NZAOA Calls for Stricter Scope 3 Rules, Shares Insights
NZAOA advocates for a stronger mandate in reporting Scope 3 emissions.
Encouraging asset owners to push companies and industries towards better accountability and carbon reduction.
The Net-Zero Asset Owner Alliance (NZAOA), a group of institutional investors committed to reducing their greenhouse gas (GHG) emissions to net zero by 2050, urges governments in its new report to take stricter actions on Scope 3 emissions and reporting.
Scope 3 emissions are those that occur in a company's value chain and are not directly under its control but can be managed and reduced. Examples include indirect emissions from logistics, suppliers, and how a customer uses products. These emissions account for around 75% of a company's total emissions.
Challenges in Managing Scope 3 Emissions
They are quite hard to manage because the data quality is often poor, companies resort to inconsistent accounting methods, and there is a risk of duplication and double-counting emissions when tracked and reported by multiple companies.
READ MORE: Nextbitt Leverages AI to Simplify Scope 3 Emissions Tracking
The European Union, Japan, and California are trying to create regulations, but NZAOA says these efforts should be standardised globally for faster progress.
To this end, the Alliance suggests five key steps that asset owners can start with. They are as follows:
Demand accurate, independently verified Scope 3 emissions data from companies.
Make investments or shift them to companies that responsibly invest and have approved, clear Scope 3 reduction targets.
Engage more with sectors where Scope 3 emissions are higher and tracking and reporting are weak.
Include Scope 3 emissions in targets for financed emissions reduction, using tools like the Alliance’s Target-Setting Protocol (2024).
Asset owners should manage Scope 3 emissions separately from other emissions, such as Scope 1 and Scope 2.
READ MORE: Report: Cement and Power Account for 90% of Scope 1 and 2
Udo Riese, Global Head of Sustainable Investing, Allianz Investment Management, and NZAOA Monitoring, Reporting, and Verification Track Lead, says: "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."
To study more about the report, click here.
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Source: UNEP
