Large publicly traded and privately owned corporations in California may soon need to disclose their greenhouse gas emissions. The California State Assembly passed a measure that would require corporations with yearly revenues exceeding $1 billion to disclose both direct and indirect emissions. The bill now heads to the Senate for a final vote.
John Tobin is professor of practice at Cornell’s SC Johnson College of Business and a former Managing Director and Global Head of Sustainability at Credit Suisse. He says companies need to be transparent about their carbon emissions, but points to “legitimate difficulties” in calculating accurate numbers.
“The rationale behind requiring businesses to report on their carbon emissions is sound—businesses should disclose all materials risks to the market, and climate-related risk is no different. However, not enough attention has been paid so far to the legitimate difficulties associated with calculating certain types of carbon emissions, particularly downstream Scope 3 emissions (indirect emissions resulting from the use of products and services sold by a reporting company).
"This should not be an excuse for inaction or be used by companies to avoid disclosing types of emissions that can be calculated with some rigor, such as Scope 1 and Scope 2 emissions (direct emissions of companies and indirect emissions from electricity use, respectively) and perhaps certain other upstream emissions.
“Quantitative information is useful to the market, to the extent that it allows us to compare competitors within an industry, to evaluate trends over time, and to verify emissions reported by one source against the same emissions reported by another source. But the taxonomy currently in use to classify emissions is misleading and the available methodologies for estimating certain emissions are imprecise, and therefore do not meet this usefulness test.”
Glen Dowell is a corporate sustainability researcher and professor of management and organizations at the Cornell SC Johnson College of Business. He says disclosing greenhouse gas emissions matters, but simply requiring disclosure on its own won’t lead to improvement.
“The bill is potentially important because it covers both publicly-traded and privately-held companies. While the public companies tend to be much larger, private companies also emit a significant amount of greenhouse gases and this potentially gives the public a much more complete view of where these emissions come from.
“It’s really important to remember that there’s a big difference between disclosure and improvement. We’ve been forcing large-emitting facilities to disclose their greenhouse gas emissions since 2010, and it has had very little visible impact. Improvement comes from pressure and from making it costly to continue to do ‘business as usual.’ Merely disclosing has little effect.”