Report finds weak corporate accountability on decarbonisation

Out of a total of 1,041 firms, the report’s findings indicate that 9% failed to meet their targets, while 31% of the firms’ targets disappeared altogether

As the world plans for a net-zero future, multinational corporations have as important a role to play in reducing emissions, as do nations. Nowadays, more and more firms like Microsoft are announcing their carbon reduction targets to much applause in the media, but whether the firms are sticking to the target is another question altogether.

That is the basis of a new report titled ‘Limited accountability and awareness of corporate emissions target outcomes’ published in Nature Climate Change. The authors of the report examined the emission targets of corporate firms that ended in 2020 to get a sense of the final target outcomes, the transparency of target outcomes and potential consequences for missed emissions targets. 

Examining a total of 1,041 firms, the report found that 88 of them – or 9% failed to meet their targets, while a staggering 320 firms’ targets – or 31% – disappeared altogether. 

The report also pointed out that there’s limited accountability and low awareness of the target outcomes, and that only three of the failed firms were covered by the media. 

Accountability matters

The report says that without accountability, firms may lack sufficient incentives to pursue genuine decarbonisation efforts. This, in turn, can raise concerns about the overall credibility of these emissions reduction targets.

As of the end of 2022, 3,904 companies globally have set emissions reduction targets, of which 1,859 have been approved by the Science-Based Targets Initiative to be in line with the 2 °C scenario, according to the report. 

It found that initial announcements by corporate firms about reducing their 2020 emission targets were covered favourably by the media, and there were significant improvements in media sentiment and environmental scores. However, after a firm failed to meet its 2020 emissions target, the report did not observe significant market reaction, changes in media sentiment, environmental scores and environment-related shareholder proposals. 

Its findings raise concerns for the accountability of emissions targets ending in 2030 and 2050.

Weighing costs vs benefits

According to the report, achieving emissions reduction targets involves substantial costs for the corporate firms, estimated at$9.2 trillion annually for global net-zero transitions. Then again, the benefits of meeting these targets rely on accountability, because without it, firms lose incentives to achieve targets, as stakeholders cannot distinguish between firms that succeed, fail or abandon their targets, found the report. 

Furthermore, the report found that firms that set decarbonisation targets in later years generally had worse environmental performance, consistent with the idea that more firms announce targets potentially without the intent to achieve them, due to a lack of accountability.

The report’s findings also provide practical possibilities for implementing stricter accountability, which will require three sets of complementary institutions. 

Firstly, the Securities and Exchange Commission has proposed a climate disclosure rule, wherein firms have to disclose emission reduction targets and annual progress towards meeting those targets. Reinforcing that would lead to lessening of the firms whose targets have disappeared, according to the report.

Secondly, it is important to disseminate target outcome information in a timely manner. This would include setting emissions announcement dates, similar to earnings announcement dates, which would bring more media and other stakeholders into the fold on a more regular basis, found the report. 

Thirdly, the report suggests setting up monitoring institutions to keep track of the target outcomes, paying particular attention to firms with targets that disappeared.

The report’s findings highlight that there is limited accountability over the emission reduction targets that firms set in 2020, nor are target outcomes readily available, and there’s a lack of transparency and media coverage about target outcomes. Adopting suggestions pointed out in the report is a good starting point to bring about changes in accountability.

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