Corporate Climate Targets Are a Mess. Could Tracking 'Spheres of Influence' Help?

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In order to avoid the worst impacts of global warming, scientists agree that the world needs to reach net-zero greenhouse gas emissions by midcentury. How to get there is a more contentious question.

So far, the dominant strategy has been for companies, governments, and other institutions to set their own emissions reduction targets. The idea is that if everyone aims for net-zero by 2050 and comes reasonably close to achieving it, the world will be spared a climate nightmare.

This strategy has only worked to a limited extent — especially in the private sector. More than half of the world’s 2,000 largest publicly listed companies don’t even have a formal net-zero goal, and only 4 percent of those that do meet a United Nations initiative’s baseline criteria for reliability. Companies often rely on questionable accounting or otherwise exaggerate their progress toward climate targets, despite the emergence of several independent standard-setting bodies and verification schemes.

Researchers at the University of Oxford and the Exponential Roadmap Initiative, a Swedish organization that advocates for corporate emissions reductions, are now calling for a different approach — one that can effect change on a more systemic level. In a research paper published last week in the journal Carbon Management, they argue for an additional corporate climate reporting system that incentivizes other forms of action, like lobbying for national climate policies and investing in conservation projects.

“We have been leaving a huge amount of impact on the table by failing to encourage or invite companies to be rewarded and compared for their significant efforts beyond their value chain,” said Kaya Axelsson, a research fellow at Oxford University’s Smith School of Enterprise and the Environment and a co-author of the paper.

She said those rewards could take a number of forms, including interest from consumers or investors, or preferential treatment for government contracts.

Axelsson and her co-authors are by no means the first to criticize existing corporate carbon accounting practices. Over the past several years, academics, think tanks, and even government agencies have suggested ways to boost transparency and make companies’ net-zero pledges easier to compare. Standard-setters themselves have also sought stakeholder feedback to address widely acknowledged problems. Few experts, however, have called for an entirely new set of accounting standards.

Under the researchers’ proposal, companies would set targets and track progress toward three “spheres of influence,” related to categories they call “product power,” “purchasing power,” and “political power.”

This is in contrast to today’s most prevalent climate reporting regime, in which companies tally up the greenhouse gas emissions associated with their own operations, the electricity they buy, and the products they sell to customers — known as Scope 1, 2, and 3 emissions, respectively. These scopes are collectively described as a company’s greenhouse gas inventory.

The authors’ first proposed sphere of influence, product power, would consider emissions avoided as a result of a company’s new products or practices, compared to a world in which those products or practices didn’t exist. The authors say this could incentivize companies to decarbonize all of society, rather than simply increase the efficiency of their existing products and supply chains.

This gets at a problem that might be faced by, say, a fast-growing renewable energy company. Under the scope-based standards, the company would be penalized for the greenhouse gas emissions it emits when it manufactures wind turbines. But those turbines might be used to displace another company’s fossil fuel use, providing a societal climate benefit. The renewable energy company should be recognized for this contribution to the greater good, Axelsson said.

The second sphere, political power, would recognize the role companies play in shaping local, national, or international regulations, and incentivize them to advocate for climate action, rather than against it. This reflects the guidance of an expert panel of the United Nations, which said in a 2022 report that corporate actors “must align their external policy and engagement efforts, including membership in trade associations, to the goal of reaching net-zero by 2050.”

The goal wouldn’t necessarily be to quantify the impact of companies’ political lobbying, the paper clarifies, but to acknowledge and reward it: “A company taking significant steps to change a political system constraining climate progress across its sector should arguably be treated preferentially to a company with the same inventory emissions who has chosen not to engage in political processes.”

Perhaps most significantly, the researchers’ third proposed sphere, on purchasing power, would address a divisive question: whether activities to drive down emissions outside a company’s operations and supply chain can somehow count toward that company’s climate targets. Today, many companies say yes — they participate in an unregulated carbon market in which credits representing some amount of sequestered or prevented carbon dioxide can be purchased in order to “offset” a company’s Scope 1, 2, or 3 greenhouse gas emissions. These credits are typically generated by activities like planting trees, investing in renewable energy to replace fossil fuels, or protecting forests that are in danger of being chopped down.

Scientists say this approach is flawed for a number of reasons, including because it implies an inaccurate equivalence between a ton of carbon emitted from the combustion of fossil fuels and a ton of carbon stored in biological systems. Research has shown that the two don’t have an equal and opposite effect on the climate system. Carbon offsets can also give companies an excuse not to reduce their own emissions.

That said, credit-generating activities themselves can actually be helpful; it’s their use as offsets that’s problematic. The purchasing power approach would track companies’ support for these activities separately from their greenhouse gas inventories, giving them an incentive to continue that support without the contentious math associated with offsetting. This is similar to the idea of “contribution claims,” in which companies simply advertise their financial contribution to renewable energy projects, grid resilience, afforestation, and other climate action, without making any claims about the amount of carbon saved.

“Projects which serve to protect nature or enable clean development still play a role, if imperfect, in global mitigation and adaptation efforts,” the paper says. “When a company uses its purchasing power in this way it goes above and beyond another company that has not done so.”

Doreen Stabinsky, a professor of global environmental politics at the College of the Atlantic in Maine who was not involved in the research paper, said the new proposal could address flaws in current climate reporting systems. But she questioned the premise that corporations will be sufficiently motivated to address climate change just because doing so would appeal to consumers and investors.

“I agree that there’s a problem with a myopic focus on inventory emissions, and I agree that you need to have innovative strategies that operate at a system level,” she said. “But I’m critical of thinking that it’s up to individual companies to innovate those system-level strategies.”

She said the researchers’ proposal focuses too much on improvements to the market system and overlooks governments’ responsibility to oversee society-wide decarbonization. “There are things that we’re not going to be able to make happen through these market-based approaches,” she added.

Axelsson told Grist she sees voluntary standards as “a necessary but insufficient tool for corporate climate accountability,” and said they can be a stepping stone to government policies.

“Standards can be a good regulatory sandbox for testing new ways of thinking about concepts holistically,” she added. “If net-zero is at a turning point where we’re asking companies not just about their footprint but also about their impact, we probably need to test that in a voluntary space and then hopefully governments can start seeing that that’s something that they can ask for.”

This article originally appeared in Grist. Grist is a nonprofit, independent media organization dedicated to telling stories of climate solutions and a just future. Learn more at Grist.org.