A recent study from Griffith University suggests that most companies are not providing a complete picture of their carbon footprint, even if they claim to be environmentally friendly. Many companies are falling short in reporting on key categories known as Scope 3.

While reporting carbon dioxide (CO2) emissions is currently not mandatory for most companies, there’s increasing pressure from various stakeholders—investors, regulators, politicians, non-profit organizations—to disclose and minimize their greenhouse gas emissions.

Carbon reporting

The standard for tracking greenhouse gas emissions, the Greenhouse Gas Protocol, is globally recognized and involves three levels of reporting:

1. The first level measures the emissions directly generated by a company during its activities, like those from a corporate fleet.
2. The second level gauges emissions linked to the energy the company buys from external suppliers, such as those produced by electricity providers.
3. The third level (Scope 3) assesses indirect emissions not covered in the first two categories. This includes upstream and downstream emissions throughout a company’s entire value chain. For instance, it accounts for emissions generated by customers using a company’s product (downstream) and emissions produced in the manufacturing of a company’s equipment (upstream).

Even though companies might boast about being environmentally conscious, the study indicates that many are neglecting the comprehensive reporting of their carbon footprint, especially in the crucial Scope 3 areas. The study emphasizes that accurate reporting is essential for a transparent understanding of a company’s environmental impact and is crucial for meeting the growing demand for sustainability information.

Underpinning greenwashing

“Scope 3 emissions account for the highest proportion of total emissions, and it’s the least likely scope to be reported on,” the researchers explain.

“Companies have a great incentive to better their scope one and two emissions because direct energy efficiency leads to financial savings. An oil and gas firm may pump oil out of the ground, and in doing so, may use vehicles and electricity, but what really counts in terms of the impact of an oil and gas firm, is how the end users are emitting GHG as a result of purchasing the firm’s product.

“For the oil and gas firm, the Scope 3 emissions are emitted by people who purchase the oil and use it in their cars to drive around or take a flight. If an oil and gas firm only report on Scope One and Two, we are missing most of the story. If a bank gives a huge loan to a coal or a gas project, their Scope 3 emissions would be very high. Some jurisdictions are moving towards mandatory disclosures, driven by the Task Force on Climate-Related Financial Disclosures (TCFD), and pressure to make Scope 3 mandatory is increasing.”