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Companies face more complex carbon-emissions reporting

By Jessica Tasman-Jones

This article is brought to you by Agenda, an FT Specialist publication that focuses on corporate boards

Companies will soon be required to report on carbon emissions from their products and supply chains.

This year, the International Sustainability Standards Board, the accounting standards body, voted unanimously for Scope 3 disclosure in climate accounting standards. UK companies are already required to report on Scope 1 emissions relating to a company’s operations, and on Scope 2, relating to a company’s energy consumption.

Scope 3 reporting is considered more difficult because it requires companies to collect data from third parties, says Stephanie Maier, global head of sustainable and impact investment at GAM Investments. This includes emissions from the products and services they purchase, transportation and distribution and the use of sold products.

Just 10 per cent of companies provide comprehensive greenhouse-gas emissions reporting, according to the Carbon Disclosure Project, a not-for-profit organisation. But Scope 3 emissions account for 70 per cent of many companies’ carbon footprints, Maier says.

The number of third parties in the chain, the complexity involved in calculating the emissions and the lack of standardisation when it comes to data are among companies’ concerns.

Nancy Mahon, senior vice president of sustainability at the Estée Lauder Companies, a US conglomerate, told the recent FT Moral Money Americas summit that the company had made progress on measuring Scope 3 data.

She added, however: “We are finding that a lot of the data as currently measured, including the quality or intensity level, is not as great as we would like it to be.”

The ISSB will provide details next year on how it plans to support companies.

Boards should ask management what the company is doing to prepare for the changes, and about the effect of new regulations on the business, says Maura Hodge, ESG audit leader at KPMG, the professional services firm.

The ISSB is the “global baseline” of climate standards, says Hodge. Regulators worldwide develop their jurisdictional requirements from its lead, she says.

The Securities and Exchange Commission, European Union and Financial Conduct Authority are working on climate-change disclosure regulation that overlaps with the ISSB’s reporting requirements.

Boards should first measure their Scope 3 emissions and understand the extent of them. They should then commit to targets to reduce those emissions over time, says Maria Lettini, executive director of the FAIRR Initiative, an investor network concerned with ESG risks in the food sector.

Scope 3 reporting will require companies to collect data across many internal and external sources, says Ben Murray, Accenture’s sustainability services lead in the UK and Ireland.

“Investment in improving data quality and frequency of reporting will also be crucial to ensuring firms have beefed up capabilities,” he says.

Working with peers who share supply chains will be helpful, he says. Technology such as cloud-based reporting platforms will help companies make decisions on how to reduce carbon footprints and costs, he says.

This article is based on a story written for Agenda by Lindsay Frost

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