Across Southeast Asia and Oceania, managing Scope 3 emissions is now a key priority for optimizing investment portfolios.
This in-depth analysis highlights how investment managers, private equity firms, and family offices can transform the complexities of carbon footprint management into strategic opportunities for growth and sustainability.
Understanding the Scope 3 Framework
Definition and Scope
Scope 3 emissions encompass the entire spectrum of indirect emissions within a company’s value chain. Unlike Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased energy), Scope 3 emissions present a more complex challenge. These emissions include all aspects of supply chain operations and raw material sourcing, extending to the impact of business travel and employee commuting patterns.
The scope further encompasses the complete product lifecycle impacts throughout the value chain, as well as the extensive transportation and logistics networks required for business operations. Additionally, it accounts for the environmental impact of post-consumer product disposal and processing methods.
Research by McKinsey & Company indicates that Scope 3 emissions can constitute up to 90% of a company’s total emissions footprint. The World Resources Institute further supports this finding, noting that these indirect emissions typically represent approximately 75% of an organization’s greenhouse gas emissions.
Why Should You Pay Attention?
Regulatory Pressure
Regulations across Asia-Pacific are evolving rapidly, making it essential for investors to stay ahead. Scope 3 reporting is no longer optional—Hong Kong’s HKEX and Australia’s ASX have mandated it starting in 2024. Closer to home:
- Singapore: Pioneering with its Carbon Pricing Act, introducing advanced carbon tax policies and a well-structured carbon credits registration system.
- Malaysia: Rolling out its National Guidance on Voluntary Carbon Markets, offering a framework to incorporate emissions management into corporate strategies.
- Regional stock exchanges: Increasingly requiring businesses to demonstrate compliance with these new carbon accountability standards.
This shift is more than a compliance issue—it’s a game-changer for investment strategies and corporate growth.
Investor Expectations
The Science-Based Targets initiative (SBTi) has set the benchmark for credible net-zero commitments. Global investors are now closely evaluating companies’ decarbonization strategies, with a strong focus on managing indirect emissions.
This goes beyond meeting compliance requirements—it’s about showcasing resilience and long-term value to investors who are prioritizing climate-conscious decisions.
Renewable Diesel: A Strategic Solution
Understanding Renewable Diesel Technology
Renewable diesel represents an advanced fuel solution that shares the same chemical structure as conventional diesel but is manufactured from sustainable sources including agricultural byproducts, recycled cooking oils, and animal fat derivatives.
Through an advanced hydrotreatment process, it achieves complete compatibility with current diesel engine systems and infrastructure, enabling immediate use without equipment modifications.
Key Advantages: Environmental and Performance
Carbon Footprint Reduction
Renewable diesel reduces lifecycle greenhouse gas output by up to 80% compared to traditional diesel fuel because it uses sustainable sourcing and cleaner combustion.
Enhanced Environmental Performance
Renewable diesel lowers particulate matter levels and reduces harmful SOx and NOx emissions.
Performance Standards
Users can expect equivalent power output and fuel efficiency to conventional diesel, maintaining full operational capabilities.
Addressing Scope 3 Emission Challenges
Transportation emissions, a major contributor to Scope 3 footprints, present unique decarbonization challenges. Renewable diesel offers a practical solution:
Fleet Management Benefits
Organizations can reduce transportation-related carbon emissions by up to 80% by converting their vehicle fleets to renewable diesel.
Value Chain Enhancement
Organizations can multiply environmental benefits by promoting renewable diesel adoption throughout their supply networks, particularly in shipping and delivery operations.
Sustainable Resource Management
Converting waste products into renewable diesel supports circular economy principles while reducing landfill-related emissions.
Industry Leadership: Neste Corporation Example
Neste Corporation demonstrates renewable diesel’s practical applications through their “Neste MY Renewable Diesel” product line. Their success shows how organizations can:
- Track Environmental Impact: Implementation supports verified emission reductions aligned with Science-Based Targets.
- Implement Efficiently: The drop-in nature of the fuel enables rapid adoption without infrastructure changes.
Their work with a major logistics provider demonstrated a 70% emissions reduction across five years, proving the viability of large-scale implementation.
Implementation Challenges and Solutions
Economic Considerations
Higher costs compared to conventional diesel can be offset through government incentives, tax benefits, or carbon trading programs.
Resource Constraints
Production faces limitations due to feedstock availability. Research into alternative sources like algae and synthetic materials offers potential solutions.
Education Gap
Limited understanding of renewable diesel benefits can be addressed through targeted information campaigns by industry and government stakeholders.
Regulatory Framework and Regional Developments
Asia-Pacific Regulatory Landscape
The regulatory environment across Asia-Pacific has undergone significant transformation, with various jurisdictions implementing increasingly stringent requirements.
Investors operating in Southeast Asia and Oceania should stay informed about evolving carbon market regulations
Singapore
Singapore has established itself as a regional leader in carbon management through comprehensive regulatory frameworks.
The nation has implemented the Carbon Pricing Act and developed sophisticated carbon tax regulations, complemented by the establishment of a comprehensive carbon credits registration system.
Currently, Singapore maintains a carbon tax of SGD 25 per tonne, with plans to increase this to SGD 45 per tonne by 2026, demonstrating its commitment to progressive environmental policy.
Malaysia
Malaysia has demonstrated its commitment to environmental sustainability through several key initiatives.
The country has introduced the National Guidance on Voluntary Carbon Markets and established a firm commitment to achieving a 45% carbon intensity reduction by 2030, using 2005 as the baseline year.
The launch of the Voluntary Carbon Market (VCM) Exchange in 2022 further solidified Malaysia’s position in the regional carbon market.
Indonesia
Indonesia has taken significant steps in environmental regulation by implementing comprehensive voluntary carbon market guidelines.
The country has placed particular emphasis on leveraging its natural resources for carbon credit generation, while maintaining a strong focus on transparent monitoring and verification processes. This approach has positioned Indonesia as a key player in the regional carbon market landscape.
Global Stock Exchange Requirements
Major exchanges including Hong Kong’s HKEX and Australia’s ASX have mandated Scope 3 reporting requirements starting from 2024, signaling a broader shift toward comprehensive emissions disclosure.
Strategic Implementation for Investors
1. Enhanced Due Diligence Framework
Modern due diligence processes must incorporate comprehensive Scope 3 emissions assessment. This begins with the development of detailed emissions baseline measurements to establish a clear starting point for improvement.
Organizations must conduct thorough identification of primary emission sources within their value chain, followed by comprehensive gap analysis of current management practices. These efforts should be integrated with Science-Based Targets initiative (SBTi) frameworks to ensure alignment with global standards and best practices.
2. Active Ownership Strategies
Effective emissions management requires proactive engagement across multiple dimensions. Organizations must implement robust accounting methodologies to accurately track and measure emissions throughout their operations.
This should be supported by regular monitoring and reporting mechanisms that provide transparency and accountability. The development of comprehensive accountability frameworks ensures consistent progress tracking, while targeted stakeholder engagement programs facilitate buy-in and support from all relevant parties.
3. Innovation and Technology Integration
Investment in technological solutions plays a crucial role in emissions management. Organizations should focus on implementing advanced supply chain analytics to better understand and optimize their operations.
Carbon capture and storage technologies represent another critical area for investment, along with renewable energy solutions that can help reduce overall emissions. Supporting early-stage climate tech investments can also help organizations stay at the forefront of environmental innovation.
Companies That Are Getting It Right
Let’s look at some companies that are doing things right:
Comgest’s Smart Approach
Comgest, an asset management firm, has developed a robust strategy to incorporate climate considerations into its investment framework. They prioritize analyzing financed emissions, with a significant focus on Scope 3 metrics, to better understand the climate impact of their portfolios. By employing detailed carbon accounting tools, Comgest ensures that their investment decisions align with long-term sustainability goals.
In 2022, Comgest reported that over 65% of their actively managed funds were aligned with Paris Agreement trajectories, demonstrating their commitment to addressing climate risks.
Through targeted shareholder engagement, Comgest pushes portfolio companies to enhance their emissions reporting and adopt science-based targets, leading to measurable reductions in Scope 3 emissions.
Nippon Life’s Number Game
Nippon Life, one of Japan’s largest insurers, has embedded climate benchmarks into its investment strategies by systematically assessing companies’ GHG emission intensities, including Scope 3 metrics. Leveraging frameworks like the Paris Agreement, Nippon Life evaluates the alignment of corporate targets with net-zero pathways.
By 2023, Nippon Life had integrated climate risk analysis into over 75% of its investment portfolio. The company’s use of granular data allows it to guide investments toward organizations demonstrating credible decarbonization efforts, fostering accountability and resilience.
For example, in the automotive sector, Nippon Life’s investments have spurred automakers to disclose lifecycle emissions data and set ambitious electrification targets, directly addressing Scope 3 emissions.
Amazon’s Supplier Engagement Initiative
Amazon has taken a proactive approach to addressing Scope 3 emissions through its “Sustainability Exchange” program, launched in July. This innovative platform provides suppliers with essential resources to measure and reduce their emissions.
The program focuses on practical implementation, sharing detailed case studies and playbooks that help suppliers understand and act on decarbonization opportunities.
Walmart’s Financial Innovation
Walmart demonstrates how creative financing can drive supply chain decarbonization. Through its partnership with HSBC since 2021, Walmart offers suppliers favorable financing terms specifically for decarbonization initiatives.
Their Project Gigaton has achieved remarkable success, reaching its goal of helping suppliers avoid 1 gigaton of emissions six years ahead of schedule. This approach shows how large retailers can leverage their financial relationships to accelerate supply chain sustainability.
Schneider Electric’s Industry-Wide Impact
Schneider Electric has emerged as a pioneer in supply chain decarbonization, developing a comprehensive approach that extends beyond individual company relationships. Their sector-specific program, launched in 2021, initially targeted the pharmaceutical sector and has since expanded to include mining and semiconductors.
The program combines educational programming with concrete decarbonization product offerings, actively working with more than 2,200 suppliers.
Schneider’s approach has yielded tangible results, particularly in renewable energy adoption. They’ve facilitated the formation of seven cohorts for joint renewable electricity purchases, demonstrating how collective action can make clean energy more accessible to smaller suppliers.
This model shows how third-party expertise can catalyze industry-wide transformation in Scope 3 emissions reduction.
Unilever’s Supply Chain Revolution
Unilever, a global consumer goods leader, has implemented a transformative approach to supplier collaboration aimed at reducing Scope 3 emissions. The company’s “Climate & Nature Fund,” established in 2020 with an initial allocation of €1 billion, supports projects that drive decarbonization across its supply chain.
By incentivizing suppliers to adopt renewable energy and sustainable agricultural practices, Unilever has achieved significant progress. Between 2020 and 2023, Unilever reported a 23% reduction in Scope 3 emissions across its top 300 suppliers.
The company’s digital platform, which tracks supplier emissions data, ensures transparency and facilitates targeted interventions. By the end of 2024, they aim to have onboarded around 300 suppliers, accounting for approximately 44% of their Scope 3 GHG emissions related to raw materials, ingredients, and packaging.
Unilever’s efforts exemplify how collaboration and innovation can drive meaningful climate action within complex global supply chains.
Conclusion
Invest smarter—address Scope 3 emissions to unlock both environmental and financial gains.
By staying ahead with smart strategies, technology, and partnerships, you can future-proof your investments. As regulations change, especially in Southeast Asia and Oceania, addressing Scope 3 emissions today will give you a competitive edge and long-term success.
Glossary
Scope 3 emissions: Indirect greenhouse gas emissions from a company’s value chain, such as emissions from suppliers and product use.
Carbon Pricing Act: Legislation that sets a price on carbon emissions to encourage reductions and facilitate emissions trading.
Carbon tax regulations: Rules that impose a tax on companies for each ton of carbon dioxide they emit.
Carbon credits registration system: A framework to track and verify carbon offset projects, enabling companies to buy and sell credits to offset emissions.
National Guidance on Voluntary Carbon Markets: A framework that provides guidance for companies to participate in carbon markets voluntarily.
Science-Based Targets initiative (SBTi): An organization that helps companies set emission reduction targets in line with climate science to achieve net-zero.
Decarbonization plans: Strategic plans developed by companies to reduce their carbon emissions over time.
Greenwashing: A deceptive practice where companies exaggerate or mislead consumers about their environmental efforts.
Regulatory penalties: Fines or other legal consequences imposed on companies for non-compliance with environmental regulations.
Climate-related disclosures: Reports companies must provide about their climate risks, emissions, and strategies to manage them.
Net-zero commitments: Pledges made by companies or governments to balance the amount of greenhouse gases emitted with an equal amount of reductions or offsets.
Carbon-constrained world: A future scenario where limits are placed on the amount of carbon dioxide that can be emitted into the atmosphere.
Emissions management: The process of measuring, reducing, and reporting an organization’s greenhouse gas emissions.
Sustainable investing: Investment strategies that consider environmental, social, and governance (ESG) factors to generate long-term returns.
Carbon credits: Tradable certificates that represent the reduction of one ton of carbon dioxide or other greenhouse gases.
References
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