Corporate Carbon Reporting:

Improving Transparency and Accountability

Stephen Comello
EFI Foundation
scomello@[Link]

Julia Reichelstein
Vaulted
julia@[Link]

Stefan Reichelstein
Mannheim Institute for Sustainable Energy Studies
ZEW-Leibniz Centre for European Economic Research
and
Stanford Graduate School of Business
reichelstein@[Link]

Forthcoming in: One Earth

May 2023

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 Corporate Carbon Reporting: Transparency and Accountability

Abstract

Numerous multinational firms have recently pledged to reduce their greenhouse gas emissions
to a net-zero position by the year 2050. These pledges currently lack a unified measurement
and reporting structure, leaving the public unsure about the extent of the corporate
commitments. Here, we propose a Time-Consistent Corporate Carbon Reporting (TCCR)
standard that entails an initial forecast of a firm’s future carbon emissions trajectory, periodic
revisions of the earlier forecasts, and updates on emissions reductions actually achieved at
different points in time. The TCCR standard is applicable to alternative carbon footprint metrics,
including a company’s direct emissions, carbon emissions in goods sold, or the carbon footprint
assessed for individual sales products. Companies adopting the TCCR standard will provide
added transparency and accountability for their carbon disclosures.

JEL classification: M41-Accounting, Q53-AirPollution, Q54- Climate

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Introduction

As governments around the world reaffirm their commitments to reduce carbon emissions at
national levels, numerous corporations have recently issued their own carbon reduction
pledges. According to a recent survey, more than two-thirds of the Fortune 500 firms have by
now articulated “net-zero by 2050” goals with regard to their greenhouse gas emissions.1
Globally, a survey of the largest 2,000 multi-national firms reported that more than 20% of
respondents have issued such pledges.2 With pressure from institutional investors, customers
and employees building, net-zero pledges are increasingly becoming a “must” for companies
seeking to convey their commitment to rapid decarbonization.

Two issues commonly raised in connection with recent carbon reduction pledges are the length
of the pledge horizon and a lack of comparability in what, precisely, is being pledged. Analysts
and observers have long pointed out that a mere pledge that comes due in the year 2050 is
generally beyond the accountability horizon of current executives. Some studies argue that net-
zero targets would become more credible if they include milestones, an implementation plan,
and a statement about longer-term intent for either maintaining net zero or going net
negative.3 Several recent studies point to considerable variation in the measurement of
corporate carbon footprints and in reporting progress towards the target of full
decarbonization.4–7 More broadly, earlier literature has expressed concern over greenwashing
in corporate commitments, pointing to “decoupling” of commitments and concrete actions, and
a general lack of corporate accountability.8–11

Our objective in this perspective article is to describe a carbon emissions reporting framework
that is intended to strengthen the transparency and credibility of existing net-zero pledges. We
refer to this framework as Time-Consistent Corporate Carbon Reporting (TCCR). Firms adhering
to the TCCR framework would commit to disclose the following information: (i) the annual
reporting of a specific corporate carbon footprint metric, (ii) an initial forecast of the future
trajectory of this metric up to the year 2050, and (iii) periodic revisions of the forecast for the
remaining years up to 2050.

3
The concept underlying the TCCR standard is known from managerial accounting textbooks as
“variance analysis”. Accordingly, performance targets, which may have been self-selected by a
departmental manager or negotiated with superiors, are periodically revised. Further,
performance of the organizational unit is assessed by the time-series of discrepancies
(variances) that compare target levels to actual results delivered in each period. The TCCR
standard adheres to the general principles for effective disclosure as promulgated by the
Taskforce for Climate related Financial Disclosure (TCFD) recommendations.12 Accordingly, such
disclosures should be unambiguous, consistent over time, comparable among companies within
a sector, industry, or portfolio, and provided on a timely basis. Certain features of our reporting
standard are also aligned with the carbon pledge requirements described within the recent SBTi
Net Zero Standard Framework13 and the UN Environment Program Finance Initiative Guidelines
for Climate Target Setting.14

The TCCR standard is based on one or multiple carbon footprint metrics measured consistently
over time. In accordance with the Greenhouse Gas (GHG) Protocol, many companies report a
flow measure of their carbon footprint that includes Scope 1, Scope 2 and select categories of
their Scope 3 emissions, e.g., employee travel and commuting. One recent innovation in this
context is that some multinational companies have adopted internal accounting systems in
order to determine the carbon footprint of their sales products.15,16 In accordance with the
general E-liability framework17, these companies seek to measure the cradle-to-gate carbon
footprint of their products in a sequential manner along their upstream supply chains. By
relying on primary emissions data at each link of the supply chain, companies gain a reliable
measure of the “Upstream Scope 3” emissions embodied in their products. When embedded in
the dynamic reporting framework of the TCCR standard, this metric provides added
transparency to corporate net-zero pledges.

We do not view the TCCR standard as an effective substitute for regulatory policies capable of
driving the rapid decarbonization process envisioned in the 2015 Paris Climate Agreement.
Neither do we expect the TCCR framework to become a mandatory corporate reporting
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requirement. Financial regulators have traditionally confined disclosure mandates to
information items pertaining to past transactions, without obliging firms to issue multi-year
forecasts of key financial or environmental performance metrics.

We argue that voluntary adoption of the TCCR standard by a subset of the firms that have
issued net-zero pledges would already bring added transparency to this movement. Selective
adoption of the TCCR standard will enable those firms that set ambitious emission reduction
targets, and, in fact, expect to achieve these targets, to separate themselves from others that
simply seek to wear the “green mantle”. The TCCR standard therefore has the potential to serve
as a separation mechanism that will make the net-zero commitments of its adopters more
credible and transparent, for both policy makers and the general public.

Time-Consistent Corporate Carbon Reporting

Time-consistent carbon reporting is based on one or multiple emission metrics measured
consistently over time. For any such metric, the unit of measurement is tons of CO2, with
greenhouse gases other than CO2 appropriately weighted according to the IPCC guidelines. The
metric(s) adopted by a particular firm will depend on the scope of emissions for which it
considers itself responsible, with direct (Scope 1) emissions being the most common metric.
Some companies have recently adopted carbon footprint metrics that go beyond their direct
emissions, as they view themselves at least indirectly responsible for the emissions embodied in
the goods and services they provide.

The TCCR framework requires firms to specify an entire trajectory of anticipated future carbon
emissions. The initial trajectory is to be revised and compared annually to actual emission
results in the future. Figure 1 illustrates the TCCR framework for a hypothetical firm in the year
2035, assuming this firm adopted the framework in 2020.

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 Figure 1: Time-Consistent Corporate Carbon Reporting

For the hypothetical scenario in Figure 1, the company issued an initial forecast of its future
carbon emissions trajectory in 2020 (green curve). As drawn here, the trajectory implicitly
assumes a linear interpolation between the target emission levels at the five-year milestones in
the future. In this example, the firm’s actual emissions were above the linear interpolation for
the years 2020-2025 in all but two years. In 2025, the firm barely missed its interim target. Our
illustration further assumes that a revised, less ambitious forecast trajectory (in purple) was
issued in 2025. It initiated at the actual emissions level in 2025 and stayed in effect until 2030.

When future updated forecast trajectories are “spliced” together with actual results up to a
particular point in time, the general public, including the firm’s stakeholders, obtains an
integrated report on earlier forecasts, forecast revisions and actual emissions incurred.
Importantly, it becomes transparent to what extent the earlier targets and target revisions
were temporally consistent with the actual results delivered.

A disclosure regime that includes interim reduction targets at multiple milestones will mitigate
the horizon issue that arises when management anticipates in 2022 that by the year 2050 it will

6
no longer be accountable for its initial pledge. Interim targets might be set in accordance with
guidelines formulated by the SBTi, for example, which seeks to balance industry-specific
reduction trajectories with the remaining global carbon budget up to the year 2050. However,
recent studies have raised concern that some of the corporate carbon reduction pledges issued
in the last few years may have been overly optimistic.18 In contrast, the TCCR framework
provides incentives for self-selecting targets that are deemed realistic rather than overly
optimistic. Managers will anticipate that the actual emission results achieved in future years are
compared to the earlier self-selected targets, and crucially, these performance assessments will
be made in the near future. Further, the public will be able to track on an annual basis to what
extent actual emissions did meet the milestone targets originally selected, and subsequently
revised at different points in the past.19 The TCCR standard thus provides an integrated
performance assessment mechanism similar to that used by firms tracking internally the extent
to which actual outcomes have achieved earlier performance targets.

In closing this section, we note that the specification of five-year time intervals in Figure 1 can
be adapted flexibly without any loss of accountability. Specifically, five-year time intervals for
both milestones and the revision of net-zero trajectories could be specified as upper bounds. In
case of unanticipated organizational or technological changes, the company would then retain
the option of issuing an earlier revised trajectory, such that future milestones from thereon
would be set apart no more than five years. Such flexibility would allow for potentially more
timely disclosures without compromising the firm’s incentives to be temporally consistent.

Alternative Carbon Footprint Metrics

The Greenhouse Gas Protocol
According to the Greenhouse Gas (GHG) Protocol, a firm’s total emissions comprise direct
(Scope 1) and indirect (Scope 2 and 3) emissions.20 Indirect emissions principally pertain to a
firm’s entire upstream supply chain as well as all emissions associated with the use of the firm’s
downstream products. To that end, the GHG Protocol identifies 15 different Scope 3 categories
as well as minimal boundaries for each category. Scope 2 emissions are a carve-out of the

7
general bucket of indirect emissions, focusing exclusively on emissions associated with
electricity and heat acquired from external suppliers.

The enormous data challenge of reliably estimating a company’s full Scope 3 emissions is
readily illustrated in the context of an automotive company.21 On the upstream side, the GHG
Protocol suggests that the company estimate the carbon emissions associated with the
manufacture of the tens of thousands of different components that go into its automobiles. On
the downstream product use side, the Scope 3 estimate for a particular year is supposed to
include an estimate of the entire stream of future tailpipe emissions generated by driving the
automobiles. This inclusive life-cycle definition leads Toyota to report that 98% of its emissions
associated with a vehicle are indeed Scope 3 emissions.22

In assessing its downstream Scope 3 emissions for its wide range of consumer products, the
conglomerate Unilever simplistically levels a flat 46g of CO2 charge “per use” on all its products,
be they food items or skin care products.23 Technology firms like Google indicate that they draw
narrow boundaries for their Scope 3 emissions by including only employee commuting and
travel.24 Not surprisingly, recent independent analysis suggests that companies in the
technology sector underreport their Scope 3 emissions by about half relative to the GHG
protocol standards.25 The general difficulty in complying with the Scope 3 reporting of the GHG
Protocol is reflected in a recent study comprising a sample of 417 companies26. The findings
there suggest that while most firms disclose their Scope 1 and 2 emissions, only about 20%
include some Scope 3 figures. Further these disclosures were assessed to be inconsistent within
and across industries.

Some countries, including the U.K., mandate that publicly listed firms disclose their current
Scope 1 and Scope 2 emissions in their annual financial reports. This mandate does not extend
to Scope 3 emissions. In its 2022 exposure draft on requiring corporate disclosures of climate
related risks, the SEC implicitly acknowledges the difficulty of reliably reporting Scope 3
emissions by suggesting a “safe harbor” provision that would shield companies from legal
liability for any Scope 3 disclosures.27
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Direct Net Emissions (DNE)

The measurement and reporting of direct emissions is already mandatory for companies in
jurisdictions that have implemented carbon pricing mechanisms, such as the European ETS or
California’s cap-and-trade program. To enforce these pricing mechanisms, these jurisdictions
had to specify detailed measurement and verification protocols.28 Further, while the U.S. does
not have a pricing regime for greenhouse gas emissions at the federal level, the U.S.
Environmental Protection Agency’s GHG Reporting Program29 requires carbon-intensive
installations, such as natural gas power plants or cement producing factories, to report their
direct emissions.

Most firms that have issued net-zero pledges calculate their net carbon footprint metric by
subtracting carbon offsets from gross emissions. Returning to the example of Google, the firm
claims to be already carbon neutral despite the significant Scope 2 emissions associated with
the grid-based electricity consumed by its data centers. Google bases this neutrality claim on a
carbon accounting construct that effectively swaps the “clean electrons” delivered to the grid
by Google’s renewable energy facilities for the grey electrons actually consumed at the
company’s grid-connected operational centers. In calculating its net carbon footprint, the firm
thus subtracts these offsets from its gross Scope 2 emissions. The accounting logic underlying
these so-called avoidance offsets (in contrast to removal offsets discussed below) is that
because the company supplied clean energy to the grid in some location, other energy
consumers purchased less of the carbon-intensive energy generated in those locations. There
is, however, no safeguard against double-counting insofar as a utility selling the renewable
electricity generated by Google’s installations may also include the avoided emissions in its own
carbon footprint measure. Recognizing the tenuous nature of these avoidance offsets, Google
has increasingly moved to increase the use of renewable electricity in its operations.30

Aside from carbon-free energy supplied to the market, avoidance offsets can originate, for
example, from a forest that would have been logged, but instead was conserved. The
conceptual construct of trading avoidance offsets is that the buyer deducts as many tons of CO2

9
from its gross emissions count as were supposedly not emitted by the seller due to the buyer’s
intervention and payment. In general, avoidance offsets are based on a counterfactual claim,
thereby leaving unresolved the question of “additionality” of the mitigating action.31–33 In 2021,
the transaction prices for carbon offsets in the voluntary carbon markets varied anywhere from
$2 - $800 per ton of CO2, with the median price near $5 per ton. The enormous size of this price
range suggests significant underlying quality variances. Nonetheless, the Taskforce on Scaling
Voluntary Carbon Markets (TSVCM) reports that 90 percent of offsets adhere to some
verification through certification bodies, such as Verified Carbon Standard or American Carbon
Registry. As of today, there does not appear to be a bright-line standard for what constitutes a
“high-quality” carbon avoidance offset.

In contrast to avoidance offsets, removal offsets emerge when the firm, or a contractor acting
on behalf of the firm, directly removes carbon dioxide from the atmosphere. Removal offsets
therefore constitute direct emission reductions, in contrast to the indirect reductions
recognized with avoidance offsets when another party allegedly chose not emit CO2. One
removal technology that has gained prominence in recent years is direct air capture, where CO2
is removed from the ambient air and thereafter sequestered in geological sites for hundreds of
years. Nature-based carbon sinks, like forests34, soils35, or oceans36 present other carbon
removal opportunities.

We adopt the position taken by the SBTI37, advocating that only removal offsets, but not
avoidance offsets, be included in the firm’s direct net emissions (DNE) footprint metric.
Companies will achieve greater transparency on their decarbonization pledges by
disaggregating their DNE figures into gross direct emissions and removal offsets. These two
separate components of the DNE metric could be applied to both future targets and actual
results achieved.

Since removal offsets may vary considerably in their expected duration38–41, the recognition of
such offsets should be supplemented with information describing the duration profile of the
entire portfolio of a firm’s removal acquisitions.42,43 Firms could consider the possibility of
10
recognizing removal activities with shorter duration at a discount value. In addition to new
ratings agencies emerging in this domain, the Integrity Council on Voluntary Carbon Markets
seeks to formulate minimum quality standards for removal offsets, particularly with regard to
the lingering issue of duration.44,45

A fundamental property of the DNE metric is that when added up across all economic entities,
that is, firms, households, and other carbon emitting entities, the aggregate DNE in any given
year yields the net addition of CO2 equivalents to the atmosphere in that year. This additivity
property is key from the perspective of climate policy and the achievement of global climate
goals. To illustrate the informativeness of the aggregate DNE metric, consider the hypothetical
scenario in Section 2 above, where, up to the year 2035, the firm has delivered the actual
results shown in Figure 1. In accordance with the TCCR standard, this firm issues a new net-zero
pledge in 2035, represented by the three dashed lines in Figure 2, leading up to the year 2050.

Figure 2: Corporate DNE Pledges and Global Carbon Budgets

The dotted area under the dashed lines for the years 2035-2050 represents a forecast of the
direct net emissions by the firm in question. By adding up these shaded areas vertically across
all firms that have issued net-zero pledges, one obtains a lower bound on the remaining total

11
net emissions that the entire corporate sector projects up to 2050. The informativeness of this
lower bound increases as more global firms adopt the TCCR standard. In order to meet a given
[Link] global warming goal (with [Link] between 1.5o and 2.0o), the lower bound on total emissions
would have to be compatible with the remaining carbon budget that climate science assigns the
world in 2035 in order to keep global temperature increases below [Link] Celsius.

Countries around the world provide annual estimates of the direct CO2 emissions originating
within their borders. The preceding arguments are therefore also applicable at the country
level. Implemented consistently, the TCCR framework could aid countries in negotiations at
future COP meetings to reach agreement on their intended nationally determined contributions
towards the reductions in global carbon emissions. Specifically, so-called Corresponding
Adjustments defined within Article 6 of the Paris Climate Agreement could be formalized within
the TCCR framework.

One widely recognized drawback of DNE as a corporate footprint metric is that companies can
claim emission reductions simply by “moving the gates” of their operations. Specifically,
companies can report lower footprints by divesting themselves from carbon intensive activities,
such as power generation. From a macroeconomic perspective, such restructuring activities
effectively amount to carbon leakage. Outsourcing carbon intensive activities will be
particularly tempting if the divesting company has issued ambitious net-zero pledges, while the
acquiring company has not, possibly because the acquirer is not a publicly listed company.46

Carbon Emissions in Goods Sold (CEGS)

Firms that confine their corporate carbon footprint measure to DNE may do so either because
they only consider themselves responsible for their own direct emissions, or because they view
the data challenges associated with Scope 3 measurement as prohibiting reliable reporting of
those emissions. Recent studies have pointed out that the task of measuring upstream Scope 3
emissions can, at least in principle, be solved in a recursive manner by the firms along a supply
chain47. The central idea underlying Kaplan and Ramanna’s (2021) E-Liability concept is that
when a supplier delivers a product or service to its customers, the transaction should be

12
accompanied by a carbon balance (an E-liability) reflecting the emissions that have thus far
gone into the product. When the customer subsequently transforms the inputs obtained from
suppliers into product outputs, it assigns its own direct net emissions and the emissions
embodied in its inputs to its products.

An appealing feature of the E-liability approach is that the recursive assignment of carbon
footprints to products can proceed as an informationally decentralized process, that is, by
relying on local knowledge, based on primary data, at each stage48. This feature aligns with the
general disclosure principles of the Sustainability Accounting Standards Board (SASB),
postulating that disclosure items be “actionable” by the firm, that is, these items must be
within the operational purview of the reporting entity49.

Figure 3 illustrates a Product Carbon Footprint (PCF) allocation rule for an individual installation
(plant)50. Here, the annual direct emissions of CO2 equivalents comprise multiple components,
represented as (y1,…,ym). The variable, r, refers to CO2 removals that the firm has acquired and
assigned to the installation in question. Direct net emissions for the year in question therefore
are: 𝐷𝐷𝐷𝐷𝐷𝐷 = ∑𝑚𝑚
𝑖𝑖=1 𝑦𝑦𝑖𝑖 − 𝑟𝑟.

Figure 3: Product Carbon Footprint Allocation System

The PCF allocation rule in Figure 3, can be conceptualized as a mapping of the form:

13
 𝑓𝑓(𝑥𝑥1 , … , 𝑥𝑥𝑘𝑘 , 𝑦𝑦1 , … , 𝑦𝑦𝑚𝑚 , 𝑟𝑟) → (𝑧𝑧1 , … , 𝑧𝑧𝑛𝑛 ). (1)
Ideally, the carbon balances xi of the different inputs were reported by the firm’s suppliers, e.g.,
a utility disclosing the average emissions per kWh of electricity sold. If a supplier does not
provide a PCF report for a particular input, the buyer must rely on secondary data for an
estimate of the carbon emissions embodied in that input. The production inputs will generally
include both consumable inputs, e.g., parts that go into a sales product, and capital goods, e.g.,
machinery and equipment. For the latter, the carbon balance could correspond to a periodic
depreciation charge derived from an accrual accounting system that tracks the carbon
emissions embedded in the firm’s operating assets51.

To be economically meaningful, the PCF allocation rule f(.), illustrated in Figure 3, should reflect
the causal relations between the use of acquired inputs, the direct emissions emanating from
individual production steps and the products going through these production steps. The task of
designing such an economically meaningful allocation rule is directly analogous to designing an
inventory costing rule that assigns overhead costs to individual sales products. In the cost
accounting literature, activity-based costing has been proposed to capture the underlying
causal relations in a two-step allocation process. Overhead line items are first assigned
(allocated) to production activities, and in the second step the overhead costs accumulated for
each activity are allocated among the different outputs. Both steps require the choice of
suitable allocation bases, frequently referred to as cost drivers.52

Assuming the carbon balance, zi, attributed to the i-th product line corresponds to goods that
were completed (as opposed to remaining in work-in-process), one obtains a measure of the
carbon intensity of the i-th product line, e.g., tons of CO2 per ton of steel produced53.
Companies in the cement and chemicals industries have recently devised PCF allocation rules
that result in carbon intensity measures for their sales products54,55. For instance, the German
chemical company BASF has developed an online tool, referred to as Strategic CO2
Transparency Tool (abbreviated as SCOTT), that allows management to track the carbon
intensity of more than 40,000 chemical products in real time. As one Europe’s largest CO2

14
emitters, BASF faces increasing demands from its customers to measure and monitor the
carbon intensity of the company’s sales products56.

Companies like BASF refer to their PCFs as cradle-to-gate footprints. This label becomes fully
transparent in a hypothetical setting where each company along a supply chain combines
multiple production inputs into one unit of a single sales product. Assuming further that there
are no emissions embedded in long-term operating assets, there will be neither intertemporal
nor cross-sectional allocation issues. In Figure 3, there will be a single variable z such that:
𝑧𝑧 = ∑𝑘𝑘𝑖𝑖=1 𝑥𝑥𝑖𝑖 + ∑𝑚𝑚
𝑖𝑖=1 𝑦𝑦𝑖𝑖 − 𝑟𝑟. (2)
Accordingly, the PCF of each firm’s single product then becomes the sum of its own direct net
emissions plus the sum of all emissions accumulated in acquired inputs, i.e., the quantities xi.

For multi-product firms, the aggregate cradle-to-gate footprint of the entire portfolio of
products sold in any given year yields a comprehensive metric of a company’s aggregate
“Upstream Scope 3” emissions. In analogy to the key financial variable Cost of Goods Sold, a
natural label in the context of carbon emissions is Carbon Emissions in Goods Sold (CEGS). In
reporting its CEGS, a company effectively assumes responsibility for its own direct net
emissions, an allocated share of those incurred by its immediate suppliers, their suppliers’
suppliers, and so forth up the entire supply chain. By committing itself to reporting this metric
in accordance with the TCCR standard, companies will have tangible incentives not only to
reduce their own direct emissions, but also to engage with suppliers in order to reduce the
carbon balances of the goods and services they supply57. Companies like Microsoft, for
instance, have been explicit that the emissions attributed to suppliers that Microsoft includes in
its Scope 3 emissions, may become a criterion for supplier selection in the future58.

The CEGS metric satisfies two noteworthy robustness properties. First, CEGS is largely invariant
to outsourcing activities, in contrast to the DNE metric. Because the reporting entity seeks to
account for all emissions embodied in the inputs that arrive at its gates, there is no benefit to
shifting direct emissions from within the company’s gates to the bucket of indirect upstream
emissions. Second, while the choice of the PCF allocation rule f(.) leaves firms with inevitable

15
discretion in assigning individual products their carbon intensity, this discretionary choice has
no impact on the aggregate CEGS metric, provided the company is not building up or depleting
inventory. If all output produced in a year is also sold, then all “overhead items”, such as the
firm’s Scope 1 and 2 emissions, will be absorbed by the products sold in the current period.
Formally,

𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = ∑𝑛𝑛𝑖𝑖=1 𝑧𝑧𝑖𝑖 = ∑𝑘𝑘𝑖𝑖=1 𝑥𝑥𝑖𝑖 + ∑𝑚𝑚

𝑖𝑖=1 𝑦𝑦𝑖𝑖 − 𝑟𝑟. (3)

To summarize, the CEGS metric captures a company’s current upstream Scope 3 emissions.
Widespread adoption of this metric along a supply chain will yield significant network effects, as
the calculated cradle-to-gate PCFs will then increasingly reflect the actual direct emissions
incurred by a firm’s suppliers, their suppliers and so forth. The recursive nature of this
measurement approach is based on primary data at the company level. This feature stands in
contrast to the current practice of Scope 3 reporting according to the GHG Protocol, where
companies rely on secondary industry-wide estimates provided by outside experts. Companies
seeking to adhere to full Scope 3 reporting according to the GHG Protocol may choose to split
their overall Scope 3 reports into a measure of actual upstream emissions incurred, i.e., their
CEGS, combined with a separate estimate of the emissions anticipated with the subsequent use
of the products sold.

A company that manages to keep its CEGS flow measure at zero in the long-run will have
successfully met its net-zero pledge. At intermediate points in time, however, a current CEGS
value of zero does not ensure a continued net-zero position because the company may have
acquired operating assets with significant embedded emissions, and these emissions will be
included in future CEGS values. Any emissions to be recognized in future years in CEGS could be
captured in the current period by a stock variable such as Closing E-Liabilities59 or Carbon
Emissions in Assets60, suggested in earlier studies. Corporate claims about approaching a net-
zero position will therefore be corroborated by supplementing the flow metric CEGS with a
stock variable that indicates a corresponding net-zero trendline.

16
Product Carbon Footprint Metrics
Well ahead of the 2050 target date, consumer-oriented firms like Shell, Nestle and Total have
begun to market select products as “carbon neutral”.61 Accounting for product carbon
intensities according to the framework described here would enable firms to back up such
claims by providing product-specific information on direct emissions, upstream indirect
emissions, and direct removals. Additional disclosures on how the firm’s direct removals were
allocated among the products labeled “carbon neutral” would lend further credibility to
selective carbon neutrality claims.

By adopting the TCCR standard at the level of individual product groups, industrial
conglomerates can effectively disaggregate their overall corporate net-zero pledges.
Differences in the projected decline in the carbon intensity of different product groups can
thereby reflect that some product groups are expected to be harder to decarbonize, e.g., steel
or cement. Projecting individual carbon intensities, rather than absolute emission figures, also
provides a useful standardization in case of future acquisitions or divestments.

Concluding Discussion
The recent wave of corporate net-zero pledges has been greeted as a significant development
in the global decarbonization effort. This perspective article has argued that carbon reduction
pledges will gain in transparency and accountability if firms commit to a disclosure framework
that systematically tracks self-selected emission reduction goals and the subsequent
achievement of these goals. By committing themselves to carbon disclosures in accordance
with TCCR standard, firms enable the general public to monitor a company’s emission forecasts,
their revision over time, and the extent to which actual emissions in any given year are in line
with past projections.

We do not expect the TCCR standard to be embraced as a reporting mandate by regulators.

Standard setters and regulators have traditionally focused on mandatory reporting of actual
past performance, but not required firms to issue long-term forecasts for key financial and
environmental variables. Nonetheless, we submit that the TCCR standard could serve as an
17
effective separation mechanism that allows those firms that seek to set ambitious net-zero
targets, and invite scrutiny on achieving these targets, to separate themselves from the broader
group of companies that merely seek the label of belonging to the “net-zero club”.

The transaction costs associated with the adoption of the TCCR standard on a voluntary basis
appear modest for companies that rely on the DNE metric as their corporate carbon footprint
measure. These adoption costs appear particularly modest if a company is already obligated to
report its current Scope 1 emissions, possibly due to applicable carbon pricing regulations. In
contrast, companies that base their net-zero pledges on the more comprehensive CEGS metric
will first need to implement an internal measurement system for calculating product carbon
footprints.

Our arguments here have focused on time-consistent reporting of alternative flow variables,
i.e., Direct Net Emissions, Carbon Emissions in Goods Sold, or the carbon intensity of select
products. Going beyond a conventional net-zero pledge, a few companies, notably technology
firms like Microsoft and Google, have articulated the more ambitious goal of “climate
neutrality” which requires offsetting a company’s entire legacy emissions, that is, all emissions
incurred since the company began operations. The TCCR standard is equally applicable when
the relevant pledge variable is a stock variable, such as a firm’s legacy CO2 emissions. However,
in order for progress reports on these cumulative performance metrics to become transparent
and credible, companies should report such metrics as part of a comprehensive multi-period
carbon accounting system.

Acknowledgments
We thank G. Glenk, R. Meier, R. Derayati, two anonymous reviewers and seminar participants
at the Universities of Konstanz and Munich for helpful comments and suggestions. Financial
support for this research was provided through grant TRR 266 from the German National
Science Foundation (DFG).

18
Author Contributions
The authors jointly developed the main ideas presented in this paper. SC took the lead on
researching select corporate net-zero pledges. JR took the lead on carbon offsets and voluntary
carbon markets. SR led the writing of the paper.

Competing Interests
The authors declare no competing financial interests.

References
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