By Michael Kraten, PhD, CPA
August 20, 2023
Moody’s 2022 TCFD Report discloses environmental performance metrics in accordance with the policies and standards of the Task Force for Climate-Related Financial Disclosures. In its 47 page PDF document, Moody’s employs the phrase “Science Based” 26 times to describe its targets or standards.
26 times? Why would a sophisticated global financial organization, noting that its measurement targets are scientifically derived, need to repeat itself more than two dozen times? Wouldn’t a single declaration be sufficient?
There is, of course, a reason for the repetition. Eight years ago, the United Nations Global Compact joined three other environmental organizations to create the Science-Based Targets initiative (SBTi). According to its 2022 Monitoring Report, the SBTi contracts with 38% of the Fortune Global 500 and 42% of the S&P 500 to certify that the companies have established – or have committed to establish – science based carbon emission targets.
The search engine on the SBTi web site, for instance, notes that Moody’s Corporation has set a near term target that is consistent with limiting the increase in global temperatures to 1.5 degrees Celsius. Moody’s has also committed to achieving Net Zero emissions by 2040.
In comparison, the search engine notes that S&P Global has set the same 1.5 degrees target. However, although S&P has committed to achieving Net Zero emissions, it has not announced that it will do so by 2040 (or any other specific year).
Does this information matter? Assuming it is valid, it may indeed matter. In fact, one does not necessarily need to care about the health of the planet to be impacted by the data.
After all, huge amounts of capital are now invested in firms that focus on reducing carbon emissions. As more organizations establish science based targets to reduce emissions, they’ll be better positioned to access these funding streams.
This assumes, though, that the SBTi information is valid. But is it truly safe to assume that 62% of the Fortune Global 500 and 42% of the S&P 500 do not use science based targets, simply because they have not sought the certification of the SBTi? And is it meaningful to include companies (like S&P) in certain reported metrics if they merely commit to achieving targets without citing any particular years, commingling them with companies (like Moody’s) that have already cited target years?
Furthermore, how many companies are contracting with public accounting firms to audit their sustainability metrics? Although the annual financial statements of Moody’s are audited in their entirety by the “Big Four” public accounting firm KPMG, its TCFD Reports are only subjected to limited assurance procedures that are performed by a pair of advisory firms (Apex and LRQA).
Are you feeling unsettled by these questions? At the very least, it is clear why companies are using the phrase “Science Based Targets” so frequently. They’re contracting with the SBTi to certify that they are employing such targets, and the SBT acronym has acquired its own distinctive meaning.
Nevertheless, it’s reasonable to raise questions about the situation. For instance, according to an article in the M.I.T. Technology Review, “the fact that a single organization is setting the standards for many of the world’s largest companies makes it essential for those climate targets to be trustworthy. A number of researchers now question whether SBTi’s corporate guidelines are adequately aggressive, equitable, and clear.”
Indeed.
Originally published at michaelkraten.blogspot.com. All rights reserved by author.