Only 14% of mid-market businesses are currently reporting on the Scope 3 emissions that the International Sustainability Standards Board (ISSB) recently voted unanimously to require companies to disclose, according to new research from Grant Thornton International published ahead of COP27 in Egypt.
The ISSB announced after its October meeting that it would require company disclosures on Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. Grant Thornton’s International Business Report asked around 5,000 mid-market businesses in 28 countries what they were reporting in relation to their emissions. While over a third (35.2%) were reporting on Scope 1 and 2 emissions as mandatory requirements and just under a third (31.5%) were reporting Scope 1 and 2 emissions voluntarily, only 14.3% were disclosing their Scope 3 emissions.
Scope 1 covers direct emissions from a company; scope 2 covers indirect emissions from electricity purchased and used; and scope 3 covers all other indirect emissions from the value chain.
While the ISSB has confirmed what types of emissions are now in scope, it won’t publish any standards, detailing what data companies will need to track and report, until early 2023. However, it has confirmed the use of the Task Force on Climate-related Financial Disclosures (TCFD) architecture as the basis for its standards.
“Everyone knows that addressing climate change and building a more sustainable future for all is the most serious challenge for a generation,” says Peter Bodin, CEO of Grant Thornton International Ltd. “Unless we take emissions reporting as seriously as the damage emissions are causing, we will not make meaningful progress in tackling climate change. That is why we are calling for governments and regulators to accelerate the publication and adoption of consistent sustainability reporting standards.”
Despite the clear benefits, the adoption of ESG reporting is being hampered by the lack of a clear pathway, with the existence of multiple standards, both mandatory and voluntary, and little guidance on what data needs to be gathered and how it should be reported.
“It’s a question of knowing which information to acquire, and what to do with that data. The scenario analysis is challenging, and many businesses don’t know where to start,” says Sarah Carroll, director – sustainability reporting at Grant Thornton International. This can be especially hard for mid-market companies, which may lack the resource to fulfil reporting intentions.
Preparing for ESG reporting requirements requires immediate action, and significant investment. “Businesses need to invest in resources, invest in training, invest in their people, maybe in a third-party expert,” says Sarah. “They must understand the requirements, understand what Scope 1, 2 and 3 emissions are; and start trying to gather this information. To report in 2023, they need to understand what happened in 2022, even if, in the final standard, the ISSB does not require them to report comparatives,” says Sarah.
The COP27 UN Climate Change Conference in Egypt this November will underline the actions required to meet environmental targets – including reporting – with a focus on implementing the Paris Climate Accords.
“The global community needs to work together to achieve the Paris goals. The mid-market is an important stakeholder in that community,” says Esther Wolfs, partner in the Sustainable Impact Services Unit at Grant Thornton Netherlands. “To achieve a net-zero future, they need to look at reducing their emissions, how they’re going to drive the green technology revolution, and how to access climate finance to scale up adaptation.”
As part of its new requirements, the ISSB will develop relief provisions to help companies apply the Scope 3 requirements, which could include giving companies more time to provide Scope 3 disclosures and working with jurisdictions on so-called ‘safe harbour’ provisions.
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