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Mandatory upstream and downstream emissions reporting would put undue strain on small businesses

Montreal, December 8, 2022 – Plans to mandate scope three emissions reporting would be detrimental to small businesses, finds a new report published this morning by the Montreal Economic Institute.

“Small businesses don’t have the same resources as large corporations at their disposal,” said Krystle Wittevrongel, senior policy analyst at MEI and author of the study. “What is a costly exercise for a corporate regulatory compliance department usually represents an insurmountable obstacle for small business owners.”

The Canadian Securities Administrators – an umbrella group for all provincial and territorial securities regulators – is looking into mandating the inclusion of all upstream and downstream greenhouse gas emissions (scopes one, two and three) for publicly listed Canadian companies.

Scope one emissions refer to those stemming from the manufacturing process itself. Scope two emissions refer to those associated with operations of the manufacturing facility, such as heating and hydro. Scope three emissions are everything else, from the extraction of raw materials to the final consumption and subsequent disposal. The report is looking at the cost of reporting for the latter.

It has been estimated by the U.S. Securities and Exchange Commission study that similar requirements in the U.S. average $490,000 to $640,000 in compliance costs for the first year alone.

In its study, the MEI shows that, despite its application being limited to publicly listed companies, scope three emissions reporting requirements would be imposed indirectly on small businesses working in large-business supply chains, as emissions reporting would be required for every stage of a product’s lifecycle.

“Mandatory ESG reporting requirements would tack on extra costs at every level of the supply chain, including with the small businesses that act as suppliers,” said Wittevrongel. “It risks removing small businesses from the big business supply chain.”

The MEI study is available here.

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The Montreal Economic Institute is an independent public policy think tank. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship. 

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