In May, we sat down with Gus Brewer, a carbon accounting specialist in the Verdantix Net Zero & Climate Risk team, to discuss his recent research into Scope 3 emissions.
Can you tell me a little bit more about what you’re researching at the moment?
My current research is focused on Scope 3 coverage – specifically Category 15, known as financed emissions (see Verdantix Strategic Focus: Strategies For Measuring Financed Emissions). These are all emissions associated with a firm’s investments over a reporting year that are not already included in Scope 1 and Scope 2. I am looking to understand how financial institutions can improve how they measure and report this Scope 3 category to comply with regulations like the CSRD. Specifically, I’m researching the different methodological approaches financial institutions have been taking to measure their financed emissions to understand what best practice looks like in this space.
In 20 words or less, can you tell me why financed emissions are important for firms?
Financial institutions’ financed emissions are, on average, 700 times larger than their direct emissions.
What are the wider implications for this issue?
Globally, financial institutions’ assets amount to $461 trillion – therefore, they have significant influence on the economy and, in turn, on climate outcomes through mechanisms such as investments and loans. If financial institutions can reduce their portfolio emissions, this will go a long way to reduce global emissions. But, to reduce their emissions, organizations must first measure and understand them. Highlighting best practice methodologies in the industry can support firms in implementing these strategies themselves and help them to reduce their financed emissions.
What’s the one thing you would suggest organizations do to measure their financed emissions?
One of the biggest issues with measuring financed emissions is data collection, due to the complexities of value chains. Firms’ value chains can be made up of thousands of organizations and counterparties, operating across different sectors and jurisdictions. To combat this issue, it’s key for firms to start mapping their emissions to sectors. By starting small and with a few of their highest emitting sectors, firms can slowly but surely build out their coverage. It is all well and good having one big target to reduce your organization’s financed emissions by X amount, but by setting smaller targets linked to specific sectors it is much easier to start making meaningful changes that can result in emissions reductions.
What’s hot in net zero at the moment?
A topic I have been hearing about a lot recently – and one that was mentioned multiple times at the recent Verdantix Climate Summit in Washington is Scope 4 emissions, which are a firm’s avoided emissions. It’s an interesting topic because it can demonstrably reward firms who are improving the emissions efficiency of a good or service. We’ll be releasing a report on this topic shortly, so definitely one to look out for!
Do you have any climate insider secrets to share?
A key insight from my research into financed emissions is that no methodology for calculating financed emissions is perfect right now. PCAF is well known as ‘the standard’ for calculating financed emissions but it too has its flaws – namely issues with attribution factor calculations and its data hierarchy. To combat this, I would recommend taking the PCAF methodology with a pinch of salt; it provides a great basic framework for these calculations but be vigilant of its shortcomings.
What’s next on your research agenda?
Next up for me is some research on purchase power agreements (PPA). I will be looking into the merits of PPAs for net zero commitments and the role of PPA advisory firms in facilitating this, so look out for that in the next few months!
