While failing targets is not associated with negative consequences or penalties, announcing targets provides firms with benefits like improved media sentiment, says the study
As companies are increasingly announcing targets to reduce their carbon emissions, a study examined emissions targets that ended in 2020 to investigate the final target outcomes, the transparency of target outcomes and potential consequences for missed emissions targets.
The study found that out of a total of 1,041 firms which had emissions targets ending in 2020, 88 (9%) failed and 320 (31%) disappeared. Out of 88 failed firms, only three firms were covered by the media. In contrast, initial announcements of these 2020 emissions targets were rewarded with significant improvements in media sentiment and environmental scores. Researchers found limited accountability and low awareness of the target outcomes and raised concerns for the accountability of emissions targets ending in 2030 and 2050.
The study indicated that the energy and materials sectors have the lowest ratio of target completion. The energy sector has the biggest percentage of ‘disappeared firms’ at about 39%, while the materials sector also has the highest rate of failed firms at about 14%. The study pointed out that enterprises in high-emitting industries had lower achievement rates due to increased target disappearance, which may be a reflection of the difficulties of reaching targets in hard-to-abate sectors.
Comparatively less carbon-intensive businesses like the health care, finance, real estate, and information technology sectors have the largest proportion of companies achieving their emissions reduction targets.
No consequence on failing
The study did not find any significant market response, shifts in media attitude, environmental scores, and shareholder resolutions pertaining to the environment when a firm failed to meet its declared emissions reduction goals. The worth and legitimacy of these emissions objectives were questioned in the study as there were no visible repercussions for missing them.
According to the study, 2020 emissions target announcements received more press releases and media coverage than target outcomes, indicating that target announcements typically receive greater attention than target outcomes.
Lack of accountability and transparency, weak media coverage
Researchers discovered that corporations had little accountability for emissions reduction targets that expired in 2020. Businesses lose motivation to meet goals when there is no accountability because stakeholders are unable to tell which companies are successful, unsuccessful, or give up on their goals. Furthermore, because of the absence of accountability, more businesses may announce goals without intending to meet them.
The study also found that there is a lack of transparency regarding goal outcomes. Target outcomes are not readily available, with a third of the targets disappearing without disclosing target outcomes. Overall, the study noted that companies’ voluntary disclosure of target outcomes lacked transparency. For example, the media only covered three out of the 88 companies with failed targets, and all three have specifically acknowledged the target failure in their sustainability reports.
According to the study, no media coverage related to the disappearance of 2020 emissions targets was found. The study observed weak information acquisition and dissemination about target outcomes by the media. It also added that the media are more likely to report on target outcomes based on disclosure made by the firms, as opposed to independent coverage of emissions target outcomes.
Ways to hold firms accountable
The study shed light on the need for complementary institutions to facilitate credible corporate environmental disclosure, drawing analogy to the financial accounting literature.
In order to enhance the accountability of future emissions reduction targets, the study proposed Securities and Exchange Commission climate disclosure rule requiring firms to disclose emissions targets and annual progress towards them.
Timely dissemination of target outcome information must be facilitated by setting emissions announcement dates, similar to earnings announcement dates. This can help align attention from media and other stakeholders. Monitoring institutions should keep track of the target outcomes, paying particular attention to firms with targets that disappeared.
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