Stakeholder Pressure and Verification in the Low Carbon Transition

Better verification can make a firm cut genuine sustainability investment. When verified performance exceeds the assessment based on nonverified information, verification raises the assessment at unchanged activities. If further assessment gains bring sufficiently smaller stakeholder rewards, additional investment can become less attractive. With aligned metric weights, the model identifies a verification threshold for implementing socially preferred positive investments in both genuine activities. Below it, pressure sufficient to induce those investments also rewards communication. In a benchmark with linear rewards and separate activity choices, governance can improve genuine outcomes while lowering assessments. An extension allows separate verification of carbon and non-carbon outcomes. Supporting results explain when pressure corrects managers’ underinvestment in projects generating operating benefits. Operating performance excludes stakeholder payments; these enter firm payoff and cancel as transfers in welfare. Improved broad sustainability assessments need not deliver substantial decarbonization.