Singtel’s not-so-deep Scope 3 cuts

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??This week: Singtel’s sharp reduction of its greenhouse gas emissions is, on the face of it, pretty impressive. However, go a little deeper and the Singapore telco’s progress may have more to do with how it estimates its carbon footprint than with actual emissions cuts.

Without clearer explanations by Singtel, observers will find it difficult to properly understand the company’s performance as measured against its emissions targets.

In its latest sustainability report , Singtel stated that it cut total Scope 3 emissions by 33.5 per cent in the year ended March 2024, to 2.56 million tonnes of carbon dioxide equivalent (mtCO2e). That reduction came after an even larger drop in fiscal 2023, by 52.9 per cent to 3.84 mtCO2e. In just two years, Singtel has cut Scope 3 emissions by more than two-thirds.

Scope 3 emissions refer to indirect emissions caused by the company in its supply chain, excluding electricity, cooling and heating that the company purchases for its own use. For Singtel, Scope 3 emissions made up about 86.2 per cent of its total emissions in FY24.

But what does it mean when Singtel cut Scope 3 emissions by 1.28 mtCO2e in FY24? If you put all of Singtel’s Scope 3 emissions from FY23 into a balloon and all of its Scope 3 emissions from FY24 into another balloon, would the FY24 balloon weigh 1.28 million tonnes less than the FY23 balloon?

It may be unintuitive, but the answer is most likely “No”. That’s because most of the reduction appears to have come from how Singtel estimates its Scope 3 emissions. Singtel explained that the bulk of the reduction came from the greater use of company emission factors (CEF) or product carbon footprints (PCF) as opposed to industry average emission factors (IAEF).

Unlike financial accounting, where every cent can be reliably counted, with emissions reporting, it’s not possible for companies to precisely measure the actual amount of greenhouse gases they emit, much less the indirect greenhouse gases being produced along their supply chains. Emissions reporting, therefore, relies greatly on best-effort estimations.

One important tool in the estimation process is the emission factor, which roughly gives the average amount of emissions per unit of a given activity. For instance, the average emission factor for Singapore’s power grid was 0.4168 kilogramme of carbon dioxide per kilowatt hour (kwh) in 2022. This means a company that used 1 million kwh of electricity in Singapore in 2022 might simply multiply the grid emission factor by a million and report that its electricity consumption generated 416.8 tonnes of carbon dioxide.

Obtaining accurate emission factors can take a lot of work, which is why industry and geographical averages are widely used. Companies that are willing to put that work in can obtain company-level emission factors from their suppliers, which will be more accurate than the industry or geography averages. Companies can further work out carbon footprints for specific products, which would be even more accurate.

It’s usually the case that company emission factors for suppliers are lower than industry averages, and that’s mainly because the suppliers that are able to provide CEF to their customers tend to be the ones putting more effort into sustainability. At the same time, companies that bother to work out CEF in their supply chains tend to be the ones that are more selective about the carbon footprints of their suppliers.

Since FY23, Singtel has been using more CEF and PCF in its Scope 3 calculations. This is particularly so in the reported Scope 3 emissions for purchased goods and services and capital goods, which accounted for almost half of the company’s total Scope 3 in FY23.

Thus, methodology had a big part to play in the emissions reductions for Singtel over the past two years. It’s a positive change because more CEF and PCF mean that Singtel’s numbers are getting more accurate. The problem is that Singtel hasn’t applied the new methodology to past data, and there are no restated past Scope 3 numbers that can be used to compare against the new numbers.

Singtel has been working hard to decarbonise its supply chain. However, the company’s sustainability report doesn’t provide enough information to understand how much of Singtel’s Scope 3 performance came from the application of a new methodology and how much came from actual emissions reductions. Furthermore, Singtel’s current emissions targets use 2023 as a baseline, and it’s not clear whether the methodology used for the baseline is still relevant or if it should be updated. Since the new methodology produces lower emissions values, it’s likely that past emissions numbers are significantly inflated.

Such information would be important for investors, especially those who value sustainability and want clarity about Singtel’s progress. In fact, the International Financial Reporting Standards’ recently introduced rules on sustainability reporting require that changes in metrics be applied to preceding periods so that a revised comparative amount is available. If it’s not practical to do so, the company should disclose that fact.

Singtel has a strong track record in transparency and sustainability. When the company first adopted emissions targets in 2017, it became the first Asian company outside of Japan to have its goals validated by the Science Based Targets Initiative. In 2023, the company revalidated a new set of targets that were even more ambitious than the first, with a net-zero goal in 2045.

Having put all of that work in, Singtel could do more to help investors better appreciate its sustainability performance.

??Top ESG reads:

1. Only a quarter of Singapore executives believe their companies’ Scope 3 targets are highly achievable, says a study by the Institute of Singapore Chartered Accountants and Schneider Electric.
2. Temasek has retained its top spot on governance, sustainability and resilience in the annual Global SWF rankings.
3. South-east Asia’s governments that cut fuel subsidies to ease fiscal constraints may face unhappiness as inflation rises.
4. Existing emergency response plans for oil and chemical spills provide a valuable starting point for ammonia bunkering, but procedures tailored for the alternative fuel are critical , says Global Centre for Maritime Decarbonisation chief executive Lynn Loo.
5. Climate action is here to stay, although the pace at which it occurs could be up for debate, says MSCI president and chief operating officer Baer Pettit.

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