Climate reporting standards are “insufficient” and require an overhaul, according to a new report from researchers at Oxford University’s Smith School and the Exponential Roadmap Initiative.
The report, published in the journal Carbon Management, says that currently, standards fail to incentivise the “big picture innovations” required to deliver net zero and must be expanded to include companies’ broader sphere of influence.
Revision Presents Opportunity for Innovation
The report notes that while standards have been built to guide companies in setting targets and to track emissions reductions in annual inventories, as guidance is updated, debates have arisen about how companies can report efforts to reduce broader societal emissions.
Indeed, this report comes in the wake of the high-profile controversy surrounding the Science Based Targets initiative (SBTi).
Earlier this year, the UN-backed climate certification organisation made a shock announcement indicating it would be loosening its net-zero standard to include the use of carbon credits for Scope 3.
The organisation has since back-tracked, with SBTi’s CEO resigning, citing personal reasons. However, fierce debate continues.
The report notes that SBTi is the dominant framework used by companies, representing 39 per cent of market capitalisation, while the Greenhouse Gas Protocol is the most used and referenced global standard for how organisations evaluate their climate responsibility.
As these initiatives undergo revision, researchers say it is the prime time for innovation.
The report notes that, with the current standards, the view is that if progress is made on an individual level, this will move the world towards its 2050 net zero target.
However, as the climate crisis heats up, companies are falling far short of progress.
“We are far from mobilizing all organizations globally to make sufficiently ambitious pledges, plans and progress,” the report reads.
“Of the 2000 largest companies, close to half still do not yet have a net zero target,” said author Dr Matilda Becker from the Smith School of Enterprise and the Environment.
Even as work to close this gap progresses, the report says that system-wide interventions will likely be necessary to meet net zero globally, with “leading companies” acting beyond their boundaries to make up for inaction by laggards.
However, existing climate standards are “largely not designed” to track or encourage system interventions by companies, the report outlines.
“We see this conflict as a critical opportunity to innovate on convention to reward companies for positive mitigation efforts beyond their inventories,” the report notes, arguing that there is a need for reporting contributions beyond company value chains.
Proposal Advocates for Wider Systemic Impacts
The report proposes that, in addition to meeting targets across three emissions Scopes set out by the GHGP, a second reporting track is introduced to demonstrate contributions to global net zero across three Spheres of Influence: “product power,” “purchasing power,” and “political power,”
According to the report, this new ledger would facilitate wider systemic impacts.
The researchers argue that while it is essential for companies to report and reduce emissions across their value chains, they must also be drivers of change.
“It is also essential that they drive – and are rewarded for driving – systemic change via the products they produce, the purchases they make, and the policies they lobby for or against,” said co-author Claire Wigg, Head of Climate Performance Practice at the Exponential Roadmap Initiative.
Indeed, there is often a disconnect between words, targets and actions, as was highlighted in a recent analysis by Changing Markets Foundations.
Its report, which assessed the actions of the world’s biggest meat and dairy companies, exposing their efforts to distract, delay and derail climate action, found that even those who appear to be making some progress on paper are, in actuality, far from enacting the steps required to realise real change.
For example, only two of the 22 companies the report analysed (Nestlé and Danone) had their overarching climate plans approved by SBTi.
However, alongside raising issue with the credibility of SBTi standards themselves and citing research from the New Climate Institute, which indicated that Nestlé’s climate plans are, in fact, of ‘low integrity,’ the report also highlighted that the giant has spent more money on advertising than R&D and regenerative agriculture, has been guilty of greenwashing efforts and has lobbied for policies that would avoid real climate action.
Contributions to Net Zero Across Three Spheres of Influence
In contrast, the proposal’s three-pronged approach would consider the broader actions taken by a company.
Indeed, it notes that realising net zero requires many companies’ products and services to transform, and alongside reducing the impact of products, they need to deliver 1.5 °C-aligned products and services that enable others to reduce their emissions.
“The way standards are currently set up, a high-growth renewable energy company might fare poorly because of the emissions generated in making turbines and solar panels, despite the fact these products can help to reduce emissions globally,” said lead author Kaya Axelsson, Research Fellow and Head of Policy and Partnerships at the Smith School.
The second sphere of influence, Purchasing Power, addresses the question of whether market-based approaches are appropriate for claiming inventory reductions.
The report notes that a significant portion of the credits traded on the VCM today are based on emissions avoidance and argues that purchased credits of this nature demonstrate a company’s influence beyond its own inventory, but are not appropriate tools for meeting targets within its inventory.
The report argues that when a company uses its purchasing power in this way for projects that, for example, serve to protect nature or enable clean development, while not equivalent to within-value-chain abatement, this goes above and beyond another company that has not done so.
As a result, it proposes that these purchases should be recognised, reported and rewarded in a separate track as contributions within a company’s ‘Purchasing’ Sphere of Influence.
“This provides recognition without confusing assessment of their own organization’s progress to net zero,” the report reads.
The third and final sphere of influence, Political Power, would serve to recognise the role of companies in influencing climate action and policy, and indeed, efforts to lobby for “positive climate action” and not against it.
The researchers argue that a company taking significant steps to change a political system constraining climate progress across its sector should be “treated preferentially” to one with the same inventory emissions that has chosen not to.
“We need a way to compare and reward companies that are changing the world, not just their operations,” said Axelsson.
Looking ahead, according to the Oxford University report, standardising reporting on systemic efforts beyond the value chain would enable stakeholders to better evaluate companies’ efforts.
“Credit could then be given according to the assessed quality of the mechanisms used,” it said.
The report adds that, over time, more frameworks will be developed for reporting on new areas of climate practice, forecasting policy developments to advance down a ‘conveyor belt’ from voluntary experimentation at first, towards scaled practice, formal standards and regulation.
Back in April, another study, led by Utrecht University, with participation from Imperial College London, also argued that emissions reduction targets should not be the only measure of corporate climate ambition, while underlining the urgent need for “robust regulatory frameworks” and “transparent oversight” to guide corporate climate action.
“Companies setting their own individual targets risk complacency that we can’t afford. The window to keep the planet to 1.5°C warming is rapidly closing, and even for keeping warming well below the upper Paris limit of 2°C we need concerted action to reduce greenhouse gas emissions now,” commented co-author Professor Joeri Rogelj, from the Centre for Environmental Policy and Director of Research at the Grantham Institute at Imperial College London.
“Voluntary corporate emissions targets alone are not enough for rapid global decarbonization and certainly not a substitute for regulation,” added Rogelj.
Indeed, earlier this year, in an analysis of 51 major corporations, the 2024 Corporate Climate Responsibility Monitor found that climate commitments amount only to reducing their median carbon footprint by as little as 30 per cent.
The report similarly emphasised the growing need for “strong regulatory measures” to complement and enhance voluntary efforts.
By Madaline Dunn, Editor, ESG Mena.