Why Climate Change Is the Greatest Market Failure in History—and What Your Company Must Do About It

Climate change is not just an environmental crisis; it’s the greatest market failure in history. Our global economic system, built to drive growth and efficiency, overlooks a critical fact: the costs of environmental degradation are real, mounting, and largely ignored in business and financial calculations. By failing to account for the full impacts of carbon emissions, pollution, and resource depletion, we incentivise behaviours that lead to environmental harm. Adding to this issue are carbon offsets and carbon-neutral claims, which, instead of solving the problem, often worsen it.

At the heart of this market failure is the concept of externalities. Companies emit greenhouse gases and cause environmental damage, but they aren’t required to pay the true costs of those impacts on health, biodiversity, and climate.

Instead, businesses can make “carbon-neutral” claims often by relying on purchasing offsets—credits meant to counterbalance emissions by supporting projects like reforestation or renewable energy. But in practice, these offsets rarely negate the actual emissions and can be unreliable or overestimated, allowing polluters to continue business as usual. As a result, companies are rewarded for meeting surface-level sustainability goals without making genuine, long-term reductions in their carbon footprint.

Another critical issue is the pervasive short-termism in economic decision-making. Driven by quarterly reports and short-term returns, companies tend to prioritize immediate gains over long-term environmental resilience. Climate change, however, requires a comprehensive approach that includes structural changes to reduce emissions—something that carbon offsets fail to support effectively. Instead of driving innovation or decarbonization, they offer companies a convenient but hollow path to claim climate action.

Carbon-neutral claims, often bolstered by these offsets, contribute to greenwashing, a practice where companies overstate their environmental responsibility. These claims erode public trust and reduce the urgency for real solutions. Worse, they obscure the need for regulatory frameworks that hold companies accountable for their actual emissions. By promoting offsets over insetting—where companies decarbonise directly within their own supply chains—the market fails to address the root problem and perpetuates the emissions cycle.

Solving climate change requires more than empty promises and symbolic gestures. It demands robust infrastructure, rigorous accountability, and transformative action from within. Tackling this market failure means embedding true sustainability into our economic systems, moving beyond “neutral” claims to create genuine, measurable change.