Investments emissions (Scope 3 Category 15)

Investment emissions (classified under Scope 3 Category 15) are linked to a company’s financial investments and are often overlooked in traditional carbon accounting. 

This means that the emissions related to a company’s portfolio of investments need to be studied and listed. Scope 3 category 15 emissions must be carefully accounted for, especially when meeting climate goals and maintaining transparency and accountability with stakeholders.

What are investment emissions (Scope 3 Category 15)?

Investment emissions, classified under Scope 3 Category 15 of the GHG emissions scopes and categories, refer to the greenhouse gas (GHG) emissions that arise from a company’s financial investments. In other terms, these emissions are linked to the activities of the businesses in which the company has invested.

On the contrary : 

• Scope 1 includes the direct emissions from a company’s operations;
• Scope 2 concerns the indirect emissions from purchased energy.

This category is particularly significant because it reveals a company's​​ hidden carbon footprint tied to its financial decisions. In practice, the operations of investee companies can produce substantial emissions, which contribute indirectly to the investing company's carbon footprint. 

So, if a company is willing to achieve a more complete and accurate understanding of its carbon footprint, it must include these investment emissions in its corporate value chain accounting. 

Types of investments included in Scope 3 Category 15

To help you understand the types of investments that fall under Scope 3 Category 15, here are a few examples:

• Debt investments: This includes corporate debt holdings such as bonds or loans, where the funds are directed toward specific projects;
• Equity investments: The capital used by a company to invest in subsidiaries, associates, and joint ventures must also be accounted for because emissions associated with these entities are considered part of the investing company’s carbon footprint;
• Project finance: This refers to long-term financing for infrastructure, industrial, or other large-scale projects, which is directly linked to the company providing the funding.

How can companies calculate investment emissions? 

Calculating the emissions tied to your company's investments might seem overwhelming, but it's a pivotal step toward genuine sustainability. Investment portfolios often encompass a wide array of industries and regions, making it essential to assess the greenhouse gas emissions they generate accurately.

So, how can companies effectively navigate this complex task? Let's examine the methods and tools that simplify calculating Scope 3 Category 15 emissions.

Methods for calculating investment emissions

Even if the process of calculating investment emissions under Scope 3 Category 15 involves meticulousness, here are the two primary methods that your company can use:

• Investment-specific method: As the name suggests, this method requires directly collecting Scope 1 and Scope 2 emissions data from the investee companies. Then, once the data is obtained, emissions need to be allocated to the reporting company based on its proportional share of the investment;
• Average-data method: If specific emissions data is unavailable, you can use the average-data method to quickly estimate your emissions by applying environmentally-extended input-output (EEIO) data to the revenue of the investee companies. To obtain an estimate, you must multiply the calculated emissions by sector-specific emission factors.

You can also follow these general steps to calculate your company’s investment emissions effectively:

• Identify the relevant investments: Start by screening your investment portfolio to identify which investments are likely to contribute the most to your total GHG emissions;
• Collect Scope 1 and Scope 2 emissions data from your investee companies:
  You will need to collect emissions data directly from the companies in which you’ve invested, knowing that this data can often be sourced from their GHG inventory reports or financial records;
• Allocate emissions based on a proportional share of investment:
  Once you have the emissions data, the next step is to allocate it according to your company’s proportional share of equity in each investee;
• Use carbon accounting software to simplify calculations and analytics:
  Do not hesitate to use carbon accounting software to automate emissions data collection, calculation, and reporting. Why? This will improve its accuracy and make tracking and managing your investment emissions easier over time.

Advantages of using carbon accounting software

Using carbon accounting software gives companies several significant advantages in calculating and managing investment emissions. Here are the key benefits:

• Improved accuracy: Carbon accounting software minimises human error by automating data and calculations, ensuring at the same time more precise and reliable emissions data;
• Increased efficiency: Carbon accounting software also automates data collection, calculations, and reporting, which is extremely important to save time and resources so teams can focus on strategic actions instead of manual tasks;
• Better ability to track emissions: One of the most powerful features of carbon accounting software is its ability to track emissions data over time. Thanks to real-time analytics, it helps companies monitor progress toward sustainability goals and progressively adjust their strategies.

For what industries are Scope 3 Category 15 emissions crucial?

Did you know that in specific industries, emissions from investments can far exceed those from direct operations? Scope 3 Category 15 emissions—linked to a company's assets—are critical to the greenhouse gas puzzle. It is essential to understand which sectors carry the most weight in investment-related emissions for businesses aiming to minimise their environmental impact.

Let's delve into the industries where these emissions are significant and pivotal to sustainability efforts.

Financial services

Financial institutions like banks and investment firms hold a powerful economic position, but this influence comes with a significant responsibility regarding emissions. 

The greenhouse gas (GHG) emissions linked to the companies they finance (so Scope 3 Category 15 emissions) can often overshadow their direct emissions. This is why financial institutions must manage these emissions and even engage with companies to help them lower their carbon footprints. 

Energy and utilities

The stakes regarding investment emissions in the energy sector are exceptionally high, mainly because this industry relies on fossil fuels, which are significant contributors to GHG emissions. 

In practice, investments made in energy and utilities can lead to indirect emissions. These emissions, for example, come from the extraction or combustion of fossil fuels, which justifies the importance of fully accounting for them for energy companies. 

Which industries are crucial for investment emissions?

How can companies reduce investment emissions?

To conclude on this topic, here are some practical and impactful strategies companies can adopt to reduce investment emissions:

• Engage with investee companies: The idea is to work as close as possible with the companies you invest in to encourage sustainable practices (cleaner technologies, improved energy efficiency, reduced waste during their operations);
• Set science-based targets: Your company needs to establish clear science-based targets to be able to reduce emissions across the investment portfolio;
• Include environmental considerations into your company’s investment decisions: Make a solid environmental impact by putting carbon accounting in your investment decision-making process, which requires regularly evaluate potential investments regarding their carbon footprint and not just their financial returns;
• Prioritise emission reductions over offsetting: Another best practice is to focus on strategies that can directly reduce emissions at the source rather than relying only on carbon offsets, which don’t address the root cause of emissions.

Calculate and reduce your company’s Scope 3 emissions with Plan A’s carbon management software. Book a demo to test it.