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‘Green Pills: Making Corporate Carbon Commitments Credible’

Event details of ACLE Seminar: Thom Wetzer (University of Oxford)
Date 17 May 2022
Time 12:30 -13:45


Many companies are now making “commitments” to reduce their carbon emissions over the coming years. But how credible are these promises? We argue that in many cases, the shifting sands of shareholder preferences undermines the credibility of corporate climate commitments, making them hard to distinguish from cynical greenwashing. In this paper, we make three contributions. We first show that changing investment preferences imply that, with certain coalitions of investors, there is a business case for genuinely credible corporate climate commitments. Second, we review a suite of traditional tools that firms (may) seek to deploy to credibly commit to emission reductions (disclosures, traditional corporate governance mechanisms, and corporate purpose) and find them inadequate to deliver such a commitment. Finally, we introduce the concept of a “green pill” as a mechanism for making corporate climate commitments credible. 

Green pills take the form of contractual or proprietary arrangements that harness existing corporate law and corporate governance mechanisms to align firms’ and managers’ incentives with their climate transition goals. They can be used not only to commit positively to a green transition, but also to commit negatively not to use dirty assets. Crucially, these mechanisms could in principle be implemented tomorrow without requiring any change to corporate law or other laws, thus avoiding any reliance on lackadaisical climate policy. Here, we focus on one particular type of green pill, which we term “green covenants” – binding promises that companies undertake subject to not reaching a given climate-sensitive target – and show that their adoption would endogenize incentives to meet climate targets and not contravene directors’ fiduciary duties. Our findings have important implications for regulators, corporate boards, and environmentally concerned shareholder activists.   


Link to the paper will be shared with you upon registration.


This event will be a hybrid event. For online attendance, the Zoom link will be specified in the registration confirmation email. In-person places will be limited, cannot be guaranteed and will be allocated on a first-come-first-served basis. Room information will be indicated by email upon registration.

About the Speaker

Thom Wetzer is Associate Professor of Law and Finance at the University of Oxford and the Founding Director of the Oxford Sustainable Law Programme. At Oxford, Thom is also a Fellow of Linacre College, Senior Research Fellow at the Institute for New Economic Thinking at the Oxford Martin School, a member of the Leadership Team at the Smith School of Enterprise and the Environment, Co-Lead (Law) at Oxford Net Zero, Lead Researcher at the Oxford Martin Initiative for a Net Zero Recovery, and a member of the Oxford-Man Institute of Quantitative Finance. Thom’s research examines how law and finance can generate value and advance the public good, focusing on how we can build more resilient financial systems, improve the governance of corporations, and tackle the climate crisis. His work combines traditional legal scholarship with financial, scientific, and empirical analysis, and has been published or is forthcoming in NatureScienceNature Climate Change, The Columbia Business Law Review, The Journal of Corporation Law, and the Journal of Corporate Law Studies.

About the ACLE

The Amsterdam Center for Law and Economics (ACLE) is a joint initiative of the Faculty of Economics and Business and the Faculty of Law at the University of Amsterdam. The objective of the ACLE is to promote high-quality interdisciplinary research at the intersection between law and economics.