How much do greenhouse gas emissions coming from corporate activities cost society?

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To answer this important question, we need corporate greenhouse gas (GHG) emissions data. But these data are still highly uneven around the world. In the European Union, many large companies must report their carbon emissions starting in 2025. Other countries are introducing disclosure mandates as well.

SEE A TIMELINE OF HOW CORPORATE CLIMATE DISCLOSURE HAS EVOLVED

Why might mandatory corporate climate disclosure be helpful in the fight of climate change?

Requiring all companies to disclose their GHG emissions would reveal which industries and firms emit the most carbon pollution. This information would allow investors to identify which firms are most exposed to climate risks and policies. It would unleash information to companies’ customers, employees, and other stakeholders that could lead them to pressure firms to reduce their emissions. And, it would provide the data needed to build and enforce stronger climate policies.

With mandatory reporting on the horizon, what will it uncover?

The Climate Disclosure Explorer provides a preview

Making all corporate emissions data public would reveal corporate carbon damages

What are corporate carbon damages?

First things first. To estimate the cost of corporate emissions, we need two key pieces of information: reliable data on corporate emissions and credible estimates of the costs those emissions impose on society. Armed with those, we can estimate what we call corporate carbon damages.

By using the best estimates of the costs to society from additional emissions, called the Social Cost of Carbon, we can translate emissions of individual firms and industries into monetary damages that these activities impose on society. To better understand the magnitude, we scale the damages by common financial metrics of firms’ activities, like operating profits or revenue.

WHAT IS THE SOCIAL COST OF CARBON?

Corporate carbon damages are large on average, but highly skewed

This project measures the corporate carbon damages for roughly 15,000 publicly traded firms, accounting for more than 80% of global market capitalization.

Across the globe, corporate carbon damages average roughly 44% of firms’ operating profits and 3% of revenues.

Four sectors account for 89% of corporate carbon damages—utilities, materials, energy, and industrials.

In this chart, each company is a dot/circle sized by its carbon damages relative to its profits. Companies are clustered by sector.

*The chart excludes (a few) outliers, including the highest emitters with lowest profits and reporting errors, for better comparison.

But damages vary significantly within each sector. Take the companies that make up the 'Materials' sector for example …

… where a small number of high-emitting firms lie far above the sector median, driving the average up. Here, we have condensed the group into a barcode-like chart.

Some of this variation stems from firms doing different things, as shown on the right, and some from firms being less efficient in their production.
To focus on the latter, we show that damages also vary widely across different sub-industries.

Many sub-industries follow the same pattern, with a small number of high-emitting firms producing a large share of damages. In this view, the circles are back and each sub-industry has its own horizontal scale to make carbon damage differences within each sub-industry clearer.

Requiring climate disclosure could create pressure for high-emitters to reduce emissions to be closer to peers

We illustrate this peer pressure with the high-emitting firms moving left.

If all high emitters were pushed all the way to their sub-industry medians, it would reduce total emissions by 49% for the whole sample, illustrating the potential for peer benchmarking.

For this sub-industry, some of the differences in emissions across firms may still be due to different fuel sources. We therefore look at another relatively homogeneous sub-industry and still find the same pattern.