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The Journey to Net Zero: Reducing scope 3 investment-related emissions

A summary of the key takeaways from a recent webinar on reducing scope 3 investment-related emissions.

Shoosmiths is delighted to be sponsoring United Nation Global Compact Network (UNGC) UK’s series of webinars on ‘Reducing Scope 3 Emissions’.

The webinar featured guest speakers: Stephanie Chang, Head of ESG Integration, Schroders; Tony Burdon, CEO, Make My Money Matter; and Nate Aden, Financial Institutions Lead, Science Based Targets initiative’s (SBTi) & Senior Fellow, World Resources Institute.

  • Category 15 of the Greenhouse Gas Protocol’s Corporate Value Chain Accounting and Reporting Standard addresses Scope 3 emissions associated with a company’s investments in the reporting year.
  • Investments are categorised as a downstream Scope 3 category because providing capital or financing is a service provided by the reporting company.
    • This may include investments in pension funds and retirement accounts.
  • The SBTi supports three methods for financial institutions to set science-based targets, as outlined on pages 8,9, 10 and 11 in the SBTi’s Criteria and Recommendations for Financial Institutions, including:
    • Sectoral Decarbonization Approach (SDA)
    • SBT Portfolio Coverage Approach
    • Temperature Rating Approach
  • The SBTi Finance Net-Zero Standard will be published in Q1 of 2023, which will allow financial institutions to set long-term, net zero targets. A new Foundations Paper on Net-Zero for Financial Institutions tackles key issues for the sector, including defining net-zero, the use of offsets, and fossil fuel phase-out. This work builds on the SBTi’s Corporate Net-Zero Standard.
  • Four steps can be followed when reducing investment-related emissions using a temperature rating approach:
  1. Define scope and collect data from subsidiaries, affiliates and joint ventures to identify asset classes and investments within financial control.
  2. Calculate a financed emissions baseline;Partnership for Carbon Accounting Financials (PCAF) and the open source CDP-WWF temperature rating methodology may be useful. Emissions and temperature ratings can be attributed to each security and then rolled up to a company level.
  3. Set targets; mid- and long-term targets should be set and signed off by senior management.
  4. Accelerate action through investee engagement and climate-orientated solutions and products.
  • There are several challenges when measuring investment-related emissions:
    • Data – consistency, double-counting, and availability of accurate data.
    • Methodology – because it is not available for all asset classes, there may be difficulty in identifying how certain temperature ratings are assigned.
    • Stakeholder engagement – it is important to involve senior management and the Board; fund managers; technology; and risk and compliance for accurate measurement.
    • Objectives – to avoid confusion, there should be defined goals, clear communication, and built-in accountability to achieve targets.
  • There is a strong argument that pension-related investment emissions should be mandatory when reporting Category 15 emissions.
    • It is important to examine pension-related investment emissions as they are often overlooked and may contradict a company’s net zero strategy.
    • Despite there being £2.7 trillion invested in pensions in the UK, only 5% of FTSE 100 companies mention pensions within their sustainability plans.

To register for other events in the ‘Reducing Scope 3 Emissions’ webinar series, please visit our website.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.

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