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A large majority of S&P 500 companies revise their annual greenhouse gas emissions disclosures, raising serious questions about the quality of climate-related data and the efficacy of America’s voluntary reporting system.
Interview with Professor Ethan Rouen
Associate Professor of Business Administration, Harvard Business School
At OneStop ESG, our Thought Leadership Series highlights research and ideas that help shape the future of sustainable business. In this edition, we highlight the research by Professor Ethan Rouen and Professor Lauren H. Cohen along with an interview with Professor Rouen to help companies, investors, and policymakers understand the challenges around emissions data.
A recent study from Harvard Business School, co-authored by Professor Ethan Rouen and Professor Lauren H. Cohen, has brought attention to the reliability of corporate emissions reporting. The research shows that 74 percent of S&P 500 companies revised their reported greenhouse-gas emissions at least once over the past decade, with most revisions increasing earlier figures. In total, the adjustments add up to 135 million tonnes of previously unreported emissions, raising clear questions about the strength of voluntary disclosure systems.
1. Your study found that 74% of S&P 500 companies revised their emissions data over the past decade. Could you briefly explain the scope of your analysis and the key finding readers should understand first?
Our analysis focused on the voluntary Corporate Social Responsibility (CSR) reports of S&P 500 firms between 2010 and 2020. We compared the emissions data initially reported by these companies against the data they published in subsequent years for those same historical periods. The key finding is that emissions reporting is highly unstable: nearly three-quarters of these major companies revised their historical data at least once. Crucially, these were not just minor adjustments. Firms were significantly more likely to have understated their emissions initially, meaning the revisions often revealed higher pollution levels than investors and the public were originally told.
2. Many firms provided little or no explanation for their revisions. What are the risks of having such limited transparency around emissions restatements?
When companies revise data without explanation, it creates a credibility gap. Unlike financial restatements, which trigger regulatory scrutiny and detailed disclosures, emissions revisions often happen silently.
The primary risks are -
- Greenwashing: Companies might underreport current emissions to meet short-term targets or claim "Net Zero" progress, only to quietly correct the record years later when the spotlight has moved on.
- Inability to Track Progress: If historical baselines keep shifting, stakeholders cannot accurately measure a company’s reduction performance over time.
- Market Mispricing: Investors pricing in climate risk may be relying on data that is fundamentally inaccurate, leading to a misallocation of capital.
3. The study found 135 million tonnes of previously unreported emissions. How should investors, regulators, and rating agencies interpret this scale of underreporting?
To put 135 million tonnes in perspective, this figure is roughly comparable to the annual emissions of a mid-sized country or the combined annual impact of millions of U.S. homes. This "missing" carbon suggests that the aggregate climate risk in the S&P 500 is significantly higher than market data initially indicated. It’s particularly important to note that Scope 1 emissions are the easiest to measure but also tend to be the smallest in magnitude relative to scopes 2 and 3, meaning that 135 million is a very conservative estimate. So:
- Investors should treat unaudited ESG data with a higher risk premium/discount, acknowledging it lacks the rigor of financial data.
- Rating Agencies need to retroactively adjust scores and penalize volatility in reporting, rather than taking current-year data at face value.
- Regulators should view this as evidence that voluntary reporting regimes result in systematic undercounting of environmental liabilities.
4. California has recently introduced a law requiring large companies to report their greenhouse-gas emissions. How do findings like yours on emissions restatements connect to the way states are now approaching disclosure requirements?
Our findings underscore exactly why laws like California’s Climate Corporate Data Accountability Act are moving from voluntary to mandatory frameworks. The voluntary system allowed for the "wild west" of revisions we observed, where methodologies changed opaquely and errors went unexplained. California's new law directly addresses this by mandating third-party assurance (auditing). Just as the Sarbanes-Oxley Act tightened financial reporting after accounting scandals, state-level mandates are acting as a necessary floor to standardize how emissions are measured, verified, and reported, reducing the "wiggle room" companies previously had.
5. How should companies and policymakers think about improving data quality and assurance especially as climate disclosure expectations become more stringent globally?
Policymakers must treat carbon data with the same rigor as financial data. The current system where revisions are costless and unexplained must end. Policymakers should standardize reporting protocols (like GAAP for carbon) that define exactly when and how a revision is triggered. Mandatory assurance is the most critical tool to prevent "check-the-box" reporting.
For companies, data quality should not be an afterthought of the marketing department. It requires internal controls, audit trails, and board-level oversight similar to financial controls.
6. As expectations around climate reporting continue to grow, what are a few practical steps companies can take to make their emissions data more accurate and reliable?
- Establish internal controls - Treat emissions data with the same internal rigor as revenue data. Document every data source and calculation method so that turnover in staff doesn't lead to "lost" methodologies.
- Disclose revision policies - Proactively state when you will restate data (e.g., "we will only restate if the error exceeds 5%"). If you do revise, clearly explain the "Who, What, Where, When, and Why" in a footnote, just as you would for a financial restatement.
- Invest in measurement technology - Move away from spreadsheet-based estimates and towards automated, audit-ready carbon accounting software that tracks real-time data, reducing the likelihood of manual errors that necessitate later revisions.
Read the full study: Harvard study: 74% of S&P 500 companies revised emissions data | Institute for Business in Global Society, California and other states move to regulate emissions disclosure | Institute for Business in Global Society
About Professor Ethan C. Rouen: Ethan C. Rouen - Faculty & Research - Harvard Business School
About Professor Lauren H. Cohen: Lauren H. Cohen - Faculty & Research - Harvard Business School
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