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The data underpinning corporate climate reporting has fundamental flaws

31/10/21

A new PwC paper 'Building trust in the climate transition' calls for a global framework to improve quality and comparability of climate  metrics for investors and consumers.

Corporate data on emissions associated with products and services is beset with challenges, according to a new paper published by PwC to coincide with COP26. 

The transition to Net Zero relies on capital being directed toward companies making positive contributions toward keeping global temperatures within 1.5°C, as well as businesses that are transforming their businesses in line with this transition. The new report from PwC warns that if the non-financial reporting system continues to be incomplete and opaque, then it risks misallocating capital and undermining the huge influence the financial markets can have.

The uncomfortable truths about the data behind corporate climate reporting outlines seven key barriers to the reliability of climate data, from an overreliance on models and assumptions to a lack of standardised metrics.  A particular challenge is poor-quality data along the supply chain - sometimes called ‘scope 3 emissions’.  For many companies, this is where the vast majority of emissions come from and companies are reliant on its suppliers voluntarily disclosing the detailed information needed.

Hemione Hudson, Head of Audit at PwC, comments: 

“An increasing number of companies have committed to achieving Net Zero emissions. This  includes more than 3,000 companies that have joined the UN Race to Zero campaign. As businesses set new climate goals, stakeholders want to understand whether companies are meeting the commitments they’re making.  Our paper shows it is hard to tell and improved reporting is needed.  By shining a light on the challenges, we hope to create more impetus to find solutions. Better quality data and reporting will help companies meet their Net Zero commitments and also allows investors and other stakeholders to hold business to account on their promises.”

The paper warns that without trust in the data, doubts will grow about businesses’ ability to tackle the problem and whether they are delivering on their promises to reduce emissions. This has a ripple effect, including in the allocation of capital. Indeed, financial markets rely on good disclosures to inform asset pricing and capital allocation. And if the non-financial reporting system continues to be broken, then it risks not allocating capital to the businesses and innovations most needed to reach crucial climate goals.

With an increasing shift in consumer preference towards environment-friendly products, and consumers not having easy access to the data to understand the impact of the products they are buying, it will be hard to tell apart those companies harming the environment and those who aren’t.

The paper calls for a new global common framework to enable better sharing of data between companies, better transparency along the supply chain and better accuracy of the emissions companies inherit from their suppliers. The report suggests this could substantially reduce the need for assumptions and models, and remove a key source of uncertainty about the underlying data. 

Hemione Hudson added:

“The importance and urgency of improved corporate climate data goes much further than corporate reporting cycles and specialist groups. It risks eroding public trust in business and global confidence in the world’s effort to halve emissions by 2030. Conversely, with greater transparency as well as better information gathering and sharing there’s an enormous opportunity to build trust in the climate transition. ”

About the Business Briefing Series

The uncomfortable truths about the data behind corporate climate reporting is the first of a new series of papers by PwC that provides a constructive breakdown of causes of mistrust in climate reporting by businesses today. Its intention is to support business leaders, boards and financial markets to build trust and support the flow of capital that will drive the transition to a net zero economy.

ENDS.

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 155 countries with over 284,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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Laetitia Lynn

Laetitia Lynn

Head of Reputation and Purpose, PwC United Kingdom

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