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Over the last two decades, the WRI and WBCSD have laid the foundations for a modern carbon accounting system and developed the vocabulary and scopes used by private and public organizations, becoming a de facto standard for calculating greenhouse gas emission inventories[1]. Corporate Standards, particularly the Scope 3 Standard, have become essential tools for understanding carbon emissions and to fight against Climate Change.
While many acknowledge the success of the Corporate Standard, a recent survey by the GHG Protocol itself[2] highlights the need to enable further consistent and comparable GHG emissions disclosures. Similarly, 53% of respondents of the Scope 3 survey see a need for additional guidance, clarifications, tools, databases, and examples to promote higher-quality data and methods and further transparency.
Today, these shortcomings result in an incomplete and potentially misleading picture. Research indicates that Scope 3 may represent 80% of total carbon inventory[3], but less than 25% of US companies reported Scope 3 emissions[4]. Corporate Sustainability Reports often omit half of their total emissions as well.
Surveys also indicated the need to enhance alignment and harmonization with complementary and voluntary frameworks required by investors, which also fall short on Scope 3 emissions:
● Global Reporting Initiative[5] (GRI) standard 305. Companies are not required to disclose total or most material Scope 3 emissions to be compliant.
● The Sustainability Accounting Board[6] (SASB) does not require Scope 2 and Scope 3in their reporting.
● Integrated Reporting Framework[7] (IR) does not specify which types of GHG emissions to report and remains silent on Scope 3 emissions.
Besides Sustainability Corporate Reports, thousands of companies disclose their carbon inventories via Climate Change questionnaires to the CDP. Formerly known as the Carbon Disclosure Project, CDP houses a comprehensive database based on voluntary, self-reported sustainability actions and indices data. A central data repository is advantageous as long we understand reporting inconsistencies while comparing GHG inventories and carbon intensities between organizations. We will discuss this topic further in our next article.
A central data repository is advantageous as long we understand reporting inconsistencies while comparing GHG inventories and carbon intensities between organizations.
Investors also misuse ad-hoc indices partially based on CDP data or similar:
● MSCI[8] builds on CDP and evaluates the weighted carbon intensity of 15,000 indices but only divides Scope 1 and Scope 2 emissions by corporate sales.
● TruCost[9] S&P Carbon Efficiency Index accounts for Scope 1 and Scope 2 emissions and Scope 3 from first-tier suppliers only.
● TruCost S&P Dow Jones SustainabilityIndex resorts to general public information and industry-specific questionnaires. Furthermore, Scope 3 data is not directly incorporated into the S&P indices.
We have made much progress in developing a common language, frameworks, and indices to tackle the challenge of climate change across organizations worldwide. However, it is essential to understand the limitations of the current systems and metrics, which, although well-intentioned, frequently need to improve in assessing the massive contribution of Scope 3 emissions, particularly around upstream supply chains. It's time to close the gap!
[1] Green, J. F. Private standards in the climate regime: the greenhouse gas protocol. Bus. Polit. 12, 1–37 (2010)
[2] https://ghgprotocol.org/survey-need-ghg-protocol-corporate-standards-and-guidance-updates
[3] Matthews, H. S., Hendrickson, C. T. &Weber, C. L. The importance of carbon footprint estimation boundaries. Environ.Sci. Technol. 42, 5839–5842 (2008)
[4] Blanco, C., Caro, F. & Corbett, C. J. The state of supply chain carbon footprinting: analysis of CDP disclosures by US firms. J. Clean. Prod. 135, 1189–1197 (2016).
[5] https://www.globalreporting.org/standards/media/1012/gri-305-emissions-2016.pdf
[6] https://www.sasb.org/wp-content/uploads/2020/10/GHG-Emmissions-100520.pdf
[8] https://www.msci.com/our-solutions/indexes
[9] https://www.spglobal.com/spdji/en/documents/additional-material/faq-trucost.pdf
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