Navigating Scope 3 Emissions Reporting Standards Globally

As companies worldwide strive to measure and manage their carbon footprints, Scope 3 emissions—those indirect emissions that occur throughout a company's value chain—have become a focal point in sustainability reporting.

Several key frameworks and regulations guide the process, each with its approach to ensuring comprehensive and transparent reporting.

The Greenhouse Gas Protocol (GHGP): A foundational standard

The Greenhouse Gas Protocol (GHGP) is a globally recognised standard that provides detailed guidelines for companies to measure and report their Scope 3 emissions.

These emissions encompass all indirect emissions not covered by Scope 1 (direct emissions from owned sources) and Scope 2 (indirect emissions from purchased electricity).

The GHGP outlines 15 categories of Scope 3 emissions, ranging from purchased goods and services to waste disposal, offering a comprehensive approach to understanding a company's entire carbon footprint.

The EU Corporate Sustainability Reporting Directive (CSRD): A legal mandate

The European Union's Corporate Sustainability Reporting Directive (CSRD) introduces legally binding requirements for companies within the EU and certain non-EU companies with significant operations in the region.

The directive mandates that companies disclose extensive sustainability information, including detailed Scope 3 emissions, in alignment with the European Sustainability Reporting Standards (ESRS).

The CSRD's focus on double materiality—considering both financial impacts and the effects on climate, environment, and society—makes it one of the world's most rigorous sustainability reporting frameworks.

Industry leaders have voiced concerns and support for the CSRD's ambitious requirements.

Kees-Jan de Vries of PwC cautioned that many companies might not yet grasp the directive's full implications, warning that "there is a large group of companies that do not want to pay attention to this for the time being."

Meanwhile, Alexander Spek, also of PwC, emphasised the directive's broad impact, noting that it extends far beyond mere reporting, demanding that companies articulate their strategies and action plans for each ESG topic.

The International Sustainability Standards Board (ISSB): A global framework

The International Sustainability Standards Board (ISSB), developed by the IFRS Foundation, aims to create a global baseline for sustainability disclosures.

While not legally binding, the design of the ISSB's standards aims for adoption by jurisdictions worldwide, offering flexibility in how companies report their sustainability efforts.

Unlike the CSRD, the ISSB's approach emphasises financial materiality, focusing on the most relevant information to investors and capital markets.

The SEC Climate Disclosure Rules: An emerging requirement in the US

In the United States, the Securities and Exchange Commission (SEC) has proposed new rules requiring publicly listed companies to disclose their climate-related risks and emissions, including Scope 3 emissions.

These rules are closely aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and the GHGP, marking a significant step toward standardising sustainability reporting in the US.

The UK Streamlined Energy and Carbon Reporting (SECR): A gradual approach

In the UK, the Streamlined Energy and Carbon Reporting (SECR) policy currently requires large unquoted companies to report certain Scope 3 emissions, particularly those related to business travel.

While comprehensive Scope 3 reporting is optional, there is anticipation that more categories will become necessary as the UK moves closer to its net zero goals. The gradual approach allows companies time to adapt their reporting practices while progressing toward more transparent sustainability disclosures.

Comparing the CSRD and ISSB: Key differences

While CSRD and ISSB aim to enhance transparency in sustainability reporting, they differ significantly in their mandates and focus areas.

Geographic scope and legal mandate

The CSRD is a legally binding directive within the EU, requiring detailed Scope 3 disclosures for companies operating within its jurisdiction. In contrast, the ISSB offers a voluntary global framework, allowing companies and jurisdictions to choose whether to adopt its standards.

Reporting structure and requirements

The CSRD mandates comprehensive reporting on all 15 categories of Scope 3 emissions, reflecting its emphasis on double materiality. The ISSB, the other hand, focuses primarily on financial materiality, providing more flexibility and less detailed requirements.

Focus on double materiality

The CSRD's double materiality approach requires companies to consider both the financial impacts of sustainability issues and their broader environmental and social impacts.

The ISSB's standards are more narrowly focused on financial materiality, aligning with the needs of investors.

The future of sustainability reporting: Interoperability and challenges

As sustainability reporting continues to evolve, the interoperability between frameworks like the CSRD and ISSB could play a crucial role in shaping global practices.

While full alignment may be challenging due to differences in regulatory mandates and scopes, efforts to harmonise key concepts could enhance consistency and comparability across borders.

For companies, this evolving landscape presents both challenges and opportunities. Adapting to multiple frameworks may be complex, but it offers the chance to innovate in sustainability reporting, ultimately driving more effective and transparent environmental stewardship.

As these frameworks continue to shape the future of corporate sustainability, their influence will likely drive significant change in how companies approach their environmental responsibilities.

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