whether it’s bad for individual companies depends critically, I think, on the policy environment and on wider society. Climate change is an externality. So, there’s always an incentive for any actor in the economy — be it an individual or a company — to try to free ride on the efforts of others to meet our climate goals. And so, for some companies there could be an option value, essentially, in waiting and seeing whether the regulatory pressure comes down in the future, or whether the societal pressure comes down, or not.

Tim Phillips  06:37

I guess if we were also being generous to them, whether or not some technology shows up that would make it cheaper or easier for them to get to net zero.

Simon Dietz  06:45

Yes, exactly. I mean, meeting net zero unquestionably involves deploying new technologies. New technologies also tend to become cheaper over time, and so there is also an incentive to wait for things to become easier.

Intermission  07:02

Recently, when we spoke to Rick van der Ploeg, of the University of Oxford, he told us that gradual, multi-year changes in the habits that net-zero policies try to target, just don’t go far enough, and we need to be much braver to avoid backsliding. But what does this mean in practice? Find out by listening to our episode “A Big Push for Climate Policy” from November 2025, wherever you get your podcasts.

Tim Phillips  07:37

So, what question did you want to investigate in this research?

Simon Dietz  07:40

Quite simply, we wanted to understand whether firms who have made net zero commitments have actually taken any action to, to implement the commitments, compared with firms who haven’t made such commitments.

Tim Phillips  07:52

Okay, but with all the environmental reporting that we see these days, and because companies are putting it in their reports, how come we don’t know the answer to this already?

Simon Dietz  08:03

Well, there is research on corporate environmental targets more generally.

Tim Phillips  08:07

Yeah.

Simon Dietz  08:08

But historically, corporate environmental targets have been of a more limited form. They’ve tended to be short or medium term in nature and primarily concern firms’ operational environmental impacts. I think what’s interesting about long-term net-zero targets is firstly that they’re long-term.

Tim Phillips  08:25

Yeah.

Simon Dietz  08:25

Secondly, that since they require getting emissions to net zero, they involve a lot of uncertainty and interdependencies with technology, and policy, and markets. And they are a relatively recent phenomenon. And so, why don’t we know the answer? Well, I think that we are only just getting into the window now, where it’s reasonable to ask whether long-term net-zero targets have actually had any effect, since we started to see them diffusing around 2019, 2020. We’re only just now getting into the window where it’s worth asking the question.

Tim Phillips  09:01

I see, these changes that they make, you don’t see the effect of these changes in a month or a quarter.

Simon Dietz  09:05

Exactly. So, if we’d written this paper five years ago, we would have nothing to show because the whole diffusive process was just beginning. Conversely, if we wait another five years to ask this question. Well, we would have more data, we’d be able to take a longer view, but the reason that we’re asking the question now is that there’s a live discussion about whether corporate climate action actually works as a theory of change.

Tim Phillips  09:32

It would have been a very short podcast if we’d have done it five years ago, wouldn’t it?

Simon Dietz  09:36

It would, it would.

Tim Phillips  09:37

So, however, now, you have many more companies that you can investigate. What did you choose as your sample?

Simon Dietz  09:44

We have a sample of up to about 2000 companies. These are, as I mentioned, large, almost entirely publicly listed companies, from across the world and from across the economy. We do oversample high-emission sectors like electricity, steel, cement, chemicals. And the reason for that is that these are the companies that actually matter, from a climate point of view. So, you could compare our sample with a traditional equity index, like the Russell 2000, or something like that. That kind of index would have many more services and technology companies in it. But our sample also has companies like that, but puts more emphasis on companies in the energy sector, the industrial sector, and the transport sector that are actually responsible for emitting the greenhouse gasses.

Tim Phillips  10:35

And I guess for those companies, strategically, it’s more salient whether they make this pledge.

Simon Dietz  10:41

Exactly.

Tim Phillips  10:42

Now, to do this, what reliable sources of data can you lean on?

Simon Dietz  10:46

Well, it’s interesting that you use the term reliable because actually measurement is notoriously difficult.

Tim Phillips  10:52

I’ve been down this road before.

Simon Dietz  10:54

In this area. So, there are lots of well-known problems with corporate emissions data and also with ESG data. And our basic solution to this problem is in two parts. The first part is to simply throw a lot of data at the problem. So, we collect data from a variety of sources, on a variety of different outcome metrics —including emissions — but also management and governance arrangements. So that if we find something across these different measures, then hopefully we have something robust. And the other strategy we follow is to use some of our own data. So, I work in the Transition Pathway Initiative Global Climate Transition Centre, the TPI Centre for short, and we generate some of our own data on corporate emissions and corporate management and governance, and we use those data too.

Tim Phillips  11:45

And with all of that, you feel reasonably confident that you have an accurate readout on what’s happening within these 2000 organisations?

Simon Dietz  11:53

I think it would be irresponsible of me to go that far. I think we do about as well as we can in terms of trying to get around the measurement problems. I think we do about as well as we can in terms of trying to identify cause and effect. But there are some fundamental limitations that we run up against. The data still looks noisy in various ways. And we can’t conclusively prove cause and effect, because the fundamental problem that we face in this area is that, in almost all settings, companies make net zero commitments voluntarily. And so, they select into making net zero commitments. That means you might expect firms that are already green to be more likely to make net zero commitments. And then, if you subsequently find a positive effect of those commitments, how do we know it’s the commitment itself, versus the fact that the firm was already green? That’s the sort of the difficulty that we’re running up against in this area.

Tim Phillips  12:54

I don’t know quite how to ask the next question then, but what is the effect of the commitment on emissions?

Simon Dietz  13:00

We find that firms that adopt long-term net-zero commitments do reduce their emissions relative to firms that don’t.

Tim Phillips  13:09

They’ve reduced already?

Simon Dietz  13:10

Yes, they’ve already reduced. In the first few years after making a commitment, it seems like they do reduce their emissions, compared with companies that don’t make these commitments. But the caveat is the data are noisy, so that the confidence intervals around our estimates are wide, and we can’t rule out the possibility statistically that the effect is zero.

Tim Phillips  13:33

Okay. You also mentioned management. What has been the effect on management?

Simon Dietz  13:41

One might expect that the effect on emissions might take time for a company to implement the sorts of technologies and measures that would actually reduce emissions. Whereas one might expect to see a more rapid effect on a firm’s management and governance arrangements.

Tim Phillips  13:56

Yes.

Simon Dietz  13:56

So, that’s the other thing we look at. And here we find something quite intriguing. We don’t find that firms who’ve made net zero commitments change their management across the board, but we do find that these firms — the ones that make the commitments — are more likely to implement a set of relatively demanding, relatively strategic management practices, to do with climate change. For example, introducing an internal carbon price for the purposes of capital budgeting, or undertaking scenario planning for climate change. And what we also find is that, not only is there a positive effect on these kinds of management practices — which is statistically significant, unlike the emissions effect — we also find that this effect starts the year before the net zero commitment is made. So, there is, so to speak, an anticipation effect. The interpretation we put on this is that these firms are making a broader pivot towards net zero. And their public commitment to net zero is merely one part of that. And if you think about it, it seems natural that a firm would do its homework before it goes public with the commitment, and that seems to be what we’re finding.

Tim Phillips  15:27

Yeah. So, in your paper you see the changes in the strategy and carbon pricing internally and scenario planning, but from what you’re also saying, these are not necessarily triggered by the announcement. The announcement is part of a more general evolution of the strategy.

Simon Dietz  15:43

That’s exactly right. So, what we appear to be seeing here is firms making a decision which we, as researchers from the outside, can’t observe. They’re making a decision to pivot towards net zero. In making that decision, they’re implementing a range of changes in the organisation, which start with changes to management and governance, and end with reductions in emissions. And the net zero commitment is part of that package.

Tim Phillips  16:11

Simon, is there a chance that this is all just public relations, and they would have made the changes anyway?

Simon Dietz  16:17

It’s the great question. It’s unlikely that companies would make this pivot without making a public net zero commitment, because the public net zero commitment would seem to have some communication and signalling value. The other thing to say, though, is that, if one buys this story of companies pivoting and making a commitment as part of that, then it’s the pivot itself that’s important, isn’t it? It’s what causes companies to pivot towards net zero. Now, that is actually not something that we’re asking in this paper. That is a different question, and there can be various drivers for that, including regulatory pressure. So, I could give you the example of an electric utility operating in Europe. It’s operating within a strong regulatory framework, which is guiding it towards net zero. And so, the net zero commitment strongly reflects regulatory pressure. But for other companies, such as, say, banks or oil companies based in the United States, there isn’t the same kind of regulatory pressure. And this is probably better seen as an effort to manage customer and wider stakeholder interests and pressures.

Tim Phillips  17:34

As you say, this commitment is a signal. A very strong signal. A very unusual signal when we think about corporate strategy. If I am an investor, if I am a policymaker, should I be paying attention to the timing of this net zero announcement. Or, based on what you’re saying, should I do the harder but perhaps more significant job of looking under the hood at this, and seeing what’s already in place within the companies, the mechanisms for reducing emissions?

Simon Dietz  18:09

I think that long-term net-zero commitments have value, and our results are more in the direction of suggesting that they have driven positive change than that they have had no effect. And so, if I’m an investor, then yes, I would still be encouraging my investee companies to make long-term net-zero commitments. However, you’re absolutely right that these long-term commitments, given their long-term nature, given the uncertainties, they need to be backed with some scaffolding to actually achieve them. The sorts of things that are obvious here include interim targets to reduce emissions, transparency on and targets to change the company’s capital expenditures, and other kinds of intermediate steps that companies would need to take in order to reduce emissions.

Tim Phillips  19:02

If we think about the external pressures around the time that many of these organisations would have made their net zero commitment, it really was the thing to do. It was considered to be very natural. The political environment has rather swung against this now, in the UK.

Audio Clip – Jacob Rees-Mogg 19:18

You see that the countries that have been most rigorous about implementing the Paris Accords, the attempts to get to net zero, they’re the ones whose economies have performed the worst.

Tim Phillips  19:30

Definitely in the U.S.

Audio Clip – Chris Wright 19:32

No country on earth will get to net zero on 2050, but the urgent efforts trying to do it have just driven up energy prices, move industries out.

Tim Phillips  19:42

In Europe as well, we’ve seen organisations like the Net Zero Banking Alliance, they’ve stalled in their efforts, haven’t they? Do your results imply that corporations are still committed?

Simon Dietz  19:56

Well, I think there are a few things to say in response to this question. Firstly, just going back to our paper, our results are more suggestive that net zero targets have made a difference. They don’t suggest that corporate net zero commitments are simply empty promises. Thinking more in terms of the recent ESG backlash, if you want to call it that.

Tim Phillips  20:19

Yeah, let’s call it that.

Simon Dietz  20:20

Then it’s too early to see in the data the extent of this backlash. It certainly doesn’t show up in the data that we use in this paper, and it’s only just beginning to show up in data on corporate climate action more broadly. There are obviously these celebrated cases of companies that are household names rowing back on their net zero commitments, but there are many companies that are staying the course. For example, because they are under enduring regulatory pressure, or because they are operating in jurisdictions where they are not under the same stakeholder pressure to reverse their commitments. So, at the end of the day, we’ll see how this goes, and it’s one of these cases, probably of is the glass half full or the glass half empty. If the commitments that are being reversed are commitments that were fundamentally unserious in the first place, companies, for example, that just perceived their social license to operate as requiring a net zero target, who subsequently perceived their social license to operate as not requiring a net zero target, then the fact that they’ve withdrawn these commitments is neither here nor there. They were never serious in the first place.

Tim Phillips  21:33

They would have never have made it to 2050.

Simon Dietz  21:35

Right. So that’s the glass half full perspective in a way that we might just have creamed off the greenwash froth from the top of the climate action pint, and we’re left with something that we can actually drink.

Tim Phillips  21:48

It does show, however, though that the commitment to net zero and the language around it can be very volatile, doesn’t it? So, would you support — knowing what you know from this research — would you support more regulation for milestones, targets along the way? Especially as you say, it’s unambiguously good for the planet if these commitments are acted on early.

Simon Dietz  22:11

Well, I think that our research is consistent with something that I think we’ve known for quite a long time: voluntary action alone is likely to be insufficient because climate change is an externality. We’re not going to meet global climate goals without a strong global regulatory framework, which would include such things as carbon pricing, as support for clean technologies. All that having been said, there is likely to still be some value in making long-term commitments as a form of coordination device, where everybody knows that everybody is pointing in roughly the same direction and can have confidence in that, and can coordinate their actions to eventually bring temperature increase under control.

Tim Phillips  23:09

It’s fascinating to find out the gap between some of the rhetoric about the ESG backlash and what’s actually going on. Simon, thanks for talking about it.

Simon Dietz  23:19

My pleasure.

Tim Phillips  23:29

The paper is called “Corporate Net Zero Targets: Have they achieved anything?” Authors Simon Dietz and Nikolaus Hastreiter. It is Discussion Paper 21441 at CEPR.

Speaker 2  23:48

Vox Talks Economics is a Talk Normal production. The assistant producer is Megan Bieber, and our editor is Andrei Zagarian. Next time on VoxTalks Economics. Can we convince teams to read newspapers?