When companies fail to meet their earnings targets, they often face sharp consequences like plummeting stock prices and negative headlines. But what happens when they miss their self-set climate goals? Surprisingly, not much.
A new study by Professor Shawn Kim and colleagues reveals a significant gap in accountability for companies that miss climate targets. Nearly 40% of firms with 2020 emissions goals either fell short or stopped reporting their progress altogether. Unlike financial targets, these companies faced minimal repercussions.
“It looks like there’s an opportunity for firms to benefit without consequences,” Kim noted. Companies often gain positive media coverage and enhanced environmental ratings when they announce ambitious emissions targets, but typically do not suffer any penalties if they fail to achieve them.
The study examined over 1,000 companies responsible for about 5% of global emissions. Here’s what they found:
- 61% successfully met their targets.
- 9% missed their goals.
- 31% simply stopped reporting their progress.
Success rates were higher for companies based in developed countries with greater media freedom. Kim explained that they focused on 2020 because many firms set decade-ending targets, making it a pivotal year for results.
Among the 88 firms that missed their targets:
- Only a third acknowledged their shortcomings in sustainability reports.
- Only three received any media attention.
- There was no notable decline in stock prices or shifts in shareholder sentiment following missed targets.
The researchers categorized the silent report-shedders into two groups: leaders, who set new goals for 2030, and laggards, who discreetly erased their targets. Interestingly, they found that about 63% of the firms that stopped reporting would not have met their original goals.
This lack of accountability poses a significant issue. Companies can easily engage in “greenwashing,” announcing targets for positive perception without the risk of meaningful consequences for not meeting them. Kim stresses the critical need for stronger oversight and proper auditing of these climate goals, just like financial targets have in place.
Despite some recent criticisms of Environmental, Social, and Governance (ESG) standards potentially discouraging companies from making emissions commitments, there remains a strong global push to combat climate change and keep temperature rise below 2 degrees Celsius. “We need accountability if corporate emissions goals are to effectively limit global warming,” Kim said.
For a deeper dive into these findings, you can read the full paper here.
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