Shareholder responsibility could spur shift to sustainable energy, study reports

Jan 08, 2013

Allowing shareholders to be held liable for the damages that companies cause to the environment, 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.

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 despite their large environmental and social costs. The researchers identify that this rigidity of the existing 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, , 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 , 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 .Instead, since the early 1970s the global system has 'frozen', with fossil fuels and nuclear remaining the major . "From a healthy 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 in today's energy system. "It's dominant positive feedback," says Schellnhuber. Heavy investments in 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.

The profits and advantages for shareholders don't include a reckoning for environmental and social damage, so there is little impetus for shareholders to consider those factors.In order to change the system, says Schellnhuber, something needs to alter the damaging positive feedback cycles. Dangerman says, "The paper suggests that you could change this system by allowing a form of negative feedback:by stopping the current block on shareholder liability and holdingshareholders co-responsible for the damage that their companies cause."

Dangerman points to the Deepwater Horizon explosion as an example, "If shareholders were held liable, then next time they might consider the risk before investing or reinvesting."

The study builds on forty years of energy and technology research at IIASA. "Researchers at IIASA have pioneered studies into how lock-in into dominant technologies results in a major barrier to achieving a transformation to sustainable energy systems," comments IIASA Deputy Director Prof. Dr. Nebojsa Nakicenovic.

Explore further: Storing solar energy

More information: Dangerman ATCJ & Schellnhuber HJ (2013). Energy Systems Transformations. Proceedings of the National Academy of Sciences.

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User comments : 10

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AWaB
1 / 5 (2) Jan 08, 2013
This is a silly idea. We can't get the people who knowingly commit securities fraud, etc. for banks and other institutions to be held responsible for their crimes. How do they expect shareholders, an even more legally remote target, to be held responsible for a corporation's actions?
holoman
1 / 5 (1) Jan 08, 2013
They can't destroy the environment like big oil and nuclear.

The damage they cause can last hundreds of years.
Jimee
3 / 5 (2) Jan 09, 2013
Consumers are the only ones who can force the greedy to act more responsibly.
grondilu
1 / 5 (1) Jan 09, 2013
Consumers are the only ones who can force the greedy to act more responsibly.


So true, man.
unknownorgin
5 / 5 (1) Jan 09, 2013
The only shift this idea would cause is a lack of investment in anything bigger than a lemonade stand due to high risk and the end of most manufactoring and utilitys but we can always make candles out of animal fat for light at night.
VendicarD
1 / 5 (1) Jan 09, 2013
So be it.
moebiex
5 / 5 (1) Jan 09, 2013
On the one hand, shareholders are penalized by share price drops aren't they? On the other the liability arising from an accident is generally defined after the fact through litigation which is generally fighting battles to internalize the "costs" instead of working on the company's assumption of full liability as part of their accountability package. Of course, given the structure of the legal system designed by and for the major players, the only guys who really win are - you might have guessed it- the lawyers. The same bunch as comprises about 75% -ish(I believe)of our legislators. And people are surprised about this?
antialias_physorg
5 / 5 (1) Jan 09, 2013
OK, even I have to admit holding shareholders responsible is a dumb idea, because that just encourages company execs to break the law
"Hey, it's not my fault - the shareholders made me do it"

This would only work if there were a corporate culture of illegality. Corporate power may attract people who aren't law abiding citizens - but that's still individuals and not a 'corpoarte entity' that commits the crime.
And moving the blame to the shareholders isn't going to dissuade these indviduals (quite the contrary)
alfie_null
not rated yet Jan 13, 2013
It would help if insurance coverage were part of the picture. Every so often shareholders would see an insurance fee assessed against the value of what they hold. The insurance would, of course, be against the cost of prospective lawsuits.

This (insurance coverage) might take place as a natural occurrence, following this new potential indemnity.
ryggesogn2
2.3 / 5 (3) Jan 13, 2013
"Shareholder responsibility could spur shift to sustainable energy, study reports"
Only if the value of the shares increase.
Of course a large majority of shares are owned by state and local govt and union retirement plans.
And to make the plan 'work', the govt would have force shareholders to NOT sell their shares.