Should Private Companies Report Emissions?
- May 30, 2023
- CBR - Climate Change
Under the US Securities and Exchange Commission’s proposed greenhouse gas emissions reporting regime, private companies will be exempt from disclosure. Chicago Booth’s Christian Leuz says that approach is mistaken for three reasons.
First, the exercise would provide only a partial view of the corporate sector’s contribution to carbon emissions, obstructing the United States’ ability to measure and address the scale of the problem.
Second, including private companies in the emissions reporting regime would help lenders such as banks determine the borrowing companies’ exposures to future climate policies, Leuz says, and therefore improve the lenders’ ability to allocate capital effectively.
Third, disclosure would likely spur emissions reductions and green innovation. In a literature review with Booth’s Hans B. Christensen and University of Pennsylvania’s Luzi Hail, Leuz notes that after the United Kingdom required listed companies to report carbon emissions in annual financial reports, academic studies found that reporting businesses cut their emissions by 10–18 percent, whether due to investor pressure or peer comparisons.
Arguments in favor of reporting aside, Leuz says he suspects that companies would be more open to disclosing data on their emissions than on their financials, since the former could hardly be considered proprietary information.
And it could be a boon for companies that report low emissions, if environmental-sustainability ratings are any indication. In the market turmoil following the spread of COVID-19 around the globe between February and April 2020, investors pulled $7 billion out of funds with a low environmental rating, while putting an additional $460 million into highly rated funds, according to research by Chicago Booth’s Lubos Pastor and Dodge & Cox’s M. Blair Vorsatz, a graduate of Booth’s PhD Program.
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