Measuring Scope 3 data “is no longer an option” because the chain results in a “significant” financial risk. The three crucial elements for integrating a risk assessment into decision-making are a competent board for climate supervision, engaging suppliers and introducing an internal carbon price
Companies and investors ignore financial risk worth over $300 billion
Not measuring and managing Scope 3 emissions carries a “significant” financial risk for and investors. Only by counting the emissions generated “up” by the supply chain of the three sectors with the highest levels of this type of emissions – manufacturing, retail and materials – the total exposure reaches over $335 billion. However, most of these actors neglect these risks in their reporting.
This is revealed in a joint report by Boston Group Consulting (BCG) and the Carbon Disclosure Project (CDP), based on data from companies and financial actors who turn to CDP for disclosure operations.
Only half of the companies that rely on CDP insert an assessment of the financial risk that may arise from Scope 3 emissions. Only about one-third of investors have investment policies that impose climate-related requirements on the companies they invest in. Only 10% require disclosure of supply chain emissions.
“Scope 3 data is no longer optional, ” says CDP Sherry Madera. “Financial market stakeholders, from companies to investors, must increase the level of responsibility and action to adapt to the scope of supply chain emissions.” As global standards and new compulsory reporting rules, such as the CSRD directive, require consideration of Scope 3, “this disclosure will increasingly affect core business and portfolio success both at home and abroad,” he adds.
How do we get back on the right track so that we do not neglect the financial risk of Scope 3 emissions? The data from the last CDP disclosure cycle provides some clues. There are 3 statistically most significant factors, among the 20 and most examined, that lead companies and investors to define specific targets and actions for emissions Scope 3:
- have a climate-responsible board, then work on governance aspects;
- the involvement of suppliers;
- establish an internal carbon price, to be used to assess the risks and opportunities of investment choices.
Companies whose boards have climate supervision tasks and at least one member of the board responsible for these matters, the study calculates, were 4.8 times more likely to have a 1.5 °C aligned transition plan with a Scope 3 target. Those who hire suppliers on climate-related issues are 7 times more likely to be aligned to 1.5°C. And whoever uses a domestic carbon price is four times more likely to be.
The latter is the least represented aspect: Only 14% of companies and investors who disclose with CDP have a domestic carbon price.
