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January 2, 2024

Scope 1, 2, and 3 Carbon Emissions Data: AI as the Holy Grail?

Autor:
Bavest
ESG
Scope 1, 2, and 3 Explained

Understanding a company's carbon footprint is crucial for investors concerned about environmental sustainability. Carbon emissions are categorized into three scopes. Scope 1 includes direct emissions from sources owned or controlled by the company, such as on-site fuel combustion. Scope 2 includes indirect emissions from purchased electricity, heat, or steam. Scope 3 involves indirect emissions from the entire value chain, including both upstream and downstream activities like supply chain, transportation, and product use. Companies often focus on Scope 1 and Scope 2 emissions for internal sustainability initiatives, while Scope 3 emissions require a more comprehensive assessment of the entire business ecosystem. Recognizing these distinctions aids investors in evaluating a company's commitment to reducing its overall environmental impact.

Challenges in Collecting Scope 2 and 3 Data

Collecting accurate data for Scope 2 and Scope 3 emissions is a major challenge. Scope 2 data depends on energy suppliers' transparency, and discrepancies in reporting methods can result in inaccurate assessments. Because Scope 3 is the most comprehensive category, collaboration across the entire supply chain is required, making it difficult to capture the full extent of emissions. Many companies are struggling with data gaps, incomplete reports from suppliers and different measurement standards. This lack of standardized reports makes it difficult for investors to accurately compare the carbon footprints of different companies. Overcoming these hurdles is critical for investors who want to make informed decisions based on a company's comprehensive climate impact.

The Problem with Small- & Mid-Cap Equities

One prevailing issue in the realm of ESG (Environmental, Social, and Governance) investing is the limited availability of scope 1, scope 2 and scope 3 data for small and mid-cap equities. Many platforms focus on larger companies with more extensive reporting capabilities, leaving smaller entities overlooked. Small and mid-cap companies may lack the resources or regulatory pressure to disclose comprehensive emission data. This information gap can hinder investors from fully integrating environmental considerations into their decision-making processes, potentially leading to an incomplete assessment of a portfolio's sustainability. Bridging this data divide is essential for fostering transparency and enabling investors to consider a broader range of companies in their sustainable investment strategies.

AI: The Holy Grail?

In the era of advanced AI, particularly with large language models and transformer architectures, there is newfound potential to overcome the challenge of collecting Scope 1, Scope 2, and Scope 3 data, even for small and medium-sized businesses. Innovations in data extraction and analysis powered by AI can automate the collection of environmental data from various sources and provide a more comprehensive and standardized data set. We at Bavest illustrate this approach by using AI technologies to compile and present CO2 emissions data, even for companies with limited reporting options. The ability of AI to sift through huge data sets, interpret unstructured information, and recognize patterns makes it a valuable tool for improving the accessibility and reliability of environmental data for investors.

Here, the Bavest AI engine extracts text and figures from a given document to generate ESG data

At Bavest, we use the transformer model to extract comprehensive amounts of financial and ESG data from various documents and different file formats. The transformer model enables us to analyze and process this data from a variety of sources. You can read exactly what our AI technology at Bavest looks like here: https://www.bavest.co/de/post/unlocking-the-power-of-transformers

Conclusion

As investors increasingly value sustainability, understanding a company's carbon footprint is becoming an essential part of decision-making. Scope 1, 2 and 3 emissions provide a differentiated perspective on a company's environmental impact. However, it has been difficult to collect comprehensive data so far, particularly for stocks in small and medium-sized companies. The advent of artificial intelligence, with its ability to efficiently process large amounts of information, offers a promising solution to fill this gap. Companies like X are an example of the transformative potential of AI to make CO2 emissions data more accessible and reliable. As investors navigate the evolving landscape of ESG considerations, the integration of AI-driven solutions will be a decisive step towards a more sustainable and transparent financial ecosystem.

Take advantage of CO2 emissions data from the Bavest API

At Bavest, we offer Scope 1, 2, and 3 CO not only for large caps2 emission data on, but also for mid and small caps.

Our proprietary system allows us to collect a variety of data from various sources and record it in such a way that we can provide you with a wide range of climate data.

Are you interested in how you can use our solutions? Then talk to us!

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