Canadian private equity giant criticises “mistaken view” of its reportable emissions.
NGO Investors for Paris Compliance has said there is a “pervasive issue” across the financial sector industry with climate misreporting, as Net Zero Finance Tracker says more transparency is needed in disclosures on portfolio emissions.
The comments come as Brookfield has hit back at suggestions in a new report from Investors for Paris Compliance that it is under-estimating its carbon emissions in its climate reporting.
The spat is centred on Scope 3 reporting, which includes an organisation’s financed emissions. Scope 3 is currently heavily underreported by companies, but almost always represents their largest source of GHG emissions. It’s also notoriously difficult to quantify, given the reliance on data outside a company’s control and the current lack of expertise on how to calculate Scope 3 robustly. New reporting rules from California, Europe and the International Sustainability Standards Board mandating Scope 3 reporting look set to change this over the coming years however.
Speaking to ESG Investor, Kyra Bell-Pasht, Director of Research and Policy at Investors for Paris Compliance, said its engagement with Brookfield during the writing of the analysis went “really well”, but she added that the firm did “specifically take issue with the financed emissions estimates numbers in the report”.
In the analysis, non-profit consortium Private Equity Climate Risks (PECR), which calculated the emissions estimates on behalf of Investors for Paris Compliance, found that Brookfield’s financed emissions were up to 159 million metric tonnes (Mt) CO2 as of Q3 2023, over 13 times more than Brookfield’s own disclosure of 11.8 Mt CO2 in 2022. Its calculation focused on Brookfield’s energy assets, which total more than 700 separate holdings, but excludes equity and bond holdings.
“There are some key gaps in Brookfield’s financed emissions,” said Bell-Pasht. “From what we can tell, they’re only reporting on about half of their AUM (assets under management) and of the AUM they are reporting on, they’re not including downstream financed emissions.”
Financed emissions are the greenhouse gas emissions linked to the investment, and lending activities of financial institutions. Financed emissions are part of Scope 3 emissions under the Greenhouse Gas Protocol, which provides standards and tools that help entities track progress toward climate goals. For some firms, financed emissions are 700x larger than their direct emissions, according to Pathzero.
Responding to PECR’s analysis of its emissions, a Brookfield’s spokesman said: “The emissions data cited in this report are based on inaccurate inputs and deploy a methodology that runs counter to the reporting requirements of the GHG protocol.”
Bell-Pasht said its report did say that “PECR data in some ways may arguably overestimate some aspects of Brookfield’s emissions” in that it includes emissions associated with energy assets in which Brookfield has any investment and didn’t use an “operational control boundary”.
The Brookfield financed emissions data collected by PECR is based on the fossil fuels assets of Brookfield’s energy portfolio companies as of Q3 2023, relates to upstream (i.e. oil exploration and production), midstream (i.e. oil & gas distribution, transportation, storage, refineries, and processing), and downstream (i.e. power generation) energy infrastructure; and results from stationary combustion, fugitive, and process emissions. These emissions are attributed to Brookfield if it is invested at any level.
For example, PECR includes Oaktree Capital Management in its assessment, representing 22% of Brookfield’s AUM, although it has operational independence from the organisation, following Brookfield’s acquisition of a 60% stake in 2019. But she added that PECR’s methodology also had some conservative aspects, such as only assessing energy assets and mitigating against double counting of downstream emissions from oil and gas assets.
Bell-Pasht added: “Brookfield was given an opportunity to review the inputs and methodology used and yet provided no specific feedback.
“We feature Brookfield’s critique of the PECR methodology, and we respond by saying, essentially, that while major gaps remain in Brookfield’s emissions reporting, the PECR data, which provides a transparent methodology, is a reasonable placeholder, providing a sense of the scale of missing emissions data. Ideally, Brookfield would provide its own comprehensive reporting.”
A Brookfield spokesman said: “They substantially misconstrue our corporate structure and therefore create a mistaken view of our reportable emissions. These are fundamental issues which the report’s authors need to address in order to better understand the data.”
Bell-Pasht said: “There continues to be a pervasive issue across climate reporting from financial institutions and Brookfield is no exception. There’s just not information available to assure us that they’re actually following through on their commitments.
“The global transition fund has the potential to do so much and we would love to see Brookfield be a leader and show clear reporting on how its brown assets are adopting net zero plans with specific timelines. We would love to see reporting on how they’re progressing and decarbonising their operations.”
Similar concerns have been raised in a new analysis from Net Zero Finance Tracker, which has analysed data from 562 members of the Glasgow Financial Alliance for Net Zero (GFANZ) and found it is difficult to track the quality of mitigation targets and climate risk management. It said: “More transparency is needed for climate finance targets and related disclosures, as well as of portfolio emissions and how these lead to higher exposure to misaligned assets.”
It added that: “Moving from voluntary to regulatory disclosure of emissions and transition planning would significantly improve data availability.”