top of page

Chemical company emissions disclosures . . . but what happened to Category 10?

Writer's picture: Barrie WilkinsonBarrie Wilkinson

Updated: May 21, 2024


Today we are going to take a look at the GHG emissions disclosure data we have collected for a sample of 16 companies from the Chemicals and Specialty Chemicals industries for the 2022 reporting period.


We will also dive into the company-specific emissions disclosures of BASF SE and Dow Inc, two of the world's leading chemicals producers to illustrate how we can use our carbon benchmark data to compare the emissions of an individual company to a peer industry average.


BASF and Dow are both sophisticated companies and have, not surprisingly, done a very solid job of estimating the emissions of each Scope 3 sub-category with their estimates aligning closely with our peer average calculation in most categories.


But wait . . . there is a little controversy that needs discussing. Why have BASF and Dow Inc chosen not to disclose Scope 3 category 10 (the emissions related to downstream processing of their chemicals)? In fact, it turns out that 75% of chemicals companies in our sample have chosen not to disclose category 10 even though it is likely a large source of emissions.


Check out Barrie's video summary below, or read on to learn more!





Is Scope 3 a big deal for Chemicals companies?


In short, yes it is. Scope 3 emissions is the largest category for chemical companies accounting for the majority of the emissions in our 2022 peer dataset:



Which companies have we chosen to make up our dataset?


The first thing to say is that the companies included in our datasets should be considered the "good guys". These companies are very much in the minority in having disclosed a detailed breakdown of the 15 Scope 3 sub-categories. For example, for the Chemicals industries shown below we read through the sustainability reports of 75 companies and found that only 16 companies had disclosed their Scope 3 emissions in sufficient detail to meet the standards of our assurance team.

How accurate is the peer benchmark data?


As can be seen above, the companies in our datasets are all large companies (most of them have revenues in excess of $10BN) which means they likely have access to the skills and expertise needed to perform an accurate and detailed calculation of Scope 3 emissions. All of these companies are publicly-listed and hence their disclosures have generally been through some level of assurance before being disclosed in their annual/sustainability reports. For the time being, we have excluded the voluntary disclosures of smaller companies from our datasets since they typically haven't yet been through assurance.


Let's compare the emissions of BASF and Dow Inc to the peer-average benchmarks of the chemicals industry


Firstly, a word on how we calculate the peer average benchmarks. The various companies in our dataset are of different sizes so we need to adjust for size by dividing each company's emissions by the company's revenue. Our datasets also include a link to the full income statement of each company for the same reporting period. Dividing by revenue converts absolute emissions (kgCO2e) into a normalized metric (kgCO2e/USD) which can be more easily compared and averaged across companies. If a company fails to report a category then we exclude that datapoint from the average rather than assuming that the number is zero which would tend to understate the peer average.


Below you can see the actual disclosures of BASF SE and Dow inc. compared to their Peer-average Benchmark from our Chemicals dataset. You will notice that our estimated peer benchmark for BASF is larger than for Dow Inc which reflects the fact that BASF is a larger company (with $92 BN of reported revenue in 2022) than Dow Inc (with $57BN of reported revenue in 2022) and therefore we expect BASF (all other things being equal) to have higher emissions.



In the table, we focus on the 5 categories that matter most for the chemicals industry.


As can be seen, both BASF and Dow Inc's calculations are largely aligned with our industry benchmarks. With the exception of category 10 which both BASF and Dow Inc have chosen not to disclose.


So what's the deal with category 10?


Of the 16 companies in our Chemicals peer dataset only 4 companies chose to disclose the emissions in category 10 (Downstream Product Processing). BASF and Dow Inc are therefore in good company n choosing not to disclose this category. However, if we look at the emissions of those 4 chemicals companies that did disclose this category, it is a big number! In fact, our peer benchmark data indicates that this missing category would (all-other-things-being-equal) amount to roughly 9 million and 15 million tonnes of CO2e for BASF and Dow Inc. respectively.


So clearly, category 10 cannot be excluded on the grounds of it being immaterial.


We read the footnotes so you don't have to!


If you read through the footnotes of the disclosures of the large Chemical companies you will find a reference to some guidance for Chemicals companies from the World Business Council for Sustainability Development (WBCSD) which states that: "Chemical companies are not required to report scope 3, category 10 emissions, since reliable figures are difficult to obtain due to the diverse application and customer structure."


Your job as an assurance professional


Companies that are currently preparing for their regulatory disclosures under CSRD/ESRS will be required to obtain limited assurance before disclosing their emissions. Limited assurance basically states that "the auditor is not aware of any material modifications that should be made" to make the disclosure a more accurate reflection of the company's actual position.


So how should an assurance professional view the above situation where a company has omitted a category which likely accounts for millions of tonnes of CO2e but where the WBCSD has given guidance that this category can be excluded because "figures are difficult to obtain"?


A good question.


Your job as a regulator


It is topics like this where we will ultimately need further guidance from the regulators that will be enforcing the ESRS standards. Voluntary expert organisations such as the WBCSD should certainly offer their input into regulatory guidance, but regulators are in my view the people with the right level of independence and authority to make the final call on these important topics.


But of course I would love to hear thoughts on this topic from readers in the comments below!

0 views0 comments

Recent Posts

See All

Comments


bottom of page