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Only 40% of companies report Scope 3 emissions, CDP says

The COP15 UN Biodiversity Conference in Montreal, Canada, last year called on large companies to disclose their impacts (Photo: Christinne Muschi/Bloomberg)
The COP15 UN Biodiversity Conference in Montreal, Canada, last year called on large companies to disclose their impacts (Photo: Christinne Muschi/Bloomberg)

Companies are struggling to report emissions linked to their supply chains, says the non-profit organisation.

Just 41 per cent of companies that disclose to CDP are reporting their Scope 3 emissions, the environmental disclosure organisation has said. Last year, nearly 20,000 companies disclosed data through CDP.

The non-profit noted there was a particular lack of engagement with biodiversity. It reported almost 70 per cent of companies admitted they do not gauge the impact of their supply chains in this area – despite last year’s COP15 agreement calling on large companies to disclose their impacts on biodiversity by 2030. 

This is viewed by one expert as a missed opportunity for companies, whose supply chains are usually responsible for far greater emissions levels than those created by their own activities.

Elfrun Von Koeller, partner at consultancy BCG, noted: “Emissions in a company’s supply chain (Scope 3) are on average 11 times higher than direct (Scope 1) emissions, and reflect more than 70 per cent of total emissions. As such, value chain decarbonisation represents one of the most significant opportunities for companies to play their part in reaching net zero globally before 2050.

“Yet only less than 5 per cent of disclosing companies have near-term science-based targets, which is the most credible standard.” 

Companies’ apparent inability to disclose their supply chain emissions comes just as various regimes around the world are expected to unveil new obligations. CDP pointed out that Scope 3 disclosure rules may feature imminently under the EU’s European Sustainability Reporting Standards, new standards from the International Sustainability Standards Board, and in new rules set out by the US Securities and Exchange Commission.

The SEC proposed new disclosure rules last year that would include a requirement for certain companies to disclose their Scope 3 emissions. However, the rules – which have yet to come into force – would not apply to smaller reporting companies.

Obstacles to compliance

Respondents to a survey published in March by carbon accounting platform Persefoni said that difficulties in securing Scope 3 data (77 per cent) and the complexity of climate data (58 per cent) were the biggest obstacles to meeting the SEC’s proposal on disclosure.

Persefoni’s survey of over 50 chief accounting officers and controllers from some of the biggest US companies revealed that just 11 per cent per cent of S&P 500 companies are signatories to the Task Force on Climate-Related Financial Disclosures framework.

Ninety-four per cent of those surveyed said they were preparing for the SEC’s climate proposal within the next year. Sixty-two per cent said they were planning for TCFD over the same period, while just 29 per cent are preparing for the ISSB’s standards.

Disclosure rules can focus on larger organisations, according to one expert, leaving it to companies to govern their own suppliers when it comes to emissions.

“Many organisations have thousands or tens of thousands of suppliers,” said Andrew Griffiths, director of policy and partnerships at sustainability certification company Planet Mark. “If suppliers aren’t already taking steps to measure and reduce their own carbon footprint, then organisations are having to apply their own incentives and pressure to encourage them to start in the absence of specific regulation. 

“This is a particular challenge when regulation is mandating large organisations to report on supply chain emissions, but the same regulation does not consider or often entirely leaves out small and medium-sized enterprises, who may form the majority of a large business supply chain,” he told Sustainable Views.

“Consequently, SMEs are being indirectly affected by legislation that doesn’t technically apply to them.”

A service from the Financial Times