- Addressing Scope 3 emission disclosures are integral towards achieving organizational and regional sustainability goals
- The report highlights a lack of Scope 3 emissions disclosures in Asia Pacific, as they typically occur outside of an organization’s direct control – compared to Scope 1 and 2 emissions
- Lack of awareness and focus on downstream Scope 3 emissions within organizational supply chains in the region, with organizations generally focused on upstream emissions due to greater control and influence
- Need to uncover how to better reduce downstream emissions through optimizing logistical networks and customer/supplier engagement
Hong Kong SAR, China, 15th August 2024 – While the past two decades have seen a concerted push by governments, investors, and consumers to hold companies accountable for their carbon footprint with corresponding efforts in the business community to track and report their Scope 1 and 2 emissions, there remains a lack of Scope 3 emissions disclosures.
Measuring and reporting on Scope 3 is critical to any climate or decarbonization goal as these emissions typically make up 70 to 90 percent of a company’s total carbon footprint1. Yet, they can be extremely challenging to accurately measure and report as they lie beyond the company’s formal span of control.
Against this backdrop, the Pacific Basin Economic Council (PBEC) and KPMG together with its strategic partners and supports, namely LaTrobe University Business School, Melbourne Australia, ICAEW & the Hinrich Foundation have launched ‘Unlocking the Scope 3 Opportunity’, a report which provides an analytical overview of the Scope 3 emissions reporting landscape in the region, offering insights into one of the defining corporate themes of our time, and a look at how companies in Asia Pacific are responding.
The study analyzed publicly available ESG reports from 338 companies listed on six stock exchanges, published between 2022 and 2023, leveraging data to provide a broad-ranging picture of the progress made by corporate Asia Pacific and where more effort is required.
Challenges in Scope 3 emissions disclosures
Measuring and disclosing Scope 3 emissions – indirect emissions occurring upstream and downstream of the company’s operations – is challenging for a variety of reasons, chief among which is that they occur outside of an organization’s direct control.
Obtaining this data usually requires firm to engage deeply with their stakeholders, which is a time-consuming and costly process. Even when data has been obtained, getting good results relies on having consistent and accurate data capture processes and formatting. Building the right internal systems to support this will be a major organizational effort.
Organizations, particularly large ones, do not always have total visibility into their supply chains, especially when it comes to their extended supplier bases. In addition, the accuracy of reporting a company’s Scope 3 emissions is also highly dependent on the availability and quality of primary data from suppliers in the value chain.
Derek Lee Dong-Seok , KPMG’s Head of ESG in Asia Pacific said, “Reporting on Scope 3 emissions presents an opportunity for companies in Asia Pacific to drive sustainable business practices throughout their supply chains. By accounting for direct and indirect emissions, companies can identify areas for improvement, promote transparency, and foster collaboration with suppliers and customers. It is a crucial step towards achieving regional sustainability goals.”
Bridging Gaps: engaging supply chain stakeholders
Organizations can adopt a multitude of strategies to reduce their overall GHG emissions, though tackling Scope 3 emissions depends on their ability to engage with stakeholders across the entire value chain: suppliers, distributors, and consumers.
While Scope 3 emissions disclosures are expanding in Asia Pacific, with 62 percent of companies engaging in some form of reporting on their indirect emissions, overall supply chain environmental monitoring is still immature. Companies in the region generally demonstrate more focus on upstream emissions versus downstream emissions, as they typically have more control over their upstream suppliers than their downstream customers or logistics providers. As such, Asia Pacific companies are more likely to invest in supplier-side initiatives than customer-facing ones, but there are plenty of opportunities to mitigate downstream emissions too.
Peter Liddell, KPMG’s Global Operations Center of Excellence Leader added, “Scope 3 reporting requires Asia Pacific companies to transform their internal operating models, so they can accurately capture and report on their supply chain emissions. They will also need to create new supply chain strategies and adjust their external business models to reduce their emissions and progress towards a Net Zero target.”
Increasing Downstream Influence
Scoping the downstream supply chain in order to increase influence can provide a great opportunity to address major gaps. By bringing production sites closer to their key customers and consumption centres, companies can optimize their logistical networks and lower their emissions. In addition, customer engagement is an important lever for reducing downstream Scope 3 emissions, either directly through education and collaboration or indirectly through company policies or marketing.
Meanwhile, 66 percent of Asia Pacific companies report having integrated environmental and social requirements in their supplier onboarding process2, reflecting the maturity of ESG awareness among procurement functions. Organizations should continue strengthening the integration of environmental and social requirements in their supplier onboarding process to upkeep upstream supply chain management.
By approaching these requirements as a strategic opportunity, organizations can gain operational advantages and ensure readiness for future disclosure mandates from a topline level. The report details six steps for companies to get started.|
- Engage the C-suite and board: Confirm that everyone understands the implications of Scope 3 emissions and how it will affect their area of the business.
- Measure emissions: Identify high-emission hot spots and work on those decarbonization programs first.
- Model supply chain risk: Assess how climate change and other disruptions create risks specific to your business, and prioritize ways to address vulnerabilities swiftly.
- Find low-carbon opportunities: For manufacturing companies, these opportunities may be related to product design, sourcing, and production.
- Work with suppliers: Collaborate with suppliers to measure and manage Scope 3 emissions.
- Explore potential partnerships: Consider how external organizations such as regional NGOs, industry associations or educational institutes can deepen efforts to research and innovate solutions.
“The majority of scope 3 emissions are international in origin, so APAC companies play a significant role in providing accurate global supply chain emissions data due to their widespread geographic presence. The scope 3 emissions of large US companies are often linked to manufacturing operations in regions like China, India, North and Southeast Asia. This indicates that more resources and expertise will be required in this area. An emphasis on corporate governance, executive incentives, and partnerships with NGOs while sharing responsibility for reporting will likely increase in the coming decades.” said Michael Walsh, CEO & Executive Director Pacific Basin Economic Council.
“The transition from spend-based to supplier- and product-based carbon measurement strategies underscores the importance of robust supplier relationships. Such partnerships are essential for fostering transparent information sharing, ensuring accurate reporting, and facilitating collective action to reduce environmental impact. Ultimately, improved emissions measurement drives strategic value and supports the shift from greenwashing to genuine sustainability efforts.” said Neale G O’Connor, Associate Professor, Forensic and Sustainable Accounting, La Trobe Business School, La Trobe University.
The Unlocking the Scope 3 Opportunity full report can be viewed and downloaded at: https://www.pbec.org/unlockingscope3/
-ENDS-
About the PBEC – Pacific Basin Economic Council
Primarily a Think Tank these days, PBEC was founded in 1967 by international prominent businessmen of multi-national corporations from both sides of the Pacific. It was referred to back then as the Pacific Basin after WWII. PBEC grew from its original Los Angeles base for its first 25 years before moving to the East West Center in Honolulu, Hawaii in 1992 and then onto the Hong Kong in 2003, where it remains today as a proud independent and prominent voice for cross-border business initiatives, market intelligence, policy advisory and cultural engagement in Asia and the Pacific. Membership is strictly by invitation only, however it welcomes interest for all related parties concerned or interested in cross-border trade & supply chain issues including digital and AI.
For more details & how to be become a member, send your enquiry here: https://www.pbec.org/contact-us/
About KPMG
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively. KPMG firms operate in 144 countries and territories with more than 236,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
For more detail about our structure, please visit: https://kpmg.com/xx/en/home/misc/governance.html
About La Trobe Business School: The La Trobe Business School is enhancing learning through education and research that is future-focused, applied, innovative and responsible.
Through our worldwide network of partnerships and collaborations, we are uniquely positioned to deliver innovative solutions, to act on opportunities, to educate the next generation of ethical business leaders and produce impactful research that benefits business and society.
The La Trobe Business School has two departments – the Department of Accounting, Data Analytics, Economics and Finance and the Department of Management and Marketing – that enable us to offer education programs in Management, Supply Chain and Logistics Management, Marketing, Sport and Tourism Management, Human Resource Management, International Business, Accounting, Business Analytics, Economics and Finance.
For more details please visit: https://www.latrobe.edu.au/la-trobe-business-school/about for further details.
About Hinrich Foundation: The Hinrich Foundation is an Asia based philanthropic organization that works to advance mutually beneficial and sustainable global trade. We support original research and education programs that build understanding and leadership in global trade. Our approach is independent, fact-based and objective. We are an authoritative source of knowledge, sharp analysis and fresh thinking for policymakers, business, media and scholars engaged in global trade.
We are building a network of next-generation trade leaders by partnering with universities and corporations across global value chains.
Please visit: https://www.hinrichfoundation.com/about/ for further details.
About ICAEW: Chartered accountants are talented, ethical and committed professionals. ICAEW represents more than 208,000 members and students around the world. 99 of the top 100 global brands employ ICAEW Chartered Accountants.* Founded in 1880, ICAEW has a long history of serving the public interest and we continue to work with governments, regulators and business leaders globally. And, as a world-leading improvement regulator, we supervise and monitor around 11,500 firms, holding them, and all ICAEW members and students, to the highest standards of professional competency and conduct. We promote inclusivity, diversity and fairness and we give talented professionals the skills and values they need to build resilient businesses, economies and societies, while ensuring our planet’s resources are managed sustainably.
Please visit: https://www.icaew.com/about-icaew for more details
____________
1 Carbon Trust. ‘An introductory guide to Scope 3 emissions.’ 2023.
2 PBEC research