Corporations & Climate Change: Contribution and Accountability?

by Anandita Ketkar

As investors worldwide urge governments to require mandatory disclosure of climate risk, it is imperative that the solutions to the climate crisis are informed by determining who is responsible for it. [1] 

Who are the contributors to climate change? 

The dynamic of responsibility focuses on the inherently interdependent relationship between producer and consumer – as consumers demand solutions to energy and livelihood sources, the market has historically yielded solutions which have contributed to climate change. For example, 100 energy companies have been responsible for 71% of industrial emissions since climate change was first recognised [2]. Likewise, the top 15 US food and beverage companies generate 630 million metric tons of greenhouse gases, more than Australia [2]. Likewise, publicly listed companies account for 32% of greenhouse gas emissions, 59% from state-owned companies and 9% from private investment [3]. 

The focus remains on investors seeking to decrease their exposure to climate risk as a core fiduciary duty and to benefit from the opportunities associated with the transition to a net-zero emissions economy. A limitation according to Aron Cramer, CEO of Business for Social Responsibility, is the fragmented standards environment which is limiting the impact of reporting [2]. US oil and gas companies and their investors are at risk of stranded assets as their financial reporting does not reflect the impacts of the climate crisis. It is clear that changes in investment would directly impact investment in corporations with a high carbon footprint, thus ameliorating the issue of differentiated responsibilities and respective capabilities that countries face when implementing consistent national climate policies [4]. 

Potential solutions

The global investment climate and ancillary regulation is moving towards strong accountability systems, clear policies on human rights and active stakeholder engagement and disclosure. The recent TCFD (Task Force on Climate Related Financial Disclosures) is a pertinent example and recommendations include requiring companies to include industry-specific metrics to account for the ways material climate risks manifest by industry. New technology, including blockchain, may be required to enhance supply-chain tracking to produce accurate material climate disclosures that are relied upon to make informed investment decisions [5].  

Companies must focus on including the emissions associated with the entire life cycle of a product and embedding a higher degree of circularity into their business [2]. This is the process of designing out waste and pollution from the life cycle of a product, whereby products are designed to keep products and materials in use [8]. A Life Cycle Analysis could be embedded into the entirety of the production cycle to mitigate the Competition and Markets Authority’s (CMA) concerns regarding greenwashing (companies exaggerating their green credentials). Particular sectors the CMA highlights are textiles and fashion, travel and transport and food and beverages [7]. 

References:

[1] 2021 Global Investor Statement to Governments on the Climate Crisis, The Investor Agenda,  https://theinvestoragenda.org/wp-content/uploads/2021/05/IN-CONFIDENCE_EMBARGOED_2021-Global-Investor-Statement-to-Governments-on-the-Climate-Crisis-1.pdf , accessed 250721
[2] Corporate Honesty and Climate Change, Joshua Axelrod, 260219, https://www.nrdc.org/experts/josh-axelrod/corporate-honesty-and-climate-change-time-own-and-act , accessed 250721 
[3] Who is really to blame for climate change? Jocelyn Timperly, 190620, https://www.bbc.com/future/article/20200618-climate-change-who-is-to-blame-and-why-does-it-matter , accessed 250721
[4] Lifting the Veil: Investor Expectations for Paris-aligned Financial Reporting at Oil and Gas Companies, Ceres, 170621,  https://www.ceres.org/resources/reports/lifting-veil-investor-expectations-paris-aligned-financial-reporting-oil-and-gas 
[5] Investors, companies, organizations call on U.S. Securities and Exchange Commission to mandate corporate climate disclosure, Ceres, 100621, https://www.ceres.org/news-center/press-releases/investors-companies-organizations-call-us-securities-and-exchange , accessed 250721 
[6] UK Competition and Markets Authority to probe misleading sustainability claims, Freshfields Bruckhaus Deringer, 061120, https://www.lexology.com/library/detail.aspx?g=ddad5846-893a-4089-aa94-bea5defd7d05 , accessed 250721 [7] What is a Circular Economy?, Ellen MacArthur Foundation,  https://www.ellenmacarthurfoundation.org/circular-economy/concept , accessed 250721