Investors' efforts to assess carbon emissions, decarbonization plans and climate risks through environmental, social and governance (ESG) rating systems are only creating what some academics call “total confusion.” And companies were rarely punished for failing to clearly disclose their emissions or meet their own standards.
This means that a new set of SEC carbon accounting and reporting rules, which largely replicate the problems of voluntary corporate action by not requiring consistent, actionable disclosures, will not drive the change we need at a rapid rate. we need
Companies, investors, and the public demand rules that drive change within companies and that can be appropriately evaluated outside of companies.
This system should track the main sources of corporate emissions and encourage companies to actually invest in efforts to significantly reduce carbon emissions within the company and across its supply chain.
The good news is that even though current rules are limited and flawed, regulators, regions, and companies themselves can build on them to move toward more meaningful climate action.
The smartest companies and investors are already going beyond SEC regulations. They are developing better systems for tracking the drivers and costs of carbon emissions and taking concrete steps to address them. That means reducing fuel use, building energy-efficient infrastructure, and adopting low-carbon materials, products, and processes.
Finding carbon reductions that actually save money is now good business.
The SEC has taken an important, albeit flawed, first step in making financial laws aware of climate impacts and risks. But regulators and companies need to pick up the pace from here and provide a clear picture of how fast or slow companies are moving as they take the steps and investments they need to succeed in a changing economy. An increasingly dangerous planet.
Dara O'Rourke is an associate professor and co-director of the Master's Program in Climate Solutions at the University of California, Berkeley.