Regulators should mandate corporate reporting of Scope 3 greenhouse gas emissions to improve data credibility and comparability, according to a new paper from the UN-convened Net Zero Asset Owner Alliance (NZAOA). The initiative, which represents 89 institutional investors with US$9.5 trillion in assets under management, said regulators should also provide more guidance on material Scope 3 categories for each industrial sector, as well as standardised estimation models and verification of data to increase coverage, credibility and comparability. The alliance said it was supportive of increased emissions disclosure regulation, citing the EU’s Corporate Sustainability Reporting Directive, and new frameworks in Japan and California, but said there was “growing urgency” for standardising disclosure. According to a recent progress report, NZAOA members are now reporting average reductions in absolute financed emissions of at least 6% annually. But the alliance said asset owners still faced barriers in reducing Scope 3 emissions including limited data quality, inconsistent accounting frameworks, and double-counting risks, which make it challenging to integrate these emissions into portfolio steering and overall climate strategy. The report said corporates should initially focus on their two most significant categories, which would allow them to cover on average 81% of the overall Scope 3 emissions intensity in each sector. It said asset owners could seek improved emissions disclosures from issuers, including independently verified or audited annual Scope 3 emissions estimates. They could also start to shift towards investments in underlying issuers with approved Scope 3 targets, over time and on an individual basis. “While we are sending a clear signal to the market that regulatory mandates are needed for systemic progress, asset owners recognise the importance of taking responsibility and demonstrating leadership through actionable strategies now,” said Udo Riese, Global Head of Sustainable Investing at Allianz Investment Management.
