It’s only when your car breaks down that you realize you’ve been sold a lemon.

That’s a lesson often applied in financial markets. When capital is flowing freely, investors aren’t likely to spend too long kicking the tires before deciding to put money down. When funding becomes more constrained, they’ll want to examine every detail of the log book before driving off.

This phenomenon was seen most dramatically in the period spanning the 1997–98 Asian financial crisis and the 2001 Enron bankruptcy. People who’d piled into investments suddenly discovered that accounting rules were shot through with loopholes and lacunas, allowing businesses with seemingly robust balance sheets to collapse overnight. That shock, and the desire to tempt back capital with the promise of more transparency, is one of the main reasons that international accounting and audit standards have been harmonized so rapidly in the decades since.

We’re overdue a similar reckoning with the way companies calculate their carbon emissions.

As we’ve written, estimates of corporate carbon footprints currently show about as much consistency as the circa-1996 balance sheets that contributed to the Asian financial crisis. While disclosure of Scope 1 emissions (those from on-site activities) and Scope 2 emissions (from purchased electricity) are improving rapidly, accounting for Scope 3 emissions from the rest of the supply chain is particularly patchy.

That’s a problem for the resources sector, since the Scope 3 emissions from burning or processing the petroleum, coal and iron ore that miners and oil companies produce are by far the largest slice of their carbon footprints.

The 182-page, 15-category guidance for Scope 3 disclosures offers so much scope for discretion and ambiguity that companies can more or less mark their emissions to model — or even refuse to disclose them at all. To counterbalance this, we’ve produced something akin to the Economist’s Big Mac Index — a rough-and-ready measure that tries to make up for its bluntness by being more comparable than official measures.

Gaping Loopholes

On paper, BP and Royal Dutch Shell are closely comparable, with each accounting for about two million barrels a day of oil production and 10 billion cubic feet a day of gas


Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Shell’s self-disclosed Scope 3 emissions are 61% larger compared with BP

…mostly thanks to the fact that BP doesn’t count its 20% stake in Rosneft towards the total, despite including the earnings in its consolidated accounts

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Shell’s self-disclosed Scope 3 emissions are 61% larger compared with BP

…mostly thanks to the fact that BP doesn’t count its 20% stake in Rosneft towards the total, despite including the earnings in its consolidated accounts

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Shell’s self-disclosed Scope 3 emissions are 61% larger compared with BP

…mostly thanks to the fact that BP doesn’t count its 20% stake in Rosneft towards the total, despite including the earnings in its consolidated accounts

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Shell’s self-disclosed Scope 3 emissions are 61% larger compared with BP

…mostly thanks to the fact that BP doesn’t count its 20% stake in Rosneft towards the total, despite including the earnings in its consolidated accounts

The calculation isn’t all that hard, and we’re not the only people to have attempted it — the CDP, an emissions-disclosure charity, did a similar analysis in 2017. The factors on which Scope 3 accounting is based are grounded in the fundamental chemistry of organic molecules and the thermal efficiency of industrial boilers, engines and smelters. While the most rigorous Scope 3 accounting should be based on data specific to a company’s customers, fossil fuels are ultimately sold into global markets, where one barrel of oil is pretty much interchangeable with another.

What do the data show?

Nondisclosure

Many of the biggest emitters aren’t disclosing their footprints at all. The 63 companies in our sample account for 22 billion metric tons of Scope 3 carbon dioxide equivalent a year, about two-thirds of all fossil pollution according to our calculations


Scope 3 emissions, metric tons of CO2-equivalent a year

11.5B

Estimated fossil emissions

for rest of world

Scope 3 emissions, metric tons of CO2-equivalent a year

11.5B

Estimated fossil emissions

for rest of world

Scope 3 emissions, metric tons of CO2-equivalent a year

11.5B

Estimated fossil emissions

for rest of world

Scope 3 emissions, metric tons of CO2-equivalent a year

11.5B

Estimated fossil emissions

for rest of world

Unaccountable

Around 20% of the world’s emissions come from a group of businesses that don’t report their emissions, their production or even basic financial data — the unlisted national oil companies that dominate production from the Persian Gulf as well as parts of Asia, Africa and Latin America


Scope 3 emissions for national oil and gas:

Metric tons of CO2-equivalent a year

323

Kazmunaigaz

(Kazakhstan)

240

Pertamina

(Indonesia)

Scope 3 emissions for national oil and gas:

Metric tons of CO2-equivalent a year

323

Kazmunaigaz

(Kazakhstan)

Scope 3 emissions for national oil and gas:

Metric tons of CO2-equivalent a year

Scope 3 emissions for national oil and gas:

Metric tons of CO2-equivalent a year

State Polluters

Another 19% of global emissions comes from a group of listed state-controlled giants that have historically barely accounted for their Scope 3 emissions


Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Gazprom started reporting a plausible figure this year

Rosneft has been reporting an implausibly low figure for several years

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Gazprom started reporting a plausible figure this year

Rosneft has been reporting an implausibly low figure for several years

Scope 3 emissions for listed oil, gas:

Metric tons of CO2-equivalent a year

Gazprom started reporting a plausible figure this year

Rosneft has been reporting an implausibly low figure for several years

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Gazprom started reporting a plausible figure this year

Rosneft has been reporting an implausibly low figure for several years

Public Polluters

Listed oil companies, excluding state-controlled ones, make up 15% of global emissions


Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

Scope 3 emissions for listed oil and gas:

Metric tons of CO2-equivalent a year

(Including Aramco, Gazprom, Rosneft and PetroChina takes the total to 27% of global emissions, making listed oil and gas companies the biggest group of polluters in our ranking.)

Finally there’s a group of mining companies that tends to attract less attention than Big Oil.

Miners Can Do Better

Independent coal and steel companies comprise 12% of global emissions. Reducing the 2.8 billion tons of emissions from the steel industry will be a key priority for the world over the coming decades


Scope 3 emissions for coal:

Metric tons of CO2-equivalent a year

Of the independent businesses, the biggest polluters aren’t coal miners like Glencore and Peabody, but iron ore miners

Scope 3 emissions for coal:

Metric tons of CO2-equivalent a year

Of the independent businesses, the biggest polluters aren’t coal miners like Glencore and Peabody, but iron ore miners

Scope 3 emissions for coal:

Metric tons of CO2-equivalent a year

Of the independent businesses, the biggest polluters aren’t coal miners like Glencore and Peabody, but iron ore miners

Scope 3 emissions for coal:

Metric tons of CO2-equivalent a year

Of the independent businesses, the biggest polluters aren’t coal miners like Glencore and Peabody, but iron ore miners

Note: Steel companies shown account for three-fifths of steel industry emissions.

Our measurements are far from perfect, and should be used as a rough guide only. My colleague Clara Ferreira Marques has pointed out that measurements of Scope 3 emissions are still more art than science. We’re a long way from having the sort of comprehensive disclosure that would be more useful to investors than a feel-good press release.

If you’re tempted to ask why this matters, you’re in the same boat as people who professed no interest in the fine print before investing in Daewoo Motor Co., Yamaichi Securities Co., WorldCom Inc. or Lehman Brothers Holdings Inc. It’s quite possible that a company’s plan for surviving the transition to a decarbonized economy is watertight — but in the absence of disclosed data, you have no way of distinguishing genuine foresight from convenient flimflam.

Circumspect investors choose to trust, but verify. If they want to be well prepared to withstand climate risks, those who commit equity and debt should demand the information that will help them make up their own minds.

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