Dive Br
- The United Nations-convened Net-Zero Asset Owner Alliance is calling for mandated scope 3 emissions disclosures to increase the comparability and quality of that data and allow asset owners to more accurately assess and decarbonize their portfolios.
- The organization made the call to regulators, which also urged asset owners to set engagement objectives and sector specific scope 3 targets, in a research paper released Wednesday.
- Udo Riese, the lead for NZAOA’s monitoring, reporting and verification track, said in a Dec. 4 press release that the report “highlights the need for credible and comparable scope 3 data.” Riese said without it, the world “will not see necessary carbon reductions in the real economy.”
Dive Insight:
NZAOA said in the paper that its members are committed to reducing their own scope 3 emissions profiles and setting targets that include their portfolio emissions. Currently, that calculation includes the scope 1 and scope 2 emissions of portfolio companies, which may not be enough. According to a 2023 analysis by the Carbon Disclosure Project, scope 3 emissions make up around 75% of all company emissions across sectors.
The alliance urges market regulators to mandate corporate scope 3 emissions disclosures “across different jurisdictions”, such as those in place in California, the European Union and Japan. The paper said that for asset owners to properly execute their climate strategy, “it is crucial for asset managers to also consider the scope 3 emissions of their invested companies.”
However, there are currently multiple challenges for asset owners, including the difficulties with carbon accounting, double counting and a lack of data availability, accuracy and consistency.
“Asset owners’ ability to make comprehensive assessments of companies’ climate profiles relies on being able to analyse trustworthy corporate disclosures of GHG emissions,” the paper said. “Yet, the current state of GHG disclosures remains challenging for both data providers and asset owners.”
To help address those current challenges, NZAOA recommended asset owners account for scope 3 emissions separately from scope 1 and scope 2 emissions and “avoid aggregating all emission scopes on [a] portfolio level.” It's also recommended that asset owners look to enhance voluntary scope 3 disclosures and promote standardization; engage with data vendors to improve the quality of data; and disclose any data quality details, limitations, assumptions and judgments.
“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,” said Riese, also the global head of sustainable investing for Allianz Investment Management.
In addition to setting scope 3 engagement objectives and sector specific targets, the NZAOA recommends asset owners seek improved emissions disclosures from issuers, as well as independently verified or audited scope 3 estimates.
Additionally, the alliance said that asset owners “may over time and on an individual basis start to shift towards investments in underlying issuers with approved scope 3 targets.” Shifting such exposure can also improve scope 3 emissions reductions.
