Scope 3 under-reporting explained
Last updated 7 November, 2023.
The enormous breadth of Scope 3
Scope 3 comprises all indirect emissions (excluding those of Scope 2) across the value chain, encompassing both upstream and downstream activities. We analysed data from over 1900 companies over 2020-2022 and found that on average Scope 3 accounts for at least 85% of total emissions, an average which fluctuates per sector. Even for the industry group with the lowest share of Scope 3 emissions in relation to its total emissions, it still represents the vast majority of emissions (76%).
FY2022 data from over 1900 companies indicates that the average share of Scope 3 emissions per company varies among industry groups, with the highest belonging to Personal care products (94%) and the lowest for Telecommunication Services (76%).
Scope 3 is overlooked and hugely under-reported
So, we know Scope 3 is vast and encompasses the large majority of a company’s emissions. But why does this matter? It matters because despite the extent of Scope 3 emissions, it is still the most likely to be overlooked and often goes unreported - in 2022, 10% of EU-based companies and 16% of non-EU-based companies completely failed to report their Scope 3 emissions. Moreover, perhaps even more problematically, there is still a serious lack of transparency as it is estimated that in FY2022, EU-based companies under-reported their Scope 3 emissions by around 30% and non-EU-based companies by around 43%, compared to only 2% for Scope 1. Some companies pick and choose which of its 15 categories they will disclose, without providing legitimate explanations as to whether the others are applicable or not, and why they haven’t been disclosed. The most alarming examples were Banks, underreporting by around 69% within the EU and 60% outside of the EU, which is significantly higher than the global average. Non-EU-based companies in the Transportation industry were also significantly more likely to under-report by around 77%.
There are many reasons why Scope 3 emissions are under-reported, including the following:
Put simply, reporting Scope 3 in full requires more effort. It is logistically more complicated to obtain Scope 3 data due to its breadth and the need to engage with internal and external stakeholders along the entire value chain.
A lack of widespread regulatory obligations to report Scope 3 in full (all necessary categories provided and legitimate explanations for categories that are not applicable).
A sense of apathy regarding the concept of Scope 3 and/or an unwillingness to take responsibility for it, “My Scope 3 is someone else’s Scope 1 and 2”.
A company’s desire to hide the full extent of their carbon footprint.
The lack of precise, widely accepted definitions of carbon-neutrality and net-zero often causes confusion and companies use this to their advantage by practising so-called “greenwashing”.
To be carbon-neutral, a company doesn’t even need to measure the vast majority of its Scope 3 emissions. They must simply offset their core emissions (Scope 1, Scope 2, and two categories from Scope 3 - Business travel and Employee commuting).
Five benefits of reporting Scope 3 in full
It’s the first step to curbing climate change. Reporting Scope 3 accurately in full is good practice and is crucial if those emissions are then to be reduced and/or offset - how can you reduce something if you haven’t even measured it?
It encourages companies to review their value chain and locate opportunities to both improve energy efficiency as well as practise carbon “insetting”, thereby reducing their own emissions.
Corporate leaders are in a pivotal position to act as catalysts for driving decarbonisation efforts, even in industries that are not typically thought of as “carbon-intensive”. Aiding stakeholders in the value chain to become less resource-intensive and more energy-efficient also improves relations.
It mitigates climate change & value chain risks such as the risk of future regulatory changes. It is in companies’ interests to be proactive and anticipate those changes.
Increased transparency and commitment to accurate carbon disclosure strengthens brand reputation.
