Accounting for the future: How will corporate business models deliver sustainability?

This paper considers the information value of carbon-emissions disclosures for investors. Our argument is that Financial Institutions (FIs) do need to map the carbon-financial intensity of corporate activities so as to provide investors with higher returns on capital relative to the carbon emissions attached to this capital. Our analysis maps out carbon-financial risks in the S&P500 constituent companies that are domiciled in the US and capturing approximately 82% of the total U.S. equity market value. We examine the extent to which carbon-financial risk has already impacted on the allocation of capital (debt and equity) and market value exposure from carbon emissions in the S&P500. Our analysis of carbon generating and carbon dependent business models in the S&P 500 reveals a complex and interconnected physical-financial value chain. This new insight will force FIs to now become active investor’s rather than simply investing (or disinvesting) at a distance in order to secure a long-term decarbonisation of their portfolios. This papers also argues for new innovative disclosures such as company’s reporting their top 10 material carbon-stakeholder relations. This would help FIs understand a company’s business model in terms of carbon interdependency and inform regulatory and technical interventions thereby avoiding the possibility of a disruptive evacuation of capital from carbon-intensive business models.