More companies are reporting their greenhouse gas data – including Scope 3 emissions – to investors and regulators, according to a report that suggests yawning gaps in corporate ESG records may be closing.
Scope 3 data, which tracks the emissions of businesses within corporate supply and distribution chains, is now reported fully or in part by 42 per cent of global listed companies surveyed by financial data and index giant MSCI. The figure is 17 percentage points higher than in 2022 and all the more remarkable considering that few regulations yet demand the reporting of indirect emissions information.
Disclosures of data on Scope 1 and 2 emissions – those produced directly by companies’ own activities and the energy suppliers they engage – jumped 16 percentage points in the year to 60 per cent, according to the latest edition of MSCI’s annual “Net-Zero Tracker”.
Gaps Filling?
While gains were significantly lower among American companies, the report nevertheless said that gaps in the ESG data record might be narrowing. It said that corporate efforts, combined with the Securities and Exchange Commission’s newly formulated rules on climate disclosures, have the potential to ease data holes that are frustrating investors’ portfolio and risk management processes.
“The rules could help to narrow a global disclosure gap: Only 45% of US-listed companies currently disclose their Scope 1 and 2 emissions, compared with 73% of listed firms in other developed markets,” the report observed. “Though the rules would not require companies to disclose their Scope 3 emissions, the disclosures they do mandate could equip investors with much more information about financially relevant climate risks.
“That’s significant from a global perspective, as US-listed companies represent roughly two-thirds (63%) of the total value of global equity markets.”
SEC, CSRD
Regulators around the world are formulating rules to require corporate reporting of emissions data to help sustainability-focused financial institutions make better investment and risk management decisions.
While the SEC’s rule is halted in the courts, the European Union has pressed on with its Corporate Sustainability Reporting Directive (CSRD), which became law this year, and the UK’s Financial Conduct Authority (FCA) is expected to follow suit in the summer.
In response, data vendors including Bloomberg and Persefoni, have built tools to help financial institutions integrate carbon and emissions data into their processes.
The positive outlook for data gathering was underlined by a survey that showed most chief executives in the US expected to see significant returns from their sustainability investments over the next five years.
The latest annual KPMG US CEO Outlook Pulse Survey, which interviewed 100 corporate chiefs, found that “the execution of ESG initiatives remains the top operational priority for CEOs”.
“CEOs are going beyond checking the compliance box on sustainability,” said KPMG US ESG leader Rob Fisher. “They’re making it a core business imperative, leveraging cutting-edge data and AI capabilities to drive real-time strategies with measurable impact.”
Best, Worst
MSCI launched its tracker in 2021 to chart businesses’ progress towards their net-zero targets, as established in the COP28 summit held in Glasgow, UK. This year’s edition found that the proportion of listed companies that have set decarbonisation targets rose one percentage point to 38 per cent on 2022. A little more than half have disclosed an emissions-related commitment.
Data disclosure is most prominent among utilities and the mining and other materials industries, each of which saw more than 70 per cent of companies reporting emissions data. The consumer staples and energy sectors followed, with around 60 per cent of companies submitting their data. The lowest levels are seen among the financials and healthcare industries.
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