Scope 3 emissions

21 October 2022 | ACASTA

A priority but divisive part of ESG

“Scope 3” emissions have emerged as a highly divisive yet priority topic in the Environmental, Social, and Governance (ESG) space. Drawing attention across all sectors, increasing focus is being devoted to firms’ responsibilities to consider these emissions as part of their wider ESG considerations.

With their undeniable contribution to the ongoing climate crisis, greenhouse gas (GHG) emissions are posing increasing physical, financial and regulatory risks to businesses. In the strive to reach net-zero targets, backed by mounting regulatory and investor pressure, companies must account for emissions produced throughout their full value chain. More transparent and standardised disclosures on GHG emissions, across all three scopes, has been one of the major calls from the investment community especially, so that they can obtain a full picture of a company’s exposure to climate-related risks and opportunities.

However, many organisations are not yet reporting necessary Scope 3 metrics, despite them often being the largest: according to the CDP, a company’s indirect emissions (Scope 3) are, on average, 11 times larger than the emissions produced by a company’s own operations.

While reporting isn’t yet mandated, there is a clear trend in regulation towards obligatory Scope 3 disclosures. For example:

  1. The European Banking Authority (EBA) published its final draft Implementing Technical Standards (ITS) on Pillar 3 disclosures on ESG risks, requiring institutions to disclose information on scope 3 emissions, that is, financed GHG emissions (scope 1, 2 and 3 emissions of counterparties).
  2. The US Securities and Exchange Commission (SEC) proposed Rules to enhance and standardize climate-related disclosures for investors requires disclosure of Scope 1 and 2 GHG emissions, and scope 3 if material or included in a company’s climate targets.
  3. The ISSB’s proposed Sustainability Standards require an entity to disclose its absolute gross and Scope 1, 2 and 3 GHG emissions, measured in accordance with the Greenhouse Gas Protocol Corporate Standard. It would also require qualitative information explaining the methodological approach to calculating these emissions.

The transition to Net Zero is the collective responsibility of all businesses, from SMEs to large corporates. This transition will present both challenges and opportunities, rewarding those who can effectively translate their Net Zero pledges into meaningful action. It is now unavoidable for businesses to improve their understanding of their true carbon footprint, which involves taking responsibility in monitoring and reducing emissions not just from their own operations, but across their entire supply chain.

With more stringent climate and ESG-related regulations to come into force, companies must develop and implement their scope 1, 2 and 3 emission goals in a strategic and holistic framework, ensuring their Net Zero commitment forms a key part of their wider ESG responsibilities.

Acasta understands that every company is at a different stage in their efforts to successfully integrate a robust Net Zero strategy, and we are here to help you navigate your way through the complexities of this process.

If you would like to talk to us about how Acasta can support your company’s Net Zero and ESG ambitions and strategy, then please contact Daphne Biliouri-Grant.

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