This was published 4 years ago
Opinion
The dirty secret of the world's biggest companies
By Chris Bryant
Lots of companies talk a good game about cutting planet-heating greenhouse emissions but their disclosures and targets have tended to focus on the emissions over which they have direct control and which are easiest to measure. That's fine in an industry such as cement, where the bulk of carbon pollution occurs during the production process. From an environmental perspective these direct, or "Scope 1," emissions are the main problem caused by these particular companies.
But the approach falls down in companies working in oil, mining, carmaking, finance, and even fashion, because oftentimes most of their carbon footprint is contained in the products they sell or help finance - not their own operations.
When it comes to emissions, companies need to be transparent on what they are producing, not just their operations. Credit: AP
An oil giant can boast all it likes about how it's reduced gas flaring; if car drivers are still filling up with its gasoline, the planet will keep getting hotter. The same goes for an iron ore producer that touts how its mining trucks are incredibly fuel efficient but whose main product is the basis for steel production. Luxury goods suppliers may run the greenest workshops imaginable, but use fabrics and materials that are deeply damaging to the planet.
In the past, so-called "Scope 3" emissions - the pollution contained in products sold to customers or in goods and services purchased from suppliers - either weren't calculated or were seen as someone else's problem. Thanks to pressure from institutional investors and activists, plus leadership from a few enlightened chief executives, corporate attitudes about this subject are evolving fast. "Scope 3 is the elephant in the room," Mark van Baal of investor advocacy group Follow This told the Norwegian oil major Equinor ASA's annual meeting last year.
The new impetus is welcome because unless companies try to reduce the environmental damage of their products and purchasing decisions, efforts to limit catastrophic climate change will fail.
At the World Economic Forum in Davos last week the bosses of some of the world's biggest oil producers debated setting targets for Scope 3 emissions, which typically make up about 90 per cent of their carbon footprint. BP's new boss Bernard Looney is poised to abandon his predecessor Bob Dudley's opposition to targeting customer emissions, according to Reuters. Royal Dutch Shell, Repsol and Total have already set Scope 3 targets.
In mining, Rio Tinto argued it had "very limited control" over customer emissions but later bowed to pressure by promising to work with its customer (and China's top steel producer) Baowu Steel Group on lowering the steel sector's emissions. BHP nd Vale have gone further by promising to set goals for Scope 3 emissions. In BHP's cases these are almost 40 times greater than its direct pollution.
The European Union's new guidelines on climate reporting also recommend that large companies disclose customer and supplier emissions. Banks and insurers, whose direct emissions are typically pretty negligible, should focus on their counterparties' emissions, the guidelines say. Unfortunately, this is not yet legally binding.
Reluctance to target this stuff is hardly surprising because the numbers can be huge. Volkswagen acknowledged last year that its vehicles are responsible for about 2 per cent of all the CO2 produced by humans.
(Like other truck manufacturers, VW doesn't report Scope 3 emissions for heavy trucks but made the estimate based on its market share and the truck sector's contribution to global emissions plus its carbon footprint from cars.)
Among the largest Scope 3 polluters are companies that the public probably don't immediately think of as big climate sinners. It's no surprise that Shell and Petrobras make the list, but I hadn't thought about Cummins, which sells truck engines and industrial power generators, Nexans, whose cables transport electricity and data, and Daikin Industries, which builds air-conditioning units.
I'm not knocking these companies; at least they're disclosing these emissions and some are setting targets to reduce them. Cummins plans to reduce absolute lifetime emissions from newly sold products by 25 per cent by 2030, for example.
Calculating the emissions from sold products is a pretty complicated exercise too. ThyssenKrupp's massive Scope 3 emissions include those contained in the steel in the cars we drive around, the cement plants its factory construction unit helped build and the elevators in office buildings. Daikin has to consider the probable lifespan of its air conditioners, their energy consumption and what kind of electricity they're powered by, plus probable leakage rates of planet-heating refrigerants.
Fortunately there's no shortage of organisations and methodologies to help compile these data.
Regrettably, not all large manufacturers have seen the light through the smoke. The copious sustainability reports of some companies still don't spell out the total emissions of the products they sell. Volvo told me there's no globally harmonised standard on how to calculate and disclose Co2 from heavy duty trucks, but that it's evaluating opportunities to report on this in future. Daimler AG, which wants a completely CO2 neutral truck fleet in key markets by 2039, plans to start disclosing Scope 3 emissions for trucks in its next sustainability report. (It already does so for cars.)
You know something's up when it takes a hedge fund to tell a company to clean up its act. The shortcomings in aircraft maker Airbus SE's Scope 3 emissions reporting were highlighted in a critical letter late last year from Chris Hohn's TCI Fund Management, the world's most profitable activist fund.
Airbus and rival Boeing have committed to halving the aviation industry's net emissions by 2050. It would help focus minds on that urgent task if they fully accounted for their own role in flight pollution. (Boeing's environment report only counts Scope 3 emissions from business travel. Airbus has urged the aviation sector to develop a common methodology for Scope 3 emissions to aid consistency in reporting.) If Shell can do it, why not them?
Bloomberg