Report from the Research Frontier: January 2020

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New findings: For workplace change, don’t be angry; financial instruments can’t manage climate change; confusion is the new greenwashing

Every month, researchers publish dozens of articles on business sustainability. NBS highlights insights at the frontier of knowledge. See all monthly highlights.

For Workplace Change, Don’t Be Angry

“We are angry, we are frustrated” says Greta Thunberg, speaking of her student peers. That anger has led to marches and strikes worldwide.

But inside the workplace, anger about social or environmental issues can actually paralyze action.

Researchers Katherine DeCelles, Scott Sonenshein and Brayden King studied people inside and outside organizations who were concerned about issues including #metoo, business sustainability and gun control.

They found that anger motivates advocacy among non-employees, but that employees who are angry about an issue are not more motivated to advocate for it. (The researchers asked about taking actions such as approaching a boss to discuss a social issue or more generally acting to support social issues in the organization.)

Why does anger paralyze workers? As an employee, promoting change typically involves advocating to bosses and colleagues who could harm one’s career or reputation. Anger triggers fear about consequences; for employees, dependent on a company, this fear is greater than for an outside activist. In turn, this fear is associated with less action.

A possible solution: “Perhaps motivating workplace action through other emotions could be more effective,” DeCelles told NBS. Alternative motivations include compassion for victims, and doing “the right thing” (seen at Google).

Read the article:  DeCelles, K.A., Sonenshein, S., & King, B.G. 2019. Examining anger’s immobilizing effect on institutional insiders’ action intentions in social movementsAdministrative Science Quarterly. Another account.

Financial Instruments Can’t Manage Climate Change — Yet

Tackling climate change is expensive. Capital markets have money. New financial tools try to draw on those resources to address climate and other sustainability challenges. But are they working?

Catastrophe bonds are one financial tool aimed at adapting to the damage caused by climate change. Insurance companies issue the bonds to spread the risk of natural disasters to private investors. Costly hurricanes or other natural disasters trigger a payout from bond-holders to insurers.

A new study of catastrophe bonds shows their limits. Researchers Dror Etzion, Emmanuel Kypraios, and Bernard Forgues studied all catastrophe bonds from the inception of the catastrophe bond market in 1996 until March 2016: 323 deals. They also studied the models underlying the bonds — predictions of future catastrophes, often linked to climate.

They found that the catastrophe models underlying the bonds are “little better than guesswork,” because of large uncertainties in predicting future disasters. Catastrophe bonds have been profitable for investors to date, but losses could mount as climate change intensifies. Such losses will likely lead investors to exit the bonds, the researchers predict.

“It’s unclear whether financial innovation is the best way to manage these types of extreme risk,” Etzion told NBS. He and his colleagues recommend enhancement of traditional approaches to disaster: scenario planning, preparation, and better relief efforts. Financial tools should focus on reducing risk, more than on spreading it. For example, resilience bonds can support infrastructure investment.

Read the article: Etzion, D., Kypraios, E., & Forgues, B. 2019. Employing finance in pursuit of the Sustainable Development Goals: The promise and perils of catastrophe bonds. Academy of Management Discoveries. (free video summary on page).

Confusion is the New Greenwashing

President Harry Truman said, “If you can’t convince them, confuse them.” Companies with bad environmental news often hide it in obscure language.

Researchers Kira Fabrizio and Eun-Hee Kim studied firm submissions to the Carbon Disclosure Project (CDP). Firms report their environmental performance to the CDP; CDP staff then evaluate the submissions and assign environmental performance ratings.

Companies revealing negative environmental information used more obscure language in their disclosures, the researchers found: long sentences, complex words, technical terms.

It’s an effective tactic because this language is hard to interpret. “CDP staff reading this language may be uncertain of the meaning and so unwilling to fully penalize companies,” Kim told NBS. The researchers found that the decrease in CDP environmental performance ratings as a result of negative information revealed is smaller for firms with more confusing disclosures.

“Disclosure doesn’t necessarily mean transparency,” the authors note. One solution: Advocate for firms to use “plain English,” as the U.S. Securities and Exchange Commission does regarding corporate financial disclosures. Readability may be especially relevant for environmental reporting, because of the lack of consensus on standardized measures.

Read the article: Fabrizio, K.R., & Kim, E.H. 2019. Reluctant disclosure and transparency: Evidence from environmental disclosures. Organization Science, 30(6), 1125-1393

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