In a new study led by experts from the University of Oxford’s Smith School of Enterprise and the Environment, researchers have called for an urgent overhaul of existing corporate climate reporting standards. The paper, which underscores the insufficiencies of current frameworks, argues that while present standards help monitor greenhouse gas (GHG) emissions, they are inadequate in driving the broader, systemic changes necessary to achieve global net-zero goals by 2050.
The Inadequacy of Current Reporting Standards
Corporate climate reporting has become a central aspect of business strategy as companies increasingly seek to align with global climate goals. Existing standards, such as the Greenhouse Gas Protocol and the Task Force on Climate-related Financial Disclosures (TCFD), have been instrumental in providing a structured approach for companies to measure and disclose their GHG emissions. These frameworks focus primarily on quantifying direct emissions (Scope 1) and indirect emissions from purchased energy (Scope 2), and, to some extent, indirect emissions along the value chain (Scope 3).
However, the Oxford researchers argue that these standards fall short in several key areas. Firstly, they fail to account for the broader impact that companies can have on systemic climate action. For example, the influence of a company’s products, its supply chain decisions, and its political lobbying efforts are not adequately reflected in current reporting frameworks. As a result, companies might be fully compliant with these standards yet still contribute negatively to global climate goals.
The call for expanded reporting
The Oxford study proposes a significant expansion of climate reporting standards to include what it describes as “systemic influence” metrics. These metrics would capture the broader impact a company has on climate change, beyond just its emissions footprint. This approach recognizes that companies can play a crucial role in driving systemic change through various channels, such as innovation in low-carbon technologies, influencing policy through advocacy, and shaping consumer behavior through sustainable product offerings.
One of the key recommendations from the study is the inclusion of metrics that assess a company’s influence on the political and regulatory environment. This would involve reporting on the alignment of a company’s lobbying activities with climate goals and the extent to which it supports or obstructs climate-related legislation. Such transparency would provide stakeholders with a more comprehensive understanding of a company’s true commitment to addressing climate change.
Practical implications for businesses
If adopted, the proposed reporting standards would have far-reaching implications for businesses across all sectors. Companies would need to develop new capabilities to measure and report on these broader metrics, which could involve significant changes in how they operate. For instance, companies might need to engage more actively in policy advocacy for climate action, invest in the development of low-carbon technologies, or redesign their products and supply chains to reduce their overall climate impact.
Also, the expansion of reporting standards would likely lead to greater scrutiny from investors, regulators, and consumers. Companies that fail to demonstrate a positive systemic influence on climate action could face reputational risks and potentially lose access to capital from climate-conscious investors. On the other hand, those that excel in these areas could be rewarded with increased investment and consumer loyalty.
“It is essential that companies report and reduce emissions across their value chains,” says co-author Claire Wigg, Head of Climate Performance Practice at the Exponential Roadmap Initiative. “But it is also essential that they drive – and are rewarded for driving – systemic change via the products they produce, the purchases they make and the policies they lobby for or against.”
The role of financial institutions
Financial institutions would also play a critical role in this expanded reporting framework. As major investors and lenders, they have the power to influence corporate behavior by directing capital towards companies that demonstrate a strong commitment to systemic climate action. The Oxford researchers suggest that financial institutions should integrate these new metrics into their investment decision-making processes, thereby encouraging companies to adopt more ambitious climate strategies.
By aligning their portfolios with the expanded reporting standards, financial institutions can help accelerate the transition to a low-carbon economy. This alignment would involve not only assessing the direct emissions of the companies they invest in but also considering their broader impact on the climate system.
The Oxford study presents a compelling case for the expansion of corporate climate reporting standards to include systemic influence metrics. While current frameworks have made significant strides in improving transparency around GHG emissions, they are not sufficient to drive the level of change needed to achieve global net-zero targets. By broadening the scope of reporting to include a company’s influence on the broader climate system, stakeholders would gain a more accurate and comprehensive view of a company’s climate impact.
“The way standards are currently set up, a high-growth renewable energy company might fare poorly because of the emissions generated in making turbines and solar panels, despite the fact these products can help to reduce emissions globally,” explains lead author Kaya Axelsson, Research Fellow and Head of Policy and Partnerships at the Smith School. “We need a way to compare and reward companies that are changing the world, not just their operations.”
Journal Reference:
Kaya Axelsson, Claire Wigg and Dr Matilda Becker, ‘Is impact out of scope? A call for innovation in climate standards to inspire action across companies’ spheres of influence’, Carbon Management (2024) DOI: 10.1080/17583004.2024.2382995 | https://doi.org/10.1080/17583004.2024.2382995
Article Source:
Press Release/Material by Taylor & Francis Group
Featured image credit: Freepik
