NZAOA Demands Increased Reporting of Emissions and Responsibility Scope 3.
The Net-Zero Asset Owner Alliance, an alliance of institutional investors working towards net-zero GHG emissions by 2050, has called for the governments to increase the standards and reporting of Scope 3 emissions. Scope 3 emissions are indirect emissions which occur in the value chain of a company, which typically comprise around 75 percent of the total emissions but are, however not easier to handle and report upon.
NZAOA sees mandates and reporting standards becoming more rigorous to cross-sector decarbonization properly. The Alliance sees asset-owning parties turning up more active advocates by calling for better accountability through achievements of carbon reductions but no lesser extent Scope 3, sharing the highest proportion toward global achievement toward net zero.
What is Scope 3 Emission?
Scope 3 emissions are generated along the entire value chain of a company-from their suppliers to logistics and even by how the customers consume their products. Since Scope 3 emissions are more difficult to manipulate than Scope 1 emissions or Scope 2 emissions (the former emanating directly from owned or controlled sources and the latter indirectly emanating for generating purchased electricity), measurement as well as reduction are rather complex.
Even though Scope 3 tracking and reporting is very challenging, they still form a sizeable contribution to the carbon footprint of a firm. The management of Scope 3, therefore, plays a significant role in achieving any overall sustainability target for a firm, particularly as industries and financial markets continue to commit to net-zero.
Challenges in Managing Scope 3 Emissions
Poor data quality is one of the key problems that come with Scope 3 emissions management. Most firms face problems in poor gathering methods, which then translates to unreliable emissions figures. In a single value chain, it is possible to have various firms reporting emissions from the same activities, which may be counted double or lead to data duplication. This then makes it hard to get a clear and accurate view of the true emissions footprint.
Some of these issues are targeted by existing regulation efforts currently under development by the European Union, Japan, and California, but the NZAOA advocates for standard global regulation to streamline efforts and accelerate progress.
Recommendations by NZAOA to Asset Owners
The NZAOA has recently published a new report that outlines some very important steps asset owners might take to improve their Scope 3 emissions management and reporting. These recommendations are quite likely to make institutional investors even more forceful in demands for companies to do better in this area. They include the following:
Demand More Accurate Data: The asset owners should demand accurate and independently verified Scope 3 emissions data from the companies. That is going to ensure that even more the reduction efforts of emissions are built on some actual information.
Invest Elsewhere: The asset owners should invest elsewhere to companies that act responsibly over the emissions and have specific approved targets for Scope 3 reductions.
Engage high-emission sectors: This engagement means asset owners targeting sectors with the highest Scope 3 emissions and that track data and reporting is not as stringent. Such examples of the sectors include manufactures, transport sector, and the energy sector.
Scope 3 in Targets for Emissions Reduction Scope 3 emissions shall be part of the targets for reductions financed through asset owners. As asset owners, they will find assistance from tools such as NZAOA’s Target-Setting Protocol that will help asset owners establish goals and track them towards the attainment of emissions reduction.
Emissions management under Scope 3: This needs to be handled in a different way from what is to be integrated under Scope 1 and Scope 2. There is a need for Scope 3 to be attended to properly on increasing the monitoring and cuts.
The NZAOA believes asset owners should be out front regarding Scope 3, but at the same time try to influence advocacy for regulation that will enforce scope so systemic change can occur.
The Role of Asset Owners in Reducing Emissions
The key influencers of corporate behavior are asset owners. This is because asset owners command a very big portion of the capital. Such capital would otherwise be channeled to those companies showing better practices toward the environment. It is in ascertaining such companies having a good intention of reducing Scope 3 emissions, combined with pushing for more transparency when reporting, that would expedite the better practice adoption within the industries. The report of NZAOA appealed to the global community of finance not to ignore Scope 3 emissions. Also, it has indicated leadership from asset owners, which shall incrementally move toward net zero by 2050. Asset owners may play a central role in dropping the real economy emissions even to lower levels with accountability and leadership.
Conclusion: Demands better data and a stiffer regulation on Scope 3, which the NZAOA is demanding as a move to ask for increased accountability on indirect emissions on the part of companies while pushing global targets for climate actions. Pushing the asset owners even more is the call to step up action with demands of further information from companies, and an exit from sectors in ESG poor performance, also advocating for governments to enhance the regulation. This will propel them to conduct meaningful change and sustain efforts to fight climate change.
Source: UNEP