With the increasing concern over climate change, the importance of corporations reporting their carbon footprint has never been greater. However, a new study published in the journal PLOS Climate reveals that most corporations are not reporting the full extent of their carbon emissions. Despite claiming to be “green,” many companies fail to disclose their Scope 3 key categories, which account for the largest proportion of total emissions. This not only raises questions about the integrity of their reporting but also highlights the issue of greenwashing within the corporate world.
The Greenhouse Gas Protocol is a globally recognized standard for measuring a company’s carbon footprint. It consists of three levels of reporting. The first level measures direct emissions produced by a company during its business activities. The second level measures the emissions associated with the production of energy purchased from external suppliers. However, it is the third level, known as Scope 3, that is often overlooked.
Scope 3 emissions include the indirect emissions that are not accounted for in the first two levels of reporting. These emissions encompass both upstream and downstream activities in a company’s value chain. For example, Scope 3 emissions take into account the emissions produced by customers as a result of using a company’s product (downstream), as well as the emissions generated in the manufacturing of a company’s equipment (upstream). It is important to note that Scope 3 emissions account for the highest proportion of total emissions, making them crucial in understanding the true impact of a company.
According to Professor Ivan Diaz-Rainey from Griffith Department of Accounting, Finance, and Economics, companies strategically choose not to report on Scope 3 emissions, which raises concerns about greenwashing. While improving Scope 1 and 2 emissions can lead to financial savings through increased energy efficiency, the true impact of a company lies in its Scope 3 emissions. For example, an oil and gas company may focus on reporting its direct emissions from extraction and use of vehicles and electricity. However, the emissions generated by end-users who purchase and consume the company’s products are often neglected. This incomplete reporting provides an inaccurate picture of a company’s carbon footprint and undermines efforts to address climate change effectively.
Some jurisdictions are already moving towards mandatory disclosures of Scope 3 emissions, driven by initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD). The pressure to make Scope 3 reporting mandatory is increasing as policymakers and regulators seek to hold corporations accountable for their environmental impact. For instance, if a bank grants a substantial loan to a coal or gas project, its Scope 3 emissions would be significant. By overlooking these emissions, corporations are evading responsibility and hindering efforts to transition towards a more sustainable future.
Quantifying Scope 3 emissions can be challenging for companies. However, researchers have developed a novel machine learning approach to estimate these emissions accurately. The use of machine learning provides valuable insights into a company’s financial exposure to carbon pricing and its decarbonization pathways. Additionally, it helps policymakers and regulators identify areas where greater disclosure is needed. By applying this technology, researchers have discovered that companies often choose to report on categories within Scope 3 that are easier to calculate, rather than focusing on categories that have a more significant impact, such as the use of sold products.
The failure of corporations to accurately report their carbon footprint, particularly regarding Scope 3 emissions, raises serious concerns about their commitment to sustainability. This incomplete reporting not only misrepresents a company’s environmental impact but also undermines efforts to address climate change. As pressure mounts for mandatory disclosures, it is crucial for companies to take responsibility for their Scope 3 emissions and provide accurate and transparent reporting. By doing so, corporations can demonstrate their genuine commitment to sustainability and contribute to a net-zero world.