Are the ESG Disclosures Implied? A Study of the Cases of Automobile and Electric-Vehicle Cosmic Carbon Emissions
Cynthia Hanawalt, a senior fellow at Columbia University’s Sabin Center for Climate Change Law, says that requiring these disclosures could flush out the true scale of corporate emissions. The majority are out of sight. She says there is a voluntary system with inconsistent reporting. That’s not good for anyone, other than the fossil fuel industry.
She found out that companies that wanted to tackle climate change, and specifically their own greenhouse gas emissions weren’t always going about it the right way.
Take BMW, for example. Since 2020, the German carmaker has been using Plan A’s platform to calculate monthly emissions from sources it owns or controls. Jordanova says that the platform starts with data mapping. Companies make their existing data available. Plan A uses proxy measurements where there are gaps. “It gives us a really good opportunity to understand the data maturity of the company, but also enables them to see the sustainability picture from all these different sources in a single place,” she says.
More regulatory scrutiny is likely in 2023, further straining the credibility of the ESG market itself. Gary Gensler, the head of the SEC, felt it was necessary to post a warning about greenwashing and a lack of consensus about what ESG investing even means on his account last year. Moreover, Elon Musk tweeted, “ESG is a scam. It has been weaponized by fake social justice warriors following the removal of his electric-vehicle company from the ESG index. S&P 500 defended its decision by pointing to allegations of racial discrimination at Tesla’s factories, which raised philosophical questions, as well as legal ones. For instance, is it more useful to rate companies’ performance on environment, society, and governance separately, rather than in aggregate? Are the ESG factors bound together?
The risk for investors and companies is caused by the lack of transparency, explainability, and accountability in the ESG market. The US Securities and Exchange Commission (SEC) opened an investigation into Goldman Sachs for deceptive marketing of Esg after they were fined $1.5 million for misstating Esg information. Germany’s regulator also opened an investigation into DWS Group, the fund unit of Deutsche Bank AG.
Such questions have been around for years, but they acquired new urgency after Russia invaded Ukraine. If the Esg ratings agencies continued to shun weapons manufacturers, or if they increased those companies’ Esg ratings to reflect their role in defending democracies, how would they measure up? This led some critics to argue that such ethical considerations should not be addressed by the unelected people who work at rating agencies; instead, they should fall to elected representatives. This suggests that elected representative should not discuss business ethics, the view of which many executives, employees and investors don’t like. Even as companies and ratings agencies think through the long-term consequences of Russia’s invasion of Ukraine, they will also consider other risks, such as the possibility of China moving against Taiwan.
Emissions Avoidance Offsets: An Example of Aesthetics, Wasteland, and Recycling in the Industrial Era
For too long, businesses have been pouring investment into traditional emissions-avoidance offsets—paying someone else to reduce future emissions to compensate for their own. Clean cookstove projects and investment in renewable energy are examples of emissions-avoidance offsets.
Good start, your investors say. What about the mines that produced the metal in your transistors? Or the silicon wafers that arrived via a lengthy supply chain? And what of when your product is shipped to customers, who install it in a laptop or run it 24/7 inside a data center to train an AI model like GPT-4 (or 5)? It will be thrown away as trash or recycled. A company that takes every ton of carbon is going to have bigger emissions than initially thought.