Did the Securities and Exchange Commission neuter its new corporate climate reporting requirements? Or did it take a pragmatic approach? The answer depends on who you ask. For those looking for an aggressive stance on climate, the result was far from ideal.
The big takeaway was that Scope 3 was omitted. Here’s a Cliff Notes explanation of the various Scopes.
Scope 1: Includes emissions from fuels burned in owned/controlled assets – i.e. buildings, vehicles, and equipment. Scope 1 is straight forward and fairly easy to track.
Scope 2: Here’s where it gets tricky. Scope 2 includes indirect emissions from purchased electricity, steam, heat, and cooling in buildings and production processes. This is basically bought energy.
Scope 3: This is where tricky goes to another level. It includes all other indirect emissions associated with a company’s upstream and downstream operations.
Say what?
Examples include travel, employee commuting, purchased goods and services, investments, and emissions from the use of a product or service sold.
The dilemma is that in most cases, Scope 3 may be the biggest component of a company’s carbon footprint. It’s also a pain in the neck to monitor and report.
But there are broader questions.
Should a company be held accountable for indirect emissions? Aren’t some items in Scope 3 an individual responsibility?
Let’s use employee commuting as an example. I can choose to drive, carpool, or perhaps take public transportation, but that’s my choice. Why should a corporation be responsible for that decision?
Business travel is another gray area. Shouldn’t those emissions be the responsibility of the company providing the transportation? And isn’t counting them by the user double counting?
Unless everyone works remotely and we never travel to conduct business, emissions are going to be generated. Shouldn’t the focus be on reducing the source of those emissions?
The European Union and California have passed rules that include Scope 3. There are also clever companies offering software to automate the tracking and reporting of Scope 3 emissions. But from an investment standpoint doesn’t common sense come into play?
Don’t invest in oil and gas companies or other companies whose products are major contributors to global emissions. And maybe don’t invest in a cruise line if they don’t have a solid plan to transition to clean fuels.
But should a retail investor darling like Apple (just an example) be “punished” because their employees commute or because their product is sold by a phone company with that emits too much carbon?
I’m not sure who made the right decision. However, given California and the EU have chosen to include Scope 3, we’ll have an opportunity to determine whether incorporating it will do more good than harm.
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