Transparency in Global Environmental Governance: Critical Perspectives

9 The Political Economy of Governance by Disclosure: Carbon Disclosure and Nonfinancial Reporting as Contested Fields of Governance

9 The Political Economy of Governance by Disclosure: Carbon Disclosure and Nonfinancial Reporting as Contested Fields of Governance Janelle Knox-Hayes and David Levy In this chapter, we analyze corporate disclosure as a mechanism of governance , with a focus on two reporting initiatives, the Carbon Disclosure Project (CDP) and the Global Reporting Initiative (GRI). The CDP is a nonprofit UK-based organization that encourages companies to disclose information about their greenhouse gas (GHG) emissions, climate-related risks and opportunities, and carbon management programs and procedures . The core CDP strategy has been to recruit institutional investors, who in turn pressurize companies in which they invest to embrace carbon disclosure. This strategy leverages disclosure to investors to pursue a broader agenda to reduce corporate GHG emissions through civil accountability . By 2009, CDP had signed up 475 investors with a total $55 trillion under management. Although CDP was conceived as a private, voluntary system, an implicit goal was to create the political space for regulatory initiatives and its relationship to such initiatives gives carbon disclosure a more hybrid character. Some three thousand organizations in sixty-six countries around the world now measure and disclose their emissions and climate strategies through CDP (PricewaterhouseCoopers 2010). The GRI is a nonprofit organization that produces one of the most prevalent standards for sustainability or corporate social responsibility (CSR) reporting. The GRI seeks to standardize corporate sustainability reporting by making it routine and comparable to financial reporting. More than four thousand organizations from sixty countries now use GRI guidelines to produce and disclose sustainability reports. Disclosure initiatives such as the GRI and CDP are emerging institutions that provide governance in the broad sense of the term, as a multilevel , multiactor system of rules, norms, and standards that structure and constrain a field of action (Mol 2008; Utting 2002). Disclosure has become an important institution of governance, raising awareness about 206 Janelle Knox-Hayes and David Levy climate change, clean energy, and energy efficiency, and promoting the principle of external accountability. Importantly, the rise of voluntary environmental disclosure has demonstrated to business the feasibility and potential benefits of environmental measurement and reporting, such as reputation management, relationships with stakeholders, and controlling energy costs. In this chapter, addressing the hypotheses on transparency uptake and institutionalization stated in chapter 1, we argue, first, that organizations such as CDP and GRI have created pressures for democratization of governance through disclosure, yet corporate uptake of such disclosure is being driven by marketization. Second, in relation to the hypothesis on the institutionalization of transparency, we claim that political space has indeed opened up for new actors, but that state regulation is not entirely decentered. Indeed, we argue that these private initiatives have laid the technical and institutional groundwork for state-led regulatory initiatives that mandate disclosure and formalize carbon accounting standards. Finally , we consider the effectiveness of CDP and GRI, finding strong evidence that those disclosing non-financial information are not yet changing their core product and market strategies. Carbon disclosure plays a role in three modes of governance: regulatory compliance, carbon trading and management, and civil regulation through transparency (see also Dingwerth and Eichinger, this book, chapter 10). First, carbon disclosure is critical for regulatory compliance. Companies subject to mandatory cap-and-trade programs need to measure their carbon emissions in order to ensure compliance. In 2009, the US Environmental Protection Agency issued a requirement that facilities emitting large quantities of GHGs collect emissions data and submit annual reports. Second, carbon information is integral to carbon markets and corporate carbon management. Carbon markets are emerging as a key form of governance, imposing emission caps and putting a price on carbon. Carbon accounting systems are also integral to corporate carbon management and assessment of carbon-related risks in equity and debt markets. Indeed, carbon as an intangible tradable commodity is constructed purely from specific informational protocols, necessitating the development of carbon accounting systems (Knox-Hayes 2010a). A third way in which carbon disclosure operates as governance is to exert pressure on organizations for accountability and performance. Standardized information can be used for benchmarking and ranking, providing a channel for transparency and accountability, and enabling NGOs and government agencies to demand certain performance levels, reward The Political Economy of Governance by Disclosure 207 practices considered socially responsible, and exert pressure on poor performers (Fiorino 2006; Florini 2003; Mol 2008). These different forms of disclosure and modes of governance imply different “institutional logics,” the...