The unusual suspects: are well-meaning environmental stakeholders and institutions undercutting the contributions that companies can make to fighting climate change?

Abstract

Abstract There is broad consensus that a significant majority of the capital needed to fund a low carbon transition consistent with science-based decarbonization timelines will have to come from the private sector. While still inadequate, the past decade-plus has seen a nonlinear increase in corporate capital spend in pursuit of voluntary climate goals. In the absence of significant regulatory mandates or meaningful carbon pricing, how this ‘corporate climate spend’ is directed is influenced—if not largely directed—by an array of emissions accounting rules, third-party defined leadership metrics and methodologies. This ‘rules and reward ecosystem’ is largely the design of environmental advocates, academics, and other aligned stakeholders and philanthropists. Sitting at the heart of this ecosystem is the Greenhouse Gas Protocol—a purported accounting framework that underpins how companies can undertake climate-based interventions and record progress. Launched by environmental stakeholders in 1998, the Protocol has since become the de facto rulebook used by highly influential third-party corporate leadership and target setting organizations, sustainability rating and evaluation entities serving the investment community, and is being incorporated into emerging mandatory corporate disclosure programs. Ironically, given its architects, today the rules and reward ecosystem results in significant mis-allocations and constraints on corporate climate spend and is reducing the potential climate change-mitigating impact of crucial private capital. This paper explores the flaws in incumbent greenhouse gas accounting and leadership program rules and proposes pathways for change that would better optimize the flow of private capital available and needed to address the climate crisis.