Policymakers need to put in places regulatory mandates in relation to Scope 3 emissions‘ data and disclosure challenges, the Net-Zero Asset Owner Alliance (NZAOA) has stated in its new paper.
The paper, Tackling Hidden Emissions for a Net-Zero Transition, identified several barriers to tackling Scope 3 emissions for asset owners including limited data quality, inconsistent accounting frameworks, and double-counting risks. Another major hurdle is carbon accounting, where there remains a loose interpretation of the framework and undefined Scope 3 categories. This all makes it challenging to understand the impact of Scope 3 emissions within portfolios and firms’ overall climate strategy, the report said.
Emissions data is gradually being integrated into a growing number of regulatory disclosure framework, such as the Corporate Sustainability Reporting Directive (CSRD), but the the NZAOA called for policymakers “to act decisively” and “urgently” in terms of setting our global frameworks and disclosure standards on Scope 3.
Udo Riese, global head of sustainable investing at Allianz Investment Management and working track lead at NZAOA, said: “Our paper highlights the need for credible and comparable Scope 3 data, or else we will not see necessary carbon reductions in the real economy.
“While we are sending a clear signal to the market that regulatory mandates are needed for systemic progress, asset owners recognise the importance of taking responsibility and demonstrating leadership through actionable strategies now.”
The report set out five actions for asset owners to adopt immediately:
- Improve emissions disclosure with independently verified annual Scope 3 emissions estimates.
- Shift investments towards underlying issuers with approved Scope 3 targets.
- Engage with issuers where disclosure is lacking.
- Include Scope 3 emissions in sectoral financed emissions reductions targets, as already outlined in the Alliance’s Target-Setting Protocol (2024).
- Keep Scope 3 emissions reductions targets separate from Scope 1 and 2 to ensure all-encompassing reductions.
