Underreported environmental data in corporate reports

Scope 3 Emissions 🌎 A recent study by CDP and Boston Consulting Group has unveiled a significant discrepancy in the accounting of corporate emissions. Data reveals that Scope 3 emissions, those associated with supply chains, are 26 times higher than the combined emissions from direct operations (Scopes 1 and 2). The retail sector exhibits an even more pronounced gap, with supply chain emissions reaching 92 times those of operational emissions. This trend isn't isolated—upstream emissions from the manufacturing, retail, and materials sectors alone surpass the total CO2e emitted by the European Union in 2022 by 1.4 times. Despite these figures, Scope 3 emissions are frequently overlooked in corporate strategies. Currently, only 15% of corporations have set targets for reducing emissions from their supply chains, whereas operational emissions receive considerably more attention. Corporations are twice as likely to measure and 2.4 times more likely to establish reduction targets for their direct emissions. To effectively address this imbalance, three main drivers of action have been identified: the presence of a climate-responsible board, active engagement with suppliers, and the implementation of internal carbon pricing mechanisms. Addressing Scope 3 emissions is not just about compliance or reporting—it's crucial for companies to truly understand and mitigate their overall environmental impact. The disparity in emissions reporting and target-setting highlights the need for a more comprehensive approach to corporate environmental responsibility. The findings underscore the importance of including supply chain emissions in corporate sustainability strategies. Companies that take a proactive approach to Scope 3 emissions can achieve more substantial environmental impact reductions, aligning more closely with global efforts to combat climate change. #sustainability #sustainable #business #esg #climatechange #climateaction #netzero #scope3 #emissions

A big status update report from EFRAG on the ESRS! What does it show? Right now only 55% of companies reporting under CSRD say they have a climate transition plan. Fewer than half include Scope 3 emissions. EFRAG’s new State of Play 2025 report gives us the clearest picture yet of how “wave 1” companies are implementing the European Sustainability Reporting Standards (ESRS). Here are five things that stood out in our analysis: 1. Climate plans remain incomplete. 70% of firms commit to 1.5°C targets for Scope 1 & 2 emissions—but just 40% extend that ambition to Scope 3. Only 55% disclose a transition plan at all, and most omit key elements such as funding or levers. 2. Materiality is concentrated. Just three topical standards: Climate Change (E1), Own Workforce (S1), and Business Conduct (G1) are considered material by over 90% of companies. Fewer than 10% identified all 10 topical standards as material. 3. Internal carbon pricing remains rare. Only 20% of companies report using an internal carbon price. Uptake is highest in carbon-intensive sectors like mining and electricity, and lowest in services and finance. 4. Biodiversity remains under-reported. Fewer than 30% of preparers include biodiversity metrics. Even when they do, disclosures average just four metrics, often lacking clear connections to targets or outcomes. 5. Stakeholder engagement remains narrow. While 97% engage employees in their double materiality assessment, fewer than one-third consult communities or civil society. Broader societal voices are still marginal in many DMA processes. There’s a lot more detail in the full EFRAG report including examples of good practice and insights into sectoral differences. The full report is below. Are you seeing similar trends in the reports you've been working on or reviewing? Share your views below! #climate #esrs #csrd #climatereporting #sustainabilityreporting #esg #eu #euomnibus #efrag

How do we price "unpriced" damage to the environment caused by large companies — things like climate pollution, water pollution, and habitat destruction? A new report may help. The world’s largest corporations depend on ecosystem services (a.k.a. "natural capital") for their operations yet each year cause trillions in environmental costs not accounted for on profit-and-loss statements or annual reports. These unpriced environmental costs — known as "externalities" — go unrecorded by the firms that generate them but impose real costs, financial and otherwise, on society, business and nature. Failing to to price these costs hides them from policymakers, investors and consumers. A new report from S&P Global Sustainable1 and Capitals Coalition found that companies in the S&P Global Broad Market Index—which includes 14,000+ stocks from 25 developed and 24 emerging markets—were responsible for $3.71 trillion in unpriced environmental costs across their direct operations in 2021, equal to >4% of global GDP that year. That doesn't include damage from firms by suppliers—likely much larger, since most environmental damage takes place in supply chains. 5 takeaways: — Greenhouse gases & air pollution are the largest contributors to unpriced natural capital costs, accounting for 90% of the total. — Eastern Asia, Southern Asia, and Southeastern Asia collectively represent 2/3 of the total environmental damage costs globally. — The six largest sector groups by environmental damage costs are fossil fuel electric power generation, manufacturing of primary materials/products, mining and quarrying, transportation, crop cultivation, and livestock production. — Land use has a significant environmental impact, particularly for crop cultivation and livestock production. — Companies face growing regulatory and investor pressure to measure, report, and mitigate their environmental impacts. Disclosure could change this, such as ISSB's and the EC's sustainability reporting standards. But it's unclear how much externalities show up in these frameworks. Governments are considering mechanisms like carbon pricing and carbon border adjustment mechanisms to internalize these costs, but they could be more like offsets, which don't actually solve the problem they're designed to address. The emerging frameworks to report nature-related risks and biodiversity loss is increasing, but don't necessarily address all these externalities. The report concludes: "Businesses must prioritize environmental responsibility and transform it from a voluntary best practice to an essential component of risk management. Investors need to assess the environmental risks associated with specific business activities and regions. Policymakers must accelerate the transition away from fossil fuels and prioritize tackling the most severe environmental challenges." https://lnkd.in/gUGxzEne

How can small businesses keep up with the rising demand for emissions transparency? Imagine: You're a business owner trying to secure a loan. The bank asks you to provide a greenhouse gas emissions report, but you’ve never tracked emissions before, let alone calculated them. Sound familiar? For many small and mid-sized businesses, this scenario is becoming increasingly common, yet deeply challenging. The reality is, that calculating greenhouse gas emissions isn’t just about running numbers it’s an investment of time, money, and expertise that many smaller businesses simply don’t have. While large corporations often have dedicated teams or consultants to handle ESG reporting, small businesses are left scrambling. According to a 2023 study by the SME Climate Hub, over 70% of small businesses globally struggle with the cost of implementing sustainability measures, including emissions tracking. This lack of resources creates a gap in their ability to meet growing expectations for transparency, particularly from banks and investors. The root of the issue? For many businesses, emissions reporting isn’t mandatory. Governments and regulators are still debating whether to require it universally. Until that happens, banks are left navigating an incomplete picture of their portfolio’s environmental impact, and businesses especially those in the middle market face increasing pressure without clear or affordable solutions. This isn’t just a regulatory problem; it’s a systemic challenge that affects everyone. Without accurate data, we risk underestimating the true scale of emissions. On the flip side, If gathering this data remains too expensive, smaller businesses may be unfairly excluded from opportunities to grow. So, how do we bridge this gap? Solutions might lie in collaboration. Imagine if banks partnered with affordable third-party providers to offer emissions tracking as a service or if governments introduced subsidies to offset the cost. These steps could help small businesses take meaningful action without breaking the bank. What do you think? Could collaboration between regulators, lenders, and businesses be the key to addressing this challenge?

Scope 3 Climate reporting is one of the big debates of 2024 and we need a grown-up discussion about how to address the problems with the data. Our research team has just published some very helpful insights. Key points below:   - It represents the majority of emissions: On average, Scope 3 emissions account for over 80% of overall carbon footprint of companies. - But… reporting is poor quality: In the FTSE All World (ie large/mid caps representing approx. largest 4000 listed companies globally) 45% disclose Scope 3 data, but less than half of them cover the most material categories for their sector. - And reported data is volatile, with over a third of disclosed values varying at least 50% YoY and half varying at least 20%. Changes to reported Scope 3 categories is major source of variation, with almost half of reporting companies in the FTSE All-World Index either adjusting categories (37%) or disclosing for the first time (12%). - Estimated data varies dramatically depending on what models and methodologies you apply. Ultimately, the quality of estimated data is inherently constrained by the quantity and quality of the available reported data. Compared to Scope 1 and 2 estimates, Scope 3 estimation models must work with a third less input data – which, on average, is also almost twice as variable and more than twice as volatile. - There is potentially too much discretion on how to report: Existing standards provide broad discretion on which emissions to include, how to categorise them, and what data and methods to use to measure them – creating a much higher reporting burden for Scope 3 emissions for companies, but also contributing to poor data quality and comparability for investors. - Focusing on top 2 or 3 categories could be the way forward: the two most material Scope 3 categories in each sector and on average cover 81% of total Scope 3 emissions, providing a useful rule of thumb to determine the most material categories for investors and companies. We provide recommendations on Scope 3 for each. Cutting across them, we emphasise the need to systematically focus on the most material Scope 3 categories in each sector to reduce reporting burdens and improve quality and comparability of Scope 3 data.   Read full paper here: https://lnkd.in/erUxsH8d Well done to Félix Fouret Ruben Haalebos Malgorzata Olesiewicz Jack Simmons Mallika Jain Jaakko Kooroshy. Jane Goodland Cornelia Andersson Aled Jones Solange Le Jeune Tony Campos Carolyn Roose Eagle Arne Staal Fiona Bassett Claire Dorrian David Russell Carmen Nuzzo Stephanie Pfeifer OBE Adam Matthews Rory Sullivan Nathan Fabian Tamsin Ballard Sagarika Chatterjee Michael Jantzi Will Oulton Jessica Fries Ella Sexton Ben Caldecott James Close Patrick Arber Faith Ward Andreas Hoepner

"Scope 3 Emissions: Unveiling Their Role in Sustainability" Awareness of Scope 3 emissions' importance in the #climateaction landscape has surged over the past year. These #emissions, associated with a company but not from its direct operations or #energy consumption, hold the key to achieving #netzero goals. Take electric vehicles (#EVs) as an example: While their manufacturing emissions can surpass those of traditional cars, the real difference comes in their usage. EVs emit nothing, especially when powered by a low-carbon grid. Tesla, for instance, avoided 8.4 million tCO2e in 2021 by embracing this approach. However, Scope 3 isn't just about EVs; it impacts all sectors. When we focus solely on Scope 1 and 2 emissions, we overlook a significant portion of a company's #greenhousegases footprint. #scope3 is often the major contributor, making its inclusion crucial. Reporting Scope 3 emissions is challenging due to the diverse range of activities it covers, limited visibility into suppliers' emissions, and the lack of standardization. Despite these hurdles, stakeholders increasingly demand transparency. Financial organizations, for instance, often report easier categories instead of the most material ones. This underreporting affects how we gauge a company's #environmental impact. To address #climatechange effectively, we must prioritize Scope 3 emissions and report what truly matters in each sector. In summary, Scope 3 emissions represent a pivotal factor in our #sustainability journey. Let's prioritize #transparency, #accountability, and #materiality as we work together toward a greener future.

When climate commitments vanish into thin air... A new study from researchers at NYU, UC Berkeley, and Harvard Business School reveals a startling truth: 40% of companies either missed or stopped reporting their 2020 emissions targets. Yet almost no one was held accountable. Are corporate climate pledges little more than PR? The study found that out of 1,041 firms setting 2020 emissions targets: - 9% (88 companies) openly missed their goals - 31% (320 companies) stopped reporting without explanation Despite these failures, almost nobody was held accountable—only three faced media scrutiny, and there was no notable market or ESG rating fallout. Yet announcing targets alone often brought positive publicity and improved ESG scores. Unlike financial goals, emission targets often lack oversight or penalties. The researchers also found that firms in common-law countries with stronger media scrutiny performed better, while high-emitting sectors like energy and materials had the highest rates of “disappeared” targets. With more organisations backing away from climate commitments, it is crucial for corporate leaders to provide measurable, transparent progress. Regulators and stakeholders need to demand genuine accountability to ensure real action. ♻️ Repost and follow Gus Bartholomew (Leafr 🌿) for more. 🖐️ Wish your company had instant access to top sustainability experts to tackle your goals? Try Leafr

Do firms understate their reported emissions? --- According to a new MIT study: yes. "Companies that set SBTi targets, but didn’t obtain assurance on their climate reports, performed no better on emissions reduction than non-SBTi signatories." In other words, SBTi targets only unfold effects when assurance is coupled to them. Firms that obtained assurance reported 13.7% higher absolute emissions compared to firms who did not get their climate data assured. This suggests assurance is important for companies to gain a comprehensive overview of their emissions. Without assurance firms seem to understate their emission numbers. This shows how important it is to externally verify corporate emissions data (and I would hypothesize: most other ESG data). The CSRD's assurance requirement, even with just limited assurance, is therefore an important step in the right direction... #climatechange, #sciencebasedtargets