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Investment Institute
Environmental

Understanding scope 3: How responsible investors can wrestle with the unruliest of emissions

  • 23 February 2023 (10 min read)

Key points

  • A company’s greenhouse gas (GHG) emissions are often referred to as either scope 1, scope 2 or scope 3. The first of these refers to direct emissions from a company’s activity and the second to emissions related to operational electricity use
  • A company’s scope 3 emissions are those found along its value chain, both upstream (before) and downstream (after) its own operations
  • The availability, quality and reliability of scope 3 data are a concern, but a diminishing one, and regulation will help
  • In aggregate, scope 3 emissions account for 79% of total emissions. Two-thirds of scope 3 (hence half of total emissions) come from the use of products. This means reducing scope 3 will mostly be achieved by changing products or by changing demand dynamics
  • In some sectors more reliant on fossil fuels, a truly net zero scope 3 would mean entirely phasing out current products or fully reengineering them
  • AXA IM is committed to net zero and wants investee companies to include scope 3 in their climate reporting. However, we think it is understandable if this is not fully realised at this point, given the challenges of adapting complex value chains, including elements outside of a company’s control
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