Study reveals missing data for 3 .-range greenhouse gases
MUNICH TECHNICAL UNIVERSITY (TUM)
Companies in the digital technology industry are reporting significantly lower greenhouse gas emissions along their product value chains. Across a sample of 56 large technology companies surveyed in a study by the Technical University of Munich (TUM), more than half of these emissions were excluded from self-reporting in 2019. At the level equivalent to 390 megatons of carbon dioxide, the forgone emissions are in the same ballpark as Australia’s carbon emissions. The team developed a method for detecting sources of error and calculating missed disclosures.
For policymakers and the private sector to set greenhouse gas emission reduction targets, it is important to know how much CO2 companies are actually emitting. However, there are no binding requirements for comprehensive accounting and full disclosure of these emissions. The Greenhouse Gas (GHG) Protocol is considered a voluntary standard. It distinguishes three types of emissions: Scope 1 refers to emissions directly from the company’s own operations, scope 2 refers to emissions from the production of purchased energy, and scope 3 is emissions from activities along the value chain, or in other words all emissions from the extraction of raw materials to use the end product. Scope 3 emissions typically represent the majority of a company’s carbon footprint. Previous studies have also shown that these emissions account for most of the reporting gaps. However, to date it has not been possible to quantify these gaps or determine their causes.
Lena Klaaßen and Dr. Christian Stoll at the TUM School of Management of the Technical University of Munich (TUM) developed a method to identify the reporting gap for scope 3 emissions and used it in a study Typical for determining the carbon footprint of digital technology companies. Their paper has now been published in the journal Nature Communications.
Companies that publish inconsistent data
Klaaßen and Stoll determined that many companies submit different greenhouse gas emissions figures depending on where they report them. They mainly focus on the companies’ own reports versus voluntary disclosures to the nonprofit CDP. The annual survey of companies conducted by the CDP is considered the most important data collection based on the structure of the GHG Protocol. Most companies disclose lower emissions in their reports than in the CDP survey. This may be in part because CDP reports are intended primarily for investors, while corporate reports are available to the general public.
In addition, the CDP assigns reporting companies to choose which of the 15 GHG Protocol categories – from business travel to waste disposal – is right for them. Studies show that this freedom of discretion leads to some companies omitting certain categories or underreporting associated emissions. Most companies have a reporting gap simply because they do not receive emissions data from all suppliers and do not fill the gap with secondary data.
To bridge the gap, Klaaßen and Stoll calculate emissions by applying the values of a number of comparable companies reporting full figures. They take into account whether these companies are in the same industry and are comparable in terms of key metrics like sales, profits, and workforce size. To apply a uniform standard, they assume that the GHG Protocol categories are relevant to a company unless it specifically states that no emissions in this sector exist.
751 versus 360 megatons of carbon dioxide equivalent
Klaaßen and Stoll applied this method to quantify scope 3 emissions of 56 digital technology companies. Due to its high energy consumption, the industry is considered a major source of CO2 emissions, but still regularly states that it is committed to a low-carbon business model. The case study investigates software and hardware manufacturers included in the 2019 Forbes Global 2000 list, which ranks the world’s largest public companies, and participated in the CDP survey in the same year.
Calculations show that in 2019, the tech companies analyzed failed to disclose more than 50% of their greenhouse gas emissions along the value chain in their own reports and/or the CDP survey. . Instead of the reported 360 megatons of carbon dioxide equivalent (the standardized unit for all greenhouse gases), the study totaled 751 megatons. A difference of 391 megatons is comparable to Australia’s annual greenhouse gas emissions.
Significant differences between companies
Half of the companies that submit data to the CDP disagree with the data disclosed in their company reports. These reports are particularly common when omitting the GHG Protocol categories that make a significant contribution to emissions. For example, 43% of companies ignore emissions from using products sold and 30% neglect purchased goods and services.
Differences in the quality of companies’ disclosures are significant. While some companies omitted only one category of the GHG Protocol, others omitted all emission classes in scope 3. Among the biggest differences the researchers found, publicly disclosed emissions and calculated numbers differ by a factor of 185. The closest values differ by only 0.06%. Hardware companies have ignored more than half of their overall emissions, and software companies have somewhat less than half. Companies that have announced ambitious CO2 reduction targets have been relatively precise in their reporting. Here, the difference between the published and adjusted amounts is less than 20%.
“Consider applying binding regulations”
Lena Klaaßen said: “The often unsystematic and inaccurate reporting of companies’ carbon footprints is a problem for policymakers, stakeholders and companies themselves. “The lack of transparency makes it difficult to set realistic goals and develop effective strategies to reduce greenhouse gas emissions and to properly value companies.” In addition to further delving into other branches, the authors believe that a new regulatory framework is needed. “Based on the current lack of reports we have observed, it seems likely that voluntary guidelines alone could yield more accurate disclosures in the future,” said Christian Stoll. “Policymakers should therefore think about binding guidelines with clear rules on how to report greenhouse gas emissions.”
More information:
Research carried out at Energy Market Center at TUM School of Management.
Open access publication sponsored by DEAL.
Lena Klaaßen is currently doing research at ETH Zürich.
JOURNEYS
Nature Communications
DOI
RESEARCH METHODS
Case study
RESEARCH SUBJECTS
Everyone
ARTICLE TITLE
Harmonize your business’ carbon footprint
ARTICLE PUBLICATION DATE
October 22, 2021
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