Back in October of 2023, I covered that the Australian Securities and Investments Commission (ASIC) had introduced what it called the “biggest change to corporate reporting in a generation” – that from this year, large companies would be forced to report Scope 3 emissions.
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(As far as I could tell, and still can, HotCopper of all places was the only financial outlet to actually cover that news at the time.)
For those playing at home, Scope 3 emissions refer to emissions that are produced by products companies create. The sector where this most directly applies, probably unsurprising, is oil and gas.
So what does that actually mean?
The best way to understand it is by persisting with our oil and gas example. Let’s take Shell. Scope 1 emissions would be those greenhouse gases released in the extraction and refinement of oil and gas products.
Scope 2 emissions, then, would be those greenhouse gases released in the transportation and delivery of its oil and gas products – think the emissions released by trucks and ships carrying oil and gas to various locations (refineries, other downstream assets, service stations, farms, mine sites, etc).
So far, so good. But you can already get a sense of how Scope 2 emissions measurements would drastically increase greenhouse gas reporting burdens for companies in the oil and gas game.
Well, then there’s Scope 3 – and here’s where the numbers get really big.
Scope 3 as off-site emissions
Still using Shell as an example, Scope 3 emissions are then those greenhouse gases produced by end-users using the products Shell makes.
In this example, the calculus is fairly obvious: Scope 3 emissions are those created by everybody driving around internal combustion engine cars powered by Shell’s petroleum and/or diesel products.
It’s probably obvious why the oil and gas industry has been, at times, reluctant to include these readings in its reporting requirements, as they vary, jurisdiction by jurisdiction.
Back in 2021 (ancient history at this point, to be fair), the Australasian Centre for Corporate Responsibility outlined that of all the energy supermajors during the plague years, only BP was willing to make vague reduction ‘commitments.’
ASIC brings companies kicking and screaming
Well, now, ASIC has introduced new rules that force Australian ASX-listed companies to consider Scope 3 emissions. (“Kicking and screaming” might be strong words, but I have a hunch that’s not far from the truth.)
Long story short, this year it’s the biggest companies required to do it; small-end-of-town energy producers and explorers have a few years yet to get things in order.
But in the next few years, Australian entities everywhere will need to start reporting Scope 3 emissions in sustainability reports. And with the FY25 reporting season underway, we’re seeing that kick off.
Perhaps not too surprising, the mainstream financial commentariat has been pretty quiet on this point, and let’s be clear right now, I don’t expect these reports to start moving share prices anytime soon (we are, after all, a petrolhead country.)
But that doesn’t mean industry hasn’t been quietly lobbying. If you want evidence of that, ASIC updated in late March its Scope 3 reporting guidelines, in response to “feedback.”
But these reporting figures could be used in lawsuits, and I imagine they’ll end up shaping the portfolios of ‘ethical’ superannuation funds.
Anyway, that’s neither here nor there. With Origin Energy (ASX:ORG) reporting this week, we’ve got a good example of what the future may look like when it comes to Scope 3 disclosures.
What does Origin’s report tell us?
Well, the first thing to note is that along with a Sustainability Report, Origin Energy also released a disclosure titled ‘Climate Transition Action Plan.’ So, there’s that, if you’re the kind of person who can read between the lines of corporate comms.
That plan, released before the sustainability report, basically outlines Origin’s investments in battery energy storage; it frames the company’s exit from upstream exploration permits as an ESG decision and not one due to lower commodity prices post-COVID; and outlines Origin’s involvement in the EV market.
(As for previously voiced net-zero promises, it cited a “challenging environment.”)
Thank god for carbon offsets
Anyway, that’s neither here nor there. The most revealing thing is, perhaps, the language around Scope 3 emissions in the first place.
“As these emissions are indirect and come from sources that we do not control, they are more challenging to address,” Origin wrote.
“Reducing our Scope 3 emissions will require significant effort. We must collaborate with our partners to identify, measure and mitigate emissions within our value chain, and work with our customers and suppliers to help them achieve their decarbonisation goals.”
If that sounds like “we can’t possibly be expected to do this ourselves, what the heck are you talking about?,” you aren’t alone.
But here’s the kicker, and if you’re as cynical as I am, you probably saw this coming.
ASIC is just going to let companies use carbon offsets.
As in, here, plant some trees or something, and boom, we’ll let you reduce the number of emissions on the page.
Just ignore the fact that a lot of carbon offset plantations burn in wildfires.
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“We do not currently utilise… carbon offsets… [but] if there is an unanticipated shortfall in our pathway for residual emissions to meet our target, we may consider the use of carbon credits and we will have regard to credibility and integrity at the time,” Origin wrote on page 13 of its report.
At least they’re trying to be good.
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