NZAOA calls for regulatory mandates on Scope 3 disclosure

Written by Adam Cadle

02/01/2024

The UN-convened Net-Zero Asset Owner Alliance (NZAOA) has released a new paper emphasising the critical role of top-down regulatory mandates in overcoming data and disclosure challenges related to Scope 3 emissions.

As regulations on these emissions evolve worldwide, with the Corporate Sustainability Reporting Directive (CSRD) in the European Union and emerging regulatory frameworks in Japan and California, the NZAOA’s new paper highlights the growing urgency for standardising disclosure and the need for policymakers to act decisively.

The report finds barriers to tackling these emissions—which account for three-quarters of most companies’ total emissions—persist. For asset owners, the barriers include 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 paper sets out actionable advice for asset owners, enabling them to make meaningful progress, while driving public discourse and pushing for regulatory change. For efficient action, the NZAOA recommends corporates to focus in the first instance 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.

Based on in-depth sectoral analysis, the five steps for asset owners that can be adopted immediately, according to the NZAOA, include:

- Disclosure ambition: Asset owners can seek improved emissions disclosures from issuers, including independently verified or audited annual Scope 3 emissions estimates.

- Relying on corporates with Scope 3 targets: Asset owners may over time and on an individual basis start to shift towards investments in underlying issuers with approved Scope 3 targets.

- Engagement objectives: Asset owners can focus on engaging with issuers or sectors where Scope 3 emissions are deemed most significant or where disclosure is lacking.

- Sector targets: Asset owners may include Scope 3 emissions in sectoral financed emissions reduction targets, as already outlined in the Alliance’s Target-Setting Protocol (2024).

- All-encompassing reductions: In case asset owners choose to include investees’ Scope 3 emissions in their reduction targets, these may be kept separate from established Scope 1 and 2 targets.

Udo Riese, global head of sustainable investing at Allianz Investment Management, and NZAOA monitoring, reporting, and verification track lead commented: “Our paper highlights the need for credible and comparable Scope 3 data, or else we will not see necessary carbon reductions in the real economy. 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.”

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