How Companies are Shifting Climate Goalposts and Evading Accountability

Smokestacks of Ravenswood Generating Station, a 2,161-megawatt gas-fired peaker plant in Queens, seen behind the Queensboro bridge. (Credit: Deep Vakil)

In 2017, Finnair announced that by 2020 it would lower the intensity of its planet-warming carbon emissions by some 17% from 2013 levels. But when 2020 arrived, that target found no mention in the financial statements of Finland’s national airline. The company had set two new targets instead: to roughly halve its carbon emissions by 2025 and to reach net zero emissions by 2045.

Finnair is far from the only firm to have its targets to reduce emissions vanish into thin air, according to a new study. Research published earlier this year in the journal Nature Climate Change found that over 30% of the 2020 goals set by more than 1,000 companies went missing. Companies either postponed their targets or erased them—or, like Finnair, did both.

“These voluntary, often modest commitments that companies cobble together and far too often do not meet, and for which there is no accountability and little notice, are failing to respond to the urgency of the climate crisis,” said Richard Heede, director of the Colorado-based Climate Accountability Institute, where he leads a project to measure how much temperature and sea level rise can be attributed to major fossil fuel producers.

The study appeared at a time when stronger requirements for businesses to report emissions are set to take effect in the European Union this year and in California next year, even as the administration of President Donald Trump backpedals on a similar U.S.-wide rule.

“It is a setback that the SEC [U.S. Securities and Exchange Commission] is not doing their part,” said Lily Hsueh, associate professor of economics and public policy at Arizona State University and the author of an upcoming book, Corporations at Climate Crossroads.

In a recent court case, the interim head of the SEC pulled back from 2024 regulations requiring publicly traded companies to report their emissions.

However, the about-face on federally mandated reporting “may not matter all that much,” since the California rules are still going to kick in, said Stefan Reichelstein, professor emeritus of accounting at the Stanford’s business school, where he leads its research initiative on the energy transition. “Once you have to do it for those jurisdictions, you might as well do it in all jurisdictions.”

(Graphic credit: Deep Vakil)

The three study authors, from the business schools at Harvard, New York University, and the University of California, Berkeley, looked at pre-2020 emissions and target data provided by 1,041 companies to CDP (formerly the Carbon Disclosure Project), a nonprofit platform for environmental disclosure by companies and governments. More than 700 firms reported the outcomes, they found, but the targets of 320 firms “disappeared,” which means their progress was no longer reported or the goals were moved into the future.

Of the firms that disclosed outcomes, around 12% failed to meet their 2020 targets. To see how the firms whose targets “disappeared” would have fared, the authors looked at 117 that aimed to reduce absolute emissions by 2020 and found that 63% would not have achieved their goals.

“This is the issue with selective disclosure,” said Shirley Lu, assistant professor at Harvard Business School and one of the authors of the study, which was funded by their universities. “You’re only getting the ones that tell you their progress and, perhaps not surprisingly, potentially these are the ones doing better.”

Lu said their data agreement with CDP prevents them from naming individual firms whose targets have “disappeared.” (A spokesperson for CDP said it “has removed the limited public search function that previously allowed access to a small number of corporate responses,” but continues to license data at discounted rates for academics.)

The study points to two main reasons companies can evade accountability.

First, national disclosure requirements are lenient or non-existent. In the absence of external pressures and internal incentives, Hsueh said, “companies may end up engaging in greenwashing behavior.”

Second, the failures are not widely reported. “I don’t think the media is calling companies out on their targets,” said Hsueh. “And that has a lot to do with the fact that it hasn’t been, and only starting to be, in a global sense, part of the mandatory reporting.”

Of 88 firms that disclosed their failure to meet their 2020 targets, a keyword search by the authors through two business news databases turned up coverage of only three companies.

The situation may change soon, at least in some jurisdictions. As of this year, the European Union’s new rules on corporate sustainability reporting will require many companies to report information about emissions, future targets, transition plans, and climate risks. And next year, the world’s fifth-largest economy, California, will begin requiring big businesses to measure and report their direct and indirect emissions.

“If your business operates in an environment where we have significant carbon prices, … then many of these reduction targets become immediately more credible,” said Reichelstein, pointing to emerging literature that shows mandated reporting of carbon emissions and reduction targets could have a real effect on the share prices of companies.

Today, investors weigh corporate earnings – measures like profit or revenue – against benchmarks that represent a consensus of the market’s expectations. This has spurred demand for trustworthy forecasts about financial performance of companies. But there is no such demand for accurate predictions about future performance on reducing emissions. Measures linking progress on emissions to profits – such as a carbon tax or, as exists in California, a cap-and-trade system – could begin to change that.

“Companies will then be on the hook to really pay for these emissions that they didn’t reduce,” Reichelstein said. “And that should provide enough of an incentive to actually meet the targets.”