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.