Investor approaches to scope 3: Its importance, challenges and implications for decarbonising portfolios

Scope 3 represent emissions from a companies’ value chain, covering both the upstream supply chain and downstream customer activity. This paper outlines investor perspectives on both the importance and the complexity of the value chain emissions of their investee companies in the context of achieving net zero portfolio emissions.

We focus primarily on publicly listed corporate instruments, including both equity and debt, and this paper was created with support from our members in the scope 3 working group. It summarises discussions held by IIGCC’s scope 3 working group – which has 20+ members – last year. The working group will now reconvene to develop solutions – i.e. what can be done – to address the challenges outlined in this paper and provide practical guidance for investors on how to address this essential aspect of their portfolio emissions, building on existing work by investors and industry groups to date.

Information on the scope 3 emissions of investee companies is vital for investors looking to credibly decarbonise their portfolios and manage climate-related risks. Given that simply aggregating these emissions into portfolio level metrics (as is the case for scopes 1 and 2) could drive undesirable outcomes, there is a need to develop an alternative approach. This paper aims to articulate these challenges and lay the foundations for an investor-led solution to addressing scope 3 emissions within investment portfolios.

The paper is structured as follows: 

• An introduction to the scope 3 challenge 
• A review of the market context and how the concept of emissions scopes was developed 
• A proposed theory of change for investors to address scope 3 emissions 
• An exploration of key challenges 
• Next steps