What Does Carbon Data Tell You (or Not)?

Posted: 5 Mar 2021

See all articles by Soh Young In

Soh Young In

Stanford University - School of Engineering; Precourt Institute for Energy, Stanford University

Ki Young Park

Yonsei University

Robert G. Eccles

University of Oxford - Said Business School

Date Written: December 22, 2020

Abstract

This study empirically assesses the consistency of carbon-related ratings with a firm’s actual carbon performance. Using carbon emission measures of Trucost (S&P Global) and carbon-related ratings from four widely used databases, KLD, ASSET4 (Refinitiv), MSCI ESG IVA, and Sustainalytics, we evaluate whether and in what aspects these ratings explain a firm’s past carbon footprints (i.e., backward-looking evaluation) and predict a firm’s future carbon footprints (i.e., forward-looking evaluation). We find that KLD environmental concern ratings well capture a firm’s past and future carbon emission levels and growth rates, while KLD environmental strength ratings do so only for growth rates. Sustainalytics’ carbon intensity-related scores provide a good summary of a firm’s past carbon footprint but do not predict future performance. We also find suggestive evidence of a firm’s deliberate reporting behavior depending on the types of emissions and industries. Our empirical findings are more pronounced in Scope 1 and 2 than in Scope 3, and they become less prominent in high-emitting industries under public pressure. We discuss how academic researchers and investors can use these carbon-related ratings for their intended purposes.

Keywords: carbon emission; corporate carbon performance; corporate sustainability; ESG rating; carbon disclosure; greenwashing

Suggested Citation

In, Soh Young and Park, Ki Young and Eccles, Robert G., What Does Carbon Data Tell You (or Not)? (December 22, 2020). Available at SSRN: https://ssrn.com/abstract=3754098

Soh Young In (Contact Author)

Stanford University - School of Engineering ( email )

Stanford, CA 94305-9025
United States

Precourt Institute for Energy, Stanford University ( email )

473 Via Ortega, Suite 324
Stanford University
Stanford, CA 94305
United States

HOME PAGE: http://https://energy.stanford.edu/

Ki Young Park

Yonsei University ( email )

Yonsei University
Seoul
Korea, Republic of (South Korea)

Robert G. Eccles

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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