Why Scope 3 emissions hide as much as they reveal, and what investors can do about it.
Climate change is one of the most urgent challenges of our time, and businesses have a crucial role in addressing it. To align with global goals, companies must significantly reduce greenhouse gas (GHG) emissions by 2030 and achieve net zero emissions across their value chains by 2050.
While in recent years there has been a trend for companies and investors to adopt ‘net-zero’ targets, generally, by 2050, it is important to recognize that each additional ton of greenhouse gas adds to global warming, so our sights need to be set on achieving net zero as soon as possible. As tricky as the decarbonization challenge is, we also know that delivering on other sustainable development challenges, particularly human development in low and middle-income countries, will be essential for achieving a zero-carbon economy, as missing one significantly increases the chances of missing the other.
Accounting for corporate emissions can be complex and includes three emission types: Scope 1, 2 and 3. Scope 1 emissions include all greenhouse gas emissions created by a company directly, primarily through burning fossil fuels, but also activities like chemical reactions (e.g. cement production) and refrigerant leaks (e.g. from a retailer’s display fridges). Scope 2 emissions relate to electricity and heat purchased by the company from third parties. To tell Scopes 1 and 2 apart, imagine buying gas for heating that is burnt on site being Scope 1, but if the company’s utility burns the gas and provides steam for heating instead, that would be Scope 2.