Scope 3 emissions (S3) result from activities upstream and downstream of a company’s own operations, which are covered by Scope 1 and 2 emissions (S1+2). S3 encompasses the entire value chain and is of increasing interest to firms and regulators as, when done well, it will more accurately describe a company’s impact on the climate than S1+2 alone.

The EU, for example, plans to introduce S3 integration as a necessary condition in its Paris-aligned benchmark policies over the next few years. The Osmosis team’s research highlights some of the more commonly known problems investors encounter when looking at scope 3 emissions, not least the poor coverage and comparability, but it goes much further, bringing into question whether scope 3 data sets are truly fit for portfolio purpose.

Indeed, Osmosis conclude that integrating scope 3 data (responsible for approx. 90% of a company’s overall emissions) not only leads to portfolios with unattractive investment characteristics (such as low revenue) but directly undermines any claimed environmental benefits.

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