To avoid the worst impacts of global warming, scientists agree that the world must reach net-zero greenhouse gas emissions by mid-century. How to get there is a more controversial question.
Until now, the dominant strategy has been for companies, governments and other institutions to set their own emission reduction targets. The idea is that if everyone aims for net zero by 2050 and comes pretty close to achieving it, the world will be spared a climate nightmare.
This strategy has only worked to a limited extent – especially in the private sector. More than half of the world’s 2,000 largest listed companies do not even have a formal net-zero goal, and only 4 percent of those that do meet a United Nations initiative’s baseline criteria for sustainability. Companies often rely on questionable accounting or otherwise exaggerate their progress toward climate goals, despite the emergence of several independent standard-setting bodies and verification schemes.
Researchers at the University of Oxford and the Exponential Roadmap Initiative, a Swedish organization that advocates for reducing corporate emissions, are now calling for a different approach – one that can bring about change at a more systemic level. In a research paper published last week in the journal Carbon Management, they argue for an additional corporate climate reporting system that spurs other forms of action, such as lobbying for national climate policy and investment in conservation projects.
“We have left a great deal of impact on the table by failing to encourage or invite companies to be rewarded and benchmarked for their significant efforts outside their value chain,” says Kaya Axelsson, a research fellow at Oxford University’s Smith School of Enterprise and the Environment and a co-author of the paper.
She said those rewards can take a number of forms, including interest from consumers or investors, or preferential treatment for government contracts.
Axelsson and her co-authors are by no means the first to criticize existing corporate carbon accounting practices. Over the past few years, academics, think tanks and even government agencies have proposed ways to promote transparency and make companies’ net-zero pledges easier to compare. Standard setters themselves also sought feedback from stakeholders to address widely recognized problems. However, few experts have called for an entirely new set of accounting standards.
Under the researchers’ proposal, companies would set targets and track progress toward three “spheres of influence,” which relate to categories they call “product power,” “purchasing power” and “political power.”
This is in contrast to today’s most common climate reporting system, in which companies add up the greenhouse gas emissions associated with their own operations, the electricity they buy and the products they sell to customers – known as Scope 1, 2 and 3 emissions. , respectively. This range is collectively described as a company’s greenhouse gas inventory.
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The authors’ first proposed sphere of influence, product power, would consider emissions avoided as a result of a company’s new products or practices, compared to a world in which those products or practices did not exist. The authors say this could incentivize companies to decarbonize society as a whole, rather than simply increasing the efficiency of their existing products and supply chains.
This adds to a problem that might be faced by, say, a fast-growing renewable energy company. Under the scope-based standards, the company will be penalized for the greenhouse gas emissions it emits when it manufactures wind turbines. But those turbines can be used to displace another company’s fossil fuel use, providing a societal climate benefit. The renewable energy company should be recognized for this contribution to the greater good, Axelsson said.
The second sphere, political power, would recognize the role that companies play in shaping local, national or international regulations, and encourage them to advocate for climate action, rather than against it. This echoes the guidance of a United Nations expert panel, which said in a 2022 report that corporate actors “must align their external policies and engagement efforts, including membership of trade associations, with the goal of net zero to achieve by 2050.”
The goal will not necessarily be to quantify the impact of companies’ political lobbying, the paper explains, but to recognize and reward it: “A company that takes significant steps to change a political system that has climate progress in its sector is likely to be given preferential treatment to a company with the same stock exemptions that has chosen not to engage in political processes.”
Perhaps most importantly, the researchers’ third proposed sphere, on purchasing power, would address a divisive question: whether activities to reduce emissions outside of a company’s operations and supply chain can somehow count toward that company’s climate goals. Today, many companies say yes – they participate in an unregulated carbon market in which credits representing some sequestered or blocked carbon dioxide can be purchased to “offset” a company’s Scope 1, 2 or 3 greenhouse gas emissions. These credits are typically generated through activities such as planting trees, investing in renewable energy to replace fossil fuels, or protecting forests that are at risk of being cut down.
Scientists say this approach is flawed for a number of reasons, including because it implies an inaccurate equivalence between a ton of carbon released by burning fossil fuels and a ton of carbon stored in biological systems. Research has shown that the two do not have an equal and opposite effect on the climate system. Carbon offsets can also give companies an excuse not to reduce their own emissions.
That said, credit-generating activities themselves can actually be helpful; it is their use as offsets that is problematic. The purchasing power approach would track companies’ support for these activities separately from their greenhouse gas inventory, giving them an incentive to continue that support without the contentious math associated with offsetting. This is similar to the idea of ”contribution claims”, in which companies simply advertise their financial contribution to renewable energy projects, grid resilience, afforestation and other climate action, without making any claims about the amount of carbon saved.
“Projects that serve to protect nature or enable clean development still play a role, if imperfect, in global mitigation and adaptation efforts,” the paper says. “When a company uses its buying power in this way, it goes above and beyond another company that didn’t.”
Doreen Stabinsky, a professor of global environmental politics at the College of the Atlantic in Maine who was not involved in the research paper, said the new proposal could address flaws in current climate reporting systems. But she questioned the premise that corporations would be sufficiently motivated to address climate change just because it would appeal to consumers and investors.
“I agree that there is a problem with a myopic focus on inventory releases, and I agree that you have to have innovative strategies that work at a systems level,” she said. “But I’m critical of thinking that it’s up to individual companies to innovate those system-level strategies.”
She said the researchers’ proposal focuses too much on improvements to the market system and misses governments’ responsibility to oversee the whole of society. decarbonisation. “There are things that we won’t be able to make happen through these market-based approaches,” she added.
Axelsson told Grist she sees voluntary standards as “a necessary but insufficient tool for corporate climate accountability,” and said they could be a stepping stone for government policy.
“Standards can be a good regulatory sandbox to test new ways of thinking holistically about concepts,” she added. “If net zero is at a tipping point where we’re asking companies not only about their footprint but also about their impact, we probably need to test it in a voluntary space and then hopefully governments can start to see that it’s something they can ask for.”
