MIT Sloan Study Reveals Third-Party Audits Key to Genuine Carbon Emission Reductions

MIT Sloan Study Reveals Third-Party Audits Key to Genuine Carbon Emission Reductions

Companies verified by third-party auditors reported a 7.5 percent annual drop in emissions.

A recent study at the MIT Sloan School of Management, based on data from Clarity AI, underscores the significant role of third-party audits in the accurate reporting and subsequent reduction of carbon emissions by companies. 

The research in “On the Importance of Assurance in Carbon Accounting,” is led by Florian Berg, Jaime Oliver Huidobro and Roberto Rigobon and highlights a crucial gap in the current practices of carbon emission reporting and reduction strategies.

The findings reveal that companies not engaging with external auditors to verify their carbon emissions tend to report lower, unreliable figures. This discrepancy misleads stakeholders and also hampers efforts toward reducing carbon footprints. In contrast, companies that opt for third-party verification report initially higher emissions but demonstrate a more substantial reduction over time.

The study analyzed over 30,000 listed companies and found that verified companies saw a 7.5 percent year-over-year decline in total emissions and a 3.3 percent reduction in carbon intensity. The research also calls into question the effectiveness of Science Based Target initiatives (SBTi) alone, without the backing of third-party audits, in signaling actual emission reductions. 

“While Science Based Target initiatives (SBTi) alone do not signal carbon dioxide emission reductions, we found that obtaining assurance from third-party auditors does correlate with cutting back on CO2 emissions in the future,” said Berg, a research scientist at the MIT Sloan School of Management. “For investors seeking to invest sustainably in businesses genuinely seeking to transition to low-carbon business models, an important indicator is whether they externally verify their emissions.”

Moreover, the study advocates for mandatory assurance of carbon emissions reporting, including for smaller companies. The lack of accurate and regulated reporting systems poses a significant challenge in achieving real progress in emission reductions. This research points to a pressing need for regulatory measures requiring comprehensive emissions disclosure.

About the Author

Robert Yaniz Jr. is the Content Editor for Environmental Protection.

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