Key takeaways
- Scope 3 emissions occur from activities not directly owned or controlled by the reporting company. They occur from acquiring and pre-processing raw materials to distributing, storing, using and disposing of the end products sold to customers.
- 92% of emissions disclosed by European companies in 2022 came from Scope 3*.
- It can be difficult to accurately measure Scope 3 emissions and there is a lack of consistent reporting from different companies.
- By incorporating Scope 3 emissions into investment decisions investors can gain a more robust risk assessment, identify potential exposure to carbon intensive assets and align portfolios with a transition to a low-carbon economy.
There are three different Scopes of emissions that we need to tackle. Scope 1 and 2 emissions relate to a company’s direct operations and energy usage whereas, Scope 3 emissions can arise from a wide range of sources within a company’s value chain. Addressing Scope 3 emissions is important for companies as it represents climate risks as well as opportunities within supply chains.
What are scope 3 emissions?
Scope 3 emissions are the result of activities that aren’t directly owned or controlled by the reporting organisation. In essence, Scope 3 emissions arise from acquiring and pre-processing raw materials to distributing, storing, using and disposing of the end products sold to customers.
These emissions are classified as either “upstream” or “downstream” emissions. Upstream emissions refer to the emissions that are produced as a result of activities from the point of extraction or production of raw materials up to the point they are processed by the reporting company. These emissions are mainly historical and can be calculated or estimated based on past activities in the supply chain. Downstream emissions occur as a result of the processing, use, and end-of-life treatment of the company's products and services. They are, in many cases, projections or estimates of future emissions resulting from the use or end-of-life treatment of sold products.
92% of emissions disclosed by European companies in 2022 came from Scope 3*
Investors are seeking out more and more environmental information on the companies they invest in and this includes considering a company’s Scope 3 emissions when making investment decisions. By looking at Scope 3 emissions, investors can get an insight into a company’s total environmental footprint.
Regulations around scope 3 emissions are evolving and in certain jurisdictions reporting on Scope 3 emissions is built into regulatory requirements. For example, from 2025 the EU's Corporate Sustainability Reporting Directive (CSRD) requires listed companies to report material and significant Scope 3 emissions1.
Calculating Scope 3 emissions
The GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard2 allows companies to assess their entire value chain emissions impacts and identify where to focus reduction activities.
However, sources of Scope 3 emissions can be out of a companies control which can make it difficult to quantify the exact emissions and can result in a lack of consistency across companies. In fact, companies often estimate their Scope 3 emissions and they can vary depending on the calculation used.
What does this mean for your portfolio?
By incorporating Scope 3 emissions into investment decisions investors can gain a more robust risk assessment, identify potential exposure to carbon intensive assets and align portfolios with a transition to a low-carbon economy.
Below are two examples that show the potential impact of Scope 3 emissions on investment decisions and outcomes.
| Company action on Scope 3 | Potential outcome |
|---|---|
Company A A technology firm that recognises the importance of addressing Scope 3 emissions and has implemented supply chain optimisation strategies to reduce its carbon footprint. | By collaborating with suppliers and implementing sustainable practices, the company successfully reduced emissions throughout its supply chain. This proactive approach not only improved the firms's environmental performance but also enhanced its reputation among investors and stakeholders. As a result, we expect the company to increase investor confidence which can in return lead to improved financial performance. This case illustrates how addressing Scope 3 emissions can create a competitive advantage and drive long-term value. |
Company B A retail company that faced investor pushback due to its failure to address Scope 3 emissions adequately. As investors increasingly prioritise sustainability, they demanded greater transparency and accountability regarding the company's carbon footprint. | The company's lack of action on Scope 3 emissions resulted in reputational damage and a decline in investor confidence. Consequently, the company is expected to face more challenges in attracting investment and is at risk of experiencing negative financial performance. This example highlights the risks of neglecting scope 3 emissions, including potential financial and reputational losses. |
The integration of Scope 3 emissions into investment decisions provides investors with greater insight. However, it is important that investors are aware of the limitations around Scope 3 data.
These complexities should be reduced in the future and we believe that ongoing updates to voluntary standards and Net Zero Initiatives, coupled with regulatory frameworks will help improve data quality. Moreover, we are actively engaging with companies on their Scope 3 emissions disclosure and reduction targets.
Unless otherwise stated, all information contained in this document is from Amundi Asset Management S.A.S. and is as of January 2025. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management S.A.S. and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results.
Date of first use: 20 February 2025
Doc ID: 4250137
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