(Illustration by Caroline Gamon)
Citizens, governments, and businesses worldwide are feeling the growing impact of climate change, as the average temperature now hits 1.5 degrees Celsius above preindustrial levels. The pressure is on business leaders to manage the strategic consequences of global warming and to implement their firms’ increasingly ambitious climate agendas. While more and more companies are expanding their commitments to fight climate change, 64 percent of people surveyed in 14 major countries believe that firms are falling short of their commitments, according to an Edelman special report.1 Despite high levels of public trust in businesses, citizens across the globe are skeptical about companies’ willingness and ability to fulfill their climate promises.
Business leaders can advance their firms’ climate agendas up to a point, but their actions are limited by the broader systems in which they operate. A firm can’t decarbonize its supply chain if it can’t find the green products it needs on the market, or if its suppliers and distributors aren’t keeping pace in decarbonizing. A firm can’t justify to its investors the necessary research and development (R&D) expenses to decarbonize its products if consumer demand is uncertain and that firm risks creating a competitive disadvantage if it is the first to take action (i.e., first-mover disadvantage). A firm can’t report useful, consistent, and accurate emissions data or set emissions targets without standardized reporting and target-setting frameworks.
Climate change—like other business sustainability challenges—is a systemic problem that demands systemic solutions.2 Policy makers and regulators play a critical role, but, given the magnitude of the problem, the pace demanded by the science of climate change, the skills and resources required, and the fractured political landscape, business leaders must move decisively.
The scale and scope of change needed to make meaningful progress in reducing global warming and adapting to a warmer planet require leaders to look beyond the boundaries of their organizations and collaborate with others. Joint research conducted from 2009 to 2017 by MIT Sloan Management Review and Boston Consulting Group (BCG) finds that 90 percent of more than 60,000 executives and managers surveyed in 118 countries believe “collaboration is essential to sustainability success.”3 That consensus explains why, over the past decade, hundreds of business leaders have chosen to join alliances, coalitions, and other joint initiatives to address climate change.
For decades, scholars have studied the antecedents, forms, and performance consequences of strategic alliances—what management scholar Ranjay Gulati defines as “voluntary arrangements between firms involving exchange, sharing, or co-development of products, technologies, or services.”4 We analyze a specific type of alliance, which we call “climate alliances,” in which multiple firms collaborate with each other and, in some instances, with NGOs and government stakeholders to advance climate, environmental, or sustainability goals. These alliances can be industry-specific or include companies from across industries.
Researchers have recently begun to examine how climate alliances are forming and advancing the climate agenda.5 Yet, at the same time, these organizations are witnessing members withdraw and receiving politically charged challenges framed as antitrust allegations.6 Cloaked in public-policy and legal language, these charges claim that firms use climate alliances to collude with each other and greenwash their lack of activity. Some economists, using narrowly framed economic models, continue to argue that only unfettered competition and carbon taxes are appropriate, not coordination between firms. Government regulators question what firms do in concert that they can’t do by themselves. Prospective members of alliances need to ask the same question.
The decision of whether and how to join (or exit) climate alliances is becoming increasingly pressing for business. Given the large number of alliances, determining which are likely to be effective is a critical endeavor for potential or existing members. However, little guidance exists to help leaders navigate the complex climate-alliance landscape. To better understand these choices, we identified more than 75 climate alliances and formally interviewed more than 20 alliance and business leaders to find the problems and opportunities that may induce business leaders to join alliances, the ways in which climate alliances can help them fill gaps in their capabilities, and the challenges and limitations of climate alliances. We have also informally spoken with many more alliance leaders and members. While we have distilled broad themes from our interviews and share the specific language of participants, we do not identify their names or organizations. We hope to help business leaders make better decisions about whether and how to engage with these collaborative vehicles to maximize climate impact—and stay within the law.
Three Bottlenecks
As more and more firms define their climate strategies, the leaders tasked with implementation—from board members and senior executives to portfolio managers and procurement officers—soon find themselves faced with a monumental challenge. The mission, if they decide to accept it, is to address climate change. But how exactly can business leaders do that, and what help do they need from others? We conducted research and used semistructured interviews to find themes and patterns that emerged among alliances and business leaders. Specifically, we identified three bottlenecks standing in their way: lack of organizational readiness, in the form of willingness and capabilities; lack of market readiness, in the form of unresolved interdependencies; and lack of institutional readiness, in the form of consistent global policies and standards.
Firms often make climate promises in advance of implementation. Yet if leaders are serious about fulfilling their promises, they must overcome internal resistance to new ideas and practices as they adjust production processes.
Organizational readiness | A 2021 NYU study of 1,188 directors of US Fortune 100 firms found that only about 1 percent had any sustainability credentials, such as experience in sustainable business practices, sustainable development, climate and energy, nature conservation, and environmental law.7 Similarly, in a worldwide survey of board members conducted by INSEAD and executive search consulting firm Heidrick & Struggles, 65 percent of respondents say that climate-change knowledge is not required for board service or CEO selection and 74 percent do not prioritize climate change in the board’s competency matrix or executive-performance assessment.8
This lack of expertise is not restricted to boards or the C-suite. A 2023 BCG report finds a green-skills gap affecting seven million workers.9 A 2023 LinkedIn Global Green Skills report reaches a similar finding.10 Other senior managerial ranks suffer the same skills gap. In the more technical area of risk management at financial-service firms, a 2022 survey of chief risk officers (CROs) finds that nearly 40 percent are concerned about the “availability of qualified staff members” over the next five years.11
Firms often make climate promises, such as net-zero pledges, in advance of implementation plans or staffing. Some might call these commitments wishful thinking; others might call them ambitious. Yet if leaders are serious about fulfilling their promises, they must overcome fierce internal resistance to new ideas and practices as they adjust production processes; refocus R&D; restructure supply chains; retool risk management, accounting, and disclosure processes; restructure incentive systems; and so on. The sources of resistance are many and varied, stemming from a lack of internal awareness or scientific and management capabilities, or leadership and stakeholder buy-in. One leader with extensive experience in industry and working with climate business alliances told us that converting climate from a “risk issue to a strategic issue” poses a “huge organizational challenge,” one that stretches across every organizational function. For many firms, implementing the changes required may fall outside their traditional corporate capabilities. Those tasked with implementation may need capacity-building, technical assistance, and other forms of external support from experts, consultants, nonprofits, educators, and outside firms. In short, many leaders find it difficult to hire and cultivate the necessary mindsets and expertise.
Market readiness | Firms may find it easier to commit to decarbonizing their internal value chains than those outside the firm.12 In practice, identifying, much less addressing, upstream and downstream interdependencies is an enormous exercise. Amid today’s complex, interconnected supply chains, businesses rely on thousands of components, raw materials, and services from hundreds of different locations and firms. In some cases, partial or complete market gaps prevent procurement officers and portfolio managers from sourcing greener components, technologies, products, and investments.
While some green solutions are scientifically and technologically feasible, suppliers may lack the necessary demand signals and business models to provide them. Leaders may also be reluctant to invest in green technologies if they perceive a risk of first-mover disadvantage—e.g., if climate-friendly products are more expensive than their alternatives and consumers are not willing to pay for similar low-carbon-emission alternatives. Some green solutions, such as carbon removal and storage, will require significant R&D investment before they are ready for market. In the absence of consumer demand or policy action, decision makers (including funders) may not be willing to make these uncertain investments unless strong demand signals are evident.
From the perspective of a single firm or sustainability leader, the prospect of decarbonizing an entire market or supply chain, from sourcing raw materials to selling the final product, is daunting. The combination of uncertainty, short-term-ism, and lack of consistent taxes on the carbon externality across the world disincentivizes investment in technologies that are desperately needed to decarbonize but too costly and risky for individual firms to develop alone.
Institutional readiness | Just like roads, markets need guardrails and speed limits, and in the climate space, these need to be global to be most effective—or at least globally consistent. How we drive in the United States doesn’t directly affect motorists in the United Kingdom, but how much greenhouse gases we emit does, because global warming is not limited to national borders. However, the current global landscape lacks consistent government intervention and suffers from fragmented policies, standards, and accountability frameworks.
“The entropy in the system is very high,” said a leader of an industrial-sector alliance. “Some companies go with one standard; other companies go with another. None of that, in my view, actually gets us to a real outcome. It just leads to more churn.”
Some firms may capitalize on the regulatory vacuum by greenwashing their activities and gaining a competitive advantage without generating a positive impact. This behavior may then discourage well-intentioned firms from taking climate action. Business leaders may struggle to select which frameworks or practices to adopt and may be wary of investing time and resources adopting them if the credibility or legitimacy of those frameworks and practices is unclear. In addition, data inconsistency and lack of validation limit the accountability role played by regulators, financial markets, and consumers and slow down market development. Government and financial institutions are increasingly considering climate-related disclosures in their regulatory and investment processes, but if businesses adopt different frameworks and standards for disclosure of their environmental risks and impacts—as well as transition paths—stakeholders cannot easily compare across firms or discriminate between good and bad actors.
In summary, addressing the climate crisis requires multidimensional transformation. Political processes may not produce the institutional innovation we need at the appropriate speed and scale, given the politicized nature of climate-change discussions and the difficulties of coordinating international regulation. Traditional approaches to competition may not produce the necessary organizational capabilities and market structures. However, business leaders can and are forging a third path to organizational, market, and institutional change by collaborating with others—sometimes even competitors. Climate alliances are proving to be one essential vehicle for these collaborations.
Five Ways Climate Alliances Help
A leader of a financial-service alliance provided a simple explanation for why firms join alliances: “You can’t achieve your climate goals alone.” In considering whether and how to participate in climate alliances, however, business leaders must clarify the specific problems they seek to solve and the extent to which a climate alliance’s goals, strategies, and practices will enable them to do so. We find that climate alliances can help leaders address the real needs of their firms in at least five ways. While these benefits can manifest themselves independently, alliances in many cases carry them out concurrently and use them to reinforce each other.
Climate alliances can create demand signals, which in turn trigger positive externalities, and economies of scale and scope that accelerate the innovation, commercialization, and widespread adoption of green products.
Develop capabilities for implementation | First, climate alliances can help business leaders boost their organizations’ knowledge and capabilities for fighting climate change. Specifically, we found that climate alliances, like other collaborative models, convene actors with diverse knowledge and expertise, foster networking and exchange of best practices, and facilitate targeted problem-solving.
For example, the mission of the United Nations Environment Programme Finance Initiative (UNEP FI) is to generate awareness and build knowledge to empower financial institutions to take climate action. UNEP FI convenes leaders of financial institutions to identify common challenges (e.g., assessing climate-related risks) and develop solutions that firms can use. UNEP FI provides practical guidance and tools for firms to engage in climate action, such as methodologies for assessing climate-related risks in financial portfolios. Initiatives promoted by UNEP FI, such as Principles for Responsible Investment (PRI), have helped investment firms integrate sustainability considerations into their investment decisions and have contributed to the rise of sustainable investing.
The head of a climate alliance in the financial industry noted that the alliance surveyed market participants annually to identify their recurring sources of difficulty: “We provide in-depth guidance that helps them with those pain points. ... [Annual] progress reports and status reports have really been invaluable in shaping the work going forward. [They give] us our direction.” When a survey revealed that companies struggled with scenario analysis, the climate alliance shifted the focus of its activities to helping companies organize scenario planning internally, source tools for analysis, and interpret results.
By framing problems, creating platforms for dialogue and exchange, and providing technical solutions for overcoming difficult implementation challenges, climate alliances like those instigated by UNEP FI help leaders increase internal awareness about climate-change and climate-related risks, develop shared narratives about climate challenges and solutions, generate buy-in for climate action, and foster novel skills and expertise needed for implementation. These activities not only generate tangible increases in the adoption of climate standards and frameworks but also help establish a more purposeful culture in firms.
Coordinate joint ambition | Climate alliances also enable businesses to align around a long-term, shared vision of change. The Race to Zero initiative, a global alliance with a goal of accelerating the transition to a net-zero-carbon economy, brings together dispersed groups of like-minded organizations (which share an interest in addressing climate change) in a global, multisectoral community comprising 8,307 companies, 595 financial institutions, 1,136 cities, 52 states and regions, 1,125 educational institutions, and 65 health-care institutions. Each member is supposed to pledge and develop plans to reach net-zero carbon emissions by 2050. While these firms act individually, as part of the alliance, Race to Zero helps firms convert abstract support for the climate agenda into concrete, theoretically quantifiable commitments and action steps. The alliance has developed provisions—including a set of five high-level criteria that all members are meant to meet—to channel this remarkable scale of joint ambition into action. Moreover, it mitigates the first-mover disadvantage by enabling members to precompetitively and concurrently engage in cleaner activities.
Interacting with peers can lead business leaders and their firms to aspire to more. An interviewee who was privy to the process of drafting an early industry-level set of climate principles said that “internal peer pressure” across firms launched “ambition loops,” expanding firms’ individual sustainability aspirations. “I think that’s part of the design of alliances: How do you [design them] in a way that creates an ambition loop [that] is upward, not downward?” the leader said. “Of course, it is possible to create something where you also destroy ambition quite quickly. But I think [if it is] properly structured, you can create that race to the top.”
Because of antitrust concerns, firms are extraordinarily cautious about anything that might be construed as joint action. Some climate alliances nevertheless add value by providing the formal organizational structures, processes, transparency, and governance necessary to enable collective action across firms while remaining compliant with the law. They bind their interactions to specific tasks, simplify and reduce the costs of coordination, and enable actors to develop systemic solutions to fill critical gaps.
For example, despite allegations of greenwashing, the Oil and Gas Climate Initiative (OGCI) is a platform through which 12 major oil and gas competitors pool their resources and expertise. By founding and being limited partners in the $1 billion Climate Investment Fund, OGCI members make joint investments as an industry, rather than as individual firms. Although these investments constitute a relatively small fraction of their combined R&D budgets, their collective staff time, technical expertise, and funding represent a significant and measurable allocation of resources toward clean-energy innovations, such as carbon capture, utilization, and storage.
(Illustration by Caroline Gamon)
Shape future supply and demand | Decarbonizing economies requires the creation—and diffusion—of waves of innovations. Moving from early to mass adoption, or moving from one technology to another, can be slow, particularly when markets are intertwined. By facilitating alignment within and across industries, climate alliances also enable business leaders to address some of their thorniest challenges with decarbonization: market interdependencies. Climate alliances can create and aggregate credible demand signals, which in turn trigger positive externalities, and economies of scale and scope that accelerate the innovation, commercialization, and widespread adoption of green products across the economy.
Climate alliances take two approaches: demand pull and supply push. The OGCI example above is a supply-push initiative; it aggregates funds to invest in new technologies and firms, incentivizing suppliers to do more. Demand-pull versions, sometimes styled as advance market commitments, seek to stimulate new markets, not by funding investment but by having buyers precommit to purchasing products in nascent markets, thereby encouraging new suppliers and financiers to develop new markets.
Demand-pull activities are deployed by Climate Group, a nonprofit organization of business and government leaders that works to develop and scale existing technologies such as fossil-fuel-free steel and net-zero concrete, among other initiatives. Climate Group leverages its members’ collective purchasing power to generate demand signals: Members publicly indicate their interest in procuring net-zero-emissions steel, concrete, or other raw materials or products in the future. Since its 2017 launch, the 127 members of Climate Group’s EV100 initiative have committed to purchasing a total of nearly six million electric vehicles in more than 100 nations by 2030. Similarly, Frontier Climate, an advance market commitment founded by Stripe, Alphabet, Shopify, Meta, and McKinsey, aims to expand the carbon-removal supply by guaranteeing future demand. Member firms committed to investing more than $1 billion in permanent carbon-removal activities (which extract carbon from the atmosphere and store it either underground or in other forms for at least a century) from 2022 to 2030, sending a strong market signal for R&D investments and innovation.
By leveraging their collective purchasing power to shape supply and demand, both Climate Group and Frontier are enabling firms to collectively address their interdependencies in the production of goods and services. These climate alliances are shifting incentives around research, development, and capacity-building across entire value chains. As a result, they are changing existing markets and creating new markets for climate solutions—progress that no single member of these alliances could have made on its own.
Establish accountability structures | Antitrust concerns may prevent firms from leveraging sanctions or legal consequences against their peers, in turn raising doubts about the accountability of firms’ voluntary climate commitments. Perhaps because of this limitation, nearly half of business strategy experts surveyed in 2018 by the MIT Sloan Management Review disagreed with the idea that industry self-regulation could help mitigate climate change. Nevertheless, climate alliances—which sometimes include nonprofits, regulatory authorities, and other actors—are emerging as third parties with the potential to address institutional shortcomings. Alliances are enabling business leaders to expand and advance their companies’ efforts to combat climate change even in the absence of government action or a unified regulatory framework.
Climate alliances deploy different forms of external accountability mechanisms to increase the likelihood that their members’ voluntary commitments translate into tangible actions. For example, the Science Based Targets Initiative (SBTi)—a collaborative effort that helps companies set targets for greenhouse gas emissions reduction in line with the latest climate science—has developed technical standards for firms aiming to establish net-zero carbon-emissions targets. Firms individually and voluntarily submit emissions targets and adhere to a scientifically aligned pathway for reducing emissions. SBTi holds its member firms accountable by requiring them to deliver on interim objectives and targets to remain part of the alliance. SBTi also validates member firms’ targets and continuously reviews and tracks progress toward their goals. The independent review by a third party helps promote both the transparency and the credibility of firms’ progress toward their targets.
Facilitate policy innovation and convergence | Finally, climate alliances provide dedicated spaces for businesses to develop and converge on standards, present unified perspectives to policy makers, and advocate collectively for policy reforms. In the words of an alliance leader with extensive experience in the private sector, “What drives [companies] crazy is having many different pathways out there that are not aligned, and so one of the reasons to join a coalition is that in fact it creates some sense of convergence.”
For example, the Consumer Goods Forum (CGF), a network of firms in the consumer-goods industry working to promote sustainable business practices, has helped create such convergence. CGF has aggregated perspectives from across the industry on extended producer responsibility schemes (policies that make producers responsible for later stages of their products’ life cycles), enabled industry actors to converge on a set of recommendations, and then published a paper articulating their collective position on the issue.13 Similarly, the International Chamber of Commerce recently consolidated its members’ perspectives on integrating climate and sustainability considerations into antitrust law.14 The same leader quoted in the previous paragraph added that converging not only on standards but on the measures, technology readiness, capital costs, and expectations for the speed of implementation becomes “very helpful to companies.”
Besides serving as an interface between business leaders and policy makers, climate alliances test and promote blueprints that governments can then consider and possibly use in crafting regulatory frameworks. The Task Force on Climate-related Financial Disclosures (TCFD), for instance, was an international initiative that developed technical and managerial standards for uniform climate-related disclosure. Firms voluntarily adopted these standards because they improved the credibility and comparability of their climate disclosures. Subsequently, governments and global standard-setting bodies (e.g., the International Sustainability Standards Board) designed their own climate disclosure frameworks based on the TCFD’s blueprint. Having achieved its ultimate goal, the TCFD handed over its activities to the International Sustainability Standard Boards (ISSB) in 2023 and was disbanded. “Firms collaborating and demonstrating that things can work then puts healthy pressure on the political system,” said a consultant with whom we spoke.
But this sort of industry-driven standards-setting is not without critics. A coalition of 62 environmental groups, for example, signed a letter criticizing the Taskforce on Nature-related Financial Disclosures (TNFD) for “undermining the real solutions to the nature crisis.”15 Their petition alleged that the standard-setting process included the voices of firms responsible for environmental degradation but failed to include those affected, address key nature-related impacts, and adequately consider environmental-justice concerns.
In theory, alliances can be valuable: They can help firms develop new capabilities, create positive ambition loops, shape new markets and institutions, facilitate convergence of practices, and create accountability around environmental action. In practice, they have helped firms overcome organizational, market, and institutional challenges that slow the transition toward more sustainable business practices.
The Limitations of Climate Alliances
Climate alliances clearly hold promise for making progress on climate change. But they also have their limitations. The business leaders and alliance managers we interviewed noted several common challenges—all of which pose risks to the functioning, integrity, and impact of climate alliances.
Unfortunately, climate alliances frequently do not track KPIs for themselves or individual members, and when they do, they often do not disclose them publicly. As a result, they are unable to track progress toward their goals.
Challenge 1: Goals and alignment | Climate alliances sometimes fail to articulate clear and concrete goals and strategies, and in so doing can kick-start a vicious cycle of overpromising and underdelivering impact to members and society at large. When climate alliances’ goals are too broad, they are difficult to translate into a clear set of activities. Alliances that focus on narrower objectives—such as creating a new product, funding a new investment, or addressing a shared problem that pertains to a specific sector—are more likely to succeed.16 “The most important thing [is] focus,” said a senior manager of a manufacturing alliance. “We said, ‘We’re only going to do three things, and that’s it.’”
Establishing “incentives for collaboration” is what makes the difference, according to another alliance leader focused on heavy industries. The alliances themselves cannot mandate behavior, but they can inform and align with members’ incentives. Alliances that don’t address members’ real business problems lack relevance.
“Even if we all share a common agenda,” the same leader added, “one of the underlying challenges in keeping these coalitions together is just to really understand the incentive structures for each [member]. If you misunderstand what those incentives are, it becomes much harder to hold the various pieces together.”
Articulating a clear, narrow, relevant purpose enables members of climate alliances to unite around a shared understanding of why they are collaborating, which helps steer members toward delivering the desired outcome.17
“I think the underlying desire [is] to do something that makes a difference, to fill a need that desperately needs to be filled,” said a board member of a financial-sector alliance. “That help[s] make up for the lack of authority in driving people to come together and make decisions in a really collegial, constructive way.”
For example, the TCFD defined a clear objective: to provide financial markets with more information to achieve climate mitigation through market forces. This clear goal enabled alliance members to focus their attention on what chief sustainability officers and investors needed and on delivering standards that could address their specific challenge.
Challenge 2: Stable team and operating model | Many climate alliances have opted to establish a secretariat or a management team to oversee their day-to-day operations. But excessive turnover on these teams can prove to be a challenge. Such turnover is due partly to unstable funding streams.
“Much of this world operates on … a project basis,” an alliance manager says. “You get funded for a project, [and] when the project is done, you need to find another project. … Few of them have the institutional structure that allows for good growth and development [for management team members] over time.”
Without long-term roles or career-development opportunities on their management teams, climate alliances struggle to attract and retain talent, and without a stable core team, they struggle to routinize their processes and operating models and to cultivate a sense of continuity for their members and investors.18 In such instances, the alliance’s day-to-day work becomes unstructured, ad hoc, inconsistent, and sometimes overly focused on simply attracting the resources necessary to ensure short-term survival. The leader quoted in the prior paragraph observed that turnover on the task force had led alliance members to “lose some of the connectivity they had.” The managing director of a global alliance described this experience as a gap between “the capacity of really impressive leaders—people [who] set a powerful vision—and then the operational capabilities that they may have among their operational teams.”
By contrast, climate alliances with more stable teams and operating structures invest less time in day-to-day survival and operations of the alliance and dedicate more resources to generating value for their members and stakeholders, our research found.
Challenge 3: Scope of membership, governance, and accountability | While climate alliances may initially want to grow their membership, being too inclusive in accepting candidates can exacerbate operational challenges. “The first issue is who you convene,” said one alliance operator. “Who do you want in the room in terms of companies and people?” Some alliances have industry- or sector-specific membership. Others practice what a consultant we interviewed called “intentional inclusion,” wherein civil-society actors are invited to participate alongside business leaders and serve as a disciplinary team and blow the whistle if companies at any point are acting in their own interest, not in society’s.
For other alliances, ambition is the measure for selection. The leader from an industrials alliance said: “We want the most ambitious companies from a decarbonization standpoint. ... We’d rather have the 10 most ambitious than have the whole industry group involved. ... It creates a pull mechanism in the market as opposed to a lowest-common-denominator kind of approach.”
Many climate alliances lack the necessary governance to structure decision-making, leaving their agendas susceptible to hijacking by funders. Climate alliances often need to be pragmatic in attracting sufficient funding to support their missions, and many depend on single funding streams. A lack of diversified funding can lead funders to have too strong a say in the activities and operations of the climate alliance. In some instances, this imbalance leads climate alliances to spread themselves too thin or causes fragmentation.
“We open our arms and do everything we can because we need money to sustain our movement,” one leader of a cross-sector alliance said. Thus, the leader added, “You need to have good governance and ensure there’s no conflict of interest in the alliance.”
Good governance is also required to manage members’ competing incentives (e.g., firms’ desires to minimize costs and NGOs’ desires to fulfill their missions) in decision-making processes. “When a group like this comes together, because nobody really knows each other, nobody has any embedded authority,” said a corporate CEO we interviewed. “There’s no sense [of] hierarchy by definition. The difference [from a corporation] is [that] it isn’t clear who [sh]ould decide.”
Failing to delineate clear member roles, responsibilities, and norms can thus hamper efficient and effective decision-making—but, conversely, leveraging this dynamic can lead to productive outcomes in that participants at least partly remove their organizational hats to address the common work to be done.
Proper governance helps ensure that every firm is contributing to the common goal. “In a collaboration environment, how do you do enforcement?” one leader asked about free riding. “You try to collaborate and be nice to each other, and then someone’s not delivering.” Our interviewees emphasized that formulating procedures and criteria for delisting members (in the event that they do not deliver on their commitments) are as important as entry criteria, because perceptions of free riding undermine member participation. All of this governance must be mindful of legal prohibitions on certain types of collaboration.
We suspect that most of us hope that our children and generations of their offspring can look back with pride on how firms played a role in addressing the existential threat to humanity that climate change presents.
Challenge 4: Metrics and measuring impact | Alliance membership comes with costs. While membership fees and other financial costs are usually modest, potential members must also consider time demands, reputational spillovers, and potential legal headaches and then weigh them against the benefits of participation. These benefits must be measured, and progress must be tracked.
Utilizing metrics and key performance indicators (KPIs) is critical for establishing alignment, accountability, and credibility. For individual firms, the SBTi develops technical tools for members to set their net-zero-carbon-emissions strategy. Companies joining the initiative declare clear, publicly disclosed KPIs they will achieve by defined timelines. In addition, members are required to submit their progress against their short- and long-term targets. An independent team validates their technical soundness—or alignment between targets and the relevant scientific measures that relate actions to emissions reduction.
Unfortunately, climate alliances frequently do not track KPIs for themselves or individual members, and when they do, they often do not disclose them publicly. As a result, they are unable to quantify or track progress toward their goals, much less understand who is contributing to this progress.19
Different types of climate alliances have different sets of considerations that prospective and current members must ask to gauge alliance effectiveness. For example, to measure the impact of capacity-building alliances, members could assess whether participation enhances their own firm’s skills and capabilities. Business leaders could measure the impact of ambition-coordinating alliances through the number of pledges or public commitments to the alliance goals, along with attitudinal surveys of people in member organizations. Evaluating standard-setting alliances requires not only identifying the rules, regulations, and standards they put in place but also assessing their quality, integrity, and, notably, scale of adoption.
Measuring progress is important and should be tailored to the objectives of the alliance. “Getting the coalition moving, creating the forward momentum—that’s important,” said a head of an alliance, “but ... if [the project] lasts for longer than [a] decade, it actually hasn’t achieved its goals.”
Challenge 5: Open discourse and inclusive debate | Prior research on alliances and climate collaborations has established that trust among partners—a belief in their positive intent and commitment to the common goal—is a critical ingredient for them to function effectively.20 However, in the words of one interviewee, a “high level of trust, compromise, open debate, and discussion doesn’t always characterize these alliances.” This discrepancy is particularly true because of antitrust fears.
Governance is not the only important factor for enabling productive discourse, inclusive debate, and exchange among alliance members. Some climate-alliance leaders choose to cultivate open communication with structural interventions. One leader we spoke to observed that their alliance members (which included businesses and governments) didn’t speak with candor during large plenary meetings, which were open to the media. Instead, they decided to create smaller forums to enable
peer-to-peer exchange.
“Sometimes it’s like [members] want everyone else to be honest, but they don’t want to be,” the leader said. “That can be a challenge. … Our ability to create those spaces is really important—trust in that kind of container, behind closed doors.”
Encouraging open discourse and debate can require climate-alliance leaders and operational teams to actively facilitate discussion and decision-making. “Coalitions are really hard, and coalitions across different sectors are even harder, because they don’t necessarily trust each other’s rubric for decision-making,” said a senior coalition leader. While some leaders are concerned with the speed and efficiency of decision-making, others prioritize reaching consensus and dialogue. “We were always open to the discussion and the debate,” one leader said. “I know that’s problematic a lot of times because people feel like things just go on and on and on. But we didn’t cut off [any] discussion or debate. We let people feel like they had really been heard on the issues they cared about.”
According to our interviewees, if members don’t trust each other, that decreases their engagement and their willingness to commit resources, communicate, and exchange information productively. In such instances, members may prioritize their own interests in decision-making over the collective climate or sustainability goal.
Challenge 6: Staying on the right side of the law, politics, and history | Finally, alliances and their members must always remember that no matter how good their intentions are, certain actions can expose them to antitrust enforcement threats or sanctions. Although rules vary by jurisdiction and are constantly changing, politicians opposed to decarbonization can allege antitrust behavior or violations of fiduciary duty, and their allies can engineer outright boycotts.21 This response has been particularly pronounced in the United States.
Some climate alliances have adopted practices to avoid antitrust problems, including regular antitrust trainings (i.e., ensuring that all alliance members are fully aware of the relevant antitrust red lines) and reviewing antitrust guidelines at the beginning of every meeting. For example, Climate Action 100+, which has been the target of various anticompetitive allegations and congressional hearings, states explicitly on its website and in its outreach that while investors may come together to collect information and express their preferences, they ultimately make their own investment and voting decisions.
Others see lawyering up as a prudent course of action. “I think the lawyers have got an important role to play,” said a legal professional we interviewed, although the person added that challenges arise when you “have lots of different legal advice coming from lots of different law firms.”
These measures cannot insulate an alliance or its members from being politically targeted. To mitigate the risks, some alliances are adopting new strategies. When communicating their scope, for example, some alliances state explicitly what they do not do. For example, one interviewee described that instead of jointly making certain decisions that would be sensitive from an antitrust perspective, their alliance requires member firms to make them individually. Other alliances are including government or civil-society representatives to enhance accountability and impact. One alliance leader described the underlying cross-sector dynamics that led their alliance to convene business, government, and civil-society actors: “NGOs are putting pressure on businesses. Businesses are putting pressure on governments. Governments are now putting pressure back on businesses.” Putting them together can make this push and pull more productive. But others worry that this approach may lead to less candid interactions because members may be more cautious about their engagement with stakeholders from outside the private sector.
Firms and alliances must also keep in mind the larger context of climate change and humanity’s future. Yes, they must be prudent about the legal and political costs of alliance membership to remain not only on the right side of the law and politics, but also on the right side of history. We hope that future generations can look back with pride on the role firms played in addressing climate change—that they moved constructively against this existential threat, instead of running down the carbon time clock to greater planetary harm.
The Path of Collaboration
The urgency and magnitude of the climate crisis often leads to two seemingly opposed solutions. The market-focused approach holds that through innovation and entrepreneurship, individual firms will compete their way to a more sustainable future. But this view runs into an incentives problem, because businesses face few or no consequences for emitting greenhouse gases or engaging in other environmentally harmful actions. The government-focused approach, by contrast, looks to politicians, regulators, and courts for comprehensive solutions blending taxes, regulations, and industrial policy. But government regulation may be ineffective if it is not well informed, if it is not worldwide, or if it is stalled by political gridlock. While business and government actors have made notable progress in the fight against climate change, we are falling short of preventing climate catastrophe.
Collaboration offers a third, complementary path for business leaders to address climate change. Climate alliances are positioned to amplify and extend the impact that individual firms and government action can generate. By joining together business leaders—and sometimes civil-society and government actors—alliances can help firms be more ambitious, responsible, and effective in their efforts to accelerate systems change and save the planet.
Read more stories by Matteo Gasparini, Knut Haanaes, Emily Tedards & Peter Tufano.