Scope 3 emissions form an important component of investment risk analysis and investors have for some time been calling for businesses to report their material Scope 3 emissions. For many entities, Scope 3 emissions represent by far the largest portion of their Greenhouse Gas (GHG) emissions. Scope 3 emissions data can help users of general purpose financial reports evaluate the broader risks which an entity may face in making the transition to a low-carbon economy. Thus, the measurement and disclosure of Scope 3 GHG emissions enables an entity and its investors to obtain greater insight into an entity's exposure to climate-related risks and opportunities in the value chain.

By providing a more complete picture of an entity’s carbon footprint, disclosure of material Scope 3 emissions, coupled with clear explanations of methodology and assumptions, can significantly increase the transparency of reporting, inform investment decisions and help direct the flow of capital towards more sustainable projects and activities. Scope 3 emissions disclosures by businesses will also aid financial institutions in understanding their financed emissions and evaluating their exposure to carbon-related risks.

We acknowledge that challenges exist in measuring Scope 3 emissions. There are difficulties in obtaining data, and methodologies for calculating these emissions using estimates can be inherently uncertain. However, we believe that the benefits of disclosing material Scope 3 emissions in line with the requirements of IFRS S2 Climate-related Disclosures significantly outweigh the costs.

As set out in our response to the UK Sustainability Disclosure Technical Advisory Committee’s (UK SDTAC’s) call for evidence on the UK endorsement of IFRS S1 and IFRS S2, we firmly support adoption of the International Sustainability Standards Board (ISSB) standards in the UK without modification, to the fullest extent possible – in other words, including the requirement to report material Scope 3 emissions, and using the GHG Protocol to do so. We believe this will support the establishment of a consistent and comparable global baseline for the reporting of decision-useful sustainability information which will improve transparency and encourage better informed pricing and capital allocation, building a more resilient economy in view of the wide-ranging sustainability-related risks companies face today.

We believe that the implementation of the ISSB standards in the UK presents an opportunity to carry out a thorough review of existing non-financial and sustainability reporting scoping and requirements, including the Streamlined Energy and Carbon Reporting (SECR) Regulations, with the objective of creating an integrated, coherent, proportionate reporting framework which operates effectively across the UK economy. We strongly encourage DESNZ to work closely with the Department for Business and Trade (DBT), particularly in the context of DBT’s ongoing non-financial reporting review, to achieve this objective.

Our full comment letter is available here.