Net Zero with an Asterisk: Fixing the Scope 3 Transparency Gap in Australian Finance

Roberto Vitali-Lawn, UNFCCC COP29 Global Voices Fellow

Executive Summary

Australia’s financial sector is hindered by a critical emissions data gap that undermines the credibility of net-zero commitments and enables greenwashing. Scope 3 emissions, particularly financed emissions, are often the largest component of a company’s carbon footprint but remain inconsistently reported and poorly verified. With error rates in carbon accounting as high as 40%, and financed emissions comprising up to 75% of financial institutions’ total emissions, this lack of transparency impairs climate-aligned investment decisions and distorts the pricing of climate risk. Investors, regulators, and the public currently lack the tools needed to evaluate the integrity of sustainability claims, eroding trust and slowing climate finance momentum.

Although Australia’s new Climate-Related Financial Disclosure (CRFD) regime will make Scope 3 reporting mandatory by 2030, the current regulatory guidance (ASIC RG 280) does not require institutions to disclose the quality of their data; an omission that allows unverifiable or low-quality estimates to obscure true emissions profiles. Meanwhile, international best practices, such as the UK pension trustee standards and the Partnership for Carbon Accounting Financials (PCAF) framework, demonstrate the feasibility and effectiveness of reporting data quality scores to enhance climate transparency.

This paper recommends the Australian Securities Investment Commission (ASIC) amend RG 280 to mandate the disclosure of a financed emissions data quality score aligned with the PCAF five-tier framework. Financial institutions would be required to report their portfolio-wide weighted average data quality score, disaggregated by asset class, beginning in their second CRFD reporting year. This change would strengthen investor confidence, reduce the risk of greenwashing, and support more credible net-zero strategies across Australia’s financial sector.

The proposed measure is cost-effective, with estimated implementation costs significantly lower than other ways of reporting data quality in sustainability reporting. ASIC would lead the development of technical guidance, in consultation with stakeholders, and publish annual benchmarking reports to monitor sector progress. Success would be measured by a set reduction in low-quality data (PCAF scores 4–5) and improved investor confidence within three years.

Problem Identification

Many organisations unintentionally engage in greenwashing due to flawed carbon footprint calculations, with error rates averaging 30–40% (BCG, 2021). This inaccuracy undermines Australia’s net-zero strategy by preventing informed decision-making among policymakers, investors, and asset owners. Without reliable emissions data, companies can misrepresent their progress, leading to stakeholder misinformation and misallocated investments. 

One of the most critical issues lies in Scope 3 emissions, which are underreported and highly inconsistent due to multiple systemic challenges. These include the lack of standardised methodologies, heavy reliance on third-party estimates, and limited transparency across supply chains. “The actual uncertainties associated with emissions data and emissions factors varies, but it would not be unusual to have uncertainties well over +/- 50% for industry average factors and +/- 100-150% for spend factors” (Unravel Carbon, 2023).

Scope 3 emissions often account for the largest share of a company’s carbon footprint, typically around 90% for some companies (GHG Protocol, 2022). Yet without accurate reporting, businesses fail to capture the full extent of their climate impact, leading to weak or misleading net-zero commitments. A major component of Scope 3 emissions is financed emissions, which stem from a company’s investments and are not covered under Scope 1 or 2 reporting. Financed emissions, which include the carbon footprint of lending and capital allocation, can represent as much as 75% of total corporate emissions for financial institutions (Deloitte, 2021). Despite this, data assurance in this area remains poor, leaving private investors without confidence in the credibility of climate-aligned financial products or the emissions impact of their portfolios. This lack of assurance limits the ability of private investment firms to guarantee that their capital is genuinely aligned with net-zero outcomes.

At the same time, demand for investing through impact continues to grow, both from institutional and retail investors seeking demonstrable climate results. 88% of Australians expect their investments to be responsible and ethical. (RIAA, 2024a). However, investors often cite access to standardised and comparable tools and frameworks as the leading challenge to measuring and managing impact. (RIAA, 2024b)

Crucially, poor-quality financed emissions data also limits the ability of governments and institutional investors to identify emissions-intensive companies and climate inefficient financial flows. This hinders strategic climate planning and investment alignment, particularly in hard-to-abate sectors where policy and capital must intersect most effectively. Without improved data, Australian companies are not held accountable for their net-zero targets, and the country risks misrepresenting its progress toward emissions reduction, due to possible inconsistencies between Australian companies, governments and investors. 

The consequences of unreliable emissions data extend beyond corporate sustainability. Failure to meet domestic and international climate targets jeopardises Australia’s global standing and weakens its ability to address critical environmental challenges. The Australian Securities and Investments Commission (ASIC), has already begun investigating cases of corporate greenwashing, highlighting the growing legal and reputational risks for businesses that misrepresent their sustainability efforts. Notably, In September 2024, ASIC issued a $12.9 million penalty to Vanguard Investments Australia for misleading ESG disclosures relating to its Ethically Conscious Global Aggregate Bond Index Fund (ASIC, 2025). Without improved reporting standards, data assurance, and regulatory oversight, Australia risks falling behind on its climate commitments while allowing corporations to continue misleading stakeholders about their environmental progress.

Context

GHG Protocol 101

The Greenhouse Gas (GHG) Protocol, established in the late 1990s, provides a comprehensive framework for measuring and managing greenhouse gas emissions, categorising them into three scopes:

Scope of Emissions	Definition	Example using a car company
Scope 1 (GHG Protocol, 2015)	Scope 1 covers direct emissions from owned or controlled sources	Running the factories, test-driving cars, and using company-owned vehicles.
Scope 2 (GHG Protocol, 2015)	Scope 2 includes indirect emissions from the generation of purchased electricity	The electricity and energy they buy to power their factories, offices,  and dealerships.
Scope 3 (GHG Protocol, 2015)	Scope 3 encompasses all other indirect emissions that occur in a company’s value chain	Comes from everything else in their supply chain, like making steel and batteries for their cars, emissions from customers driving their cars, shipping of the cars, the emissions from invested companies.

Table 1: Scope of Emissions Definitions

Scope 3 emissions rely heavily on estimates and assumptions across diverse supply chains, with limited transparency and standardisation, making them significantly less accurate (Hettler & Graf-Vlachy, 2024). Due to this lack of quality Scope 3 data (Mura et al., 2024), emissions inventories often violate core measurement principles of reliability and validity. Over-reliance on estimations limits meaningful benchmarking and comparison. These problems are particularly acute in the finance sector, where a major component of Scope 3 emissions, financed emissions, can be widely misrepresented (Mura et al, 2024).

Explaining Financed Emissions

Financing emissions refer to the greenhouse gas emissions associated with the capital a financial institution provides to companies or projects through loans, investments, or underwriting. These emissions are not caused by the institution’s own operations, but arise from the activities of its portfolio companies. For many banks, insurers, and superannuation funds, financed emissions can constitute up to 75% or more of their total carbon footprint (Deloitte, 2021), making them a critical element of any credible net-zero strategy.

Despite their significance, financed emissions are often disclosed with limited assurance regarding data quality. This lack of transparency undermines the credibility of “green” financial products and contributes to the mispricing of climate risks, making it difficult for investors to distinguish between credible and superficial climate-aligned investments.

Due to the absence of a national standard for assessing financed emissions, institutions often rely on international data frameworks such as the Partnership for Carbon Accounting Financials (PCAF). PCAF provides a five-point scale to assess the quality of data underlying Scope 1, 2, and 3 emissions disclosures from investee companies:

• Score 1 – Direct Data:The emissions data is derived directly from verified sources, such as actual emissions measurements reported by the company. This is the most accurate level.

• Score 2 – Verified Data with Some Estimates:Emissions data is mostly verified but may include minor estimations, such as data from a company's sustainability report that has been assured by a third party.

• Score 3 – Unverified Data:Emissions data is reported by the company but has not been independently verified or assured.

• Score 4 – Estimated Data Based on Industry Averages:Emissions are estimated using industry averages or benchmarks when company-specific data is unavailable.

• Score 5 – Generic Estimates:Emissions data is based on high-level estimates with limited accuracy, often using broad assumptions and minimal company-specific information.

These scores are then weighted across an institution’s portfolio to indicate overall data quality. For example, CBA (Commonwealth Bank of Australia [CBA], 2024) reported an average PCAF score of 2.8 for Scope 3 emissions while covering only 0.01% of its portfolio, whereas the Clean Energy Finance Corporation (CEFC, 2023), reported a score of 3.04 both indicating relatively low levels of precision and data coverage.

Australian Regulations

Australia’s current regulatory framework is governed by the National Greenhouse and Energy Reporting (NGER) Act 2007, which requires large emitters to report Scope 1 and 2 emissions to the Clean Energy Regulator (CER). However, Scope 3 reporting remained voluntary, with limited standardisation and no requirement for independent verification.

This is beginning to shift with the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024, which introduces Australia’s Climate-Related Financial Disclosure (CRFD) Regime. The new regime requires large companies and investors to disclose climate-related risks, opportunities, and Scope 1, 2, and eventually Scope 3 emissions as seen in Table 2. Scope 3 will be mandatory from the second year of reporting, with full implementation expected by 2030.

Required to lodge financial reports under Chapter 2M of the Corporations Act 2001
Expected First Annual Reporting periods	Large entities and their subsidiaries must meet two of the below criteria	National Greenhouse and Energy Reporters	Asset Owners
Total Annual Revenue	Total Assets	Employee Headcount
1 Jan 2025	>500m	>1bn	>500	Above NGER publication threshold	-
1 July 2026	>200m	>500m	>250	All other reporters	>5bn FUM
1 July 2027	>50m	>25m	>100	-	-

Table 2: Overview of the CRFD regulatory scheme

As part of this regulation, ASIC introduced RG 280: Sustainability Reporting as a guidance in helping investors understand the new CFRD. The RG 280 supports large companies and investors in meeting their new sustainability reporting obligations. “The objective of sustainability reporting is to improve the quality, consistency and comparability of climate-related financial disclosures of reporting entities. This facilitates confident and informed decision-making by investors and other users of that information” (ASIC, 2025).  Under this guidance, ASIC permits the use of estimated data, which is not inherently problematic (see RG 280.102–107). However, companies are not explicitly required to disclose the quality of the data, which reduces clarity and makes it difficult for a typical investor to ensure its reliability or for ASIC to determine the granularity of how the emissions are broken up by specific estimate type.

While this legislation represents a step forward, the continued allowance of approximations in Scope 3 data introduces inconsistencies in financial sector disclosures. These inconsistencies can distort how emissions risks are priced and reduce the credibility of climate strategies, particularly for investors and regulators who rely on these reports for capital allocation.

International Examples of Data Quality Innovation

Globally, other jurisdictions have moved further in emissions traceability. In the European Union, Digital Product Passports (DPPs) are being developed to trace emissions and circularity metrics throughout product life cycles using blockchain technology. Each step from manufacturing to disposal is logged, enabling real-time emissions data sharing among supply chain actors, regulators, and consumers (Zhang & Seuring, 2024).

Multinational firms such as Saint-Gobain are already deploying these tools to improve emissions transparency (Saint-Gobain, n.d). By digitally tracking materials' reuse potential and lifecycle emissions, the company enhances sustainability while reducing costs. These innovations demonstrate how higher data quality can yield competitive advantages while supporting global decarbonisation efforts.

In the UK, under its Statutory Guidance on Governance and Reporting of Climate Change Risk for Trustees of Occupational Schemes (UK Department for Work and Pensions, 2021) trustees are advised to select one or more additional climate change metrics. One such metric is data quality, which, similar to the PCAF standard, requires trustees to calculate the proportion of the portfolio for which Scope 1 and 2 emissions (and from the second year, Scope 3 emissions) are verified, reported, estimated, or unavailable. For estimated data, trustees may also classify the proportions according to varying degrees of certainty. The Yorkshire Building Society Pension Scheme is targeting an improvement in data quality as measured by data coverage with a view to potentially adopting a net zero target once the data quality is sufficiently high (Yorkshire Building Society Pension Scheme, 2023).

Policy Options

In order to ensure the adequate assurance of Australian financial institutions net zero targets and subsequently Australia’s net zero target, there are two viable policy options that the Australian government could implement:

1. Mandate the disclosure of a Financed Emissions Data Quality Metric under RG 280 Sustainability Reporting Guidelines

   
   

This approach would require all financial institutions disclosing financed emissions under Australia’s Climate-Related Financial Disclosure (CRFD) regime to include a standardised data quality metric, modelled on the PCAF framework. Such a mandate would bring RG 280 into closer alignment with international best practice, including the UK’s pension trustee reporting guidance, which requires transparency on data verification levels. A mandated data quality score would empower investors and regulators to assess the reliability of emissions disclosures, reduce the prevalence of greenwashing, and improve the pricing of climate risk across portfolios. Moreover, it would support ASIC’s stated goal under RG 280.11 to enhance the consistency and comparability of disclosures. However, this option may be met with resistance from entities with low-quality data or those reliant on generic estimates, as it exposes methodological weaknesses. Implementation would also require ASIC to provide clear technical guidance via consultation through RG280 and timelines to ensure effective and consistent compliance across the sector.

2. Establish a mandatory Digital Product Passport (DPP) that utilises a blockchain ledger to ensure transparency and accountability in accordance with the Treasury Amendments Bill.

   
   

   This system would allow suppliers at each stage of the supply chain to calculate their Scope 1 and Scope 2 emissions associated with product creation, which subsequently contribute to another entity's Scope 3 emissions. The DPP will ensure traceability and transparency through the supply chain. (European Commission, 2022). 

   
   

   One of the key benefits of implementing a DPP is that it would enhance supply chain transparency by providing a clear record of emissions at each stage of production and distribution. This would help reduce discrepancies in emissions reporting and ensure that companies cannot manipulate or misrepresent their carbon footprint. By using blockchain technology, the system would make emissions claims more verifiable, strengthening corporate accountability and reducing the risk of greenwashing. Additionally, the DPP could support circular economy initiatives by tracking resource efficiency, waste reduction, and recyclability, aligning with global sustainability standards.

   
   

   Despite these advantages, establishing a DPP would come with significant implementation challenges. Setting up a blockchain-based tracking system would require high initial investment costs and complex infrastructure development (EUBOF, 2022). Many companies may also resist this initiative due to concerns over data sharing, cybersecurity risks, and competitive secrecy. Furthermore, the successful implementation of a DPP would require extensive coordination across industries and government agencies to ensure that a standardized reporting framework is established. While these obstacles present difficulties, a well-executed DPP could be a transformative tool in improving emissions transparency and ensuring more accurate Scope 3 reporting.

   
   

Policy Recommendation

Option 1, Mandate the disclosure of a financed emissions data quality metric under RG 280 Sustainability Reporting Guidelines, is the most appropriate recommendation for ensuring the adequate assurance of Australian financial institutions net zero targets and subsequently Australia’s net zero target.

This recommendation proposes that the ASIC amend RG 280 of the  to require all financial institutions reporting under the CRFD regime to include a standardised financed emissions data quality score, modelled on the five-tier system from PCAF.

This measure would address the critical lack of assurance in Scope 3 financed emissions disclosures, which currently undermine the credibility of financial institutions' net-zero commitments. By mandating a consistent and transparent quality metric, ASIC would empower investors, regulators, and the public to interpret the reliability of reported emissions figures. The measure aligns with RG 280.11’s stated objective to improve consistency, comparability, and confidence in sustainability reporting.

Implementation

ASIC should first initiate a stakeholder consultation process to finalise the design and reporting obligations of the data quality score. The technical framework should adopt or closely align with PCAF's methodology, using its five-point scale to classify the underlying data for Scope 1, 2 and 3 emissions associated with investments. For example:

• Score 1: Direct emissions data from verified company reports

• Score 5: High-level industry assumptions with minimal company-specific input

  
  

Institutions would be required to disclose their portfolio-wide weighted average data quality score, disaggregated by asset class, beginning in the second year of CRFD reporting, ideally aligned to when Scope 3 disclosures become mandatory. 

Once the stakeholder consultation and review has been completed, the proposed amendment to RG280 of the Sustainability Reporting Guidelines should be implemented in accordance with deadlines in the CFRD guidance where financial scope 3 emissions are material. 

Funding required for implementation is estimated at significantly below the $28,000 (£13,752) annual cost required for a full sustainability report based on the UK’s impact assessment. This specific addition to include data quality should provide menial cost for the reporter for significant gain. (UK Department for Work and Pensions, 2020)

Measurements of Success

The success of this policy would be determined through a detailed review after five years, based on the following indicators:

• A measurable reduction in the proportion of generic estimate data (PCAF scores 4–5) within three years of implementation

• Improved investor confidence, assessed through post-implementation surveys conducted by ASIC or relevant investor organisations (e.g. RIAA)

  
  

Additionally, ASIC should publish annual compliance reports that benchmark sector performance on emissions data quality and provide sector-specific guidance for improvement. 

Limitations and Mitigation

One key limitation is that some financial institutions may struggle to source high-quality emissions data from portfolio companies, especially in emerging markets or private equity. To mitigate this, the framework should include a materiality threshold exempting small portfolios or immaterial asset classes, while encouraging gradual improvement.

Additionally, there is a risk of initial non-uniform compliance or gaming of the quality scoring system. To address this, ASIC should conduct periodic audits and issue enforcement guidance on acceptable scoring practices, supported by third-party verification mechanisms by 2028.

Risks

Inconsistent data availability across asset classes may undermine early implementation.

Some financial institutions, particularly those with global exposure or investments in private equity and emerging markets, may face challenges sourcing high-quality, verifiable emissions data from investee companies. This creates a risk of uneven compliance with the proposed data quality metric, particularly in the first years of implementation. While the framework allows for estimated data, over-reliance on low-quality estimates may persist if stronger enforcement and capacity-building measures are not introduced in parallel.

Institutional resistance could delay uptake and create reputational risks.

Requiring transparency around data quality may expose institutions that rely heavily on generic emissions factors (PCAF scores 4–5), leading to reputational or commercial pressure. This could result in pushback from financial actors concerned about regulatory burden, competitive disadvantage, or being perceived as lagging behind their peers. If not paired with clear technical guidance and phased implementation support, the policy may face political resistance from industry lobby groups, potentially stalling reform progress.

Low regulatory capacity may hinder oversight and quality assurance.

ASIC and other relevant bodies may require additional resources to audit compliance, monitor scoring accuracy, and deter manipulation of emissions data quality ratings. Without sufficient investment in supervision and enforcement, financial institutions may game the system for example, by cherry-picking favourable data or misclassifying scores to enhance the appearance of alignment with net-zero goals. Poor oversight could erode the policy’s credibility and blunt its intended impact on investor confidence and emissions transparency.

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The views and opinions expressed by Global Voices Fellows do not necessarily reflect those of the organisation or its staff.