A plastics manufacturing plant in Deer Park, Texas, on Feb. 15, 2023. Proposed new guidance from the Canadian Sustainability Standards Board, would require companies to report not only the greenhouse gas emissions they produce, either through their own operations or from the energy they consume – known as Scope 1 and Scope 2 emissions, respectively – but also Scope 3 emissions, which come from their upstream supply chains or the end use of their products.
Canadian markets and regulators will have to make a choice between those two routes. As shareholders we can’t afford to let them take a wrong turn. For investors, Scope 3 is where the real action is. The first is that, unlike directly controlled emissions, Scope 3 is not “material” to a company. But this is based on a narrow interpretation of materiality that is focused solely on the current balance sheet or income statement.
As our trading partners around the world adopt more stringent regulations and policies to address climate change, ignoring Scope 3 emissions may leave companies vulnerable to regulatory changes, new tariffs , fines or other penalties. As investors, we need to be able to model the potential impact of regulation, litigation, taxation and tariffs on a company’s future financial performance and competitiveness. Scope 3 data is essential to that task.
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