The proportion of public companies providing disclosures on Scope 3 emissions has increased to more than a third, according to a new study by investment data and research provider MSCI.
Scope 3 emissions are indirect emissions from across the value chain, typically accounting for the vast majority of most companies’ climate footprint.
The report indicated significant increases by listed companies in both emissions disclosure and climate commitments, with 35% now reporting on at least some Scope 3 emissions, up from around 30% only seven months ago.
In addition, 44% set decarbonisation targets, an increase of 8 percentage points over the same timeframe.
However, despite the improvements in disclosure and climate pledges, the study found that direct emissions from the companies have not declined this year, and are on track to significantly exceed those needed to achieve the global goal to limit temperature increase to 1.5°C.
Of the targets that have been set, for example, only 30% include net zero goals, and 17% align with a 1.5°C pathway.
Even within the net zero targets, some do not cover the entire scope of value chain emissions, and some rely on carbon offsets lacking third party validation, the report found.
The report is the latest edition of the MSCI Net-Zero Tracker, which assesses the climate change progress of companies within the MSCI All Country World Investable Market Index (ACWI IMI).
It includes data from its Implied Temperature tool, which was launched in 2021 and converts companies’ current and projected greenhouse gas emissions to an estimated rise in global temperature, taking into consideration the emissions reduction targets of each company.
According to the metric, only 19% of companies are currently aligned with a 1.5°C pathway, up from 16% from seven months ago
Moreover, 51% are aligned with the Paris Agreement’s upper threshold of limiting temperature increase to under 2°C, compared to 49%.
Overall, listed companies are aligned with a pathway to a 2.7°C increase.
“The equation for investors is that they must address transition risks today or face severe and irreversible physical risks tomorrow, and that they have a role to play in driving the existential change required,” said Sylvain Vanston, executive director, climate change investment research, MSCI.
He added, “Investors can use their strategic levers, including asset allocation, green investments, and engagement with boards and policymakers, to help not just put companies on a net-zero path, but also encourage the regulatory changes needed to level the business playing field between.”
The study comes as reporting on Scope 3 emissions and on climate plans are expected to become more commonplace, particularly as major regulatory reporting regimes – including in Europe, the US as well as global standards – introduce new mandatory climate disclosure systems within the next few years.
The IFRS Foundation, for example, recently announced that its new climate and sustainability reporting standards, which include Scope 3 reporting, and disclosure on climate risks and opportunities, will take effect in 2024.
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