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The Institutional Investors Group on Climate Change (IIGCCC) is moving closer to providing guidance to investors on the difficult issue of Scope 3 emissions in investment portfolios, with a focus on materiality.
Scope 3 emissions are emissions from the reporting entity’s value chain. In an IIGCC discussion paper published today, the group said the direction of travel regulation is to make Scope 3 emissions disclosures clearer, which will “help companies and investors understand and calculate them. “There is an increasing urgency to prepare for disclosure.”
Scope 3 emissions have been a topic of debate for some time, including due to the practical challenges and challenges associated with reporting and calculating emissions data.
Other challenges highlighted by the IIGCC include a lack of generally accepted understanding of the importance of the Scope 3 category in various sectors and (mis)incentivizing investee practices on climate change. .
The paper published today sets out the IIGCC Working Group’s thinking on investor-led solutions to address value chain emissions within investment portfolios, particularly as part of a net-zero approach.
The working group said that while aggregating value chain emissions at the portfolio level would lead to “false results”, investors could start developing asset-level engagement with these emissions across material sectors and categories. He says it can be done.
However, there is a lack of comprehensive guidance on how best to approach Scope 3 materiality assessment within a portfolio, and although a materiality-based approach to Scope 3 is a prudent strategy for companies. However, he said there was a problem.
The working group itself will consider the significance of the Scope 3 category for different sectors as part of its second stage work and develop guidance on how investors can approach Scope 3 emissions within their portfolios. We are also planning to consider doing so.
Meanwhile, according to the IIGCC, inconsistent materiality assessments have meant that “the increasing emphasis on emissions disclosure within policy and regulatory frameworks provides much-needed clarity to markets and “This is an area where we can level the playing field and support investors’ decision-making.” ”.
The working group also said that broader scope 3 disclosure requirements at the asset level would allow investors to better meet their obligations under the Sustainable Finance Disclosure Regulation (SFDR).
IIGCC’s ideas appear to be consistent with others. David Harris, Head of Sustainable Finance Strategic Initiatives and Partnerships at the London Stock Exchange Group, today flagged LSEG’s new research and said: ‘Scope 3 climate change reporting will be a big debate in 2024. “There is a need for adult discussion about how to do this.” This is to address data issues. ”
Harris said key points the research team made include that there may be too much discretion in reporting methods and that focusing on two or three categories could be the way forward. It is said to be included.
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