Scope 3 Conundrum: How Materiality Filters Can Sharpen The Focus
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FTSE Russell1.03K FollowersFollow5ShareSavePlay(19min)CommentsSummaryScope 3 emissions – emissions linked to a company’s value chain outside of its operational control and defined in 15 Categories by the GHG Protocol – remain one of the most vexing problems in sustainable finance.Data on the consistency of Scope 3 reporting clearly show that companies still struggling.Faced with persistent data gaps on Scope 3, investors should continue to advocate for companies to prioritise consistent reporting on the two most material categories for their sector.In summary, while Scope 3 disclosure rates and quality have improved, significant gaps and volatility remain. phaisarn2517/iStock via Getty Images By Felix Fouret, Research Lead, SFI Research, Malgorzata Kee, Research Lead, Data Science, SFI Research, Jaakko Kooroshy, Global Head of Sustainable Investment Research at LSEG When facing incomplete and inconsistent data, prioritising the most important ScopeThis article was written byFTSE Russell1.03K FollowersFollowA leading global provider of benchmarks, analytics, and data solutions with multi-asset capabilities FTSE Russell's solutions offer a true representation of global markets across asset classes, styles, and strategies. Our global perspective is underpinned by specialist knowledge gained from developing local solutions and understanding client needs around the world. FTSE Russell is a wholly owned subsidiary of London Stock Exchange Group (LSEG), and is a unit of the Information Services Division.FTSE Russell’s expertise and products are used extensively by institutional and retail investors globally. For over 30 years, leading asset owners, asset managers. ETF providers, and investment banks have chosen FTSE Russell indexes to benchmark their investment performance and create investment funds, ETFs, structured products and index-based derivatives. FTSE Russell indexes also provide clients with tools for asset allocation, investment strategy analysis and risk management.The Yield Book analytical insights With the recent addition of The Yield Book business, FTSE Russell extends its expertise in analytics to a highly respected analytics platform that serves approximately 350 institutions globally including investment management firms, banks, central banks, insurance companies, pension funds, broker-dealers, hedge funds and investment management firms.
The Yield Book offers analytical insights into a broad array of fixed income instruments with specific focus on mortgage, government, corporate and derivative securities.Quick InsightsHow significant is the improvement in Scope 3 disclosure rates across sectors?Scope 3 disclosure rates have risen to 32% for material categories, with Health Care (+12pp), Financials (+11pp), and Real Estate (+8pp) showing the most progress since 2021.What impact do materiality filters have on Scope 3 data reliability?Applying materiality filters reduces estimation bias, aligning modelled Scope 3 emissions to within -10% of material reported data versus a +100% median difference without filtering.What are the key remaining gaps and risks for investors relying on Scope 3 data?Persistent omissions in critical categories and year-on-year volatility limit data comparability; only 34% and 29% of companies report on Purchased Goods and Services and Use of Sold Products, respectively, in relevant sectors.Recommended For You