How Climate Change Reporting Can Change the Face of Investment
December 2, 2022
What motivates industries to reduce their environmental impact? In order for businesses to be transparent with their investors, they need to have consistent, reliable data on all possible sources of pollution. Rather than focusing exclusively on the benefits their products offer, industries should maintain straightforward reporting standards to be cooperative with all parties involved. With clear emissions data disclosed up and down the value chain, the scope of its environmental impact can lead to effective climate action.
The lack of corporate transparency in self reporting emissions target milestones is one of the major stalling points when it comes to action against global climate change. With proper reporting practices aligned with SEC standards, increased transparency can encourage all parties involved to be more honest about their environmental impact and how mitigating the effects of climate change would retain the value of their investments. That way, a financial incentive to disclose emissions data opens up.
Current reporting standards and proposals
A new SEC mandate proposed in March 2022 would require all registrants to disclose how climate change would impact their business, strategy, and financial strategy. SEC chair Gary Gensler noted in a statement regarding the mandate that registrants need to “…more efficiently and effectively disclose these risks and meet investor demand.” It is the SEC’s view that transparency with investors of how climate change will impact operations will benefit all shareholders, so mandatory reporting should be enforced.
Both investors and the general public that utilizes their investments would benefit from the proposed standardized reporting. With proper science-based information freely available from all publicly traded companies, investors can properly make business decisions with the risks of climate change accounted for in their decisions.
One component of the new proposal is direct reporting of greenhouse gas emissions in all aspects of their business. This requires all registrants to report direct emissions (Scope 1 emissions), indirect emissions (Scope 2), and any emissions up and down their value chain (Scope 3). With accountability covered across all aspects of production, whether it be from in-house production or purchased from others, every significant source of greenhouse gas emissions would be covered. This prevents any outstanding sources from being unaccounted for, artificially reducing a registrant’s carbon footprint.
Transparency is vital to accountability. Without frameworks in place to keep corporations honest with their investors and consumers, they would only be emboldened to be less responsible with their emissions. Sensible reporting is the key to ensuring major carbon emitters cannot directly lie to the public.
Global and domestic trends
Both globally and domestically, the reality of climate change is not well understood in its potential threat to corporate longevity. Disclosing emissions data to the public must be easier to make the economic realities more understandable. With sensible reporting standards for investors in place, as well as a consistently informed public from the media, all can be properly informed of the threat that corporate emissions pose.
The immediate threat that climate change poses is not communicated well enough to the general public. Climate change coverage takes up only one percent of televised news airtime. The public needs to be informed and educated on the genuine risks of atmospheric greenhouse gas levels and rising temperatures. That way, they can make more informed investment decisions to better take care of the planet.
Unfortunately, only 32 of the top 100 private firms (compared to 60 of top 100 publicly-listed companies) worldwide have set net zero targets in their operations. Despite many of the short term targets placed before them, private firms lack the accountability that public companies have. These worldwide trends are concerning when it comes to a consistent way forward for corporate stability in an ever changing world.
Where can and should the burden be placed?
With SEC-mandated emissions reporting, action against climate change shifts the burden onto corporations and off of overwhelmed individuals. The communication surrounding climate initiatives needs to be updated to include the risks to investments, dependencies, and costs. Significant progress has been made, but more urgent action still needs to be ensured.
Even when reporting Scope 3 emissions, we must be cognizant of the working class people down the value chain. Farmers and industrial workers should be listened to and not have unrealistic burdens placed upon them. Reporting frameworks are in place to protect SEC registrants, not shift the blame onto any working class individuals. It is up to the shared responsibility of all parties involved to conduct business in ways that are both forward thinking and historically informed to make the best decisions for you and your planet.
As investors for the future of our planet, our business and personal financial decisions must treat climate action equitably to solve current inequities. Both private firms and public companies need to be held to equivalent standards to ensure that the major emitters are honest with their investors. Effective communication between businesses and investors can act as a catalyst for meaningful climate action.
EARTHDAY.ORG’s campaign for 2023 Invest in our Planet encourages the world to invest in smart, sustainable practices that care about the longevity of our planet and its ecosystems. We must take responsibility and invest in ourselves if we want to be responsible stewards of this planet. Accountability for any and all carbon emissions must be held across all major sectors. Transparency is vital to ensuring honesty between corporations and the rest of the world.