The United States Securities and Exchange Commission is consider requiring US listed companies to disclose the climate-related risks they face. Republican state officials, emboldened by a recent Supreme Court rulingare already threatening to sueclaiming that regulators do not have the power.
As the debate heats up, what is surprisingly missing is a discussion of whether disclosures actually influence corporate behavior.
An underlying premise of financial reporting is that what gets measured is more likely to be managed. But are companies that disclose climate change information actually reducing their carbon footprint?
I’m a professor of economics and public policy, and my research shows that while carbon disclosure encourages some improvements, it’s not enough in itself to reduce corporate greenhouse gas emissions. Worse still, some companies use it to obfuscate and allow greenwashing – misleading or misleading advertising claiming that a company is more environmentally or socially responsible than it actually is.
I believe the SEC has an unprecedented opportunity to design a greenwash-resistant program.
Disclosure doesn’t always mean less carbon
Although carbon disclosure is often touted as an indicator of corporate social responsibility, the data tells a more nuanced story.
I investigated carbon disclosures made by nearly 600 companies that were listed in the S&P 500 index at least once between 2011 and 2016. disclosures were made to the CDP, formerly Carbon Disclosure Project, a non-profit organization that surveys companies and governments about their carbon emissions and management. More than half of S&P 500 companies respond to his requests for information.
At first glance, one might think that a mandated and unified framework for the communication of data on the management and climate risks of companies and their greenhouse gas emissions, such as the one proposed by the SECis likely to lead to more efficient use of fossil fuels, reducing emissions as the economy grows.
I have found that companies that have proactively disclosed their emissions to CDP have, on average, reduced their entity-wide carbon emissions intensity by at least one measure: carbon emissions per capita of full-time employees. This means that as a business grows, it is estimated to reduce its carbon footprint per employee. However, this does not necessarily translate into a reduction in a company’s overall carbon emissions. Much of the decline was in large, emissions-intensive companies, such as utilitiestrying to get ahead of expected climate regulations.
Companies that have received a “Class B” of the CDP increased their entity-wide carbon emissions on average over this period. Notably, those in finance, healthcare, and other consumer-focused industries that haven’t faced the same level of regulatory pressure as greenhouse gas-intensive businesses led the rise. .
About a quarter of S&P 500 companies that have completed CDP’s annual climate change survey have undertaken assessments of their business environmental impacts and have integrated climate risk management into their business strategy. Yet entity-wide emissions have increased further.
Previous research has found similar results in the first decade of the US Department of Energy’s voluntary greenhouse gas registry. Overall, he found that participation in the registry had no significant effect on the carbon intensity of companies, but that many companies, by being selective in what they report, have reported emission reductions.
Another study, which looked at the participation of the electricity sector in CDP surveys, found an increase in carbon intensity.
The “A-List” may not be exempt from greenwashing
Even companies that have made CDPs are coveted”A list“Climate leaders are not necessarily immune to greenwashing.
A company obtains an “A” grade when it has met the criteria disclosure, awareness, management and leadership, including the adoption of best practicessuch as a science-based emissions targetwhether or not these practices result in improved environmental performance.
Since the CDP ranks companies based on their sustainability performance rather than their bottom line, an “A-list” company could be “carbon neutral” when it only counts facilities that it owns and not the factories that make its products. Additionally, a company that scored an “A” could commit to eliminating all carbon emitted but maintain partnerships with oil and gas companies to “generate new exploration opportunities“.
Retail and apparel giants Walmart, Target and Nike – all in the “B” to “A-minus” range in recent years – offer an example of the challenge.
They regularly disclose their carbon management plans and emissions to CDP. But they are also part of the industry Sustainable Clothing Coalitionwho has controversially describes petroleum-based synthetics as the more sustainable choice over natural fibers in the Higgs index, a supply chain measurement tool that some apparel companies use to show their social and environmental footprint to consumers. walmart was prosecuted speak Federal Trade Commission on products described as bamboo and “eco-friendly and sustainable” made from rayon, a semi-synthetic fiber made using toxic chemicals.
Designing a greenwashing-resistant disclosure program
I see three key ways to the second design a climate disclosure program resistant to greenwashing.
First, misinformation or disinformation about ESG – environmental, social and governance factors – can be minimized if companies receive clear guidelines on what constitutes a low carbon initiative.
Second, companies may be required to compare their emissions targets based on historical emissions, submit to independent audits and report concrete changes.
It is important to clearly define the “carbon footprint” so that these measures are comparable between companies and over time. For example, there is different types of shows: Scope 1 emissions are direct emissions from a company’s stacks and tailpipes. Scope 2 emissions are associated with a company’s energy consumption. Scope 3 is more difficult to measure – it includes emissions in a company’s supply chain and through the use of its products, such as gasoline used in cars. It reflects the complexity of the modern supply chain.
Finally, companies could be asked to disclose a deadline set for phasing out fossil fuel assets. This will better ensure that commitments are translated into concrete actions in a timely and transparent manner.
Ultimately, investors and financial markets need accurate and verifiable information to assess the future risk of their investments and determine for themselves whether net zero promises made by companies are credible.
There is now momentum across the world to hold companies accountable for their emissions and climate commitments. Disclosure rules have been introduced into the UK, European Union and New Zealandand in Asian business centers like Singapore and hong kong. When countries have Strategiesallowing for consistency, comparability, and verifiability, there will be fewer opportunities for loopholes and exploitation, and I believe our climate and our economy will be better off for it.