Storebrand warns Scope 3 data leading to ‘perverse’ allocation decisions

In spite of the "laudable aims" of Scope 3 emissions data, it in fact provides a sub-optimal indication of portfolio climate risk exposure and causes outright "perverse allocation decisions" by investors, according to executives at Storebrand Asset Management.

The remarks were made by Lauren Juliff, head of UK institutional and climate specialist at SKAGEN Funds, part of Storebrand, and Henrik Wold Nilsen, senior portfolio manager, in an opinion piece based on a research paper published by the firm.

The piece went onto claim that Scope 3 emissions, from a company’s value chain, were not designed to evaluate company transition risk exposure for all sectors in the absence of reliable Scope 4 data, emissions reductions as a result of the product.

As an example heat pumps were singled out, given that the current approach was flawed was in assessing them, where the avoided Scope 4 emissions from using such a device, relative to a gas boiler, "vastly outweigh” the use of product Scope 3 emissions from the heat pump, even in regions where the electricity grid is emissions intensive.

The piece did stress Storebrand welcomed the reporting of Scope 3 data from its investee companies. 

However, for companies offering climate solutions based on electrification, according to Juliff and Nilsen, Scope 3 gives a “highly distorted” impression of climate risk, both for the company in question, and also for an investment portfolio investing in the company.

Last year Nawar Alsaadi, president of Semper Augustus Capital, spoke to Net Zero Investor on the challenges of assessing scope 1-4 emissions from an investor perspective.