Data gaps cloud Pacific state funds Scope 3 reporting mandates
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Investors are finding themselves stuck between the legal obligations of emissions reporting, and the difficulty of acquiring accurate data.
It is now mandatory for many major corporations and large investing institutions to report on emissions. In Australia, for example, the federal government is mandating super funds to begin emissions reporting in the financial year 2026-27.
“We are probably one of the only jurisdictions that includes super funds for reporting under the ISSB Disclosure Standards,” Jodie Barns, ESG manager at UniSuper, told AsianInvestor.
UniSuper reports investment performance annually for the overall portfolio and each of the member investment options. Barns said it is the only super fund that reports for each scheme member fund option.
Until recently, companies and investors have focused their attention on emissions from their own operations that fall within the greenhouse gas (GHG) protocol’s Scope 1 and Scope 2 framework.
However, they now need to also account for GHG emissions along their supply chains and product portfolios, which is covered by Scope 3 of the protocol.
TRICKY NUMBERS
“Scope 3 can be difficult to measure. It is best if a company does a materiality assessment and tries to measure what is most important,” said New Zealand Super’s head of sustainable investment, Anne-Maree O’Connor.
This is where the problem lies for investors, and the reason for much of the scepticism toward emissions reporting. Critics say that whereas Scope 1 and 2 data are sufficiently robust to enable accurate emissions mapping, that is not the case for Scope 3.
“It's really a challenging exercise to clearly and robustly map Scope 3. How far up the value chain can operations realistically go?" Edward Foo, Singapore-based managing director of alternative investment manager Pacific Harbor Group, told AsianInvestor.
“For Scope 3, there are huge uncertainties and we estimate that companies are under-reporting by about 50 percent,” said Ben McNeil, Sydney-based co-founder of technology firm Emmi Solutions.
“At this point, we don’t have Scope 3 data in the footprinting,” said UniSuper's Barns.
“We’ve had a look at it, and we can measure our companies’ Scope 3 emissions, but I wouldn’t necessarily amalgamate them, because you do get double counting challenges and proportionality, like how much of it sits within each company.”
ESSENTIAL REPORTING
Despite the limitations, Emmi's McNeil says Scope 3 reporting is essential and investors would be mistaken for ignoring it.
“If you are talking about Exxon Mobil, as just one example, and as an investor you say we don’t care about Scope 3, well that’s 1.4 billion tonnes of carbon that you should care about. You can’t avoid it, because if the market’s moving away from high carbon, just avoiding it is not going to help an investor.
“From a risk perspective, it’s crazy not to. For investors, even though there’s this big uncertainty, at least analysing that data allows them to know what type of risk they are potentially exposed to," said McNeil.
NZ Super's O’Connor also believed that Scope 3 reporting is important, for two reasons.
“Firstly, the category of emissions can represent a company or a sector’s most material impact on climate change. Relevant sectors include automakers, oil and gas companies, and finance,” she said.
“Secondly, companies across the board making an effort to reduce Scope 3 emissions – for example in business travel or supply chain — can drive large-scale change across business and society.”
EXTERNAL ASSISTANCE
UniSuper has enlisted S&P Trucost to provide more granularity on emissions data.
Steven Bullock, global head of research and methodology at S&P Global Sustainable, makes the point that the quality of reporting can only be as good as the data allows.
“One of the common challenges data providers face is inconsistencies in the availability of data. AI tools can help increase the granularity of available data as well as enhance the predictive analysis of the climate scenarios used to assess future climate risks,” Bullock told AsianInvestor.