How to measure corporate sustainability initiatives: Yale report helps consumers cut through the noise
More consumers are trying to affect real world change with dollars. We spoke to the authors of a new report from Yale School of Management that gives us tools to invest in companies that value the environment.
By Bailey Chenevert
April 28, 2021
Having spent over a year now in an isolating pandemic, many people are closely examining social and environmental issues under a microscope. With this growing sense of awareness and unrest, more consumers are starting to demand corporate action regarding the issues that matter to them. This includes increasing pressure for corporate sustainability initiatives, which is a promise from companies to help combat climate change.
In light of a growing body of research showing S&P 500 companies as some of the greatest climate devastators in the world, many people are trying to contribute to an environmental recovery with their everyday investments. It’s easy enough to check out the Paris Agreement goals, but finding out just how much corporations are contributing to climate change can be a rabbit hole for the average consumer. Some companies report different statistics than others, some lock their information behind paywalls, and some simply don’t report emissions at all.
Fortunately, researchers at the Yale School of Management have done the work for us. By dissecting the complicated data regarding companies’ greenhouse gas emissions and climate change mitigation strategies, Net Zero: The Next Frontier for Corporate Sustainability gives consumers a way to see which companies are closest to reaching Net Zero emissions.
How did they do it?
The report, Net Zero: The Next Frontier for Corporate Sustainability, centers around 9 data visualizations that specifically measure what the authors consider the greatest driver of climate change: companies’ greenhouse gas emissions. The data on greenhouse gas emissions, however, isn’t uniform across all companies, and requires comparison and explanation.
Firstly, greenhouse gas emissions occur in different scopes, which companies sort of pick and choose to report on. For the most part, the data represents Scope 1 and 2 emissions, which includes gases emitted from sources that a company owns directly and indirect emissions from purchased electricity. Many S&P 100 companies (33 in 2019) have not reported Scope 3 emissions data: an essential measure of other indirect emissions like consumer use of the product and employee transportation.
Secondly, the report accounts for the size and value of the company compared to its emissions status. It’s expected that a major company like Coca-Cola would emit more gas than something like your local soda shoppe, but it’s also possible that something like emissions per dollar of revenue could be the same. Similar distinctions can be made among S&P 100 companies, so this corporate sustainability report splits them into different categories based on revenue and emissions.
Why is this important?
Political and social pressure due to the climate crisis has large corporations inching their way toward becoming net zero enterprises, meaning they’re trying to balance greenhouse gas emissions with greenhouse gas removal, essentially neutralizing their effect on the environment. For the many consumers that want to use their paychecks to affect positive change in the world, investing in the companies that are most dedicated to reducing carbon emissions is essential. Having access to thorough, yet simplified data like Net Zero report, we can make more informed purchases that impact the world in the way that we want.
Lesley Meng, one of the authors of the report, said she was inspired by her own conscious consumerism journey:
As a consumer, it can be difficult to find the data to compare firms on their sustainability efforts based on an objective metric. Of course, we observe press releases showing firms who are heavy polluters and advertisement campaigns showing companies who engage in sustainability metrics, but these measures are not always directly comparable (and could be very biased). So, in the spirit of ‘voting with your dollar’ and learning more about the firms that consumers choose to support, we sought to assemble some data that takes a snapshot of firms and compares them on objective metrics.
Of course, there are limitations in the report to keep in mind. Because the information varies so greatly from company to company, it helps to remember which ones provided the most and least amount of data. For example, Coca-Cola is lower on the list of the biggest emitters. Although it’s still featured, Coke’s emissions may be understated because they don’t report the impact of consumer use of their products, which includes an astronomical amount of plastic pollution. Likewise, you won’t find companies like Netflix among any of the graphs, flattering or unflattering, because they’re one of four companies that didn’t report emissions data at all.
In addition, this report allows some leeway for bigger companies to emit more gases than smaller ones, which some readers may not agree with. While your local soda shoppe may emit the same amount of greenhouse gases as Coca-Cola in proportion to their smaller revenue, that doesn’t necessarily mean Coke is on par with them environmentally. As companies with incredible purchasing power and access to green technology, consumers might feel that S&P 100 companies have more of a responsibility to find sustainable alternatives to their existing procedures.
Who are the corporate leaders in addressing climate change?
Companies with the highest revenue and lowest emissions (coined “Sustainability Leaders”) are tech giants like Microsoft and Apple. For those interested in green investments, large banks like Wells Fargo and Bank of America are Sustainability Leaders in the financial sector. Even banks with lower revenue, like Capital One, have impressingly low emissions - with an asterisk, of course.
What's the catch?
The report acknowledges that data for corporate sustainability leaders may be understated, specifically in the financial sector. Like many other companies, those in the financial sector don’t usually report their Scope 3 emissions. For banks, that means the funding of fossil fuel extractive companies isn’t accounted for in their emissions ratings. This is a big blind spot, considering fossil fuel extraction is devastating to the environment and banks enable it to the tune of trillions of dollars.
Who are the biggest offenders?
Other than banks and tech companies, the S&P 100 is made up of its fair share of oil and gas companies. Perhaps unsurprisingly, some of these companies, like Exxon and Chevron have the highest revenue and highest emissions, dubbed “Corporate Behemoths.” No financial companies or banks were included in this category. The report, however, defines the “Worst Offenders” of greenhouse gas emissions as those with low revenue and high emissions, like Duke Energy and Exelon.
Which graphs are best for the everyday investor?
Each data visualization is friendly, easy to read and full of valuable information, but the ones that affect everyday purchases tell consumers which companies will make the greatest impact with their dollar, whether good or bad. The visual shown depicts emissions data by company and sector. Obviously the bigger the circle, the worse the company is for the environment. For green investors, it may be your best bet to avoid investing in these companies and the utilities and energy sectors in general. Find a graph here that provides more information about these companies, offenders and otherwise, for more rigorous research purposes.
A word from the authors
We got in touch with the authors of the report to tell us more about the importance of making it. Dr. Meng’s response was mentioned earlier. Here’s more from Pete Edmunds on the report’s potential impact on the future and how everyday consumers can benefit from it.
How can individual investors and everyday consumers leverage the information in the report?
From an investor and consumer perspective, the statistics on the percentage of our total US emissions that come from just a handful of fossil fuel companies should be alarming. These should underscore the importance of electrifying everything that we do – from heating to cooking to transportation – to reduce our individual contribution to these companies’ emissions and uplift the companies that are offering more sustainable alternatives.
Now that the US has reentered the Paris Climate Agreement, has the message of the report changed at all?
When we first published the report, the message was: we need to set an ambition to solve the problem and we need to act on it. Now the message is: we have an ambition, let’s get to work. To reach the Biden Administration’s target of a 50-52% reduction in emissions from 2005 levels by 2030, the data visualizations and trend lines in this report would need to change significantly.
What do you consider the most important thing for consumers and companies alike to take away from this information?
We need to act now to reverse climate change, and the fossil fuel industry in particular must evolve or it will become obsolete as consumers and investors increasingly prioritize the environment.
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