TheCityUK response to call for evidence on Scope 3 emissions in the UK reporting landscape

Following the Department for Energy Security and Net Zero's (DESNZ) call for evidence on Scope 3 greenhouse gas (GHG) emissions in the UK reporting landscape, we have provided a response focused on:

  • The importance of international harmonisation on sustainability-related disclosures.
  • The International Sustainability Standards Board's (ISSB) approach to Scope 3 reporting within IFRS S2.
  • The overall costs, benefits and challenges of Scope 3 reporting for the financial and related professional services industry.

We welcome the call for evidence on Scope 3 reporting and the wider commitment from government in the 2023 updated Green Finance Strategy to set up a framework to assess the suitability of the ISSB standards for adoption in the UK. In our response, we highlight the importance of developing an international framework for sustainability-related disclosures and endorse the approach to Scope 3 reporting taken by the ISSB within IFRS S2. We acknowledge that Scope 3 reporting generates valuable data for companies to address climate-related risks and opportunities. However, we also recognise that there are significant costs and challenges to Scope 3 emissions reporting at present and the UK's Scope 3 reporting framework will need to allow sufficient time for companies to adjust and build capability.

Key points:

  • The development of a global baseline for sustainability-related disclosures is crucial to creating an international framework for the measurement and management of sustainability risks and opportunities. The ISSB standards provide the opportunity to develop this global baseline.
  • We endorse the approach to Scope 3 reporting within IFRS S2, and the integration of Scope 3 reporting into the UK reporting framework as articulated by the ISSB.
  • We broadly support the ISSB’s approach to materiality, whereby a company is required to disclose Scope 3 emissions that are financially material.
  • As the most widely used accounting platform for corporate GHG reporting, the use of the GHG Protocol for the purpose of Scope 3 reporting within IFRS S2 will enable globally comparable and consistent reporting.
  • Accurately accounting for and reporting Scope 3 emissions can help drive greater climate resilience and will enable companies to understand their emission impact across the value chain.
  • There are significant challenges to Scope 3 reporting, in particular the limited availability and quality of data. The UK’s Scope 3 reporting framework must allow for reporting to improve over time as capacity and capability develops.
  • Accounting for and tracking Scope 3 emissions is a significant and complex undertaking. It will be a financial and resource intensive exercise.
  • Scope 3 reporting will be a particular challenge for small and medium enterprises (SMEs) in the supply chain, who have limited capability and resource.
  • Proportionality considerations should be factored into the UK’s Scope 3 reporting framework to allow companies time to adjust and build capability.
  • Government should provide a clear roadmap for the introduction of mandatory Scope 3 reporting in the UK, including a breakdown of how this will apply across different types of companies.

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