Disclosure of Scope 3 – the greenhouse gas (GHG) emissions that occur in a company’s value chain and outside its direct control –is a key environment, social and governance (ESG) trend in the short to medium term, according to a new report from Sustainable Fitch.
The report noted that the declaration is complicated by lack of alignment with corporates’ preferences across guidance from international standards as well as frameworks on disclosure and climate-related financial risk.
Fitch Sustainable said that regulation on whether or not companies need to disclose their Scope 3 emissions is still evolving and differs across jurisdictions, standards and sectors.
It added an increasing number of jurisdictions are mandating climate-related corporate disclosure for companies as well as financial institutions.
Most of these regulations refer to the Task Force on Climate-related Financial Disclosures (TCFD), which recommends that all organisations consider disclosing Scope 3 emissions. However, they differ in how they cover them, although materiality assessment seems to be the most common approach.
However, the report said that in the absence of guidance and agreement on how to assess the materiality of Scope 3 emissions categories – of which there are 15 – is likely to lead to confusion among investors and other stakeholders.
There has also been pushback from companies and industry lobbies against mandatory Scope 3 disclosure,
A most notable example is the US Securities and Exchange Commission, which was forced to delay the release of its climate-related disclosure rules.
Some companies argued that it would present an unreasonable reporting burden and the lack of data and emissions accounting standards would make measuring and reporting Scope 3 emissions unreliable.
In addition, the regulatory differences across jurisdictions with regards to GHG emissions disclosure will create difficulties for companies in multinational value chains.
Fitch Sustainable though believes the launch of the International Sustainability Standards Board (ISSB)disclosure standards as pressure from investors and other stakeholders will put pressure on companies to disclose
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