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March 29, 2023

Companies still slow to acknowledge Scope 3 emissions

The latest supply chain report from CDP finds only 41% of companies are reporting on at least one Scope 3 category.

By Adrian Murdoch

supply chain, Scope 3, emissions, carbon
Bigfoot. While improved supply chain reporting is positive, it is also revealing a distinct lack of Scope 3 emissions reporting, says the CDP. (Image by design36 vis ShutterStock)
  • Emissions in a company’s supply chain are on average 11 times higher than direct emissions, reflecting more than 70% of total emissions.
  • Only 39% of companies say that they have engaged their suppliers on climate-related issues.
  • This is despite the fact that Scope 3 disclosure will soon be a requirement in the EU and the US.

The annual supply chain report from the global non-profit CDP was published last week and reveals the moves by corporates to track their full emissions remain painfully slow. Only 41% of companies reported on at least one Scope 3 category – emissions that are connected with a company but outside its direct control.

“This year’s report shows that environmental action is not happening at the speed, scale and scope required to limit global temperature rises to 1.5 degrees,” says Sonya Bhonsle, global head of value chains & regional director corporations at CDP.

The survey assessed more than 16,460 companies, getting on for half of the worth of the global market capitalisation [see chart].

The report was brought into even sharper relief after the publication of the final part of its sixth assessment on climate change by the Intergovernmental Panel on Climate Change (IPCC), the UN body for assessing the science related to climate change.

UN secretary general António Guterres called its report a “clarion call” for governments and companies to move more quickly while Hoesung Lee, chair of the IPCC, called it a “dire warning about the consequences of inaction”.

Less hot air

There is a sense that at least the discussion of Scope 3 emission has made its way into corporate consciousness.

Angela Hultberg, global sustainability director of Chicago-based management consultancy Kearney, told Capital Monitor last month that rather than hot-airing about sustainability in general, the focus of discussion at the World Economic Forum’s (WEF) annual meeting in Davos this year was more about the specifics; supply chains and Scope 3 emissions. “I don’t think sustainability is its own topic anymore,” she said.

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But the move from consciousness to action is slow. Companies in France’s CAC-40 still have a haphazard approach to reporting as do those in Germany’s DAX-40.

Although there has been a huge increase in firms disclosing their supply chain data – an almost 44% increase on last year – findings from the CDP report suggest this is still not enough.

“If a company is not preparing for future regulations on nature in the supply chain, they are open to a wide range of risks,” says Bhonsle.

The report makes clear that emissions in a company’s supply chain are on average 11 times higher than direct emissions and reflect more than 70% of total emissions. “This is a material impact for most companies, yet many still don’t measure it,” the report says.

One of the largest shocks from the report is quite how nascent the required cascade of action down the supply chain is. Just over a third of respondents – 39% or 7,304 companies – said they had engaged their suppliers on climate-related issues.

“We need to see environmental leadership from companies right now by tackling their impacts on climate change and nature together, working with their suppliers in an integrated way that includes nature as standard, and incentivising this engagement within their organisation,” says Bhonsle.

At its heart, CDP identifies a lack of movement from senior management teams. They are “not being incentivised at anywhere near the level needed to address key issues such as water security and deforestation in the supply chain,” the report says.

For climate, the picture is positive. Almost three-quarters (74%) of companies already report board-level oversight on climate change with the remainder planning to introduce it within the next two years.

But beyond that movement is much shakier. There has been very little movement on deforestation for example – the report finds that only 30% of boards will be required to act on deforestation before 2025 – and only 3% of companies have water-related incentivisation in place for their chief procurement officers.

Scope 3: regulation is coming

In its report, CDP writes that measurement is the entry point for most buyers that engage with suppliers to understand and quantify the impact.

Regulation is coming down the line. Disclosure of Scope 3 emissions may be required imminently by the EU’s European Sustainability Reporting Standards, the US’s SEC proposed climate disclosure rule and the ISSB global baseline standard for climate-related financial disclosure.

But it is happening too slowly. “Every fraction of a degree of warming and every year matters in efforts to avoid the most damaging impacts of climate change,” says Edward Baker, head of climate policy at the Principles for Responsible Investment.

Investors sit at the heart of the required response. “We need deep, rapid, and sustained emissions reduction, a greater focus on adaptation, equitable solutions, scaled-up public and private financing, and international cooperation to manage climate risk effectively,” he continues.

The CDP report says that that is yet to happen. We all know what the solution is, the problem is that it is yet to be implemented.

[Read also stories on supply chain management]

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