Companies with Boards Committed to Climate Change Are 4.8 Times More Likely to Meet Scope 3 Targets for a 1.5°C Transition: CDP Report

• Businesses that enforce an internal carbon pricing in all business decisions are 4.1 times more likely to have a transition strategy that aligns with the 1.5°C objective and the Scope 3 target (upstream).
• Businesses with climate-responsible boards are 4.8 times more likely to have transition plans that match with the 1.5°C objective and the Scope 3 target (upstream).
• Businesses that interact with suppliers are 6.6 times more likely to have a transition strategy that is 1.5°C in line with the Scope 3 objective (upstream).

Despite being frequently disregarded, supply chain scope 3 emissions are substantially larger than operational emissions. Only a small percentage of corporates establish objectives for these emissions, notwithstanding their size. It is the duty of corporations and investors to close this disparity. Immediate steps include internal carbon pricing, including suppliers, and improving board climate competency. 

Examining the Neglected in Scope 3 Emissions

Supply chain emissions are 26 times higher than operational emissions. Yet, corporates focus more on operational emissions, with only 15% setting upstream Scope 3 targets.

The Role of Boards and Management

Climate-Responsible Board:Companies are 4.8 times more likely to establish Scope 3 objectives if their boards have climate responsibility. Still, barely a third of businesses have these kinds of boards. In order to motivate action, boards must incorporate climate expertise.

Supplier Engagement:Businesses that interact with suppliers are 6.6 times more likely to have a transition strategy that is 1.5°C aligned. Only 4 out of 10 vendors are contacted about climate problems, though.

Internal Carbon Pricing (ICP):The likelihood of corporates with ICP aligning with 1.5°C aims is 4.1 times higher. ICP adoption rates are just 14%, which highlights the need for wider use.

Investors’ Responsibility

Pricing Climate Risk: Just 20% of corporates assess the financial risk associated with emissions upstream. Investors ought to insist that these risks be priced in and transparent. Less than 10% demand disclosures from investees under Scope 3.

Climate-Adjusted CAPM: The Capital Asset Pricing Model (CAPM) may be improved and corporate transparency can be promoted by including climate risk.

Immediate Actions

Boards: Declare members to be climate-competent and require the quantification of Scope 3 risks.

Management: Involve suppliers and establish goals for Scope 3.

Investors: Demand emissions transparency and integrate climate risks into valuations.

The path to reducing Scope 3 emissions is challenging but necessary. Corporates and investors must collaborate, enhance transparency, and adopt proactive measures to mitigate climate risks effectively.

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