Where is the UK at in its efforts to reduce emissions, and what more needs to be done to stop our island nation from falling behind on the international scene? Lizzy Almond and Caroline Bartlett of Emitwise, a firm which provides a platform for carbon management, offer a few thoughts.
Scope 3: What does it mean and why does it matter?
Historically, the UK has been a driving force in the battle against climate change. In 2019, the UK was one of the earlier countries to implement mandatory greenhouse gas (GHG) reporting through the Streamlined Energy and Carbon Reporting (SECR) regulation. It was also the first major economy to legally set a 2050 net zero goal.
But other nations have moved ahead, in part through introducing tighter regulations to speed up the vital action needed from businesses.
It is currently mandatory for all large businesses to report on their scope 1 and 2 emissions, which refers to direct emissions from a business. However, reporting on scope 3 emissions – which come from a company’s value chain, outside of direct control – is not yet mandatory in the UK, despite accounting for more than 70 per cent of businesses’ carbon footprints.
The EU is introducing legislation to try to change this, with plans to adopt the Corporate Sustainability Reporting Directive (CSRD) by the end of 2022. Previous legislation has addressed carbon accounting – such as the Sustainable Finance Disclosure Regulation (SFDR) in 2021 – but this only applied to financial institutions. The incoming CSRD is set to apply to all companies and therefore offers a more robust approach.
If the UK does not follow suit, it will undoubtedly fall behind Europe on the matter of carbon management.
What needs to happen?
It is not just us banging the drum for better reporting. In fact, in April this year, the UK did update its legislation to mandate Task Force on Climate-Related Financial Disclosures (TCFD) reporting.
While this sounds good in principle, it still does not legislate for scope 3. It only impacts 1,300 organisations, and recent statistics show just 4 percent of companies disclosed in line with all 11 TCFD recommendations.
It is clear that full scope GHG reporting must become mandatory, but further measures are needed to ensure carbon accounting is conducted accurately and honestly. To help achieve this, auditing should also be made compulsory to prevent companies from implementing ‘creative carbon accounting’, a phrase famously used by Greta Thunberg to critique supposed government action following the Paris agreement. Auditing is a major factor with the upcoming CSRD in the EU and Securities and Exchange Commission (SEC) legislation in the US, but the UK must follow suit.
The UK needs streamlined carbon accounting standards that account for scope 3 emissions. Until the government mandates this, it is up to companies to do the right things; not only to get ahead of the game in carbon management, but also to bolster their financial standing.
From ‘resource draining’ to ‘resource gaining’
Carbon management has previously been considered a resource drain for businesses – but this has changed. Now, it must be considered a long-term investment into an organisation’s future.
The reality is that sustainability and profitability are not mutually exclusive. Research shows that sustainable businesses are often more profitable, with one study finding that 64 percent of organisations that chose sustainable options increase their revenues.
Aside from financial sanctions, climate laggards will also risk facing reputational damage.
A final word
Carbon management that works means accounting for business emissions at every touch point. Only this will properly drive the UK forward in its climate ambitions. This is the next level – and one that is very much needed.
In 2018, over 400 companies had joined the Science Based Targets initiative (SBTi), committing to reduce their greenhouse gas emissions in line with climate science. Now, it is promising to see the number has risen to over 3,000 businesses. While significant progress is in motion, we must maintain momentum and recognise what the implications of inaction will be. And for businesses, understanding, reporting, and tracking scope 3 emissions is a vital piece of the puzzle.
For more information about carbon management, visit https://emitwise.com/