Only 20 companies in the world provide 100 per cent greenhouse gas emissions disclosure – Are investors in the dark on climate risks?

Although it is now standard practice for companies to report on their greenhouse gas (GHG) emissions, few realise that the number reported does not always represent the total amount of emissions generated by the firm. Less than 2 per cent of reporting firms collect and disclose 100 per cent of their scope 1 GHG emissions.

What can you tell about the state of corporate emissions when disclosures are incomplete? The answer is not very much: emissions reduction targets and results become unreliable, and the company’s true contribution to atmospheric greenhouse gas pollution – and thus climate change – is obscured.

Thousands of firms report a number for their Scope 1 GHG emissions. According to Bloomberg, in 2016 only 43 firms worldwide disclosed 100 percent of their Scope 1 GHG emissions. Upon further scrutiny by researchers at Imperial College Business School and University College Dublin, we found that only 20 firms disclose 100 per cent of their emissions.

The 20 firms are:
Abbvie, Adidas, Aviva, Beni Stabili, Cofinimmo, Deutsche Bank, Equinor, Fiat Chrysler, Henkel, IRPC, KGHM, Microsoft, Norske Skog, Northern Trust, Royal Dutch Shell, Safestore Holdings, Saipem, Tokio Marine, Unibail-Rodamco, Verisk Analytics.

Professor Andreas G. F. Hoepner, member of the EU’s Technical Expert Group on Sustainable Finance (in personal capacity) and founding partner of the 100% Club commented:

“Many people may be surprised how few companies we can independently confirm to have reported 100% of their Scope 1 GHG emissions. Yet, to provide asset owners any chance of aligning their portfolios with climate goals scenarios and responding thoroughly to TCFD, it is paramount that the vast majority of corporations listed on equity or bond markets take complete and public accountability of their Scope 1 GHG emissions.”

Why full disclosure matters

Pension funds and investment managers are under increased pressure from stakeholders to disclose their approach to climate risk. But the most sophisticated and robust risk management framework is rendered useless if the underlying data is insufficient. In addition, impactful decision making can only be made off the back of reliable data. Disclosures are a crucial part of climate-risk management and the investment community are vocal in their call for enhanced environmental disclosures from corporates.

But will this call ever be answered? We are seeing a mismatch of incentives. From the firms perspective, there is often little economic incentive to invest resources in accurate GHG data collection, especially if it puts you at risk of appearing worse than a less diligent competitor. It is difficult to know whether you will be rewarded or punished by investors for this level of transparency.

The lack of clarity surrounding emissions disclosures makes it impossible to fully understand the impact a company is having on climate change. Without complete and reliable Scope 1 emissions disclosure any other numbers depending on this information will struggle to be even broadly accurate. This includes parts of TCFD (Task Force for Climate-related Financial Disclosures) reporting, disclosure of indirect emissions (Scopes 2 and 3) and progress against emissions reduction targets.

The principles for effective disclosures outlined in the TCFD 2017 Implementation document highlight that disclosures should be specific and complete. But as the TCFD 2018 Status Report uncovered, despite continued momentum behind the TCFD initiative, there is still a long way to go in achieving effective climate-related financial disclosures.

Collecting 100.0% of GHG emissions is technically and practically very challenging for most corporations. Therefore, missing data can be accounted for by a ‘Quantitative Statement of Completeness’ (e.g. ‘we collected GHG emissions for 98.7% of our revenue lines’).

Inadequacies in GHG emissions disclosures have the potential to mislead investors and hinder progress of country, investor and business initiatives addressing climate change and looking to accelerate the transition to a low carbon economy. The 100% Club seeks to provide new incentives for companies to pursue complete disclosure.

The 100% Club supports the Financial Centres for Sustainability (FC4S) initiative. Complete and reliable GHG emissions disclosures provide greater clarity to investors. This enables better decision making and helps to guide capital towards companies that are consciously addressing their impact on climate change.  Financial centres can provide crucial support to the 100% initiative. Key decision makers and other important financial actors congregate in financial centres, making them an effective place to highlight this issue.

Find out more, please visit https://climatedisclosure100.info/