Leveraging the Capabilities of Multinational Firms to Address Climate Change: A Finance Perspective

This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.

By Franklin Allen (Imperial College, UK), Adelina Barbalau (University of Alberta, Canada), Erik Chavez (Imperial College, UK), and Federica Zeni (École Polytechnique Fédérale de Lausanne)

In Short: This brief examines how multinational companies (MNCs) can play an important role in climate action in emerging markets, overcoming the political roadblocks and country-specific barriers – such as inconsistent regulations or lack of technology – that have stalled global coordination. Drawing on recent research by Allen, Barbalau, Chavez, and Zeni, it identifies four key features that position MNCs uniquely to address the climate challenge: their size and reach, resources and technology, collaborative networks, and superior access to capital. Together, these features enable MNCs to act as conduits for transferring the resources necessary to finance the climate transition. Although MNCs have been major contributors of global emissions, their extensive and efficient internal markets for governance, financing, and technology allow them to diffuse best practices and clean technologies more efficiently than piecemeal government regulation. By designing the right public and private incentive mechanisms, decision-makers can realign MNC objectives and harness their potential to decarbonize the economy.

Climate change has become a critical priority for policymakers, but international coordination on carbon regulation remains stalled by political frictions and the difficulty of mobilizing the large intergovernmental transfers needed to finance the transition of developing economies. Investment needs estimates range from US $5 trillion to US $6.9 trillion per year, far beyond most countries' fiscal capacity. While historically greenhouse gas emissions originated in developed nations, emerging markets have now become major emitters while often lacking the resources required to transition to a low-carbon economy. Recent research by Allen, Barbalau, Chavez and Zeni argues that multinational companies (MNCs), though major contributors to the problem, possess unique features that make them an important part of the solution. By using their internal markets for governance, finance, and technology, MNCs can circumvent country-specific barriers to climate action, such as inconsistent regulations, limited transparency, and gaps in technical know-how. Engaging these companies is especially important given that an estimated 157 large MNCs jointly account for up to 60% of global industrial emissions, either through direct activities (10%) or indirectly via their supply chains (50%). 
 
Four key features allow MNCs to play an important role. First, their size and global reach mean that a change in a single company's operations can have an impact equivalent to that of an entire country. Mars' carbon footprint, for instance, is equivalent to that of Finland. MNCs also act as institutional carriers, diffusing environmental standards across countries through their subsidiary networks. Regulations such as the EU's Digital Product Passport mandate end-to-end traceability across entire supply chains, meaning MNCs effectively “export” these standards to their global suppliers. Second, MNCs have the resources and capabilities to develop and scale innovation critical to the climate transition. Technology transfers from Danish manufacturer Vestas were instrumental in China becoming the world leader in wind turbines. Holcim's Durabric, a low-carbon brick launched in Malawi, reduces emissions tenfold compared to traditional fired bricks and saves an estimated 14 trees per house built. Third, MNCs excel at forming collaborative networks that share the high risks and costs of new technologies. Partnerships such as Total with AirLiquide for carbon capture, and the Oil and Gas Climate Initiative's scaling of satellite methane monitoring from Iraq to Kazakhstan, Nigeria, and Egypt, show how firms combine their strengths to tackle climate challenges at scale. Finally, MNCs have superior access to both external and internal capital markets, enabling them to finance climate initiatives in developing countries where local financing is prohibitively expensive. As of 2023, debt markets alone have mobilized over US $7.5 trillion for sustainability-related projects—orders of magnitude larger than intergovernmental transfers. 

Managerial and Policy Implications 

For decision-makers, the challenge is setting the right incentives. Public instruments include carbon pricing policies and green subsidies. Strategic subsidies, like China's $230 billion investment in its EV sector between 2009 and 2023, can create a competitive advantage but may strain public budgets. Carbon leakage (when companies shift operations to countries with weaker norms) remains a risk, though complementary measures such as the EU's Carbon Border Adjustment Mechanism can help to limit it.

Private instruments are also powerful. Sustainability-linked loans and bonds link borrowing costs to the achievement of environmental targets, acting as market-driven alternatives to carbon pricing that are not tied to local jurisdictions. Notably, such outcome-based contracts can, under the right conditions, work much like a carbon tax (Allen, Barbalau, & Zeni, 2023). Moreover, climate litigation cases have surged from fewer than 50 in 2003 to over 2,300 as of 2023, with courts increasingly holding MNCs accountable for global environmental impact.

Shareholder advocacy is also an important tool: Engine No. 1, despite owning only 0.02% of ExxonMobil, replaced three board members to improve climate governance, backed by institutional investors like BlackRock and Vanguard. Ultimately, MNCs can serve as a vital bridge for the resources and innovation that developing economies need. But the right incentives must be in place to keep them engaged in climate-vulnerable countries and supporting local adaptation, rather than simply relocating to avoid climate risks. 

Original Work

Allen, F., Barbalau, A., Chavez, E., & Zeni, F. (2025). Leveraging the capabilities of multinational firms to address climate change: a finance perspective. Journal of International Business Studies, 56: 461-480. 

Allen, F., Barbalau, A., & Zeni, F. (2023). Reducing Carbon using Regulatory and Financial Market Tools. Working Paper. 

Contact

If you are interested in learning more about this work, contact Professor Franklin Allen at [email protected].