Carbon Emissions: Under the MicroScope3

Scope 1, 2 and 3 are different ways to conceptualise a company’s greenhouse-gas emissions. Our research paper analyses their differences, their importance, and their potential impact in portfolio construction.

To have any hope of reducing the earth’s rising temperature, we must set aggressive targets to reduce greenhouse gas (GHG) emissions. To set those targets accurately and monitor our progress towards achieving them, we must first be able to measure accurately the emissions generated. This is essential for companies and their stakeholders to manage net-zero commitments, and for investors to incorporate that data in their portfolio’s carbon emissions.

One historically difficult-to-measure and consequently overlooked type of emissions is known as Scope 3. In this paper, we discuss the current GHG Protocol accounting guidelines in the context of current data quality and how Scope 3 differs from Scope 1 and 2. We also provide some estimation of the impact of incorporating Scope 3 in portfolio construction.


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