The level of carbon dioxide equivalent (CO2e) emissions reported by organisations can vary by as much as 5.4 per cent, on average, depending on which of three approved datasets they are using, according to new research from King’s Business School (KBS). These variations have the potential to impact share prices by 1.9 per cent.
Approved under the United Nations Framework Convention on Climate Change, the three datasets analysed in the study are those provided by the UK Department for Environment, Food and Rural Affairs (Defra), the US Environmental Protection Agency (US EPA) and Exiobase. Reporting using the database from Defra instead of the US EPA led to an average increase in emissions of 5.4 per cent. The suggestion implicit here is that organisations can effectively ‘game’ their CO2e results by using the dataset that gives them the most suitable results.
“This matters because if business can’t, or won’t, calculate CO2e emissions accurately, we can’t plot a proper path to keeping the global temperature at or below the 1.5°C above pre-industrial levels that scientists see as a tipping point,” said KBS executive education sustainability lead Marc Lepere.
To address this issue, the study’s authors say new regulations are needed that require companies to disclose their CO2e emission calculation methodologies and datasets. They also recommend mandatory external audits.
“Increasingly large sums of capital are being deployed either in line with environmental, social and governance criteria or with the explicit aim of mitigating climate change,” added professor of finance at KBS David Aikman. “Investment managers need assurance that the data they are basing their decisions on is as robust and transparent as it can be. At the moment, it clearly isn’t.”
The study is the first KBS Research Impact Paper, a new report series aimed at widening the reach of the school’s research. It was put together by a team of six at the school, including Lepere and Aikman.
This article is adapted from one that originally appeared in Business Impact magazine (Issue 4 2023, volume 18)
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