How investors profit from companies reporting Scope 3 emissions

(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — A new study shows how investors can prod companies to get their Scope 3 greenhouse gas emissions under control.

Reducing those emissions is a crucial part of fighting climate change. Scope 3 emissions, which are what is produced by the supply chains a company uses, represent the lion’s share of all corporate greenhouse gas emissions—75%, according to a World Resources Institute estimate. They are to be distinguished from Scope 1 emissions (those a company produces directly from its operations) and Scope 2 emissions (those produced by the electricity a company has purchased).

Despite Scope 3’s crucial importance, most companies only report emissions in Scopes 1 and 2. And those that nevertheless do report their Scope 3 emissions do not always report the data in a standardized and consistent way. As a result, investors are largely in the dark as to which companies are the biggest contributors to global warming.

In fact, as I pointed out in this space earlier this year, investors actually are being misled: That’s because companies with the highest ESG ratings based on their Scope 1 and 2 emissions tend also to be the biggest offenders when it comes to Scope 3 emissions. So, without taking Scope 3 emissions into account, climate-friendly investors may actually be investing in climate-unfriendly ways…

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