About a-team Marketing Services

A-Team Insight Blogs

Divisions Over Scope 3 Reporting Likely to Widen Amid New Data

Subscribe to our newsletter

New research indicates that investors want more Scope 3 emissions data and that corporations are pressing on with disclosure procedures, all despite recent regulatory back pedalling on the issue.

Two studies indicate that the gathering and dissemination of supply-chain emissions information will be a key part of ESG integration even though it has been relegated down the list of priorities by some governments and organisations, including the US.

SEC Pullback

Scope 3 emissions reporting has become a sore point since the US Securities and Exchange Commission (SEC) decided to omit it from the regulator’s sustainable disclosures rule. The SEC said that the US’ listed companies, which it regulates, are already required to report such details to other regulators, including those in California and the European Union. Compelling them to also report to the federal overseer would add unnecessary work on them, the SEC said.

A gnawing sense that the decision, announced in March, is emblematic of a broader step backwards in the sustainability movement was reinforced by a subsequent proposal by the Science Based Targets initiative (SBTi) to temper its own guidelines on disclosures.

Last month, the standards setter’s board of trustees said it had proposed a change to its rules on the treatment of Scope 3 emissions that would put greater emphasis on the use of environmental attribute certificates (EACs), documents that lay out a company’s emissions. EACs, however, have been criticised for enabling reporting firms to hide some of their environmental impacts. The decision ran into criticism from market participants and the SBTi’s own staff.

While many in the ESG space have welcomed adjusted approaches as acts of pragmatism, the recent research has highlighted a divide between officials on one side and markets and environmentalists on the other.

More Data

Research commissioned by the American Center for Audit Quality ****(CAQ) and Reuters show not only investor appetite for more supply chain data but also industry backing for its disclosure.

The CAQ sought the views of 100 institutional investors in the US on ESG data disclosures and the SEC’s decision. It found that 91 per cent of respondents said they thought Scope 3 emissions should be required from companies. Meanwhile, the Reuters survey of 3,076 sustainability professionals and practitioners across multiple industries ascertained that the proportion of companies that said they intend to report on Scope 3 – whether they need to or not – will more than double to 54 per cent in the next three years.

To be sure, Scope 3 is still in play in the EU’s green markets regulations, including the Corporate Sustainability Reporting Directive. And the UK’s yet-to-be implemented rules are expected to include supply chain emissions data disclosures. They are also expected to be included in sustainability reporting codes in Hong Kong, Singapore and a number of other states.

Nevertheless the sense of an ambition being lost is palpable among proponents.

The Institutional Investors Group on Climate Change has said that Scope 3 reporting is important because without it, “it isn’t possible to fully understand and assess its contribution to climate change”. And FTSE Russell, which operates the London Stock Exchange, has bemoaned the inconsistency and effectiveness of rules for reporting Scope 3 data, arguing that they give companies too much discretion to decide what data is – and isn’t – worthy of disclosure.

“Neglect”

Together, the CAQ and Reuters reports are likely to deepen a sense that Scope 3 emissions reporting is being deliberately pushed to the back of the shelf despite market wishes. This was reflected in an opinion piece in Energy Intelligence magazine, which this week condemned the SEC decision.

“Neglecting to include Scope 3 emissions in climate reporting standards is a significant oversight by the SEC,” the magazine wrote in an opinion piece. “It makes climate reporting incomplete, and thus misleading. It also weakens the motive for collective effort, which is needed to address global climate change effectively.

“Comprehensive, accurate reporting is essential for driving the large-scale changes necessary to reduce global greenhouse gas emissions. But the SEC’s exclusion of Scope 3 emissions from its climate reporting rule is more than just a regulatory oversight. It is a missed opportunity.”

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: ESG data sourcing and management to meet your ESG strategy, objectives and timeline

ESG data plays a key role in research, fund product development, fund selection, asset selection, performance tracking, and client and regulatory reporting, yet it is not always easy to source and manage in a complete, transparent and timely manner. This webinar will review the state-of-play on ESG data, consider the challenges of sourcing and managing...

BLOG

CSRD Delay a Necessary Slowdown in EU Rule Making or a Threat to Data Improvement?

The European Union’s proposal to delay full implementation of its cornerstone corporate ESG reporting code is being viewed in the sector as a sensible reassessment as the bloc faces accusations of regulatory overreach in its sustainability programme. Nevertheless, some observers fear the delay will also slow the improvement in ESG data quality that is expected...

EVENT

RegTech Summit New York

Now in its 8th year, the RegTech Summit in New York will bring together the regtech ecosystem to explore how the North American capital markets financial industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

FATCA – The Time to Act is Now

The US Foreign Account Tax Compliance Act – aka FATCA – raised eyebrows when its final regulations requiring foreign financial institutions (FFIs) to report US accounts to US tax authorities were published last year. But with the exception of a few modifications, the legislation remains in place and starts to comes into force in earnest...