Accounting for carbon emissions among large U.S. companies : does materiality matter

This paper investigates carbon emissions materiality with regards to financial statements and investigates potential methods of accounting for carbon emission rights. We investigate whether some of the largest U.S. companies should be required to discuss and quantify greenhouse gas emissions, as defined by the GHG Protocol, in the required 10-K annual report. Our analysis uses a new metric, based on social carbon cost, that suggests social cost of carbon emissions could be material, and supports the need for transparent accounting of the financial impact of carbon emissions in the required 10-K annual report. We searched each company's 10-K for information on climate change and emissions-related disclosures. We found that while most companies acknowledge climate change as a risk factor, their 10-K narratives do not discuss or explain the impact of emissions on financial performance. Our findings suggest that climate-related factors are not being appropriately captured in current 10-Ks despite increasing calls for greater transparency on climate-related exposure, raising concerns that investors are not receiving the appropriate information necessary to evaluate investments. Providing such information would allow investors to gain a better understanding of company risks, and enhance their ability to make better investment choices.