First there was synergy, then there were learnings. This year, corporate bigwigs have a new buzzword they’re repeating in earnings calls: Scope 3.
The term is shorthand for a company’s carbon emissions that are the result of activities by entities that aren’t directly owned or controlled by that business. These emissions, such as from the production of goods they buy and their delivery, tend to make up the bulk of an organization’s total carbon footprint.
Scope 3 was mentioned at least once in 689 transcripts of quarterly earnings calls and investor conferences so far this year, according to financial data firm Sentieo. That’s a 15-fold increase from 2019, when there were 47 mentions, Nick Mazing, director of research for Sentieo, told Fortune.
“In September, we committed to being net zero greenhouse gas emissions for Scope 1 and 2 by 2025, and net zero for all emissions, including scope 3 by 2040,” said Cisco CEO Chuck Robbins during his company’s earnings call in November.
Scope 3, Mazing said, is now used as frequently during corporate events as “carbon emissions.” As businesses increasingly report on their environmental impact, “Scope 3” and “carbon emissions” have essentially become interchangeable.
Management have mostly been the ones who’ve used Scope 3, not the Wall Street analysts who often listen and ask questions, Mazing said. Management mentioned the term six times for every one time an analyst or investor did, he found.
While public companies often estimate their environmental impact and discuss what they’re doing to mitigate it, they’re not required to do so and their estimates are often difficult to fact-check, said Mazing. While a company like delivery giant UPS may be able to say with near-certainty how many gallons of gasoline it uses, consumer-facing businesses, like a company that sells backyard grills, have trouble evaluating their emissions.
Like Scope 1 and Scope 2, which measure direct emissions from a company’s operations, Scope 3, as a term, was created in 2001 by the non-profit groups World Resources Institute and the World Business Council for Sustainable Development to describe carbon use.
But measuring indirect emissions has proven to be much more difficult than for direct emissions. It is “virtually impossible for a company to reliably estimate its Scope 3 numbers,” wrote Robert S. Kaplan, emeritus professor at Harvard Business School, and Karthik Ramanna of Oxford University’s Blavatnik School of Government in the Harvard Business Review.
Following Scope 3 on the list of most-used business buzzwords in third-quarter corporate transcripts were the terms ‘inflation’, ‘bottlenecks’, ‘labor shortages’, ‘net zero’ (another term meant to denote the offsetting of carbon emissions), and ‘infrastructure bill.’ Those terms reflect the current political climate in Washington D.C. and supply chain kinks and labor market problems created in part by the COVID-19 pandemic.
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