Companies are lying about the damage they do to the environment |
Imagine visiting a doctor who gives you a clean bill of health, only to call weeks later saying the test results actually showed a problem. Then, imagine they did the very same thing again on the next visit? You’d probably start looking for a new doctor.
That is the scenario that Americans face when it comes to corporate climate data.
When investors pour billions into sustainable funds, when policymakers craft climate regulations and when consumers choose where to shop based on environmental concerns, they all assume corporate emissions data is accurate. But new research from Harvard Business School reveals a troubling reality: That assumption is fundamentally flawed.
An analysis of emissions disclosures filed by S&P 500 companies over a decade found that 74% of firms revised their reported greenhouse gas emissions at least once. This isn't a minor accounting adjustment. We're talking about 135 million tons of underreported emissions ‒ more than the entire annual emissions of Venezuela, Nigeria, Qatar or Kuwait in 2020.
To put it bluntly, we are operating in a world without actionable corporate climate data.
While the revisions themselves do not necessarily mean that firms are deliberately misleading stakeholders ‒ in fact, ubiquitous revisions may signal that many companies are committed to accurate public disclosure ‒ there is a tie to executive compensation.
The analysis shows a correlation ‒ but not a definitive link ‒ between executive compensation tied to emissions goals and revisions to emissions data. When companies add a sustainability incentive to executive compensation, firms are more likely to revise emissions. Furthermore, this situation tends to manifest more often at firms where governance is problematic.
Whatever the reason for revisions, the implications to markets and those who care about the environment are severe.
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