The UN-convened Net-Zero Asset Owner Alliance (NZAOA) has released a new report. It emphasizes the critical role of regulatory mandates in addressing Scope 3 emissions data and disclosure. As international regulations evolve, the need for standardized emissions disclosure grows.
This includes frameworks like the Corporate Sustainability Reporting Directive (CSRD) in the European Union. Similar regulations are also emerging in Japan and California. The urgency for consistent reporting has never been clearer.
Also read: Green groups slam SEC over exclusion of Scope 3 emissions in climate disclosure rule
Scope 3 Emissions: The Growing Challenge for Asset Owners
Scope 3 emissions, which typically account for three-quarters of most companies’ total emissions, present significant barriers for asset owners. According to the NZAOA, these challenges include inconsistent accounting frameworks, limited data quality, and the risk of double-counting, all of which hinder effective integration of Scope 3 emissions into investment strategies and climate goals.
While asset owners are increasingly aware of the need to account for Scope 3 emissions, the lack of standardized reporting and credible data makes it difficult to implement meaningful changes. The NZAOA report stresses that top-down regulation is essential to overcome these challenges and enable asset owners to make informed, impactful decisions.
Also read: Investors grapple with the Scope 3 emissions in climate finance
Key Recommendations for Asset Owners
The NZAOA’s paper offers five actionable steps asset owners can take to start addressing Scope 3 emissions. These steps aim to drive progress on emission reductions while simultaneously pushing for regulatory changes.
1. Disclosure Ambition
Asset owners are urged to push for better emissions disclosures from companies, specifically requesting independently verified or audited Scope 3 emissions data. By obtaining more reliable data, asset owners can incorporate it into their climate strategies and make informed decisions.
2. Shift Toward Corporates with Scope 3 Targets
Over time, asset owners should focus on investing in companies that have clearly defined Scope 3 targets. This will enable them to reduce the carbon intensity of their portfolios while ensuring long-term sustainability.
3. Engagement with Issuers
Asset owners should prioritize engaging with companies and sectors where Scope 3 emissions are the most significant, or where disclosure is lacking. Direct engagement can help drive transparency and force companies to align with net-zero goals.
4. Sectoral Targets for Scope 3 Emissions
NZAOA recommends that asset owners include Scope 3 emissions in their sectoral financed emissions reduction targets. This aligns with the Alliance’s Target-Setting Protocol, which will be updated in 2024.
5. Comprehensive Emissions Reductions
Asset owners should also consider including Scope 3 emissions in their overall emissions reduction targets. These reductions should be tracked separately from Scope 1 and Scope 2 targets to ensure that progress is accurately measured and achieved.
The Need for Policymaker Action
The NZAOA paper concludes by calling on policymakers to act decisively to standardize Scope 3 emissions reporting. As asset owners begin to take steps toward reducing emissions in their portfolios, regulatory clarity and consistency will be key to ensuring that these efforts are effective and scalable.
Udo Riese, Global Head of Sustainable Investing at Allianz Investment Management and NZAOA Monitoring, Reporting, and Verification Track Lead, 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 recognize the importance of taking responsibility and demonstrating leadership through actionable strategies now.”
The NZAOA’s recommendations provide a roadmap for asset owners to make tangible progress on Scope 3 emissions, aligning their portfolios with climate goals while driving public discourse and regulatory change.