For those of you in the U.S., welcome back from the Thanksgiving break. Time to get back to it as we head into COP28 and the end of 2023. I’ll start here: I’ve never been a fan of the metric “GHG intensity“- the measure of emissions against a unit of production, business activity or revenue. It’s too easy to game or be diluted due to other factors. A new report from Accenture supports my concern. The study has this rather optimistic finding:
“… during the five years leading up to 2016, 40% of companies managed to decrease their operational emissions intensity. This proportion has nearly doubled to 77% in the years following the Paris Agreement, signaling a clear acceleration in progress.”
Sounds promising, but there is a stark reality associated with using an intensity-based metric:
“Based on rates of [reported absolute] reduction since 2016, only 18% are on track to achieve net zero by 2050.”
Metrics can paint the wrong picture of climate exposure – intentionally or unintentionally – as Ken Pucker wrote in a recent LinkedIn post about JPMorgan’s newly-announced change in its methodology to track decarbonization. Before the change, JPMorgan committed to reduce its financed emissions by 15% by 2030:
“… based on its change, JPMorgan is committing to reduce the carbon intensity of its combined (fossil fuel + renewables) financed carbon emissions by 36 percent by 2030. Sounds like progress. It’s not… By shifting from a nominal emissions reduction target to an intensity target (financed emissions / energy produced), JPMorgan allows for continued growth in financing and carbon emissions. For example, JPMorgan could 2X its financing of energy and INCREASE carbon emissions by 28% while still delivering on its own goal.”
Regardless of whether you agree with the concept of financed emissions, this shows the drastically different outcome from simply shifting metrics. Audiences and regulators have become more sophisticated about climate risk, metrics and disclosures in recent years and they are more able to identify potential gaming of the system. You are better off keeping things simple, direct and honest when selecting and disclosing climate metrics.
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