Greta Thunberg (see note 1) is right. It is our job as investors to engage our companies about climate change. There is a difference between empty promises and real change. For example, a corporate long term reduction goal is nice but Hertz Rental Car will be buying 100,000 new Teslas (see note 2) - that is real action.
Understanding the emissions of our holding companies is an important first step toward real action. Let's review:
Scope 1 includes fuel combustion that is necessary for operations such as onsite power at a steel plant, tractors on a farm or mine site, or fugitive emissions from hydraulic fracturing or flaring.
Scope 2 is energy that is purchased electricity, heat or steam
Scope 3 is anything that is indirect but still part of the company's operations such as a company's purchased goods and services; think of the footprint of the raw materials that go into a semiconductor fab. A company's waste disposal, it may require energy to dispose of the waste. Use of sold products e.g. oil and gas, Business travel, Employee commuting, Transportation and distribution (up- and downstream)
Investments, leased assets and franchises. There are actually about 15 sub categories of Scope 3 emissions. A lot of oil companies are beginning to realize that it is the Scope 3 emissions of their operations that are the main issue. Some of them are beginning to disclose Scope 3.
By having this information about your holding companies and your portfolio at your fingertips, you can then work to bring Scopes into your investment processes and optimize with that.
Scope 3 is often the most difficult to estimate but often the largest aspect of a company's total emissions. While a company can invest to increase efficiency or purchase renewable energy, Scope 3 emissions may have to be addressed through deeper structural planning such as changes in product design, decisions about distribution and packaging or could even call the entire industry into question such as oil & gas.
Source: greenhouse gas protocol