No. 121: Toward Decision-Useful Carbon Information

Abstract

Companies are increasingly viewed as crucial drivers for timely decarbonization. Current accounting practices for greenhouse gas (GHG) emissions, however, often leave corporate carbon disclosures and abatement obscured. Here I introduce a taxonomy for assuring the quality of corporate carbon information. Analog to financial accounting standards, information on a firm’s GHG emissions is to be decision-useful to stakeholders. That is, it is relevant and faithfully represents the actual changes in atmospheric GHG associated with a firm’s economic activity. Applying the taxonomy, I find that information prepared under the widely used Greenhouse Gas Protocol generally fails to represent a firm’s GHG emissions faithfully. Yet, if certain conditions prevailed, it would faithfully represent a share of those emissions. My findings highlight the need for revising the GHG Protocol as well as recently proposed carbon disclosure mandates and standards, which seek to produce decision-useful information but have also adopted the GHG Protocol.