A qualitative research on Scope 3 reporting including challenges and improvements

Abstract: In recent years there has been an increased focus on the responsibility that companies have regarding the environment and there have been many new initiatives and regulations on how the companies should report on sustainability. One of these initiatives is the Greenhouse Gas protocol which introduced the term Scope 3 emissions 10 years ago, which covers indirect emissions up & down the value chain. Even though research has been conducted for sustainability reporting, there is a gap in the follow-up of Scope 3 reporting. This research will examine the common challenges with Scope 3 reporting and how Scope 3 measuring and reporting can be improved. The research will focus on Large Cap companies covered by the Swedish law on Sustainability Reporting and the industries Industrials and Basic Materials. The research will be conducted qualitatively by expert interviews to answer the research question with support from quantitative data analysis based on Nordic Compass and the selected companies’ sustainability reports to create an understanding of the current state situation. To support the research, it will also be investigated how Scope 3 reporting differs between the selected companies and within their supersectors, how the Swedish law on sustainability reporting impacts the selected companies' sustainability reports and which drivers for increased and better Scope 3 reporting can be identified. The research concludes that there are three factors for common challenges related to complexity, data and motivation all driven by several root causes. It was concluded that there are many similarities between the companies and within their supersectors, but also several differences which can be related to the place in the supply chain, company type and product/service offering. Scope 3 includes 15 categories and depending on the company the relevancy of the different Scope 3 categories differs which results in varying challenges and suitable calculation method. This has also resulted in challenges related to data accuracy, transparency, and comparability. Furthermore, it has been concluded that the Swedish law on Sustainability Reporting has not had any apparent impact on the selected companies' sustainability reports. This can be explained by the low requirements set in the law since many of the companies had already reported what is required for years. Finally, the research identified both internal and external drivers for improved measuring and reporting of Scope 3. The internal drivers come from benefits that have arisen when dealing with the previously mentioned challenges and have resulted in alignment with business purpose and fostered collaboration within the industry and the own value chain. The external drivers are found in pressure from both customers and investors which is driven by regulatory measures. To some extent, the regulatory measures also drive financial incentives in terms of receiving green investments with lower interest rates as well as receiving a high sustainability rating.