Accountability of Corporate Emissions Reduction Targets
Companies play a vital role in achieving the Paris Agreement to limit global warming to 2 degrees Celsius above pre-industrial levels (the 2-degree scenario). As of the end of 2022, 3,904 companies 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-degree […]
Shirley Lu is an Assistant Professor of Business Administration at the Harvard Business School, Shawn Kim is an Assistant Professor of Accounting at the University of California Berkeley Haas School of Business, and Xiaoyan Jiang is a Predoctoral Fellow at the Harvard Business School. This post is based on their working paper.
Companies play a vital role in achieving the Paris Agreement to limit global warming to 2 degrees Celsius above pre-industrial levels (the 2-degree scenario). As of the end of 2022, 3,904 companies 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-degree scenario. Announcements of these emissions targets, such as Microsoft’s claim to become carbon negative by 2030, often make media headlines. Yet it remains unclear if there are oversights of these claims and whether firms are held accountable for the target outcomes. In the absence of accountability, firms may lack sufficient incentives to pursue genuine decarbonization efforts, leading instead to opportunities for cheap talk, raising concerns about the overall credibility of these emissions reduction targets.
In this paper, we study whether there is accountability for companies’ emissions targets that ended in 2020 (i.e., targets with final target years of 2020). More specifically, we ask three questions related to such accountability. First, what are the target outcomes and can they be meaningfully interpreted? Second, what is the level of transparency (e.g., firm disclosure, media dissemination) of the target outcomes? Third, are there any consequences associated with missing emissions targets, and if so, what are they?
