Corporate Emissions Inflict Significant Costs on Society / Disclosure Could Help Reduce Emissions

The average societal costs caused by corporate carbon emissions roughly equal 44 percent of the firms’ operating profits. This is shown in a new study conducted by researchers from the University of Chicago as well as the Graduate School of Economic and Social Sciences (GESS) of the University of Mannheim and the Collaborative Research Center TRR 266 Accounting for Transparency (TRR 266). Mandatory disclosure would provide the data necessary for efficient climate policies and market signals, as well as possibly increase pressure on companies to reduce emissions.

Under the new Corporate Sustainability Reporting Directive (CSRD) of the EU, companies will be obliged to disclose their carbon emissions as of 2024. The United Kingdom enacted similar reporting requirements and the U.S. Securities and Exchange Commission (SEC) is finalizing a climate disclosure rule this fall that would require companies to report their greenhouse gas emissions as well. But how would such disclosure help in addressing current climate challenges? A new study quantifies the costs – or the damages – from corporations’ emissions and discusses how public disclosure could lead to lower emissions. The study considers roughly 15,000 publicly traded firms worldwide.

“Corporate carbon damages” roughly equal 44 percent of firms’ operating profits

Leuz and his co-authors Patricia Breuer (University of Mannheim and TRR 266) and Michael Greenstone (University of Chicago) find that average corporate carbon damages are large, equaling about 44 percent of firms’ operating profits. However, this average is heavily influenced by some companies with very large emissions. The median is only 3.6 percent. The authors emphasize that it is not possible to divide responsibility for these damages between the firms that make the products and consumers who buy them, but nevertheless refer to them as corporate carbon damages because the emissions come from production.

Go to the press release