Emissions Targets Set by Large Firms: Promises Made - Promises Kept?

G&A's Sustainability Highlights (2.16.2022)
Feb 23, 2022 11:00 AM ET
Newsletter

“Put your stakes in the ground to set expectations with your company’s investors and other stakeholders.” That is among the pieces of expert advice often offered to newly-named CEOs. Concept: Set a goal or two as you start out as CEO for things you would like to be measured on and held accountable for.

To make this work, the new CEO might make it aspirational for teammates, using the goals to help to set key stakeholder expectations, and focus on the things that realistically can be accomplished in the first year and then in the period beyond.

We also see sitting CEOs with a variation on the theme, formulating “pledges” as various stakeholders set out their expectations of the leaders. These pledges can be in response to shareowners’ resolutions that may be submitted for general proxy voting, or in response to campaigns that “name and shame.” Also, in times of employee revolts, or regulatory actions, and other pressures.

About recent pledges: The Business Roundtable (BRT), comprised of the CEOs of the largest 200 companies in the U.S., revised the group’s mission statement in 2019 to reflect “new pledges” to stakeholders in five key areas.

BRT began issuing Principles of Corporate Governance statements in 1978; each was oriented toward the capital markets, applying the “stockholder primacy” of Professor Milton Friedman fame. The shift to Statement on the Purpose of a Corporation was in August 2019.

Over the past decade CEOs have become more sustainability oriented and the stakes in the ground are in shifting sands. BRT’s new mission statement aligns the “purpose” of the large-cap company toward serving shareholders (yes, of course) but also employees, customers, suppliers, and communities in which they operate.

Consider the CEO stakes (the messages expressed in the Statement on the Purpose of a Corporation) to be promises – what happens when promises are not kept? The examinations have begun recently – are the “Purpose” promises being kept by the nation’s largest business enterprises? This has come into even sharper focus in the COVID-19 era.

We are now seeing a deep dive underway in another relatively new area of corporate policies and behaviors: the measurement, management, and public disclosure of large firms’ greenhouse gas emissions (GHGs). Investors are tracking the progress or lack thereof as GHG reduction targets are set, such as ambitious promises to reach “Net Neutral” and “Net Zero” emissions in future years.

These pledges by the CEO and the board of directors are expressed in corporate sustainability or ESG reports, and now frequently appear in proxy statements, annual reports, and investor decks. Does performance over time match the targets being set? How are companies doing in meeting the pledges designed to address climate change challenges? That is the research going on by such organizations as New Climate Institute and Carbon Market Watch.

New Climate Institute recently a 128-page report, Corporate Climate Responsibility Monitor 2022: Assessing the Transparency and Integrity of Companies’ Emissions Reduction and Net Zero Targets. The 25 companies assessed included Apple, Google, Novartis, and Unilever. Two top line conclusions: (1) While “Net Zero” suggests 100% reduction, the Net Zero targets stated by the companies analyzed commit to reduce the aggregate emissions by 40% (2) targets for 2030 fell well short of the ambition to align with the agreed-to goals of the Paris Agreement, to avoid the most damaging effects of climate change.

This report and the measured response of the SBTi (Science Based Target Initiative) are our Top Story choices for this issue. The G&A Institute team will continue to monitor the work being done to track climate change promises and we are available to answer any questions you have on these important issues.

This is just the introduction of G&A's Sustainability Highlights newsletter this week. Click here to view the full issue.