Sponsored content by Entoro Capital, LLC

By Thomas Fugelsang, Managing Director, Entoro Capital, LLC

Mark Twain once wrote that whenever you find yourself on the side of the majority, it’s time to pause and reflect. On Scope 3 emissions, almost every large company today is standing firmly with the majority: they’ve made value-chain climate commitments, they publish Scope 3 numbers every year, and they buy carbon credits to show progress. For a long time, that was treated as an unambiguous good, a reputational asset, a box checked for stakeholders, a mostly voluntary exercise where the consequences of getting the details wrong were soft at worst.

That era is ending. Regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD), the International Sustainability Standards Board’s (ISSB) IFRS S2 standard, a climate-disclosure rule issued under the International Financial Reporting Standards (IFRS) framework, and California’s Climate Corporate Data Accountability Act (SB 253) have dragged Scope 3 out of the voluntary corner and into hard disclosure and audit territory. If a company has made net-zero or Scope 3 targets, it’s now expected to back them with numbers, plans, and instruments that can survive an auditor’s scrutiny, not just goodwill.

And that’s where a much bigger problem surfaces. It isn’t a data-quality problem, or a measurement problem, or even really a compliance problem. It’s an arithmetic problem, and it’s baked into the rules themselves.

The seat that got sold four times

Picture a simplified value chain: iron ore is mined, turned into steel, made into a car, and driven until the tank runs dry. Add up the physical emissions at each step, extraction, steelmaking, manufacturing, fuel combustion, and you get roughly 280,000 tons of CO2-equivalent (a standard unit that converts different greenhouse gases into a common measure of warming impact). That’s the real number. That’s what actually entered the atmosphere.

Now follow that same steel through everyone’s Scope 3 books. The mining company reports its own Scope 1 emissions. The steel mill reports its Scope 1. The automaker reports those same steelmaking emissions again, this time as its own Scope 3 “purchased goods.” The fleet operator that buys the finished cars reports them again, in its own Scope 3 inventory. And the bank financing that fleet operator reports them a fourth time, under a category built for tracking the emissions embedded in a lender’s loan book. Add it all up and the reported total balloons to roughly 1,140,000 tons, about four times the physical reality, purely from companies each doing their own bookkeeping correctly.

This isn’t a glitch. The Greenhouse Gas Protocol (GHG Protocol), the rulebook that defines how Scope 3 is calculated, says so explicitly: double counting “is an inherent part of Scope 3 accounting,” and Scope 3 numbers, unlike Scope 1 and 2, are not supposed to be summed across companies because they were never designed to add up cleanly in the first place.

Each company along that chain may also go out and buy carbon credits to “cover” its version of those emissions. Which means, in effect, four different companies are each paying to offset the same 200,000 tons of steel emissions, once each, four times over, while the actual physical emissions occurred exactly once.

Entoro’s own shorthand for this is a plane ticket. Under mandatory disclosure, the question stops being whether a company acts and becomes which cabin it sits in: a cheap, unverified $2 credit in economy, or a heavily diligenced $20 credit in business class. The trouble, as the math above shows, is that a lot of those seats, cheap and expensive alike, have quietly been sold more than once.

Companies doing everything right, and still losing ground

This isn’t a story about companies dragging their feet. Some of the most committed corporate climate programs in the world are running headlong into this problem.

Microsoft pledged in 2020 to be carbon negative by 2030. By its 2024 fiscal year, it had cut its own Scope 1 and 2 emissions by 30% from that baseline, a genuine achievement. But its total emissions, once Scope 3 is included, rose 23% over the same period, driven largely by the buildout of AI and cloud infrastructure. Scope 3 makes up about 97% of Microsoft’s footprint, and it grew roughly 30% during the very years the company was hitting its direct-emissions targets.

Amazon tells a similar story. Since announcing its Climate Pledge in 2019, the company’s direct (Scope 1) emissions have risen 162%, and its total emissions were up 34% from the 2019 baseline as of 2024, driven by data centers and delivery fleets. Both companies have spent hundreds of millions of dollars on renewable energy, credits, and supplier engagement. Their headline emissions numbers went up anyway, not because the effort wasn’t real, but because Scope 3, as currently built, has no mechanism to stop the same physical emissions from being layered into inventory after inventory up and down a value chain.

Sometimes the correction runs the other way, and just as dramatically. In its 2025 sustainability filing, Novo Nordisk restated its 2023 emissions and cut the total almost in half, after switching from a “spend-based” estimation method to one based on actual supplier data. The company said flatly that its earlier numbers had been overstated because of the limitations of spend-based estimation. Given that Scope 3 accounts for roughly 95% of Novo Nordisk’s environmental footprint, that one methodological switch rewrote the company’s entire climate story overnight.

The numbers don’t even agree with each other

If the underlying data were at least reliable, the double-counting problem would be more manageable. It isn’t.

A 2023 study published in PLOS Climate, an academic journal from the Public Library of Science (PLOS), found that two of the major third-party providers of Scope 3 estimates, ISS (Institutional Shareholder Services) and Trucost, produced numbers for the same companies that correlated at just 16%. Even after ISS adjusted its models, the correlation with other providers only rose to the mid-50s, far below the above-90% correlation seen for Scope 1 and 2, which are actually measurable. Amundi’s research team found much the same thing in 2025: a 25% correlation between two major providers on Scope 3 downstream emissions, versus 74% for Scope 1 and 2.

Part of the problem is methodology. Most Scope 3 estimates rely on “spend-based” models, which essentially infer emissions from how much money was spent on a given category of goods, rather than measuring anything directly. Real-world testing has shown these models can overstate emissions from high-value specialty goods by wide margins, in one case, a pharmaceutical company found that switching from spend-based to supplier-specific data cut certain reported emissions by 60 to 70%, while other categories moved in the opposite direction just as sharply.

At that point, the number stops being a measurement and starts being an opinion.

Regulators have stopped accepting the old paperwork

For most of the past decade, Scope 3 lived in a mostly voluntary, low-stakes space. That’s over.

For years, that was the climate-finance equivalent of flying economy on a $2 ticket: it signaled intent, cost very little, and rarely got checked at the gate. Regulators are now effectively pushing every company into business class, toward the $20, heavily diligenced credit, with real verification, clear ownership, and alignment with the Paris Agreement’s Article 6. The $2 tickets are increasingly being turned away at the gate, not because of turbulence, but because many of them were never valid boarding passes to begin with.

The clearest signal is the EU’s Carbon Border Adjustment Mechanism (CBAM), which as of January 1, 2026 requires importers of steel, cement, aluminum, fertilizer, hydrogen, and electricity into the EU to surrender certificates tied to the actual, installation-level emissions of the specific facility that made the goods, not a company-wide Scope 3 estimate, however well audited. If a European automaker imports steel from a mill in Turkey and that mill can’t produce verified installation-level data, the automaker pays the full EU carbon price on that steel, with no credit for any carbon cost already paid at origin.

Banks face a parallel problem under the Partnership for Carbon Accounting Financials (PCAF), the financed-emissions accounting standard now required for EU banks under CSRD. PCAF requires that emissions attributed across a bank’s loan book add up to the real-world total, they must be “aggregable.” Scope 3 numbers, by design, are the opposite: the GHG Protocol itself states that Scope 3 emissions “should not be aggregated across companies.” A bank that finances both a steel mill and the automaker it supplies literally cannot use both companies’ Scope 3 disclosures without double-counting the same tons, and untangling that mess usually requires facility-level data that doesn’t exist in the disclosures banks are actually given.

The voluntary carbon market has already absorbed the impact of this shift. Between 2010 and 2025, approximately 98% of the credits issued by major registries were never authorized under Article 6 of the Paris Agreement, the mechanism that formally transfers a mitigation outcome from the country where it happened to the company or country claiming it. Under the Paris Agreement, mitigation outcomes legally belong to the sovereign state where they occurred unless explicitly authorized for transfer. The UN’s climate body made this explicit in guidance published in October 2025: outcomes without that authorization “would not be recognized” under the Paris framework at all. The market’s response has been brutal, voluntary carbon market issuance has fallen more than 80% from its 2021 peak.

It’s becoming a balance-sheet problem, not just a sustainability-report problem

Until recently, Scope 3 lived entirely off the balance sheet, a cost companies incurred, but not a formal liability. That’s changing through four separate channels, all already active.

CBAM certificates are the most direct: they function as a real financial liability tied to embedded emissions in imported goods, priced at the EU’s carbon price (roughly €75 per ton as of the first quarter of 2026). A company importing 100,000 tons of steel a year at typical emissions intensity is looking at an annual CBAM bill in the range of €13.5 million, a line item, not a footnote.

Separately, accounting rule-makers at the IFRS Interpretations Committee concluded in 2024 that once a company has actually emitted greenhouse gases it publicly committed to offset, it has a present obligation to retire enough carbon credits to cover them, meaning a provision has to show up on the balance sheet, sized to current market prices, under the accounting rule IAS 37 (International Accounting Standard 37). If the underlying Scope 3 number feeding that calculation is inflated by double counting, so is the provision.

Regulators are also scrutinizing whether carbon-intensive assets, plants, equipment, supply relationships, are overvalued on balance sheets that don’t reflect transition risk, a concern the European Systemic Risk Board flagged directly in 2024 under the impairment-testing rule IAS 36 (International Accounting Standard 36). And under the IFRS S1 sustainability disclosure standard (the companion rule to IFRS S2), auditors are increasingly required to check that a company’s sustainability disclosures are “connected” to what’s in its actual financial statements, which becomes a real problem when the sustainability report says one thing about emissions and the balance sheet assumes another.

What the fix actually looks like

The good news is that the alternative isn’t hypothetical. It already exists, in the exact sectors where regulators have forced it into being.

The Oil & Gas Methane Partnership (OGMP 2.0) measures methane at the individual well-site level, using satellite and ground monitoring, with error margins of 5 to 15%. The EU’s own emissions trading system measures industrial emissions at the level of the individual factory, not the parent company. CBAM extends the same logic to imports. In each case, emissions get measured once, at the source, by whoever is actually best positioned to measure them, and then that verified number gets passed downstream to everyone else in the chain, instead of every buyer re-estimating it from scratch with a spend-based guess.

Coffee and cocoa supply chains show what this looks like in practice, and why it matters well beyond the carbon-and-energy world typically associated with this section. A single farmer at origin is often asked by fifty or more different downstream buyers, global food and beverage companies among them, to fill out fifty different carbon questionnaires, each trying to independently estimate the same field-level emissions and deforestation risk. Under the current model, each buyer separately pays a consultant to guess, with error margins of 30% or more, and no two buyers arrive at the same number for the same farm.

The alternative: one farm-level monitoring system, aligned with the EU’s deforestation regulation and existing certification schemes, measures the farm’s emissions once and transmits that verified figure to all fifty buyers simultaneously. The cost of that monitoring, somewhere in the range of €5 to €15 per ton, gets spread across every buyer instead of being paid in full, separately, fifty times over. The error margin drops from roughly 30% to 5–15%. The farmer fills out one form instead of fifty. This is close to how compliance will actually work starting in 2027 for companies sourcing coffee, cocoa, palm oil, soy, rubber, cattle, and timber from deforestation-risk regions, and the same logic extends to steel under CBAM and methane under OGMP 2.0.

Run the math on the underlying value chain, and the case for coordination is stark: if four companies are each independently paying $20 a ton to address the same 200,000 tons of emissions, the value chain as a whole spends $16 million to address something that would cost $4 million to fix once, at the source. Coordinating doesn’t lower the price of decarbonization, the actual work still costs what it costs. It just stops that same bill from being paid three or four times over by companies that have no way of knowing they’re all paying for the identical ton.

The upgrade pays off in three ways that go beyond the ticket price. Shared measurement means shared diligence: common rules, screens, and monitoring built once and used by everyone in the chain, instead of every company running its own bespoke process with the same advisers and the same data. That’s the fast-track-and-lounge-access version of due diligence, the same or better quality, with far less duplicated work, echoing what the psychologist Daniel Kahneman found decades ago studying officer selection: structured, shared assessment consistently beats everyone improvising their own judgment in parallel. It also means a real parachute under every seat instead of just a whistle: shared monitoring, clear ownership, and allocation rules that hold up when conditions change abruptly, a CBAM audit, a financed-emissions challenge, an assurance failure, rather than a pile of bespoke claims that may or may not survive being tested. And it means safety in numbers once the plane lands: a company that has coordinated with its suppliers, its customers, and even its competitors carries more weight at the table with regulators and counterparties than one that flew the whole route alone.

The bottom line

Nobody is arguing that companies should stop pursuing Scope 3 targets, the disclosure obligation exists and isn’t going away. The real question is narrower: do companies keep managing Scope 3 alone, using estimates that a growing body of regulation is beginning to reject outright, or do they start building, and paying into, the shared, sector-level measurement infrastructure that CBAM, PCAF, and the Paris Agreement’s own machinery are already pointing toward?

Every dollar a company is required to spend on Scope 3 either buys real, verified, legally recognized emissions reduction, or it disappears into the structural overlap that the GHG Protocol itself admits is baked into the current design. Coordinating with the rest of the value chain, competitors included, is one of the only ways to guarantee it’s the first kind of dollar, not the second.

A follow-up piece in this series walks through exactly how a coordinated model works in practice, and why it pays off.

Definitions

• CSRD: the EU’s Corporate Sustainability Reporting Directive, which requires large companies operating in the EU to disclose detailed sustainability and climate data.
• ISSB: the International Sustainability Standards Board, the body that sets global sustainability disclosure standards under the IFRS Foundation.
• IFRS: International Financial Reporting Standards, the global accounting and disclosure framework issued by the IFRS Foundation. The ISSB’s climate standard (IFRS S2) and general sustainability disclosure standard (IFRS S1) both carry the IFRS label, as do the older accounting rules IAS 36 and IAS 37.
• SB 253: California’s Climate Corporate Data Accountability Act (Senate Bill 253), which requires large companies doing business in California to publicly disclose their Scope 1, 2, and 3 emissions.
• CBAM: the EU’s Carbon Border Adjustment Mechanism, which charges importers for the carbon emitted in producing certain goods outside the EU.
• PCAF: the Partnership for Carbon Accounting Financials, the standard banks and investors use to measure the emissions financed through their loans and investments.
• GHG Protocol: the Greenhouse Gas Protocol, the most widely used standard for how companies calculate and report their emissions, including Scope 3.
• IAS 37 / IAS 36: International Accounting Standard 37 and International Accounting Standard 36, the global accounting rules covering, respectively, provisions for future obligations and the impairment, or write-down, of assets.
• ISS: Institutional Shareholder Services, a firm that supplies corporate governance and emissions data used by investors.
• OGMP 2.0: the Oil & Gas Methane Partnership, a United Nations Environment Programme framework for measuring methane emissions at the well-site level.
• CO2-equivalent (CO2e): a standard unit that converts the warming effect of different greenhouse gases into a single, comparable measure based on carbon dioxide.

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Entoro, LLC, or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.

Author Bio: Thomas P. Fuglesang is a Managing Director at Entoro Capital, LLC and Capturiant, LLC, with over 25 years of experience in energy, shipping, commodities, and real estate. He specializes in corporate finance, investment banking, private wealth management, and equity sales, with deep expertise in structuring transactions and developing international capital market solutions. At Entoro and Capturiant, he leads structuring, capital markets advisory, and business development for environmental and alternative investment products.

Previously, Thomas spent over 17 years as Managing Director at Absalon Capital Ltd, overseeing projects in oil services, shipping, and commodities, while holding multiple senior roles including Board Director and CFO. Earlier in his career, he held roles at Morgan Stanley (Private Wealth Management and Associate in Luxembourg), Credit Suisse (Investment Banking, Transportation/Shipping), and Pareto Securities (Equity Sales).

Thomas has extensive capital markets experience in capital raising, M&A, governance, advisory, and execution of large-scale international transactions. His leadership roles have included Board Director at CAPOL and Ascot Energy Services, CFO of Newport Shipping LLP, and Director at Ohlsson International Ltd and SeaHold Group.

He holds CFA Level I, the Investment Administration Qualification, and Capital Markets & Securities Analyst certification. His academic background includes an MSc in Shipping, Trade & Finance from Bayes Business School (London), and a BA in Business Economics from Vrije Universiteit Brussel (Belgium) and Augsburg University (Minneapolis).

Thomas is recognized for bridging traditional and emerging sectors and structuring innovative solutions for corporate and institutional clients globally.