‘Local warming’ effect galvanises CEOs into action

Professors at the Toulouse Business School and Audencia have observed a direct link between CEOs' exposure to abnormally high temperatures, and the decrease in carbon emissions from their companies following this exposure.

Following a summer of record temperatures, the study suggests that CEOs are revising their perception of the reality of global warming and, as a result, are more likely to initiate concrete actions to curb emissions.

Professors Alexandre Garel and Arthur Petit-Romec’s analysis builds on an emerging body of research on the 'local warming' effect, which suggests that people's judgements about global warming and its consequences are influenced by recent local temperatures.

The study considers a CEO to have been exposed to abnormally hot weather if the temperature in a city where he or she resides over the past 12 months is at least 2 degrees Fahrenheit higher than the average temperature observed for the same month of the year and the average annual temperature over the past 10 years. Carbon emissions are scaled by company size to account for the fact that larger companies tend to have higher carbon emission levels.

Based on a sample of 647 US listed companies over the period 2002-2018, the researchers found that in the two years following their CEO's exposure, companies reduced their carbon emissions by an average of 27 tons perm dollars of assets compared to companies whose CEOs were not exposed to abnormally hot temperatures.

Prof Alexandre Garel commented: "This effect is significant, representing more than 10% of the standard deviation of carbon intensity in our sample and corresponding to a reduction in emissions of 378,000 tons. Our results highlight the role played by CEOs' personal experience of climate change in reducing companies' carbon emissions.

"It also gives a mixed picture about companies’ climate inaction. But as the consequences of climate warming are being felt more widely, this will encourage more business leaders to intensify their efforts to further curb their companies’ emissions.”

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