Limited accountability and awareness of corporate emissions target outcomes

nature climate change Article https://doi.org/10.1038/s41558-024-02236-3 Limited accountability and awareness of corporate emissions target outcomes Received: 23 May 2024 Xiaoyan Jiang , Shawn Kim 1 2 & Shirley Lu 3 Accepted: 10 December 2024 Published online: xx xx xxxx Check for updates Firms are increasingly announcing targets to reduce their carbon emissions, but it is unclear whether firms are held accountable for these targets. Here we examine emissions targets that ended in 2020 to investigate the final target outcomes, the transparency of target outcomes and potential consequences for missed emissions targets. A total of 1,041 firms had emissions targets ending in 2020, of which 88 (9%) failed and 320 (31%) disappeared. We find limited accountability and low awareness of the target outcomes. Only three of the failed firms are covered by the media. After a firm fails its 2020 emissions target, we do not observe significant market reaction, changes in media sentiment, environmental scores and environment-related shareholder proposals. In contrast, initial announcements of these 2020 emissions targets are rewarded with significant improvements in media sentiment and environmental scores. Our findings raise concerns for the accountability of emissions targets ending in 2030 and 2050. Companies play a vital role in achieving the Paris Agreement to limit global warming to 2 °C above pre-industrial levels. As of the end of 2022, 3,904 companies globally have set emissions reduction targets, of which 1,859 have been approved by the Science-Based Targets Initiative to be in line with the 2 °C scenario1. Announcements of these emissions targets, such as the claim made by Microsoft to become carbon negative by 2030, often make media headlines2,3. Yet it remains unclear whether firms are held accountable for the target outcomes. Without accountability, firms may lack sufficient incentives to pursue genuine decarbonization efforts, leading instead to opportunities for cheap talk, raising concerns about the overall credibility of these emissions reduction targets. Here we examine the accountability of corporate emissions targets that ended in 2020 (targets with final target years of 2020, hereafter 2020 emissions targets). Studying the outcomes of the 2020 emissions targets is important for two reasons. First, these targets cover a substantial amount of emissions, and 2020 is the first year in which we can obtain a large sample of emissions target outcomes (Extended Data Fig. 1). Our sample of 1,041 firms collectively represents 2.5 billion tons of scope 1 GHG emissions in 2020, which is ~5% of annual global emissions4. If these targets are accountable, companies could be a major force in driving progress towards a 2 °C scenario. Second, while 2050 net-zero targets may be the ultimate target, the 2020 outcomes allow us to learn about target accountability, which would be too late to study when targets end in 2030 and 2050. While previous studies investigate the drivers behind corporate emissions reduction targets5–8 and show early evidence of companies being behind schedule to meet their long-term targets9–12, there exists a gap in our understanding about the accountability and outcomes of these targets at expiration. By examining target outcomes at expiry (as opposed to target progress), we mitigate concerns related to assuming a linear target progression, and are able to study the transparency of target outcomes and identify targets disappearing. It is unclear whether firms are held accountable for their 2020 emissions targets. On the one hand, firms are increasingly under stakeholder scrutiny for their climate impacts13,14, and hence could be pressured to report emissions target outcomes and face consequences when the targets are not fulfilled. Similarly, the financial accounting literature finds that missing an earnings target is associated with negative market reaction15, CEO bonus reduction and turnover16–18 and negative media coverage19. These negative consequences hold managers accountable for their earnings targets20. On the other hand, the institutional structure for providing environmental disclosure oversight is still Stern School of Business, New York University, New York, NY, USA. 2Haas School of Business, University of California, Berkeley, CA, USA. Harvard Business School, Boston, MA, USA. e-mail: 1 3 Nature Climate Change Article https://doi.org/10.1038/s41558-024-02236-3 a 320 30.7% 633 60.8% 88 8.5% Achieved b c Percentage of firms that have targets that lag behind 10 Percentage reduction in emissions Failed 8 6 4 2 0 2014 2015 2016 2017 2018 2019 2020 Disappeared 0.3 0.2 0.1 0 2010 2012 Year Failed Disappeared 2014 2016 2018 Year Achieved Achieved Disappeared Failed Fig. 1 | Target outcomes and decarbonization efforts. a, Outcomes of emissions reduction targets that expired in 2020. b, The percentage reduction in emissions over years for achieved, failed and disappeared firms. c, The percentage of firms with emissions targets that are lagging behind compared to a linear progression over years for achieved, failed and disappeared firms. under development. Unlike the well-established financial accounting setting, it remains unclear which institutions provide the role of standard setting, enforcement and monitoring for emissions reduction. To study the accountability of 2020 emissions targets of firms, we focus on three dimensions: (1) the target outcomes and whether they can be meaningfully interpreted; (2) the level of transparency, including firm disclosure and media coverage, surrounding the target outcomes—media is a primary channel through which the public learns about corporate environmental performance, playing a crucial role in shaping stakeholder perceptions and responses to the environmental behaviour of firms21–23; (3) the consequences, if any, associated with missing emissions targets. We examine responses from multiple stakeholders, including the capital market, the media and environmental, social and governance (ESG) rating providers. The transparency and accountability of 2020 emissions targets provide lessons on how to strengthen oversight for future emissions targets. 2020 emissions target outcomes We identify 2020 emissions targets using the CDP data (formerly Carbon Disclosure Project), the largest source of corporate disclosure on climate-related matters. We focus on long-term goals that cover at least 80% of the scope 1 or 2 emissions of a firm with a target duration >3 years. Out of the 1,041 firms with 2020 emissions targets, 633 (60.8%) achieved their targets (hereafter ‘achieved firms’) and 88 firms (8.5%) had a failed target (hereafter ‘failed firms’) (Fig. 1a). As a validation for the target outcomes, failed firms are indeed associated with a lower reduction in GHG emissions compared to achieved firms (Fig. 1b). Target ambition is not associated with failed targets, which sug (...truncated)