Regulation Update: EU Scope 3 mandate

Starting 1 Jan 2024, large companies (with more than 750 employees) need to disclose sustainability information including Scope 1, 2, 3, and Total GHG Emissions in their management report (as per materiality assessment)

The Corporate Sustainability Reporting Directive (CSRD)

New rules on corporate sustainability reporting

On 31st July 2023, the European Commission adopted the European Sustainability Reporting Standards (ESRS) within the scope of the Corporate Sustainability Reporting Directive (CSRD), with an aim to strengthen the rules related to social and environmental information (including Scope 3) that companies need to report.

The scope of the CSRD is extensive and has the potential to impact many U.S.-based companies with activities in the E.U.

What do all large companies need to adhere to with regard to Scope 3?

  • Companies shall report on sustainability matters based on the double materiality i.e., Sustainability risk (including climate change) affecting the company + Company’s impact on society and the environment.
  • Requirements specific to Scope 3 Emission reporting:
    • Update Scope 3 GHG emissions in each significant category every year on the basis of the latest activity data.
    • Update the full Scope 3 GHG inventory at least every three years.
    • Screen its total Scope 3 GHG emissions based on the 15 Scope 3 categories identified by the GHG Protocol Corporate Standard and GHG Protocol Corporate Value Chain (Scope 3) Accounting.
    • For each significant Scope 3 GHG category companies need to disclose the percentage of emissions calculated using primary data obtained from suppliers or other value chain partners.
  • Companies are required to publish information according to 12 ESRS (European Union Sustainability Reporting Standards) as per materiality assessment, except for ESRS 2 " General disclosures" that are mandatory. ESRS 2 covers requirements related to governance, strategy, impact, risk, and opportunity management
  • Obtain third-party assurance and external auditing certificate.

The rule is subject to approval or rejection by the European Parliament and Council.

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