The wave of British companies moving their listing to the US isn’t just bad for the London Stock Exchange, it is also making climate change worse.
Companies moving their listing to the US end up emitting around 41 per cent more greenhouse gases, a study from Imperial College London has found.
Why? Well, an analysis of European companies that chose to make a dual-listing in the US showed that a lack of pressure from shareholders caused companies to be more lax about how much they pollute, academic Moritz Wiedemann wrote.
Looking at data from 2021, Wiedemann found that 30.6 per cent of equities in Europe are held by institutions that are signatories of the Climate Action 100 initiative, compared to 18.8 per cent in North America.
This means that if a European company moved to cross-listing in the US, its ownership of sustainable investors will be diluted – by about five percentage points.
This takes pressure off them to be more environmentally friendly, so they end up issuing fewer green bonds and make less sustainable investment across their businesses, causing a significant uptick in carbon emissions in the years following.
This shows that shareholder pressure works to make companies greener: Firms are 35 per cent more likely to issue green bonds if they have a higher share of Climate Action 100.
“Institutional investors seem to engage with firms, particularly the largest emitters, and implement environmental governance mechanisms to incentivise managers to invest in green activities,” Wiedemann explained.
The academic calculated that the increase in emissions from a company from listing in the US causes emissions to rise as much as the effect of introducing a carbon tax on companies causes them to fall.
Increase in carbon emissions in the years following a dual listing (Wiedemann, 2023)
“In other words, companies that cross-list in the US act as if the carbon tax in Europe (which more and more companies in Europe must pay) had been repealed and they could pollute the world some more,” said Joachim Klement, investment strategist at Liberum.