Almost two thirds of the US’ largest companies are now disclosing their Scope 3 emissions voluntarily, according to research from Diligent.
- US companies are already disclosing their Scope 3 emissions as they wait to find out whether the process will be legally mandated.
- Shareholder pressure is driving corporations to engage with environmental, social and governance issues, despite loud-mouthed rhetoric that may suggest otherwise.
- Emissions disclosure is a promising step towards the development of credible future strategies.
Global software provider Diligent has released its ESG 2023 report, compiled by its Insightia brand in collaboration with Vinson & Elkins. The comprehensive study provides a definitive review of environmental, social and governance (ESG) trends in shareholder engagement and regulation.
Perhaps the most notable finding of the report is the revelation that 63% of the 500 largest public companies within the US have already begun to calculate and disclose the Scope 3 emissions of their supply chain. Rather than waiting for such procedures to become mandatory, they appear to be acting in preparation.
“Regulatory developments are set to revolutionize how companies globally are held accountable for their ESG policies and practices,” said Josh Black, Diligent’s editor-in-chief. “With a myriad of new requirements to juggle, it’s increasingly important for leaders to be proactive in addressing ESG-related risks and opportunities.”
Shareholder pressure stimulates corporate action
The findings echo a recent survey conducted by PwC and Workiva (NYSE:WK), in which 300 US executives were asked how they were preparing for the Securities and Exchange Commission’s forthcoming ruling on the mandatory disclosure of Scope 3 emissions. Although a final decision is yet to be made, 70% of the survey’s respondents did not plan to wait.
Diligent’s analysis suggests that shareholder pressure is rapidly emerging as a significant motivating factor. In sectors with particularly high emissions, climate-related shareholder proposals are beginning to gain support. In the first five months of 2023, such proposals received average support of around 32.4% in the energy industry and 36.7% in aerospace and defence.
Although average support for social and environmental proposals appears to have fallen since 2020, the number of passed resolutions has been unusually high. Among the 500 companies included in Diligent’s study, 26 proposals gained majority support in 2022. This figure marks a notable increase from the 18 motions that were supported in 2020.
These findings suggest that shareholders are pushing corporations to engage with such issues whether or not they are legally required to report on such metrics. In doing so, they are driving the economic shift towards more sustainable practices and contradicting the loud-mouthed rhetoric of campaigners against ESG.
Furthermore, they are providing an important reminder that beneath the risk of non-compliance lies a real situation that has led to the demand for new regulations.
Disclosure is meaningless without a credible plan
Indeed, while companies may be motivated by the introduction of mandatory disclosure requirements, there is a bigger issue at hand. The convergence of climate change, biodiversity loss and wasteful pollution has created an unprecedented threat to our society and its global economy.
In order to act at the pace required, capital flows must be aligned with effective solutions. Investors must be able to distinguish between companies that are failing to act and those that are determined to enable the transition to a sustainable future.
While the voluntary disclosure of Scope 3 emissions is an undoubtedly important starting point, businesses must also establish science-based targets for future reductions delivered by credible step-by-step plans. They must also account for the interconnections between carbon emissions and biodiversity, else the achievement of their goals will fail to address their wider impact.
So, although the number of US companies that are actively choosing to disclose their Scope 3 emissions is a sign that things are changing, there is still more work to be done. Ultimately, the most promising conclusion of Diligent’s research is that potential legislation is acting as a motivating factor for something they should already be working towards, rather than an obstacle to be cleared when the time comes.