Corporate collaborations, decarbonization and equity value creation

Abstract

Purpose

Opportunities for shareholder value creation from deep decarbonization in fossil fuel and related industries may be unlocked with a permanent change in corporate governance practices. The purpose of this study is to highlight the conceptual links between corporate collaborations, decarbonization and equity value creation to enable the large-scale reallocation of funds necessary to halve carbon emissions by the end of this decade.

Design/methodology/approach

Consistent with shareholder value maximization, the author uses the constant dividend growth framework to show that a permanent change in corporate governance practices can impact expectations of future cash flows and required rates of return. This study includes a simulation to explore how perpetual corporate collaborations on decarbonization that influence the key equity value drivers can add value to the equity of collaborative firms.

Findings

Perpetual corporate collaborations with key stakeholders focused on equity value drivers hold great potential for accelerating the reallocation of funds to low-carbon assets. Simulation results suggest that relatively small changes, especially in required rates of return, may result in substantial increases in equity values for collaborative leaders in deep decarbonization.

Originality/value

This study identifies new sources of shareholder value from long-term corporate collaborations with key stakeholders on deep decarbonization. A collaborative focus on important equity value drivers can attract capital also to hard-to-abate industries and initiate sharp cuts in carbon emissions. Corporate governance practices, thus, reformed render shareholder value creation incentive compatible with rapidly decarbonizing global supply chains, making it possible to meet climate action goals by 2030.

Citation

Schellhorn, C. (2023), "Corporate collaborations, decarbonization and equity value creation", Corporate Governance, Vol. 23 No. 5, pp. 1105-1116. https://doi.org/10.1108/CG-06-2022-0241