Does voluntary carbon reporting meet investors' needs?

Through initiatives such as the Carbon Disclosure Project, investors have encouraged companies to report on their climate change-related risks and opportunities, their greenhouse gas emissions and their climate change management systems and processes. Despite the large number of companies that now report climate change-related information, investors have consistently criticised companies for not providing information that can be readily used in investment decision-making. Companies, in turn, have criticised investors for not utilising the information that they provide. This article, taking the case of the UK retail sector, analyses the reasons for this debate between companies and their investors. It concludes that there are two factors at play. The first is that while investors have encouraged companies to report, they have, at least to date, paid much less attention to the quality of the reported information. The second is that company reporting on climate change falls far short of the quality required for investors to make meaningful comparisons between companies. This, in turn, has limited investor interest in these data. The article considers the potential for mandatory reporting to address these problems and concludes that mandatory reporting is, at best, a partial solution, and that it is a combination of voluntary and mandatory reporting, underpinned by active investor interest in the data being reported, that offers the greatest potential for progress.