As environmental consciousness grows, so does the need for accountability across all sectors. Companies are increasingly being called upon to assess and report on their environmental impact, with a primary focus on greenhouse gas (GHG) emissions. This reporting has traditionally focused on three areas: Scope 1, which covers direct emissions from company-owned resources; Scope 2, which includes indirect emissions from purchased electricity, steam, heating, and cooling; and Scope 3, which involves all other indirect emissions from the entire value chain. But a new dimension is gaining attention — Scope 4, or "avoided emissions."
Scope 4 reporting looks at the emissions that are avoided when a company’s products or services enable others to reduce their emissions. This type of reporting can be complex and controversial, but it’s also essential if we want to create a truly sustainable and accountable world. Here’s why we should all care about Scope 4 reporting:
Expanding the definition of corporate responsibility
Scope 4 reporting extends beyond a company’s direct and indirect emissions, shifting the focus toward how a business can positively impact the environment through innovation. For example, if a technology company develops a software tool that enables clients to cut down on energy consumption, this reduction in energy use can be seen as an avoided emission. Scope 4 reporting allows companies to quantify and communicate these benefits, demonstrating their contributions to the larger goal of decarbonization.
By implementing Scope 4 reporting, companies are incentivized to develop solutions that help reduce emissions globally, even if those emissions reductions aren’t happening within the company’s immediate operations. This approach not only encourages innovation but also promotes a more holistic understanding of corporate responsibility in tackling climate change.
Enhancing transparency and accountability
Accurate Scope 4 reporting can lead to greater transparency and accountability in corporate climate action. Traditional emission scopes provide insight into a company’s direct and indirect emissions but fail to capture the potential environmental benefits of emission-reducing products and services. By adding Scope 4, stakeholders, investors, and regulators can get a more complete picture of a company’s environmental impact and the actual progress it’s making toward its climate goals.
Transparency in Scope 4 reporting can also mitigate greenwashing concerns. Companies often promote their climate initiatives without clear or measurable data to support their claims. By adhering to standardized Scope 4 reporting, companies can back up their claims with concrete metrics on avoided emissions, helping consumers and investors to trust and verify the positive environmental impact of their operations.
Driving market change and innovation
Scope 4 reporting could transform markets by rewarding companies that produce solutions with the potential to reduce emissions at scale. By measuring and reporting on avoided emissions, businesses can attract investors interested in supporting genuine sustainability efforts. This financial backing can fuel research and development, fostering a new generation of products and services designed to mitigate climate change.
Moreover, as more companies start to report Scope 4 emissions, competition will naturally increase, leading to more ambitious climate solutions. With Scope 4, companies are driven to innovate not just within their operational boundaries but also across their industries, shifting markets towards greener practices.
Supporting global climate goals
Finally, Scope 4 reporting aligns with global climate goals by encouraging emissions reductions across sectors. As governments and institutions set targets to limit global warming to 1.5°C, every emissions reduction counts. Scope 4 allows companies to demonstrate their role in the collective effort to reduce global emissions, even if those reductions happen indirectly.
Ultimately, Scope 4 reporting broadens the concept of environmental responsibility, encouraging companies to consider not only their direct emissions but also how they contribute to systemic change. If we are to tackle the climate crisis effectively, Scope 4 is a crucial tool for incentivizing innovation, supporting transparency, and inspiring collective action. It’s time for everyone — businesses, investors, and consumers alike — to care about Scope 4 and its potential to reshape our path toward a sustainable future.
Not sure where or how to get started with Scope 4 reporting? At OXIA, we have made it our business to create the most trusted platform source for global ESG and impact data by designing methodologies and tools for measurement of GHG emissions, in synergy with investors, investees and governments.
