A small number of MNEs are a major driver of global greenhouse gas (GHG) emissions. This report’s analysis suggests that the direct activities and supply chains of 157 large MNEs jointly account for up to 60 percent of global industrial emissions. While 10 percent comes from MNEs’ direct activities, their supply chains account for another 50 percent of global emissions.
Most of the 157 MNEs are insufficiently committed to decarbonizing production and supply chains. Only one in four of all MNEs have committed to net-zero GHG emissions by 2050. Few have a long-term strategy (20 percent), a medium-term strategy (13 percent), or a short-term strategy (5 percent). None of the MNEs had a capital allocation strategy that aligned to net-zero emissions by 2050. The lack of short-term plans to decarbonize production and supply chains raises credibility concerns about the realism of MNEs’ long-term commitments.
Yet, MNEs can help domestic firms decarbonize by providing access to more advanced, low-carbon technology. MNEs’ production is less carbon-intensive than that of domestic firms. Firms that interact more with MNEs (via licensing, supply linkages, or joint ventures) are more likely to engage in green target-setting, monitoring, and decarbonization. This suggests MNEs can be an important part of the solution.
MNEs are increasingly shifting their new investments to green sectors and avoiding polluting sectors. Foreign direct investment (FDI) announcements in green sectors have strongly increased, rising by 700 percent between 2003 and 2021. In contrast, foreign investment in polluting sectors has declined by 80 percent over the same period. Green FDI has also overtaken FDI in polluting sectors. As a ratio, green and polluting FDIs’ share shifted from 5-to-95 percent in 2003, to 66-to-34 percent in 2021. MNEs thus offer an important source of finance for the climate transition. Countries should actively consider MNEs in their climate change mitigation plans.
This section of DEMRI.net introduces new frameworks, the 5Ps, will be used which show how various policies can shape MNEs’ impact on climate change. The 5Ps are patrolling (monitoring emissions), xx The Effect of Multinational Enterprises on Climate Change prescription (laws and regulations), penalties (taxes), payments (incentives and fiscal support), and persuasion (corporate commitments and information). These tools can encourage MNEs to reduce emissions-intensive production, help them shift their supply chains to lower-carbon production methods, and facilitate the transition to a low-carbon industrial structure by attracting green FDI and phasing out dirty sectors.
