Does Climate Disclosure Work to Reduce Greenhouse Gas Emissions? Emerging Evidence Suggests Cautious Optimism

Jan 2025

Significant regulatory resources have been spent developing global, voluntary climate and sustainability disclosure standards, such as the TCFD, TNRD, and ISSB’s Sustainability and Climate Disclosure standards, or domestically required disclosures, such as in the EU and in the U.S. Thus, it is important to evaluate whether this disclosure, particularly voluntary, qualitative disclosure, will have the power to shift the allocation of capital, will have a significant effect on the management of climate risk within firms, and ultimately will reduce climate change risk and biodiversity loss. In this Article, several interrelated questions will be discussed. First, what does the empirical evidence show about the effects of required greenhouse gas (GHG) disclosures on emissions? What mechanisms are engaged in producing the reductions in GHG emissions that are seen in some studies? Is there evidence that disclosure of climate data causes institutional investors to re-allocate capital, and that this re-allocation is a significant source of pressure on firms? What, then, can we conclude about the use of disclosure in efforts to address climate change? Part One will first briefly describe three global, voluntary disclosure frameworks—TCFD, TNRD, and ISSB—each of which has either been globally influential (TCFD) or has the capacity to become influential (TNRD and ISSB). Part One will also describe two mandatory climate disclosure regimes: the Corporate Sustainability Reporting Directive (CSRD) in the EU, and the Securities and Exchange Commission’s (SEC) Climate Disclosure Rule in the U.S. Part Two will discuss some emerging empirical evidence on the effects of GHG emissions disclosure as an example of targeted climate transparency. Empirical research on the effects of mandatory GHG emissions disclosure in the UK and U.S. will be used to inform that discussion. Part Three will explore the implications of that empirical evidence for evaluating the likely power of the disclosure initiatives described in Part One in reducing GHG emissions and stabilizing nature loss, and will conclude.

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Does Climate Disclosure Work to Reduce Greenhouse Gas Emissions? Emerging Evidence Suggests Cautious Optimism

Does Climate Disclosure Work to Reduce Greenhouse Gas Emissions? Emerging Evidence Suggests Cautious Optimism Cynthia A. Williams* CONTENTS INTRODUCTION ......................................................................................572 I. CLIMATE AND SUSTAINABILITY DISCLOSURE ....................................578 A. Voluntary Global Sustainability and Climate Frameworks ..........579 B. Mandatory Sustainability and Climate Disclosure in the EU .......582 C. Required Climate Disclosure in the U.S. ......................................585 II. THE EFFECTS OF GHG EMISSIONS DISCLOSURE ON EMISSIONS ......590 A. Mandatory GHG Disclosure in the U.S. Produces Reduced Emissions ............................................................................590 B. Mandatory GHG Emissions Disclosure in the UK Produces Reduced Emissions ............................................................................593 C. Voluntary GHG Emissions Disclosure Also Produces Reduced Emissions ............................................................................595 D. Institutional Investors’ Responses to GHG Emissions Data ........596 III. ANALYSIS AND CONCLUSION...........................................................600 * Roscoe C. O’Byrne Chair in Law, Indiana University, Maurer School of Law. I appreciate the invitation from Professors Chuck O’Kelley and Sarah Hahn to participate in Berle XVI: The Corporation at the Intersection of Law and Information, and thank the participants for their thoughtful comments and questions to this Author but also throughout two days of inspiring discussions. Thanks are also due to the members of the Seattle University Law Review for their careful work, with particular thanks to the Editor in Chief Graham Fulton. 571 572 Seattle University Law Review [Vol. 48:571 INTRODUCTION Nearly 20 years ago, in his Review for the UK Government, former World Bank Chief Economist Sir Nicholas Stern called climate change the “greatest market failure the world has ever seen.”1 Stern challenged the world to adopt policies to price carbon through “tax, trading, or regulation” to address that market failure.2 Even if pricing carbon is not sufficient to fully address climate change, there is a consensus among many economists and policy advocates that pricing carbon can be a powerful driver of innovation and so should be a regulatory tool given policy support.3 Today, however, former Bank of England economist Alan Beattie concludes that Stern’s view of market failure “sadly remains true.”4 Beattie believes that litigation by countries within the World Trade Organization (WTO)’s dispute settlement process, although exceedingly slow and expensive, might ultimately lead to a global pricing regime if the EU can defend its Carbon Border Adjustment Measure (CBAM).5 Under the CBAM, due to come into effect in 2026, products being sold into the EU will be charged the difference between the EU’s and the exporting country’s price on carbon.6 This measure may create a global pricing regime by providing incentives for countries to implement high carbon prices since their exports will be charged anyway. Still, Beattie concludes that: Building out a global carbon pricing regime through slow and iterative litigation in the politically contentious judicial wing of a troubled multilateral organisation is not exactly the kind of global governance the international relations textbooks recommend. But at the moment it’s basically all we’ve got.7 The more direct pricing of carbon comes from domestic taxes, such as the taxes on fuel for transport and home heating that are in effect in most developed countries today, or indirectly from domestic emissions 1. SIR NICHOLAS STERN, STERN REVIEW: THE ECONOMICS OF CLIMATE CHANGE viii (2006), https://web.archive.org/web/20091204144315/http://www.hm-treasury.gov.uk/sternreview_summary.htm. 2. Id. 3. See, e.g., Binyamin Appelbaum, 2018 Nobel in Economics Is Awarded to William Nordhaus and Paul Romer, N.Y. TIMES (Oct. 8, 2018), https://www.nytimes.com/2018/10/08/business/economic-science-nobel-prize.html (stating that Nordhaus had won the Nobel Prize for “his careful work [that] has long since convinced most members of his own profession” of the need to address climate change, “preferably by imposing a tax on carbon emissions”). 4. Alan Beattie, The Emissions Market Failure That Still Threatens the Planet, FIN. TIMES (July 13, 2023), https://www.ft.com/content/c17ab330-3803-4629-9e54-2c6a3ed33814. 5. Id. 6. Carbon Border Adjustment Mechanism, EUR. COMM’N (Nov. 4, 2024), https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en [https://perma.cc/6BCT-WAF2]. 7. Beattie, supra note 4. 2025] Does Climate Disclosure Work 573 trading schemes. A recent OECD analysis suggests, though, that approximately 60% of emissions from the world’s leading economies are not taxed,8 and even where taxed, only approximately 10% of emissions are taxed at a level to reflect the true cost of carbon.9 The political problems encountered with persuading countries to enact carbon taxes commensurate with the true costs of carbon are daunting, however, and so far insurmountable in the United States. There are other regulatory approaches and policy tools that countries and governments are currently using to decarbonize their economies.10 Expanded climate disclosure is one significant approach being used globally and within commercially important jurisdictions. Disclosure in this context is an indirect means for raising prices on carbon or other greenhouse gas emissions.11 Given clearer data on companies’ greenhouse gas emissions, investors can better price the carbon or nature degradation risk within individual companies. In theory this will change investors’ allocations of capital, as well as raise laggard companies’ costs of capital. This theory of the power of corporate disclosure builds upon an established history of what Archon Fung, Mary Graham, and David Weil call “targeted transparency”: disclosure that “aims to reduce specific risks or performance problems through selective disclosure by corporations and other organizations,” thereby “mobiliz[ing] individual choice, market forces, and participatory democracy through relatively light-handed government action.”12 Since the mid-1980s, Fung et al. suggest we can observe a proliferation of such transparency initiatives in the U.S., although they point to corporate financial disclosure as required by the 1933 and 1934 8. Jonas Teusch, Konstantinos Theodoropoulos & Astrid Tricaud, Tracking Carbon Prices, OECD STAT. (Mar. 2, 2023), https://oecdstatistics.blog/2023/03/02/tracking-carbon-prices/ [https://perma.cc/JPC8-ADWA]. 9. OECD SERIES ON CARBON PRICING & ENERGY TAXATION, PRICING GREENHOUSE GAS EMISSIONS: TURNING CLIMATE TARGETS INTO CLIMATE ACTION (2022), https://www.oecd-ilibrary.org/taxation/pricing-greenhouse-gas-emissions_e9778969-en. 10. FILIPPO MARIA D’ARCANGELO, ILAI LEVIN, ALESSIA PA (...truncated)


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Cynthia A. Williams. Does Climate Disclosure Work to Reduce Greenhouse Gas Emissions? Emerging Evidence Suggests Cautious Optimism, 2025, pp. 571, Volume 48, Issue 2,