By Amy Westervelt
As data and research increasingly link greenhouse gas emissions to everything from extreme weather to sea level rise to human health impacts, companies responsible for large amounts of carbon emissions are faced with a choice as the costs of climate change add up.
Many companies, such as Google, Microsoft and Apple, to name a few, have worked to reduce their emissions and publicly embraced a transition to cleaner energy. Others, including many in the fossil fuel industry, have been far slower to acknowledge the realities of climate change and in many cases have instead funded efforts to discredit climate science.
The science, however, has marched ahead. How much companies and industries emit is increasingly being tracked. Along with research tying those carbon emissions to climate impacts like sea level rise and many extreme weather events, the connected dots put those companies in a new spotlight.
A team at Carnegie Mellon University has created the Power Sector Index, which monitors the real-time emissions of utilities. Richard Heede traced the emissions of 90 fossil fuel companies in his Carbon Majors report. Ray Weiss, distinguished professor emeritus at the University of California at San Diego’s Scripps Institution, focused on potent greenhouse gases that are industrially produced.
“When you think about some of the early suits on this, like the suits in Louisiana around Katrina, the science was still in early days in terms of whether you could show a substantial connection between increased CO2 and specific weather events,” said Jeffrey Gracer, partner at environmental law firm Riesel & Gracer. “The science has really advanced since then, and I think we’re getting to the point where causal evidence is getting past peer review and would be admissible in court.”
We delved into the strength of that science in part 1 of this series, and businesses know that the stronger the cause-effect link, the more likely their emissions could become a legal liability.
“Suits are being brought because the industries are big emitters not because this one company caused my damage, so if you’re a company in a heavy emissions industry, you can’t avoid these lawsuits. You have to plan for the fact that you’re likely going to be sued,” said Jane Montgomery, an environmental law partner at Schiff Hardin.
Some past suits were unsuccessful because courts were hesitant to single out one emitter as responsible for a worldwide problem. But recent science has begun to address that issue. Heede’s Carbon Majors report was cited extensively in the suits filed recently by three coastal California communities against 37 fossil fuel companies.
Montgomery said one way businesses can prepare to defend themselves is to disclose their emissions, and any climate-change-related risks to their business.
“Disclosure protects a company from current risks,” she said. “Climate disclosure is such a hot topic in part because companies that disclose are less likely targets for these suits.”
When companies don’t disclose their emissions performance, Montgomery said they open themselves up to cases that are easier to prove. Its easier to say someone didn’t tell the truth or that they covered it up than to say they caused this specific harm.”
Emissions Get Harder to Hide
ExxonMobil is learning that lesson quite publicly as the attorneys general in New York and Massachusetts conduct investigations into potential climate fraud. They have uncovered documents in which the company disclosed risks internally but hid them from the public and from shareholders.
Disclosing emissions and being honest about climate risks becomes an even bigger asset as the science has also made it possible to show discrepancies between a company’s reported and actual emissions.
“When we measure a long-lived gas, it’s pretty easy to figure out what its global emissions are, and when we compare those numbers to what’s being reported we often find large discrepancies,” Weiss said.
Weiss argued for a global atmospheric monitoring system that would keep signatories to the Paris Agreement honest in a paper published last year in the Bulletin of the Atomic Sciences. “What we tend to find is that reported emissions don’t always agree with what we see in the atmosphere, and it tends to be that actual emissions are greater than what’s being reported,” he said. “It can’t just be due to uncertainty because if it were then there’d be an equal number of under and over reporting and the average would be about right.”
According to Weiss, the discrepancies may not be intentional. Companies might overlook a source of emissions, particularly if they’re unaware that a certain process is responsible for emissions, he said. Or a factory might initially optimize to reduce emissions, but an auditor fails to check for continued compliance.
“There’s also what I call ‘wishful compliance,’” he said. “People try to do the right thing but might cheat here and there because it’s hard to be rigorous all the time, and one doesn’t always succeed.”
The Value of Disclosure
Weiss said in addition to keeping companies and countries honest, atmospheric monitoring can help pinpoint the source of discrepancies and point the way toward solutions. He cited a phased-out refrigerant, HFC-23, as an example. It has very high global warming potential, and because of the Montreal protocol, developed countries stopped making it years ago but developing countries were allowed to keep making it. Under the Clean Development Mechanism of the Kyoto Protocol, countries that fell short of their emissions reduction targets could buy emissions credits from developing countries.
“So, an EU country could buy emissions credits from the Chinese, who were destroying their HFC-23, rather than emitting it, but then the question became: are they just taking the money, or are they really destroying the HFC-23?” Weiss explained. “By doing atmospheric observations, you could show that the Clean Development Mechanism was working. They really were destroying the HFC-23.”
Disclosure, however, isn’t just a tool for punishing companies, said Tim Nixon, head of Sustainability Thought Leadership, Corporate Responsibility & Inclusion at Thomson Reuters, and co-author of the Global 100 Greenhouse Gas Performance report.
“Firms that are figuring out how to grow business and reduce emissions are starting to see real benefits in terms of innovation, market return, and reduced reputational and regulatory risk,” he said. “Those benefits are measurable, not just anecdotal. The data clearly shows what’s happening with firms that are decarbonizing and their returns in the market compared to peers that are not decarbonizing.”
“Even at this point, there’s an early reward for firms that are making big capital investments in diversifying their business models,” Nixon added. “As that trend continues to play out, these firms that start out as first movers find themselves in increasingly competitive positions.”
Investors are increasingly favoring companies that embrace climate disclosure. In June, more than 100 companies from a wide range of industries, including large global firms like Morgan Stanley, Citigroup, Dow Chemical, and Royal Dutch Shell signed on to a letter from the G20’s Financial Stability Board affirming their commitments to transparency around climate-related risks and opportunities. American banks, including Bank of America and USBank, are starting to incorporate climate change risks into their overall approaches to corporate risk management (although Boston Common Asset Management said the banking industry in general is behind on dealing with climate risks).
The insurance industry was an early mover on climate risk, incorporating it into risk assessments for more than a decade, and is now re-evaluating its approach to include calculating the potential for catastrophic risks related to climate change.
Many analysts agree that businesses that avoid dealing with climate change are facing legal, reputational, and financial risks. Those facing the problem head-on mitigate these risks and unlock new benefits. “Decarbonization provides a competitive advantage in the world’s top 250 companies,” Nixon said.