Improving climate emissions accounting to accelerate the circular economy transition

Financial institutions and investors leading the circular economy transition — by mobilising capital towards circular economy solutions that tackle climate change, biodiversity loss, and pollution — should see their successes reflected when they disclose their Scope 3 financed emissions.

Currently, that’s not the case.

Climate emissions accounting methodologies provide valuable data, but they do not always reflect the impact of the circular economy in a fair and accurate way. In fact, some methodologies actually disincentivise circular economy activities. For example, the GHG Protocol — the world’s most widely used emissions accounting framework — penalises businesses that are extending the durability of their products, because the methodology means they report an increase in the lifetime emissions attributable to those products.

As the finance sector looks to play an increasingly influential role in climate action, it needs the right data to make the right investment decisions.

When climate emissions accounting methodologies do not fairly and accurately reflect the impact of circular economy activities, the risk is that large pools of climate-focused capital will not be directed towards circular economy solutions.

The circular economy has a key role to play in tackling the climate crisis. The energy transition is vital, but it’s only half the story — energy efficiency and renewable energy can only address 55% of global greenhouse gas emissions. To address the remaining 45% and reach net zero, we need to change the way we make and use products, materials, and food.?

We need a circular economy.

As a trusted and credible thought leader, the Ellen MacArthur Foundation is informing the development and revisions of leading voluntary and mandatory reporting frameworks and mechanisms, such as the GHG Protocol, to ensure circular economy measurement and reporting is easier and more impactful. Drawing on the challenges faced by the businesses in our Network, we want to ensure that climate emissions inventories incentivise circular business models.

The forthcoming revisions to the GHG Protocol’s standards and guidance offers an opportunity to help companies more accurately attribute emissions to their activities and value chains, including the shift to more circular practices, and increase the visibility of this impact for capital markets.?

To help drive action on the climate crisis, the Foundation’s new insights paper — Improving climate emissions accounting to accelerate the circular economy transition — encourages all users of emissions data to support the GHG Protocol with these revisions.?

It’s important that financial institutions and investors engage with the process — and encourage their portfolio companies to do the same — to ensure they can understand the full impact of their financing and investment activities, and allocate more capital to supporting high-impact circular economy solutions.

Read the paper to learn more: https://links.emf.org/40Wy85F