European investors push for “clearer guardrails” as standard-setter looks to overhaul reporting rules
A coalition of European investors has welcomed plans to overhaul emissions reporting rules, arguing that the current framework is no longer fit for purpose
The GHG Protocol, a leading global standard-setter for greenhouse gas reporting, is consulting on proposed revisions to its emissions disclosure guidance. The move has been broadly welcomed by European investors.
A group of asset managers and asset owners, including a.s.r. vermogensbeheer, Comgest, Ecofi Investissements, EQ Investors, Etica Funds – Responsible Investments, Inyova, John Ellerman Foundation, KBI Global Investors, Mirova, Nest Sammelstiftung, Nordea Asset Management, PIRC and Union Investment, has written to the standard-setter urging it to press ahead with the planned reforms, which could come into effect in 2027.
Shortcomings
More than a decade after the publication of its Scope 2 Guidance, the standards set by the GHG Protocol have become widely adopted. Major corporations such as Microsoft, Nestle, Apple and Walmart follow the framework to disclose their emissions footprints. The standards also feed into the climate disclosure requirements of the US Securities and Exchange Commission and the European Commission’s Corporate Sustainability Reporting Directive.
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However, industry participants argue that in a world of rapidly expanding renewable energy supply, the 2015 guidance is no longer adequate. Critics, including campaign group ShareAction, point out that under current rules companies can report zero Scope 2 emissions on paper while still relying on fossil fuels.
“Current standards prevent us from accurately assessing companies' energy transition risks, given that companies can report zero emissions on paper while remaining dependent on fossil-based generation, using Renewable Energy Certificates to attribute solar generation to night-time consumption or claim renewable energy from geographically disconnected regions. This accounting obscures potentially significant investment risks, including companies' exposure to energy price volatility and carbon pricing,” the investors wrote.
Another factor is the rapid buildout of renewable energy capacity. Jackie Garton, interim head of corporate climate campaigns at ShareAction, said: “The standards that were originally designed to help foster an emerging voluntary renewable energy market are no longer fit for purpose. Renewable energy is now the fastest-growing source of energy, making this a critical moment to ensure the rules fully reflect how power is generated, transmitted and consumed today.”
Meanwhile, Natasha Landell-Mills, head of stewardship and partner at Sarasin & Partners, raised concerns about the use of renewable certificates: “Accounting for carbon emissions is too often a game of smoke and mirrors. Averages, estimates and offsetting are a fertile environment for untrustworthy data. Against this backdrop, efforts by the GHG Protocol to set clearer guardrails around emissions reporting associated with power consumption, Scope 2, are enormously welcome. In the end, while a tonne of carbon is fungible and we are not picky about where it gets reduced, so long as we see it coming down, we do need to stop treating renewable certificates as negative emissions that can offset real emissions elsewhere. Renewables do not remove emissions from the atmosphere; they simply avoid adding to the stock.”
Pragmatism
While investors are broadly supportive of reform, they have also stressed the need for pragmatism during the transition to new reporting standards.
Eric Pedersen, head of responsible investment at Nordea Asset Management, one of the initiative’s signatories, highlighted the importance of a smooth transition: “We’re very much in favour of a pragmatic approach that honours those power purchase agreements that have been made historically, that companies have entered into in good faith.”
“You can adjust standards without pulling the rug out from under everyone, without being unnecessarily disruptive or confrontational,” he added.
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