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Connecting CEO legacy, GHG emissions, climate in-action and mainstream reports

In this article the carbon footprint idea comes full circle to big polluters and the CEO’s who are accountable.

For Generation Z readers it may come to you as a surprise that Governments have been talking about climate change since the early 1990s. Heads of State & Government, Ministers and Officials from across the world assembled in Rio de Janeiro in 1992 and agreed to prevent dangerous climate change. The UN framework convention on climate change (UNFCCC) was signed, which set out a collective ambition to mitigate the problem of growing GHGs (except for aviation and maritime emissions which were not resolved then - or since). It came into force in 1994 and multiple rounds of negotiations have followed to set binding targets, notably the Kyoto Protocol and the Paris Agreement.

Governments set policy and targets, while we make decisions about what we buy. In between, CEOs decide the strategy and investments of their companies. Each are connected, but none can solve climate change alone. Each of these three groups have not been in sync for some time, hence GHG emissions continue to rise.

This article draws together a number of distinct threads to highlight the lack of effective corporate governance by those in leadership positions in business. The intent is not to name and shame, but rather to show how ineffective our rules and regulations are in holding people to account for their decisions, leading to rising GHG emissions globally, and to highlight that there was another path which they could have taken.

In Merchants of Doubt, Naomi Oreskes and Erik Conway show how misinformation was used to downplay, discredit and deflect attention from the challenges posed by climate change and undermine the case for definitive action from policymakers. This is the legacy of Big Tobacco and the copy cat strategy of Big Oil - and all those who enabled it over decades.

The ‘carbon footprint’ concept was popularised by BP as part of a wider re-branding campaign in 2004, in part to explain the relationships between goods and services people purchase and the GHG emissions that come with them. But the publicity campaign inadvertently framed the problem as one for the individual consumer to solve, rather than recognising that the fossil fuel companies themselves are responsible for the extraction, production and sale of dirty fuels that are burning our planet.

Ideally, our purchasing decisions should not have to consider the embedded GHG emissions between product A versus B; they should both be zero emissions. In reality, however, product A may derive from clean energy and product B may derive from a dirty energy source. This is the responsibility of Big Oil, successive energy CEOs and complicit investors. Analysis from CDP and the Climate Accountability Institute shows that around 100 fossil fuel and cement companies accounted for 70% of all GHG emissions since the beginning of the industrial revolution and that half of those emissions have occurred since 1991, coinciding with the preparations for the UNFCCC.

These problems have not gone unnoticed and some attempts have been made to address them, including by the European Commission, various Stock Exchanges and individual financial regulators. A number of voluntary initiatives have also sought to close the corporate governance gap. The European Commission is currently planning to revise its non-financial reporting directive to reflect both the role of the financial sector in investments that underpin its Green Deal and to improve companies’ sustainability reporting. The desired outcome is to make this reporting more accessible to stakeholders and the actions of companies more accountable to the public.

Let’s combine these different threads; legacy, carbon footprint, big polluters and accountability with some examples. Delve into a mainstream report and you might find out how many Board meetings the CEO attended and their salary that year. You might also find the company’s total scope 1 and 2 GHG emissions for that year. But you won’t see a link between the two. You won’t see a CEO take personal responsibility for the GHG emissions of their company and the decisions they take each year that affect those GHG emissions.

A well-known online retailer only began publishing GHG emissions data in 2018 (44 million tonnes), but by the time its founder retired and became an astronaut in 2021, this had increased by 37% to 61 million tonnes. What would have been the outcome if its CEO had decided that when he started selling books from his garage in 1994 (the same year the UNFCCC came into force) he was going to rely on renewable energy and pioneer zero CO2 packaging? Total GHG emissions from this CEO’s 27-year reign are unknown, but if 156 million tonnes for the last three years are any indication, then it’s a shame his entrepreneurial skills didn’t include minimising the climate impact of his business from the start.

Our second example, this time in the aviation sector, began publishing its direct CO2 emissions data in 2017, totalling 48 million tonnes CO2 emissions. Like the astronaut above, this CEO high-flier also started out in 1994. The CEO could have gone to original equipment manufacturers in the same year the UNFCCC came into force and asked for a fleet of electric or hydrogen-powered aircraft. Instead, it took 23 years for someone else to ask.

Our third missed opportunity is an oil company CEO who took over shortly after the UNFCCC came into force. It is estimated that this CEO is accountable for 6,365 million tonnes of GHG emissions over his 12-year term. He could have led a completely new strategy to actually take the company Beyond Petroleum, rather than commissioning the rebranding exercise he settled for. This could have catalysed the entire energy industry to adopt a zero-emissions strategy 20 years ago. Instead, the International Energy Agency said earlier this summer that there should be no new investment in new fossil fuel supply projects.

The final example is the exception. This CEO was around 20 years in post in 1994 when he had his epiphany. He was unable to answer a customer’s question on what his company was doing for the environment, so set about transforming his company’s business model. He upended the carpet industry and influenced many others since. This company has published GHG emissions since 1996 and its annual disclosures cover a comprehensive set of environmental KPIs, including almost every scope 3 category.

CEOs are directly accountable for enormous amounts of scope 1, 2 and 3 GHG emissions - far more than most of us will be in our lifetimes. They should be accountable for their decisions and their company’s performance not just annually, but cumulatively over their time in charge, and publicly in their company’s mainstream reports.

Good corporate governance is not a paragraph in a mainstream report describing how many times a Board sub-committee met in the last 12 months. It is about ensuring accountability for decision making and ensuring those decisions reflect the expectations of the company’s stakeholders. The European Commission has an opportunity to rectify this accountability gap in its corporate sustainability reporting directive. Investors and other stakeholder similarly can and should influence corporate governance and CEO accountability in particular. None of us can solve climate change alone, but some of us are more equal than others.

This blog was submitted by our Technical Working Group member, Jarlath Molloy. The views expressed in this article are those of the author alone and not the Climate Disclosure Standards Board (CDSB).