The R Street Institute released an analysis on Mar. 20 addressing the growing requirements for businesses to disclose greenhouse gas emissions, with a particular focus on Scope 3 emissions. The report highlights that states such as California have implemented rules requiring large companies to report not only their direct operational emissions but also indirect emissions throughout their supply chains. Similar policies are being considered in New York, New Jersey, Illinois, Washington, and Colorado.
These expanding regulations could impact more than a third of U.S. economic output, making it important for policymakers to understand both the benefits and limitations of such disclosure mandates. The Greenhouse Gas Protocol is identified as the main framework supporting these state-driven policies.
The institute notes that Scope 3 emissions often make up about 75 percent of a company’s total greenhouse gas output, and sometimes even more in sectors like manufacturing and retail. However, collecting accurate data for Scope 3 is challenging and costly because it involves gathering information from suppliers and modeling downstream product use based on various assumptions. According to the report, compliance costs can reach $533,000 per year per company for climate-related disclosures alone, rising to $677,000 when including voluntary transition planning activities. Of this amount, about $237,000 is specifically related to greenhouse gas analysis driven by Scope 3 requirements.
Institutional investors also face significant expenses—averaging $1.37 million annually—for climate data analysis and reporting across their portfolios. These costs reflect a broader commitment of resources toward maintaining the current reporting system.
The R Street Institute points out that only between 29 and 48 percent of public companies fully disclose Scope 3 emissions due to methodological difficulties and varying estimation techniques among firms. This results in inconsistent data that can be hard for investors to interpret confidently.
The report suggests reforms such as focusing on emission categories that are material and measurable rather than expanding mandatory disclosures indiscriminately. It also recommends allowing innovation in product-level carbon accounting systems as alternatives to broad corporate aggregation.
In conclusion, the institute argues that while transparency about value chain emissions remains important for understanding climate risk, disclosure mandates should be refined to ensure they provide reliable information without imposing excessive costs or administrative burdens.
