Companies face no penalties for missing climate targets, finds research 

There are no significant financial or reputational repercussions for companies that fail to meet their decarbonisation targets, according to new research.   

Academics from Harvard, Berkeley and the Stern School of Business assessed more than 1,000 firms with 2020 climate targets, and found that close to a third (31%) had either postposed or abolished them, with a further 9% simply failing to meet them.  

The materials sector had the highest proportion of “failed firms”, at around 14%, while the energy sector had the most “disappeared firms” with 39%. 

The study said companies were operating in an environment of “limited accountability and low awareness” when it came to achieving their goals, and concluded that, generally, they don’t face penalties for missing them.  

That conclusion is based on an assessment of changes to media sentiment, ESG scores, investor pressure via shareholder proposals, and broader market reactions after a target has been missed or abandoned.  

None of the 320 companies whose targets had “disappeared” received relevant media scrutiny, the report found, and only three of the 88 firms that failed to achieve their 2020 climate goals ended up in the headlines.  

This silence, it noted, was in stark contrast with the reception companies often received when making pledges. 

 “[W]e find positive and statistically significant improvements in long-term media sentiment (insight score) and in both Asset4 and MSCI environmental scores following announcements of 2020 targets,” the academics wrote. 

Three of the companies to receive negative media coverage had openly acknowledged their failure to meet climate targets in their sustainability reports – something only 20 percent of failing firms did – which the report said highlighted the likelihood that transparency could see firms punished over peers “sweeping their failure under the rug”. 

“[I]f stakeholders reward firms for announcing targets, then our observed lack of consequences presents firms with opportunities for a ‘free lunch’,” the academics warned. 

They added that their findings raise questions about the accountability of longer-term emissions targets, such as those set for 2030 and 2050. 

Image courtesy of Bharat Mirchandani