Why measuring the “size” of carbon emissions is difficult
1. What does “Scope” mean?
It is a method of measuring a company’s impact on climate change, using three categories to account for the different ways in which companies can pollute the atmosphere. Under the so-called Greenhouse Gas Protocol, emissions are classified as Scope 1, 2 or 3. Scope 1 includes direct emissions from sources owned or controlled by a company, such as: B. a fleet of vehicles or a power plant. Scope 2 includes emissions from energy production that the company purchases, such as electricity. Scope 3 is everything else related to the company: the emissions from the entire value chain, including suppliers and customers. This three-pronged approach grew out of a partnership between the World Resources Institute, a global non-profit environmental organization, and the World Business Council for Sustainable Development, a coalition of more than 200 companies.
2. Why break it down like this?
A company like McDonald’s that has large Scope 3 emissions and small Scope 1 and 2 numbers needs to use different tools in its climate toolbox than, say, an electric utility. McDonald’s has said it is focused on eliminating all deforestation from its global supply chain by 2030 and is working to use more sustainable materials in packaging. Because it typically doesn’t own the land or livestock needed to make its hamburgers, it has to work with suppliers to make the change. Many companies that manufacture consumer products, like Procter & Gamble Co. and Coca-Cola Co., or automakers like Ford Motor Co., will have a large Scope 3 number. As pollution reduction plans are rolled out, the categories help shareholders figure out what’s really being promised and how ambitious it is. Disclosure can help the market reward or pressure companies based on their performance.
3. How is this approach implemented?
The concept gained momentum after the 2015 Paris Climate Change Agreement, when countries banded together to set emission-cutting targets to help slow global warming. The Task Force on Climate-Related Financial Disclosures, a financial industry-led group, was formed the same year as the Paris Agreement to encourage companies to make details of their environmental risks publicly available. It recommends that investors and executives disclose their portfolios’ Scope 1 and Scope 2 emissions and Scope 3 “if applicable”. (The task force was founded and is chaired by Michael R. Bloomberg, the majority owner of Bloomberg LP, Bloomberg News‘ parent company.) The scope also provides a key metric for the Science Based Targets initiative, an international partnership that measures whether companies are complying with the cuts required by the Paris Agreement.
4. Who is pushing it?
Companies are increasingly being asked by investors such as pension plans and sovereign wealth funds, as well as their employees, legislators and activists, to disclose the full spectrum of their environmental impacts. Institutional investors, including Amundi SA, Europe’s largest wealth manager with more than $2.2 trillion in assets under management, have pledged to use their vast resources to fight climate change. Governments are also starting to worry about scope. UK authorities have taken steps to require listed companies to disclose climate-related data, and the US Securities and Exchange Commission is considering following suit.
5. Are companies reacting to the pressure?
They start. Some are beginning to clean up supply chains that they have left to their own devices for decades. Oil and financial companies in particular are increasingly being scrutinized. Exxon Mobil Corp. shocked the oil industry when it first disclosed emissions data on customer use of its fuels and other products in January 2021. But there is still a long way to go. HSBC Holdings Plc and Barclays Plc announced in February 2022 that they are each responsible for so-called funded emissions – those caused by companies and projects for which they provide credit or underwriting that qualify as Scope 3 emissions – which corresponds to about 18%. of the UK’s total carbon footprint. That was followed by a groundbreaking set of climate data from BlackRock Inc., which suggested the asset manager’s emissions are at least on par with those of Volkswagen AG, Europe’s largest automaker.
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