Climate Change Mitigation

• Pages: 149-188
• Author: Michael P. Vandenbergh,Sarah E. Light,James Salzman

149

Chapter 8

CLIMATE CHANGE MITIGATION

We focused in Chapter 7 on climate risks, the types and sources

of GHG emissions, and motivations for corporations to participate in

PEG initiatives. Remember that a business may be motivated to

reduce GHG emissions even absent PEG climate initiatives because

of the financial benefits from identifying existing efficiencies,

anticipating changes in regulatory requirements, and aligning its

public profile with widespread public preferences for climate change

mitigation. PEG climate initiatives draw on these existing incentives.

PEG climate initiatives also create new motivations for businesses to

act by using the governance tools we discuss in this Chapter—

persuasion, payments and penalties, prescriptive requirements,

property rights, and insurance—and by mobilizing investors,

lenders, insurers, corporate customers, retail customers, employees,

and other stakeholders to use these tools. As we discuss the use of

these tools, we explore the reasons why PEG climate initiatives can

bypass the fundamental problems that make climate change so hard

to address, including uncertainty, mismatched boundaries, the

prisoner’s dilemma, and polarization.

I.Persuasion

Many PEG initiatives are designed to motivate a company to act

by providing information to firm managers about their impact on

climate, and how they compare to their peers on managing these

issues. The oft-repeated adage that “you can only manage what you

measure” underlies PEG initiatives based on information disclosure,

which can be thought of as the persuasion tool we discussed in

Chapter 3. In addition to creating incentives for better internal

management, information disclosure also embodies the words spoken

by Supreme Court Justice Louis Brandeis that “sunlight is the best

disinfectant.” By requiring the publication of information—which can

then be reviewed by various constituencies including the public,

investors, consumers, NGOs, and others, information can create risks

to or enhance a company’s public image, reputation, or brand. This

in turn can prompt firms to engage in additional forms of PEG to

address the underlying risks and challenges. These initiatives can

shape the preferences of retail and corporate customers, inform them

about how companies’ policies and activities square with their

preferences, provide information about how to communicate with the

company, and motivate customers to act. They also can affect

perceptions of the company by employees, local communities,

investors, lenders, insurers, and government regulators.

150

PEG IN ACTION: CLIMATE AND ENERGY

Pt. II

Climate disclosure initiatives typically focus on one of four types

of disclosure: corporate, investor and lender, project, or product

carbon footprints and risks. We first examine the neutral PEG

initiatives that focus on disclosure of corporate, investor, lender, and

product carbon footprints and then turn to the normative uses of

information. Chapter 9 explores project-based GHG disclosure.

A.Corporate Climate Disclosure

Although naming-and-shaming and other normative uses of

information often come to mind when we think about using

information as a form of persuasion, much more mundane uses of

information may be even more important drivers of climate

mitigation action. Private organizations and standards have been

formed to increase the accuracy and completeness of GHG data, to

enable comparisons among sources, and to increase public disclosure.

In turn, this disclosure facilitates the many sources of pressure on

companies to reduce GHG emissions and facilitates the crafting and

adoption of government disclosure requirements by the SEC and

other agencies. Understanding the standards for GHG reporting and

how to access GHG information is essential knowledge for lawyers,

managers and advocates working on private and public climate

governance.

1.Emissions Accounting: The GHG Protocol

Many PEG initiatives require information disclosure—often

disclosure of GHG emissions. But there can be disagreements about

which emissions “count” and how to calculate them. The first of the

persuasion tools, the GHG Protocol, answers these questions, and

serves as the basis for many other PEG information initiatives.

Financial accounting standards increase the accuracy and

completeness of financial statements. If widely used, these

accounting standards reduce the risk of fraud and enable investors

to compare the financial results of companies. More than 100 years

ago accountants responded to the need for widely-adopted standards

by developing the Generally Accepted Accounting Principles or

GAAP. These standards are a form of private governance—they are

developed, modified and implemented by private organizations,

although they function as a public-private hybrid because their use

is required for many types of companies regulated by the states and

federal agencies such as the SEC.

In the GHG accounting and reporting area, standards have

emerged as the equivalent of GAAP. These GHG accounting and

disclosure standards are the product of the GHG Protocol Initiative,

a multi-stakeholder partnership of businesses, NGOs, and

governments convened by the World Resources Institute (WRI) and

Ch. 8

CLIMATE CHANGE MITIGATION

151

World Business Council on Sustainable Development (WBCSD). The

WRI/WBCSD GHG Protocol Initiative is an NGO that functions

much like a regulatory agency. It is the secretariat for the GHG

reporting standards, so it establishes and amends the standards,

generates detailed guidance and tools for applying the standards,

and provides technical assistance and interpretations.

The GHG Protocol Initiative has developed seven standards to

provide a consistent methodology for calculating and reporting GHG

emissions, each designed for different organizations and activities.

1

The most important for corporate reporting is the GHG Protocol

Corporate Standard (GHG Protocol). The GHG Protocol Initiative

issued the first edition of the GHG Protocol in 2001 and it issued a

revised edition in 2004. It also has issued updates to guidance

documents and tools that are important resources for preparing or

critiquing GHG reports. A steering group guided the standard

development process for the GHG Protocol, with members from

several environmental groups—including the World Wildlife Fund,

the Pew Center on Global Climate Change, and The Energy Research

Institute—as well as industry representatives like Norsk Hydro,

Tokyo Electric, and Shell. This broad stakeholder involvement likely

contributed to the GHG Protocol becoming the dominant global

industry standard for emissions reporting: it is now used by over 90

percent of Fortune 500 companies.

The GHG Protocol establishes the requirements for companies

that prepare a GHG emissions inventory. The GHG Protocol requires

a company that is developing an emissions reporting program to set

an inventory boundary that includes organizational and operational

components. This provides a way to determine which emissions will

be included within an organization’s boundaries and which will be

attributed to other organizations. The company then sets

organizational boundaries by choosing an approach to consolidate

GHG emissions and define its operations for reporting purposes, and

it sets operationalboundaries by “identifying emissions associated

with its operations, categorizing them as direct and indirect

emissions, and choosing the scopeof accounting and reporting for

indirect emissions.” We focus here on companies, but many

universities, NGOs, and governments also use the GHG Protocol for

emissions reporting.

As we mentioned earlier in this Chapter, the GHG Protocol

identifies three scopes of emissions, Scope 1for direct GHG

emissions, Scope 2for emissions from electricity and steam generated

off-site, and Scope 3 for all other indirect emissions, such as corporate

suppliers and employee commuting. The GHG Protocol requires

1

GHGPROTOCOL,STANDARDS, available at https://ghgprotocol.org/standards.