'Scope 3' International Standards Announced in June... Manufacturing Companies Face Urgent Challenge

June IFRS Sustainability Standards Board
Scope 3 Disclosure Standards Expected
Difficulty Measuring Carbon Emissions After Product Use

Han Jong-hee, Vice Chairman and CEO of Samsung Electronics and Head of the DX (Device Experience) Division. [Photo by Samsung Electronics]

[Asia Economy Reporter Moon Chaeseok] The International Sustainability Standards Board (ISSB) of the International Financial Reporting Standards (IFRS) Foundation is expected to announce mandatory disclosure regulations for 'Scope 3' in June. Scope 3 refers to carbon emissions encompassing not only product manufacturing but also the consumption stage. It has been pointed out that violating these regulations could lead to a decline in company brand value and financial market credibility, necessitating preparation. Major companies, including Samsung Electronics, the largest manufacturer in Korea, have yet to announce a roadmap covering emission calculation methods, reduction targets, and disclosure systems.

ISSB is highly likely to include Scope 3 in the 'Sustainability Disclosure Standards' to be announced in June. The 'European Sustainability Reporting Standards (ESRS),' which will be applied next year, also require mandatory disclosure of Scope 3. In March last year, the U.S. Securities and Exchange Commission (SEC) released a draft 'Climate Disclosure Rule' that mandates Scope 3 disclosures when necessary. Although violating disclosure rules does not result in punishment of executives, sanctions such as tariffs, fines, and embargoes can be imposed. There are voices urging companies to respond promptly to avoid risks such as stock price declines.

Companies are not ignoring Scope 3 responses. Samsung Electronics calculates Scope 3 emissions according to the Greenhouse Gas Protocol (GHG Protocol) and discloses them on the CDP (Carbon Disclosure Project) platform. SK Hynix discloses Scope 3 emissions in its sustainability management report. As of 2021, Scope 3 emissions amounted to 3,432,777 tons. LG Electronics, like Samsung Electronics, responds to CDP while managing data internally.

The problem is that companies have not disclosed a comprehensive roadmap that includes emission aggregation methods, reduction targets, and disclosure systems. The longer the announcement is delayed, the more it could hinder management decisions of partner companies and investment decisions.

There is a strong call for the roadmap to at least include information on the disclosure items required by ISSB. The disclosure items include purchased raw materials and services, fuel and energy activities, upstream and downstream transportation and logistics, waste, employee business trips and commuting, leased assets, processing, use, and disposal of sold products, franchises, and investment status.

The first step, measuring Scope 3 emissions, is already complicated. It is said that measuring carbon emissions from the customer product usage process (downstream) is more difficult than those from partner manufacturing and logistics processes (upstream). After establishing the measurement system, detailed targets for each disclosure item must be set. All these tasks must be carried out together with partner companies. Companies judge that it is difficult to create a roadmap without an emission measurement system and reduction targets for each disclosure item. Samsung Electronics is reported to have somewhat established an upstream measurement system. Partner company emissions are aggregated by calculating greenhouse gas emissions generated when companies that account for the top 90% of transaction volume with Samsung Electronics manufacture products. It is known to be about 15 million tons annually over the past 3 to 4 years.

Companies say they are "in the process of creating a roadmap" but do not disclose the timing of publication. A Samsung Electronics official said, "Scope 3 was not included in the 'New Environmental Management Strategy' announced last September," adding, "We plan to establish carbon neutrality goals including Scope 3 in the future." An SK Hynix official said, "We are making a roadmap, but the timing of its announcement is undecided," withholding further details.