Portfolio Temperature Rating - Scope 3

Hi,

In the SBTi Guidance for Portfolio Temperature Rating it states ’ Financial institutions’ borrowers’ and/or investee’s targets shall include coverage of scope 1 and 2 emissions, as well as scope 3 emissions when their scope 3 emissions are more than 40 percent of total scope 1, 2, and 3 emissions’

Please can you explain why Scope 3 should be included in PTR (where above 40%)? What is the rationale?

Thanks

This rationale is based on the same criteria applied for in the corporate target setting framework, when if a companies scope 3 emissions represent more than 40% of its total emissions, it must set a scope 3 target.
For the portfolio temperature rating methodology, if a company whose scope 3 emissions are more than 40% of total, and does not have a scope 3 target, then they will receive a default 3.2C rating for that company’s scope 3 temperature

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Thanks Eoin, so really it is about ensuring that companies are taking accountability for the full value chain, where it is impactful.

Wouldn’t this just introduce ‘double counting’ and another difference to the institution’s carbon footprint as determined by the GHG protocol?

Hi Henrik. Yes it would be double counted by both the FI and the corporate. However this is by design as we want these emissions to be double counted to ensure the shared responsibility of both entities. The GHG protocol uses this principal for scope 2 and scope 3 emissions, which are also double counted across corporates as a direct mechanism to ensure shared responsibility over emissions within the same value chains

I mean not only by the FI and a corporate but also if the FI has holdings in the corporates suppliers. Then we would include Scope 1+2 of the supplier twice as this is the Scope 3 of the corporate.

Our verified carbon footprint (as per the GHG protocol) only includes our ownership share of scope 1+2 emissions from our holdings. Therefore, the SBT guidance creates a lot of confusion of different datasets.

Hi Henrik, you are correct that for the carbon footprint you could just look at the scope 1+2 of the assets in the portfolio, to avoid double counting. Therefore this would give you a portfolio wide scope 1+2 footprint. You can also produce a scope 1+2+3 footprint for the portfolio but this will may have double counting across suppliers.

This is not a problem however for target setting, as the SBTi will not require you to produce a portfolio footprint. For example, the temperature rating of individual companies will occur for both their scope 1+2, and their scope 1+2+3. While there is again double counting by including scope 3, all reductions will also be double counted, cancelling any of these issues. So a company who sets a more ambitious target (improving their temperature rating) will also be reflected for another company who uses that company as a supplier i.e. a more ambitious scope 1+2 target for company A will mean that company B’s scope 3 temperature rating also improves.

Hope this makes sense?

Hi Eoin,

Please can you explain how to go about collecting scope 3 data for the PTR method? Whilst some companies have this information, there are a lot of gaps which need infilling.

Kind Regards,
Katie

It is not that I do not agree to the importance of the scope 3 emissions. But when I look at the SBTi approved targets for indivual companies, these are (mostly) classified as “The targets covering greenhouse gas emissions from company operations (scopes 1 and 2) are consistent with reductions required to keep warming to 2°C.”

It seems like a big obstacle for financial institutions to to get (reliable) scope 3 data for all its holdings and be able to meet relevant reduction targets covering S1+S2+S3 using the temperature rating method.

Nearly all approved SBT companies also have a scope 3 target. The quote you highlight just refers to the fact that the SBTi only temperature classifies scope 1+2, and does not give a public rating to scope 3 (yet). However, your point still stands that the vast majority of non-SBT companies do not have any scope 3 targets, and therefore they will be assigned a default rating of 3.2C for their scope 3 emissions under the temperature rating approach. This is far from ideal, but the point of the default score is to act as a signal to engage the company to set a scope 3 target to bring that temperature rating down towards 2C.

From some initial tests we have completed, up to 70% of companies have no valid scope 3 targets to work with, and hence the temperatures will be starting from a high score. This unfortunately is just a reflection of the market, with the goal now being to increase engagement efforts to ensure scope 3 is addressed

Hi Katie. For scope data requirements, this is defined in terms of targets and emissions. For the emissions bit, many data providers now give estimates for scope 3 emissions, and these can be used for the temperature rating approach. On the target front however, if the company has no public scope 3 targets, then they will be given a default rating of 3.2C

Thanks Eoin. Do you know exactly which commercial data providers will provide the Scope 3 estimates?