Press release: Debunking value chain emissions myths and addressing Scope 3 challenges
Published: Apr 2024
18th April 2024 – Whilst a significant majority of the global population appears to support climate action, influential interest groups have launched extremely successful campaigns against climate-related regulation on both sides of the Atlantic.
In March 2024, the U.S. Securities and Exchange Commission removed value chain greenhouse gas emissions from the country’s first mandatory climate-related disclosure, despite near unanimous investor support for their inclusion. This has put U.S. standards on a divergent course relative to both European Union requirements and to new International Financial Reporting Standards (IFRS S2) being phased in multiple jurisdictions worldwide.
Opponents of Scope 3 emissions disclosure argue that accounting is unfeasible or too costly for corporates and that it will produce inaccurate estimates of limited practical value or significance, in particular to investors. While these criticisms may be biased, they highlight significant potential shortcomings in emissions estimation and reporting that companies, investors, and regulators must consider.
Value chain emissions represent a material source of emissions that companies can strategically manage to address both their impact on climate change and their exposure to transition risks.
Quantitative progress in voluntary reporting of value chain emissions has not been accompanied by an improvement in the quality of the data provided. Reporting is too often an exercise in greenwashing and remains sparse, incomplete, and insufficiently focused on material sources.
Opposing mandatory reporting based on these limitations confuses the symptom for the cause. Mandatory reporting and assurance will materially improve the availability and reliability of reported data.
However current reporting standards are not intended to support cross-corporate comparisons and reported data will remain irrelevant to certain usages sought by investors.
Scope 3 emissions modelled by data providers may address issues of completeness and comparability but come with challenges of model stability and insufficient consideration of corporate specificities, drawbacks which also limit potential investor usages.
The report explains how fiduciaries can ensure that consideration of value chain emissions issues is fit for purpose and how standard setters can avoid abetting greenwashing. It concludes with recommendations to companies, investors, and policymakers to enhance the quality, relevance, and cost-efficiency of disclosures.
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