Decarbonization is a major pillar of ESG as anthropogenic climate change is arguably the world’s biggest environmental issue. As ESG took off and became widely adopted, so too did emissions disclosures and net-zero targets. However, it’s one thing to disclose emissions and set targets and another to actually reduce emissions. So, how can we distinguish those walking the walk from the rest? A new study suggests that a firm’s decision to assure its emissions disclosures is a good litmus test for actual action on decarbonization. The study, part of S&P Global’s Market Intelligence series, argues that:
“Firms that obtain assurance for their carbon accounting report on average a 9.5% higher Scope 1 carbon intensity and 13.7% higher Scope 1 absolute emissions than their peers in the first year of obtaining assurance. This indicates that firms underestimate their emissions without assurance… Moreover, when controlling for assurance, we do not find evidence that SBTi target-setters reduce their future emissions. Instead, only the subset of firms that obtain assurance reduces their future Scope 1 carbon intensity by 3.3%.”
These results are fascinating and demonstrate the importance of assurance in carbon accounting. These data also reveal that, contrary to what we may intuitively believe, SBTi target setting is not a good indicator of future emissions reductions. While firms that set SBTi targets tend to have lower Scope 1 footprints, the study indicates that these footprints remain constant and are not significantly reduced over time. However, firms that obtain assurance are more likely to reduce their emissions year over year. These findings point to assurance as a major indicator of a firm’s decarbonization maturity and signifies future emissions reductions.
Our members can learn more about ESG assurance here.
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