In previous research (see Disclosure Delight), we highlighted positive progress on greenhouse gas emissions reporting by companies in our 2021 Emissions Dataset. This improvement included increases in overall Scope 3 emissions disclosure rates. Indeed, we found that 44% of all companies we track in the ICE 2021 Emissions Dataset reported at least one category of Scope 3 emissions. The average number of Scope 3 categories reported by companies in the 2021 Emissions Dataset was 10 (out of the 15 categories).

However, when it comes to Scope 3 emissions, understanding the details of the disclosure across the different categories is important. Just because a company has published some level of Scope 3 emissions does not necessarily mean that investors have the full and complete picture.

Materiality Matters

In an attempt to gain a better understanding of the categories of Scope 3 emissions being reported, we extended our analysis of Scope 3 disclosures to determine if this improvement in disclosures translated into an increase in companies disclosing the most material emissions for their applicable sector. Our analysis of Scope 3 emissions disclosures for the past 10 years found that, in every sector, a single Scope 3 category, or just a couple of Scope 3 categories, was responsible for the overwhelming majority of Scope 3 emissions reported by companies. Through our analysis we have been able to identify the “most material” category for each sector, which represent the most emission intense categories that contribute 80% or more to that sector’s total Scope 3 emissions. ICE conducted more detailed analysis of Scope 3 disclosures by companies in the 2021 Emissions Dataset to identify not just the number of categories being reported, but also examine if emissions in the most material categories for any given sector are also being disclosed by companies.

In previous research we have discussed the importance of Scope 3 emissions, which encapsulate a company’s entire supply and value chains and represent on average 85% of a company’s total emissions, and in some cases significantly more. While we have noted an overall improvement in Scope 3 emissions reporting in terms of the number of companies reporting some level of Scope 3 emissions and the number of categories being reported, we felt it was also important to examine if companies have provided the details for the most material category for their particular sector.

Sector Sensitive

Which Scope 3 category is most material for a company is highly dependent on its particular areas of operations. Therefore, the Scope 3 categories that are determined to be most material are highly industry and sector sensitive. For example, the Scope 3 emissions of the Extractives and Minerals Processing sector are highly concentrated within category 11, Use of Sold Product. This contrasts with the Financial sector, where the vast majority of Scope 3 emissions reside in category 15, the investments category.

ICE conducts detailed Scope 3 materiality analysis of emissions disclosures by companies on a regular basis to identify the extent to which Scope 3 emissions are concentrated within individual categories for each sector to help identify the most material Scope 3 category for each sector. Additionally, we conduct analysis to assess the level of reporting and disclosure of emissions in the most material category by sector and individual companies.

While we have noted great progress in overall emissions disclosure, sadly only 13% of companies in ICE’s 2021 Emissions Dataset reported disclosures for the most material category identified for their particular sector. When we carry out this analysis for those companies that have reported at least one category of Scope 3, we found that the average rate for companies disclosing their most material category of Scope 3 emissions was still only 28% across all sectors.

Mixed Reporting

Again, there are significant and interesting sector variations when it comes to reporting of the most material Scope 3 categories. While the Resource Transformation, Renewables and Financial sectors stand out as having the highest percentage of companies reporting at least one category of Scope 3 emissions disclosure, two of these sectors also rank among the bottom three when it comes to reporting the most material Scope 3 category for their sector. The two sectors in question are Renewable Resources and the Financials sectors.

According to our analysis, only 4% of the companies within the Renewable Resources sector which reported at least one category of Scope 3 emissions disclosed emissions for the most material Scope 3 category for the sector. For the Financials sector, the most material Scope 3 category (category 15, Investments) disclosure rate stood at just 3.5%.

For the Renewable Resources sector this may not be too much of an issue as Scope 3 emissions disclosures are relatively more evenly distributed across the 15 categories compared to most sectors.

Financials Concentration

For companies in the Financial sector, this low level of reporting of the most material Scope 3 category for their sector can be important. The Financial sector has the greatest concentration of Scope 3 emissions disclosure in a single category, namely category 15, Investments. Our analysis of historical emissions disclosure data has revealed that over 90% of a financial company’s Scope 3 emissions disclosure can emanate from its investments, making category 15 disclosure extremely important. While we are seeing some improvement in this area of reporting, the Financial sector is still lagging many other sectors when it comes to disclosure by companies of their most material Scope 3 emissions.

At the positive end of the scale, the Food and Beverage sector stands out with 70% of the companies we analysed that report at least one category of Scope 3 emissions also disclosing the most material Scope 3 category for the sector. However, it must be pointed out that the category in question is one of the more widely reported categories across all sectors. Following the Food and Beverage sector is the Technology and Communications sector with a 40% most material category Scope 3 disclosure rate by companies in the sector.

Extractives: Better Than Average

The Extractives and Minerals Processing sector, which is often the focus of our analysis given the sector’s high emissions profile, actually comes out relatively better as far as Scope 3 disclosures are concerned and indeed emissions reporting overall. Within this sector, 78% of the companies we analysed provided at least some level of emissions disclosure. When it comes to Scope 3 reporting, the Extractives and Minerals Processing sector is also above average (just) with 46% of companies reporting at least one category of Scope 3 emissions. For the most material category of Scope 3 for the sector (category 11, Use of Sold Product), again the Extractives and Mineral Processing sector is in the top 3 with 37% of companies in the sector providing data for this category. We would, however, note that the higher levels of regulation within the Extractives and Mineral Processing sector may well be a contributing factor to these relatively higher emissions disclosure rates.

Conclusion

Overall, while emissions reporting is improving, even for Scope 3 emissions, we continue to emphasise the importance of careful and detailed analysis of the disclosures by individual companies to gain a better understanding of a company’s carbon footprint and alignment to various climate scenarios. Even the omission of a single category of Scope 3 emissions can result in a company significantly underreporting their total climate impact.