BiGS Actionable Intelligence:
BOSTON—Walmart made headlines in December when it voluntarily reported it would miss its emissions reduction targets for 2025 and 2030. “While we continue to work towards our aspirational goal of zero emissions by 2040, progress will not be linear,” the retailer said in a statement.
It was an unusual move for one of the world’s largest companies, not because of the missed targets but because it reported anything at all. While companies have been quick to promise emission reductions in recent years, a study by Harvard Business School researchers recently published in Nature Climate Change shows a troubling gap between corporate pledges and real action. In fact, nearly one third of the companies worldwide that set emissions targets for 2020 reported no results at all.
Led by Harvard Business School Assistant Professor Shirley Lu, the study examined 1,041 companies worldwide that announced emissions reduction targets for 2020 and found that 320 of them didn’t publicly disclose whether or not they hit those targets. The researchers say these companies simply “disappeared.”
Among those that did report results, 88 companies missed their 2020 targets, but only three of those companies— FedEx, Kraft Heinz, and Gildan Activewear—publicly acknowledged the failure and received media attention.
“Companies get attention for announcing goals, but there are few consequences to failing to meet a target or declining to report results,” Lu said. “Unlike our system for reporting financial earnings information, the accountability mechanism for emissions targets is not yet fully formed.”
The adoption of the Paris Agreement in 2015 spurred companies to begin making emission reduction commitments to address climate change. Those announcements were in response to growing pressure from investors, customers, employees and other stakeholders—and often touted in press releases—but the accord itself left these commitments voluntary. That gives companies a great deal of leeway in how they treat disclosure. Some, like Walmart, have been transparent, but hundreds of other companies report nothing at all, with veery few consequences.
“Markets and media simply do not react the way they do when a company misses an earnings target,” Lu said.
Markets and media ignore results
Using data from the CDP (formerly the Carbon Disclosure Project), the largest source for corporate disclosure on climate-related matters, the study focused on companies with targets on emissions from owned or controlled sources (known as scopes 1 and 2). Collectively, the companies in the study represent 2.5 billion tons of scope 1 greenhouse gas emissions and promised to reduce emissions by 3% per year in their targets for 2020.
The study divided up the companies into three categories:
The 61% that achieved their targets (633 companies)
The 8.5% that did not (88)
The 31% that did not report any outcome at all (320).
The United States has the highest number of companies in the study at 215, with 47 that did not publicly disclose whether they met their 2020 targets, and 16 that failed to meet them. Companies in the health care and financial services industries have the highest achievement rates. While companies in the energy and utilities industry have some of the lowest failure rates, they have the highest disappearance rates.
The researchers found that announcing new targets and announcing target outcomes were greeted very differently in the media. For example, 194 companies that announced new emissions targets from 2010 to 2021 led to 218 news articles and 109 press releases. Committing to an emission target clearly garners positive press coverage for companies. However, companies that miss targets or fail to report information altogether have very few public consequences—an outcome in stark contrast to when companies miss quarterly earnings projections.
In fact, the scholars found that failures to meet targets for emissions rarely attract media coverage and don’t prompt stock price changes. Unlike quarterly earnings, where missing a target can impact everything from stock price to bonuses, emissions disclosures seem to be largely ignored by investors, shareholders and Wall Street analysts.
"Without consequences for failing to report, companies have little incentive to disclose their progress," Lu said. "And without reports that distinguish firms that achieved or failed their targets, we cannot reward success or hold failures accountable, potentially leaving companies with little incentive to reach their targets."
FedEx and Kraft Heinz embrace transparency
The voluntary nature of the system contributes to low accountability, the researchers suggest. And without a regulatory body to mandate and enforce accurate disclosures like the U.S. Securities and Exchange Commission does for financial information, companies operate with little oversight. Additionally, few external organizations like the Oxford Net Zero Tracker or media watchdogs monitor companies’ progress toward their publicly stated emissions goals.
The study also notes that companies and stakeholders may still be in a learning phase when it comes to establishing emissions targets, and companies may have set overly ambitious emissions goals.
Still, like Walmart, there are some companies that have taken disclosure and transparency seriously. FedEx, one of the world’s largest shippers, was candid about its efforts in its 2021 ESG Report.
FedEx blamed the pandemic and supply shortage for missing its 2020 goal to reduce aircraft emissions intensity by 30%, according to the report.
“While we made significant progress toward this goal over the last decade, a global increase in volume—exacerbated by the COVID-19 pandemic—caused some older aircraft, which were planned for retirement, to remain in service longer than planned and has led us to fall short of our target to date … we have also experienced delays in our access to sustainable aviation fuel,” the company said in its report.
Still, FedEx emphasized that it reduced aircraft emissions intensity by 27% since 2005, saved more than 255 million gallons of fuel and avoided more than 2 million metric tons of carbon dioxide equivalent emissions in fiscal year 2020.
Oscar-Meyer parent company Kraft Heinz, one of the largest food and beverage companies in the world, was also candid about its targets in its 2021 ESG Report.
“We previously set 2020 intensity targets in water conservation, energy use, greenhouse gas emissions and waste reduction, to reduce by 15 percent per metric ton of product made against a 2015 baseline, that we failed to meet as we contended with former supply chain challenges,” the company said in its report.
The report continued: “We recognize the shortcomings in our execution in these areas and we have both identified and learned from the gaps, as well as committed to substantially improve in these areas in part through greater accountability, prioritization and real-time management. Our more comprehensive approach is paying off with our new targets.”
More uncertainty ahead for companies
The future of emissions reporting was already complex, even before political changes such as President Trump’s second term. For starters, corporate finance leaders expect the pressure to report on sustainability efforts to continue, according to EY’s 2024 Global Corporate Reporting Survey. The professional services firm surveyed 2,000 corporate finance leaders and 815 institutional investors in 30 countries.
The survey showed that 69% of finance leaders reported an increase in investor inquiries regarding sustainability and other “nonfinancial drivers of value.” Additionally, 43% of investors reported that they currently employ sustainability analysts and 25% anticipate increasing that number in the next two years.
At the same time, corporate leaders clearly have concerns about their reporting capabilities. Fully 96% say there are problems with the nonfinancial data they receive for reporting, and more than half (55%) say reporting in their industry could appear to contain elements of “greenwashing.” Only 47% said they are “very likely” to hit their stated targets.
The landscape that many companies operate in is also shifting. Recently released research from a Harvard Business School team led by George Serafeim shows that a growing number of publicly traded U.S. companies—including mature companies like Dow, United Airlines, General Motors, and Archer Daniels Midland—are actively developing and selling technologies designed to reduce global warming that can be scaled. Across sectors, the number of companies addressing climate solutions has doubled in almost two decades, with activity growing following the 2022 Inflation Reduction Act (IRA), the country’s largest-ever climate policy.
But the advent of the Trump administration has introduced a radical shift in U.S. environmental policy. On the first day of his administration, Trump pulled the United States out of the Paris Agreement and promised to make other changes that will depart from his predecessor’s emphasis on renewable sources of energy.
Whereas the Biden administration expanded climate solution investments that support clean-energy policies, such as subsidies to encourage electric vehicles and wind and solar technologies, the Trump years will likely focus more on fossil fuels. Less clear is how much the corporate sector will fight to keep the IRA’s climate-related provisions, which amount to hundreds of billions of dollars in coming years. The future of new SEC climate disclosure rules approved in 2024 is also uncertain in a Trump administration.
“The regulatory framework for corporate emissions disclosures is very much a work in progress,” Lu said. “It will be interesting to see how government acts—and how companies respond—when we study target outcomes in 2025 and 2030.”