External assurance in Scope 3 climate reporting acts as a crucial mechanism to verify the accuracy and reliability of a company's reported greenhouse gas emissions across its value chain.

An independent third-party review to validate the data enhances the credibility and trust in the company's sustainability claims for stakeholders such as investors and customers, especially given the complex and often data-limited nature of Scope 3 emissions.

Scope 3 emissions are greenhouse gas emissions that occur outside of a company's direct control, but are still a result of its activities. They include emissions from business travel, employee commuting, waste, and the transportation of goods. (1) 

Importance of Scope 3

A government study of Scope 3 emissions reporting identified that Scope 3 emissions could account for most of a company’s emissions, up to 90% of emissions for some companies) and that reporting and validation of this data would be required for transparency of the full company carbon footprint. (2)

The study advises that reducing Scope 3 emissions from the UK could contribute to reaching the UK’s Net Zero target by 2050. It says that Scope 3 disclosures are becoming increasingly important for investors and stakeholders who are considering the transition readiness of organisations to adapt to a low-carbon economy. 

The report advises: “As this level of reporting provides a fuller picture of a company’s climate impact, this can help to inform decision-making by investors and stakeholders and ensure they are accountable for managing climate related risks and reducing emissions.”

The report also highlighted the benefit of Scope 3 reporting in supporting development of science-based targets, and the benefits of enhancing the reputation of firms and increasing investor ratings. (2)

The transparency and awareness that results from Scope 3 reporting was seen as beneficial to informing decision-making in terms of identifying emissions hotspots and making targeted efforts to reduce emissions, including sustainable procurement policies, and implementing resource efficiency measures. External auditing is seen as an often necessary but additional cost. (2)

Performance checker

An external assurance exercise, voluntary or mandatory,  is an examination of sustainability information disclosed by a company. Independent external assurance enhances information’s credibility and supports investors and other users in making decisions related to sustainability matters.

It’s important to bear in mind that an assurance engagement does not serve as company’s performance measurement. While assurance increases the reported information’s credibility, it does not validate the company’s performance as sustainable. (3)

Main benefits

By providing a third-party assessment, the increased transparency helps to ensure that reported Scope 3 emissions are accurate and not manipulated, leading to greater transparency in a company's environmental impact. 

Assurance also gives stakeholders confidence that the company is accurately reporting its Scope 3 emissions, even when dealing with complex supply chains and data collection challenges. 

A verified Scope 3 report with external assurance gives stakeholders greater confidence in the company's commitment to sustainability and its reported emissions data. Investors and other stakeholders place greater value on Scope 3 data that has been externally assured, as it indicates a higher level of reliability. 

The assurance process can also highlight areas where data quality is lacking or where methodologies need refinement, allowing companies to address potential issues in their Scope 3 reporting. 

Reliable Scope 3 data, supported by external assurance, allows investors and other stakeholders to make informed decisions about a company's environmental performance. 

It’s important to keep in mind that as regulations around climate reporting become stricter, external assurance may become a mandatory requirement for companies to comply with reporting standards. 

Challenges

• Data Complexity: Scope 3 emissions often involve a wide range of indirect sources across the value chain, making data collection and verification challenging. 

• Data Quality: Reliance on data from suppliers and other third parties can raise concerns about data quality and consistency. 

• Methodology Selection: Choosing appropriate methodologies for calculating Scope 3 emissions can be complex and requires expert judgment. (1)

External assurance in practice

1. Reviewing methodologies: The assurance provider assesses the methods used to calculate Scope 3 emissions, ensuring they are aligned with recognised standards like the GHG Protocol. 

2. Data validation: The examiners probe the underlying data used in the calculations, checking for accuracy and completeness. 

3. Assessing materiality: Examiners evaluate significance of the Scope 3 emissions identified, considering the company's business context and industry norms. 

4. Providing feedback: Examiners can offer recommendations to improve data collection, methodology, and overall Scope 3 reporting process. 

SaveMoneyCutCarbon’s view is that external assurance can play a central role in building confidence in Scope 3 climate reporting by providing independent verification of a company's emissions data. It enables more informed decision-making by stakeholders and promotes greater transparency in sustainability practices.

Bibliography

1 “What are scope 1, 2 and 3 carbon emissions?” (Accessed February 2025) https://www.nationalgrid.com/stories/energy-explained/what-are-scope-1-2-3-carbon-emissions

2 “Scope 3 Emissions in the UK Reporting Landscape” (Accessed February 2025 https://assets.publishing.service.gov.uk/media/67499f7e75bb645366b3a1e7/summary-of-responses-call-for-evidence-scope-3-emissions-reporting.pdf

3 “Fundamentals to Assurance” (Accessed February 2025) https://accountancyeurope.eu/publications/faqs-fundamentals-to-assurance-on-sustainability-reporting/