“What gets measured, gets done.” This is an old dictum. As environmental goals get baked more firmly into corporate agendas in the post-pandemic world, there is a need to measure the carbon footprint of companies and other entities. The terms Scope Emissions 1, 2 and 3 emerge from this monitoring requirement.
Part of the Greenhouse Gas (GHG) Protocol Corporate Standard, this nomenclature divides the overall impact of a company’s greenhouse gas emissions into three buckets or ‘scopes’.
GHG Protocol, a standard setting framework for greenhouse gas emissions emerged from a collaboration of the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
The first corporate standards were published in 2001. Many of the largest global companies follow and report on these standards. Lately, investors too have started to follow adherence to these standards more closely.
- Scope 1 emissions are from sources which are owned or controlled directly by the company. These include entries of emissions released directly to the atmosphere due to the enterprise’s operation of machinery such as furnaces, vehicles, boilers etc.
- Scope 2 emissions stem from the generation of purchased energy that is used in the firm’s operations. These indirect emissions include emissions from items such as consumed electricity or the use of cooling units
- Scope 3 emissions are all indirect emissions which are not included in the above two categories of emissions but still occur all along the value chain of the reporting company. Usually, Scope 3 represents the majority of a company’s greenhouse gas emissions. They are further subdivided into multiple categories depending on the reporting company
Earlier in May, the capital market regulator, the Securities and Exchange Board of India (SEBI) issued a circular implementing new sustainability-related reporting requirements for the top 1,000 listed companies by market capitalization. This includes reporting on Scope 1, 2 and 3 emissions.
This new reporting will be voluntary for the current financial year, but will become mandatory from FY 2022-23. However, measurement alone is unlikely to lead to enough progress.
