GHG Scope 3 Reporting policies and actions have driven the economy on a low-carbon path and serve as an incentive to attain great market significance by drastically reducing emissions. The efforts to reduce the emissions of greenhouse gasses responsible for damaging the atmosphere and spurring a lot of negative climate changes have given rise to several initiatives, all targeted at curbing the menace. The corporate action of reporting greenhouse gas emissions has taken numerous turns, with the reporting of scope 1 and scope 2 emissions well underway. Most recently, a protocol has been set about the scope 3 emissions, which holds a significant fraction of emissions for companies. This piece analyzes the progress and the current state of scope 3 reporting globally.
Countries That Require Scope 3 Emissions Reporting
It is no longer news that the protocol for GHG scope 3 emission reporting came with controversy and antagonization from major companies; this is related to the difficulty and cumbersomeness of the scope 3 emissions.
Around the globe, only a handful of countries, including the United States, currently require and mandate emissions reporting. Countries such as Japan and New Zealand mandate the disclosure of emissions based on the recommendation of the task force on climate-related financial Disclosures, TCFD. In the UK, reporting a type of scope 3 emissions has been made compulsory for some companies.
The Difficulty Presented By The Scope 3 Disclosure And US Companies Bracing For New Disclosure Requirements.
Without a doubt, the scope 3 emissions hold great importance regarding the amount of emission a company produces. It holds a great portion for certain industries as the largest category of emissions.
For oil and gas companies, the scope 3 emissions account for about 88% of the total emissions, and thus, these emissions should be addressed in line with efforts toward a low-carbon economy.
Despite these facts and knowledge, the reporting is not getting as much compliance as it should. Based on the ESG Enterprise level 2 database with 12000 companies’ curated data, reporting on scope 3 emissions stay at 21%, with 2545 out of 12000 companies reporting their scope 3 emissions. Out of 2545 companies reported, 421 (16.5%) were from the United States, 280 (11%) from the United Kingdom, and 185 (7%) from Japan.
The state with the scope 3 emission is related to its cumbersomeness as it represents emissions up and down the value chain. Finding a great deal of information on companies’ emissions is difficult. Now, this poses a difficulty for investors to ascertain companies’ progress at truly reducing the number of emissions released.
The resistance faced by the scope 3 report disclosure is also linked to difficulty and the inability to accurately calculate the scope 3 emissions and the extensive divisions and categories which are not differentiated.
Different countries have moved to increase public information about Scope 3 emissions by companies intending to increase the volume of reports on Scope 3 emissions; the SEC is looking towards mandating public companies to comply with the Scope 3 emission disclosure. Previously, reports on scope 3 emissions by public companies were only available based on the good cheer of a few companies. With this condition and requirements comes the glaring need to have better-standardized formats for reporting scope 3 emissions and a plan put in place to ensure better compliance.
As time ticks, investors are increasingly on edge about significant decisions to make as it relates to the risk of greenhouse gas emissions. With the current state, compliance levels aren’t very remarkable. Full emission disclosure is desired, and the compliance level of the scope 3 emissions, which are significant contributors to the total number of emissions, is still on the low side. In this light, one expects that more pressure is put through several policies and guidelines to obtain better disclosure compliance.