During the last environmental reporting cycle, we uncovered and corrected errors in 35% of company disclosure through our annual research engagement with 15,000 companies representing 99% of global market capitalization. Our analysts engaged personally with companies to correct 2,680 reporting errors in 1,777 company disclosures.

Figure 1: S&P Global Trucost corrects errors in company environmental performance disclosure

Source: S&P Global Trucost data as of June 24, 2021. For illustrative purposes only.

To review the accuracy of today’s corporate environmental performance disclosure, we assessed the different types of errors uncovered by our analysts. As shown in Table 1, the largest error category shown is “Disclosure not aligned with the GHG Protocol standard,” the international standard for best practice carbon accounting. This demonstrates that there is still a lack of awareness among companies on the correct calculation methodology, presenting difficulties for financial institutions and companies seeking to compare the environmental performance of different portfolios or supply chain companies in a standardized way.

Table 1: Common reasons for errors in corporate environmental performance disclosure

Source: S&P Global Trucost data as of June 24, 2021. For illustrative purposes only.

As shown in Table 1, corporate environmental performance disclosure is not always accurate or complete. The largest error category shown is “Disclosure not aligned with the GHG Protocol standard”, the international standard for best practice carbon accounting. This demonstrates that there is still a lack of awareness among companies on the correct calculation methodology, presenting difficulties for financial institutions and companies seeking to compare the environmental performance of different portfolios or supply chain companies in a standardized way.

To determine where the challenge was greatest, we assessed the quality of GHG disclosure across 11 major indices, as per Figure 2. On average, 70% of companies reported disclosure that was of sufficient quality. Companies in the Dow Jones Sustainability World Index (DJSI) had the highest quality, with over 93% reporting GHG data that required no adjustments. However, the findings were very different for Global Broad Market Index (BMI) companies and S&P Global Emerging Plus BMI, where 72% and 66% of Scope 1 or Scope 2 data was either not disclosed or required a Trucost adjustment. As we previously highlighted, these indices are the most environmentally intensive on average of all the market benchmarks assessed.

Figure 2: Companies in the Dow Jones Sustainability World Index (DJSI) had the highest quality disclosure

Source: Trucost data as of June 24, 2021. For illustrative purposes only.

Across the Trucost universe of 15,000 companies, 1,111 (7%) made errors in Scope 1 data disclosure requiring a Trucost adjustment, and 636 (4%) made errors in Scope 2. Having more errors in Scope 1 is significant because this is the largest area of carbon exposure for many companies, and where carbon costs are most likely to have an impact. A further 3% of companies disclosed partial data, which Trucost filled using its modelling approach. For Scope 3 downstream emissions data, Trucost adjusted 47% of useable disclosed data.

Trucost carefully checks company environmental disclosures. In addition, automated error checking is now part of the standard research process, identifying data jumps and inconsistencies. It is also possible to quickly compare a company’s disclosures to previous years’ actual and modelled data to catch outliers. For illustration purposes, as shown in Figure 3, Company A discloses inconsistent water data on its website and in its Corporate Social Responsibility (CSR) Reports.

Figure 3: Inconsistent reporting of water data

Website:

2019 CSR Report:

2020 CSR Report:

Source: Company A Website, 2019 and 2020 CSR Reports. For illustrative purposes only.

Data reported in the 2019 CSR Report is different to that on the website and in the 2020 CSR Report by a factor of 1,000, and it is higher by the same order of magnitude when compared to the Trucost modelled values. Using automated error checking, Trucost was able to identify that the company had misreported its reporting units, and hence the correct water value for 2019 should have been 1.765 million cubic meters.

Trucost engages with all companies in its data universe to confirm the accuracy of the environmental analysis, and frequently works with companies to improve the accuracy and clarity of their environmental reporting. Again for illustration purposes, Company B disclosed the GHG data shown in Figure 5 in its 2020 Annual Report.

Figure 4: Error in data labelling

Source: Company B Annual Report, 2020. For illustrative purposes only.

Trucost was uncertain about the label “Market-based” and the Scope 3 categories disclosed, and did not initially incorporate the disclosure into its analysis. During the engagement process, the company confirmed that the label only applied to Scope 2 data (as anticipated), and provided a breakdown of emissions by relevant Scope 3 category. The Trucost analysis was therefore updated to include the company’s disclosure.

Having worked in this area for many years, Trucost has refined its approach to create a reliable set of company-level data that users can rely on, engaging directly with companies to discuss and correct any errors in their environmental performance disclosure.

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