Incentivising Scope 3 reporting through regulation and policy
Not many organisations around the world report today on their Scope 3 emissions, despite the proposed priority, globally, in decarbonising business activities. To incentivise businesses and organisations to increase their Scope 3 disclosures, regulations enforced by governments or regulatory bodies, along with corporate policies, will be key. Multinational companies can also act as a driving force, encouraging government action in expanding reporting requirements to integrate Scope 3 disclosures and supporting SMEs in improving their emission measurement and disclosure.
With the number of businesses and organisations who are setting net-zero commitments steadily increasing across the globe, decarbonisation has become a top priority. Moreover, a recent report by the World Economic Forum highlighted the need for organisations to focus on their Scope 3 emissions, as they typically account for more than 70% of overall GHG emissions.
As part of the Reuters Insight Sustainability Survey 2022, Reuters Insight surveyed senior business practitioners and C-Suite executives, asking them to rank the strategic priority of decarbonisation within their organisation relative to other ESG (Environmental, Social, and Governance) key performance indicators and objectives.
Key findings include the following:
- Decarbonisation was seen as a top to mid-level priority by the vast majority (82%) of respondents. In over 50% of cases, decarbonisation was regarded as either the top priority or a high priority.
- The majority (57%) of senior sustainability practitioners surveyed by Reuters Insight indicated that their organisations were still not engaging with their Scope 3 emissions.
- 44% of survey respondents who were not currently engaging in their Scope 3 emissions had plans to do so within the next 24 months. This means that 56% of respondents whose organisations were not engaging with Scope 3 emissions did not have plans to change in the next 24 months, showing that these organisations may need external incentives to pursue Scope 3 reporting.
- Climate-related disclosures by organisations rose with the adoption of the Taskforce on Climate-related Financial Disclosures (TCFD) framework. Since 2022, eligible UK companies were required to produce a TCFD report for the first time.
- Among respondents who confirmed their organisation had a carbon-neutral target in place, a majority (62%) had a science-aligned and verified target.
- Without mandatory reporting requirements once targets were set, fewer than half of the companies included in the Science Based Targets initiative (SBTi)’s 2021 analysis reported progress on their targets, indicating, once more, that mandatory requirements are the main driver of Scope 3 reporting.
- With a lack of clear reporting requirements for the inclusion of Scope 3 emissions, most companies that had Scope 3 targets and reporting were only focused on company travel (which is only one among many sources of Scope 3 emissions).
- Companies not currently reporting on or not planning to report on their Scope 3 emissions are likely to be incentivised to do so in the near future, with more progressive regulatory requirements.
- Although regulation is likely to be the principal driver for incentivising Scope 3 reporting, large organisations need to be more proactive in promoting further Scope 3 reporting, not least by implementing internal policies to drive improvements in reporting or by requiring suppliers to adhere to a supplier code of conduct and showcase their plans for actively reducing their emissions.
Overall, increased government intervention is likely to motivate more organisations to report on their Scope 3 emissions, as mandatory reporting requirements are a clear driver in increasing sustainability reporting. Large organisations also have a key role to play in enhancing Scope 3 reporting, mandating disclosure from suppliers and lobbying governments to set clear Scope 3 reporting requirements. Companies, especially large multinationals, can drive progressive policies to increase Scope 3 reporting, through their own internal policy requirements or by liaising with governments to influence regulatory enhancements. Last but not least, carbon pricing can drive further Scope 3 reporting, also incentivising accuracy, with companies creating pressure down their supply chains to begin or to improve their reporting.
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