Sustainable Strategies and Net-Zero Goals

By: Mark L. Frigo, Robert S. Kaplan and Karthik Ramanna

Format:Print

Abstract

In a recent Harvard Business Review article, Kaplan and Ramanna describe a rigorous approach, the E-liability method, for companies’ ESG reporting, especially as it pertains to GHG emissions measurements. They argue that the current standards for measuring emissions from its upstream (supply chain) and downstream operations (customers and end-use consumers) have fatal flaws that introduce high-measurement errors and opportunities for bias and manipulation. A new accounting system solves these problems using two basic steps: (1) Calculate the net E-liabilities the company creates and eliminates each period plus those it acquires from suppliers; and (2) allocate the net E-liabilities, produced and acquired, to the units of output it produced during the reporting period. This process captures all the upstream and scope 1 emissions of a company, assigns them to the company’s outputs, and transfers the acquired and produced E-liabilities to its immediate customers that purchase the company’s products and services. The interview covers key elements of this approach: its benefits, the pathway forward to implementation, and the role of CFOs and management accountants in the process.

Keywords

Measurement; Sustainability; Net-zero Emissions; Environmental Sustainability; Integrated Corporate Reporting; Measurement and Metrics; Strategy

Citation

Frigo, Mark L., Robert S. Kaplan, and Karthik Ramanna. "Sustainable Strategies and Net-Zero Goals." Special Issue on Sustainability. Strategic Finance 103, no. 10 (April 2022): 42–49.