ESG Thema #19 - Measuring Scope 3 Emissions: implications & challenges for investors

Scope 3 greenhouse gas (GHG) emissions include all indirect emissions that occur in a company’s value chain, both upstream and downstream. These emissions are crucial for understanding a company's full climate impact.

Upstream emissions can include those from the production of raw materials, transportation, and business travel. Downstream emissions can include those from the use of sold products and their end-of-life treatment.

Scope 3 emissions often represent the bulk of a company's total green GHG emissions and are thus essential for understanding the full climate-related risks and opportunities associated with an investment.

The GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard classifies Scope 3 emissions into 15 distinct categories, covering both upstream and downstream emissions. These categories are designed to be mutually exclusive to prevent double-counting of emissions.

Increasingly, regulatory frameworks are also encouraging companies to disclose their Scope 3 emissions. Key jurisdictions like the EU, the United States, and California have specific requirements or proposals for Scope 3 reporting.

However, measuring and reporting Scope 3 emissions is a challenging task due to the complexity of value chains, the heterogeneity in regulatory standards, the resource intensity and cost required to process Scope 3 data, and the high degree of variability in calculation methodologies.

Despite these challenges, investors should gradually consider Scope 3 emissions in their investment decisions. Incorporating Scope 3 emissions into investment decisions will ultimately allow investors to rely on a more robust risk assessment and align their portfolios with a transition to a low-carbon economy.

For investors, it is important to note that integrating Scope 3 emissions data has a significant impact on the nature of portfolio decarbonization. For example, integrating Scope 3 data can multiply a portfolio’s carbon intensity by four, on average, according to Amundi and Trucost data. Moreover, the integration of Scope 3 emissions changes the contribution of each sector to the total intensity of the portfolio, highlighting the need for sector-specific strategies to manage and reduce carbon footprints effectively.

In this context, we believe that investment constraints should be disaggregated – Scope 1 and 2 emissions on the one hand, and Scope 3 emissions on the other – to avoid overshadowing previous decarbonization efforts by integrating much larger Scope 3 emissions.

Going forward, we are confident that ongoing updates of voluntary standards and Net Zero Initiatives, coupled with regulatory frameworks will help improve data quality.

Finally, Amundi is actively engaging with companies on their Scope 3 emissions disclosure and reduction targets. This includes encouraging them to set short-, medium-, and long-term targets and to follow standards set by the GHG Protocol.