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Abstract

Multinational enterprises (MNEs) provide both a fundamental risk to and an opportunity for climate change mitigation. The climate ambitions of MNEs will affect the environmental performance of countries around the world. As a leading actor, proactive MNEs can impose sustainability standards or encourage green technology transfers that, in some cases, could affect millions of producers and accelerate the climate transition. However, obstructive MNEs may equally hold back any progress to reduce a country’s emissions via inaction or by actively resisting, obstructing, or lobbying against change. The objective of this report is to study the effect of MNEs on climate change.

Toward this goal, the report reviews the latest available data, conducts new empirical analysis, and summarizes pioneering literature. The report answers four key questions related to the relationship between MNEs and climate change: » What effect do MNEs currently have on climate change, both through their own activities and through the emissions of their broader supply chains? » How do MNEs shape the potential transfer of “green” technologies to domestic firms, and how do different types of interactions with MNEs stimulate such technology transfers? » How committed are leading MNEs currently to transitioning their supply chains to net-zero emissions by 2050, and do they have long-, medium-, and short-range strategies to realize this? » What types of policies can influence MNEs’ effects on climate change?

Overview

The world today confronts an unprecedented climate crisis, and governments zealously seek solutions: multinational enterprises (MNEs) should play a central role. Climate change is a defining challenge of our time—posing serious threats to countries’ ability to secure past developments and sustainably achieve future improvements in living standards. So it is urgent that countries build the resilience of and be ready to adapt their people and economies to the effects of climate change in their development strategies, while also reducing greenhouse gas (GHG) emissions to mitigate damaging changes to the climate (World Bank Group 2021). The success of such strategies for global climate action will depend in part on the willingness of pivotal private actors to reform their behavior, ensuring widespread access to new technologies and increasing the global flow of investments. For each of these reasons, multinational enterprises should play a central role in climate change policy.

MNEs provide both a fundamental risk to and an opportunity for climate change mitigation. The climate ambitions of MNEs will affect the environmental performance of countries around the world. As a leading actor, proactive MNEs can impose sustainability standards or encourage green technology transfers that, in some cases, could affect millions of producers and accelerate the climate transition (Thorlakson, Zegher, and Lambin 2018). However, obstructive MNEs may equally hold back any progress to reduce a country’s emissions via inaction or by actively resisting, obstructing, or lobbying against change.

MNEs also offer an important source of finance for sustainable development by supplying countries with foreign direct investment (FDI). Fulfilling the global commitments made in the Paris Agreement on climate change and achieving the Sustainable Development Goals (SDGs)1 requires an acceleration in financing. The United Nations Conference on Trade and Development (UNCTAD 2014) estimates that between US$550 billion and US$850  billion in capital investment is needed in developing countries annually to meet goals related to climate mitigation, while another US$80 billion to US$120 billion is needed for adaptation. The United Nations (UN) estimated an average annual SDG funding gap of US$2.5 trillion in developing countries (UNEP 2018). Together with public and other private investments, the crossborder investments of MNEs (FDI) offer an important source of finance for sustainable development (OECD 2022).

The objective of this report is to study the effect of MNEs on climate change. Toward this goal, the report reviews the latest available data, conducts new empirical analysis, and summarizes pioneering literature. The report answers four key questions related to the relationship between MNEs and climate change:

■ What effect do MNEs currently have on climate change, both through their own activities and through the emissions of their broader supply chains?

■ How do MNEs shape the potential transfer of green technologies to domestic firms, and how do different types of interactions with MNEs stimulate such technology transfers?

■ How committed are leading MNEs currently to transitioning their supply chains to net-zero emissions by 2050, and do they have long-, medium-, and shortrange strategies to realize this?

■ What types of policies can influence MNEs’ effects on climate change?