The most serious challenge facing the earth is climate change, which reflects the industrial economy’s reliance on fossil fuels. To decarbonize, governments have enacted a range of mandatory policies. Alongside there is a proliferation of voluntary business efforts. Probably the most well-recognized of business initiatives is ESG (Environmental-Social-Governance), a metric to assess firms’ performance holistically, as opposed to relying predominantly on profits.
The theory is that decarbonization requires substantial changes in how businesses function. Decarbonization policies, whether mandatory or voluntary, tend to impose short-term private costs on firms to produce the global public good of climate mitigation. If firms focus on short-term profit maximization, they will have fewer incentives to pursue decarbonization.
