Climate Impacts of Value chains: Tackling Scope 3 GHG Emissions

What is the issue?

Global attention on climate change has never been greater. In 2021, in anticipation of COP 26 in Glasgow, governments and businesses across the globe reaffirmed their commitment to achieving the Paris Agreement target to limit global warming to 1.5 degrees Celsius by mid-century. To achieve this, widely accepted science suggests that global greenhouse gas (GHG) emissions must achieve net zero by 2050. This must include an organization’s Scope 1, 2 and 3 GHG emissions.

Increasingly, organizations must measure, monitor, manage and report on their Scope 3 GHG emissions, which are the GHG emissions from their upstream and downstream value chain activities. In October 2022, the International Sustainability Standards Board (ISSB) announced its landmark decision to make Scope 3 reporting mandatory. North American regulators including the Canadian Securities Administrators (CSA) and the Securities Exchange Commission (SEC) have also tabled proposed mandatory climate-related disclosure rules that consider Scope 3 emissions reporting.

Why is the issue important?

Increased attention on companies’ Scope 3 GHG emissions by global capital markets (e.g., investors, insurers, lenders, ratings agencies and regulators) and broader company stakeholders (e.g., employees, customers and communities), will require organizations to measure, monitor, manage and report on their Scope 3 GHG emissions to investors and other stakeholders. Organizations can no longer commit to net zero targets that only include Scope 1 and 2 GHG emissions. Increasingly, an organization’s ability to reduce its Scope 3 GHG emissions is an essential component to a credible climate change strategy, particularly if an organization has set a target of net zero by 2050. 

What can be done?

Organizations need to develop baseline inventories and accounting systems to measure and monitor their Scope 3 GHG emissions. Once a baseline is established, organizations can evaluate actions to reduce their Scope 3 GHG emissions, such as engaging with suppliers to reduce their carbon emissions or supporting customers’ end use of products to reduce their downstream emissions. Organizations must be prepared to transparently report on their progress toward reducing Scope 3 GHG emissions in support of net zero ambitions. This is a journey of progress, not perfection, as methodologies for accounting for Scope 3 GHG emissions are still under development globally. 

Who is this guideline for and how can it be applied?

This guideline is intended for CPAs working in industry (e.g., operational, management accounting and reporting roles), CPAs and business professionals in leadership roles, and Boards of Directors. This guideline provides practical industry guidance for CPAs to establish measurement systems for Scope 3 GHG emissions and a framework to develop an implementation plan to achieve reductions across their value chain activities. CPAs will learn how to utilize their skills and competencies to identify, plan, implement, assess performance and respond to stakeholder expectations on Scope 3.