NZAOA calls for regulatory mandates on Scope 3 disclosure

December 6th, 2024

The Net-Zero Asset Owner Alliance (NZAOA) has called for mandatory regulation to overcome data and disclosure challenges related to Scope 3 emissions.

The UN-convened initiative, which represents 89 investors managing $9.5 trillion in assets, has advocated for regulatory change while also outlining five steps for asset owners to enhance Scope 3 emissions reporting.

The NZAOA urged asset owners to push for improved emissions disclosures from issuers, including independently verified or audited annual Scope 3 emissions estimates, and to shift towards investments in underlying issuers with approved Scope 3 targets.

It also advised asset owners to focus on engaging with issuers or sectors where Scope 3 emissions are most significant or poorly disclosed and to incorporate Scope 3 emissions into sectoral financed emissions reductions targets.

In addition, the group said if asset owners choose to include investees’ Scope 3 emissions in their reduction targets, these should be kept separate from established Scope 1 and 2 targets.

The NZAOA put forward these recommendations in light of evolving regulation regarding Scope 3 emissions is evolving worldwide, such as the EU’s Corporate Sustainability Reporting Directive and emerging regulatory frameworks in Japan and California.

However, it said there is a growing urgency to standardise disclosure for these emissions and urged policymakers to act decisively.

The group’s report also identified many barriers to tackling Scope 3 emissions. In particular, asset owners struggle with limited data quality, inconsistent accounting frameworks and double-counting risks.

These risks make it challenging to integrate these emissions into a company’s portfolio steering and broader climate strategy, according to the group.

Udo Riese, NZAOA's monitoring, reporting and verification track lead, said: “Our paper highlights the need for credible and comparable Scope 3 data, or else we will not see necessary carbon reductions in the real economy.”

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