Because of the growing concerns about climate change, corporate exploitation and corruption, many publicly traded companies have now developed Environmental, Social and Governance (ESG) offices and employees to help them address the “triple bottom lines” of profit, social responsibility and environmental sustainability. Many investors are also increasingly attentive to the environmental and social aspects of how a company conducts its business and not just the quarterly profits report. The “E” in ESG is focused on the environment, but generally more on decarbonization and environmental sustainability than adaptation to climate change. However, individual company’s plans vary and some include adaptation work as part of their ESG portfolios. The “S” and “G” components of ESG generally pertain more to labor practices, fairness in sourcing raw ingredients – especially from developing countries, engagement with communities that are affected by extractive industries and keeping executive compensation in balance with employees in the middle of the company.
Many companies feeling this pressure or taking a proactive stance in this regard have joined initiatives, frameworks and/or agreements that require greenhouse gas emissions reporting, such as the Science Based Targets Initiative (SBTI) or the Task Force on Climate Related Financial Disclosures (TCFD). SBTI’s framework for companies that want to be certified in this manner consist of five steps:
- Commit to an intention to achieve net zero emissions by a specified future date
- Develop a detailed plan to achieve the goal
- Submit the target plan to SBTI
- Communicate about plan to public and shareholders
- Disclose company emissions and progress, in keeping with SBTI guidelines
Disclosures generally involve disclosing information about Scope 1, 2 and 3 emissions. Scope 1 emissions generally refer to emissions that arise directly from the business operation of the company (eg. the emissions arising from driving a company’s fleet of vehicles). Scope 2 emissions generally refer to emissions that arise indirectly from the production of energy that the company uses (often associated with building energy and HVAC systems). Scope 3 emissions refer to indirect energy consumption along the supply chain (eg. if an agribusiness doesn’t produce a fertilizer, but uses a fertilizer to grow its crops, the energy involved in producing and transporting the fertilizer would be considered scope 3). In general, scope 1 emissions are easiest to define and limit and scope 3 emissions have proven hardest for most companies to define and limit.
The Task Force on Climate Related Financial Disclosures (TCFD) has a framework for corporate reporting based on four pillars: governance, strategy, risk management and metrics and targets. Companies that are a part of the TCFD framework must report on their organization’s governance around climate risks and opportunities, must develop strategies to meet net-zero targets and how climate related risks and opportunities influence business practices, must disclose on how the organization identifies, assesses and manages climate risk and must disclose the metrics and targets the company uses to address climate risks and decarbonization targets.
Beyond the issues of technological development and scaling, one of the central challenges and sources of confusion to making faster progress towards a net-zero economy is that there is a very wide array of carbon accounting methods and systems out there. Some are more robust than others and many decarbonization schemes involve a fair amount of greenwashing. For a fairly critical, but humorous view of the subject of greenwashing in carbon offsets, see John Oliver’s segment on Carbon Offsets.
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