Scope 3 emissions are a test of how seriously businesses take climate protection

As I wrote here last month, a majority of Fortune 500 CEOs—58%—said in our recent poll that they have a plan to achieve net zero greenhouse gas emissions by 2050 or sooner. That’s up from 36% just a year earlier.

But there’s a catch. Only about half of those CEOs say they have included “Scope 3” emissions—those that come from their suppliers or customers using their products—in the plan.  That’s understandable, given the immense difficulty of tracking the emissions of suppliers and customers. But it’s also a loophole large enough to make the climate effort collapse. For many companies, “Scope 3” accounts for the lion’s share of their emissions. And excluding Scope 3 creates an incentive for big companies to simply outsource the dirty stuff.

I spoke about this challenge yesterday with BCG Global Chair Rich Lesser, who has devoted an enormous amount of time and energy in the last couple of years to pushing for business action on climate change. Some excerpts from the conversation, which were in a webinar sponsored by BCG:

“For so many downstream producers, whether in food or auto or construction or electronics, most of their emissions footprint is not from the carbon produced in their own operations. It’s from the carbon that was in the supply chain. It’s the steel or the battery in a car, or the wheat that’s grown with fertilizer in a loaf of bread. And that’s a challenge.

“And then there’s a big challenge with transparency. It’s an old maxim, but it’s still true: you can’t manage what you don’t measure. And the measurement and tracking of carbon emissions is still at an early stage in general, and specifically as it relates to the Scope 3 elements that go beyond the individual company boundaries. There’s still a ton of work to do on it.

“So Scope 3 is first confusing, and then controversial. It is the hardest part of the exercise.

“I’ll use BCG, just to make it real. In our 2018 baseline, only 7% of our emissions were Scope 1 and 2—keeping the lights on in the office and a few other things. And 93% was Scope 3 from our suppliers…of which 78% is airlines, because we fly a lot. If we’re not tackling how we fly, and whether we push for sustainable aviation fuel, or committing to remove carbon, then simply saying I’m ‘net zero’ on Scope 1 and 2 is not worth much.”

A key test of business seriousness on this issue will occur as business lobbying groups respond to the SEC’s proposal to require more climate disclosure. If they push to exclude Scope 3, then the business-led effort could lose much of its mojo. Deadline for comment is Friday. Stay tuned.

Other news below. And CEOs running venture-backed companies may want to read this story on the advice Sequoia Capital is giving its portfolio companies on how to survive the market downturn.

Alan Murray
@alansmurray
alan.murray@fortune.com

TOP NEWS

Qualcomm fine

In another massive blow to the reputation of the EU’s antitrust authorities, the bloc’s General Court has entirely struck down a 2018 decision to fine Qualcomm more than $1.2 billion over payments made to Apple. The General Court said the European Commission had “committed a number of irregularities when it was putting together the case-file,” and had “infringed Qualcomm’s rights of defense.” Fortune

Disney+ cricket

Disney lost out on the streaming rights to the Indian Premier League, though its Star India subsidiary did score TV rights to the top professional cricket league. That could serious damage Disney+’s appeal in India, where 50 million users joined the service when it had the IPL streaming rights. However, some analysts see the result as positive for Disney+, due to the rights’ price tag and the low subscription fee Disney charges in India. Fortune

Ryanair test

Ryanair has ditched its bizarre and effectively racist policy of requiring South African passengers to prove their nationality by completing a test in Afrikaans, a language spoken by few Black South Africans. “It doesn’t make any sense,” acknowledged CEO Michael O’Leary, more than a week after the questionnaires sparked widespread outrage. BBC

ALIENS

China’s state-backed Science and Technology Daily reported that the country’s Sky Eye telescope could have spotted signs of alien civilizations—and then the publication deleted the report, after it started trending. Bloomberg

AROUND THE WATERCOOLER

Zelenskyy calling

What can business leaders do to support Ukraine? President Volodymyr Zelenskyy laid out some concrete steps at the Yale CEO Summit, as recounted by Jeffrey Sonnenfeld and Steven Tian for Fortune: “Hiring highly trained Ukraine-based tech workers for remote jobs; hiring Ukrainian refugees, with 5 million having fled Ukraine since the beginning of the invasion; investment in strategic growth sectors such as digitalization and green renewable energy; continuing purchases of Ukrainian exports; and aiding the rebuilding of the country’s decimated infrastructure and industrial capabilities.” Fortune

Russian oil

Fortune’s Sophie Mellor assesses Putin’s claim that Western rejection of Russian fossil fuels is “unlikely over the next few years”: “While Russia’s oil revenues have been steadily falling since March, when many countries first decided to shun Russian energy after it invaded Ukraine, the increased demand and price of fossil fuels have still created a windfall for Russia and led to record revenues.” Fortune  

Omicron subvariants

So-called stealth Omicron, a.k.a BA.2, is about to be outstripped in the U.S. by upstart subvariant BA.5. BA.4, which just did the rounds in South Africa alongside BA.5, is also becoming more common. Fortune

Greater fools

Bill Gates on NFTs: “As an asset class, it’s 100% based on the greater fool theory—that somebody’s going to pay more for it than I do.” Not a fan, then. Fortune

This edition of CEO Daily was edited by David Meyer.