When a company pledges to cut its carbon emissions, how big a deal is it? That depends on what\u2019s being counted. An oil company\u2019s direct emissions \u2013 those from its trucks, drills and facilities \u2013 are only a sliver of the carbon released when the fuel it sells is burned, and an airport vowing to use wind power for its runway lights is making a much smaller commitment than if its promise covered the flights that take off there. As more investors take environmental factors into account, what had been a technical debate is taking on increased importance, as a matter of \u201cscope.\u201d<\/p>\n
As the effort to boost green investment has grown, so have efforts to create metrics and standards for accounting and disclosure. Counting emissions isn\u2019t as simple as tracking what comes out of a smokestack. Under what\u2019s known as the\u00a0Greenhouse Gas Protocol Standard,\u00a0emissions are classed as Scope 1, 2 or 3. Scope 1 covers \u201cdirect emissions\u201d \u2013 those from sources that are owned or controlled by a company, like those oil company trucks. Scope 2 covers emissions from the generation of energy the company buys, such as electricity or heat. Scope 3 is everything else: the emissions that come from the entire value chain.<\/p>\n
Scope 3 covers emissions from all of a company\u2019s non-energy inputs, like steel for a drilling rig or cement for its buildings, and from all the uses to which a company\u2019s products are put, like the fuel an oil company sells. It\u2019s the complete supply chain, which means that for almost all companies, Scope 3 is far bigger than the other two scopes combined.<\/p>\n
To add meaning to company pledges about becoming more climate friendly, and to give investors more objective measures for evaluating how a company or sector is doing on going green. The\u00a0hope<\/span>\u00a0is that disclosure will give the market the opportunity to reward or pressure companies depending on their performance.<\/p>\n Oil companies’ carbon footprints are mostly due to scope three emissions<\/p>\n<\/div>\n<\/div>\n<\/figure>\n The first investor to measure the carbon footprint of a portfolio may have been\u00a0Henderson Global Investors\u00a0in 2005, but the idea gained momentum following the 2015 Paris Agreement on climate change, in which countries pledged to set specific targets for emissions cuts to slow down the threat of global warming. The\u00a0Task Force on Climate-Related Financial Disclosures, an industry-led group set up that year to encourage companies to put details about their environmental risks in the public domain. It encourages investors and executives to disclose the scope 1 and scope 2 emissions of their portfolios, and scope 3 \u201cif appropriate.\u201d (The task force was founded and is\u00a0chaired<\/span>\u00a0by Michael R. Bloomberg, the majority owner of\u00a0Bloomberg LP, the parent company of Bloomberg News.)<\/p>\n To an extent. Some companies are beginning to clean up supply chains that they\u2019ve left to their own devices for decades. They\u2019re questioning how their raw materials are manufactured and, among other things, are moving to develop greener, cleaner ways of making steel or cement and transporting goods.\u00a0Vestas Wind Systems\u00a0A\/S, the world\u2019s largest maker of wind turbines,\u00a0promised\u00a0to eliminate all waste in the production of its machines by 2040 as part of its drive to hit carbon neutrality by the start of the next decade. Big emitters like\u00a0Royal Dutch Shell Plc,\u00a0BP Pl<\/a>c\u00a0and\u00a0Equinor ASA\u00a0have\u00a0committed\u00a0to carbon-emissions targets that include Scope 3, that is, the end use of the products they sell, while\u00a0Repsol SA\u00a0pledged\u00a0to eliminate all emissions from its operations and fuel sold to customers by 2050.<\/p>\nCalculating Carbon<\/h3>\n
4. Where did this approach come from?<\/h3>\n
5. Is it working?<\/h3>\n
6. What kind of problems are there?<\/h3>\n