Novo Nordisk's Carbon Footprint Restatement: A Deep Dive into Scope 3 Adjustments

Novo Nordisk’s 2024 CSRD-aligned sustainability report has stirred conversation across the ESG landscape. The pharmaceutical company recently made significant adjustments to its Scope 3 emissions, halving the figure for 2023 by revising its methodology. This dramatic change has ignited debates: is Novo Nordisk an outlier in carbon accounting, or do these kinds of adjustments signal a broader trend as companies refine their GHG reporting methodologies?

Why Did Novo Nordisk Restate Its Scope 3 Emissions?

The change stems from a move away from a spend-based approach toward activity-based accounting. Novo Nordisk incorporated supplier-specific data wherever possible, improving granularity and accuracy in its emissions profile.

Spend-based accounting is often used in early stages of emissions tracking, but it can lead to overestimations, especially in industries with high-value goods like pharmaceuticals. By moving to activity-based data, Novo Nordisk aimed to improve accuracy in categories such as purchased goods (category 1) and capital goods (category 2).

The restatement was driven by adjustments to emission factors and volume conversions. Specifically:

• Contract manufacturing categories were moved from spend-based to activity-based calculations.

• Capital goods emissions were refined using updated emission factors, supplier-specific data where available, and new spend-based factors developed from bills of material.

• Upstream transportation and distribution (category 4) and business travel (category 6) were updated with revised emission factors.

As a result of these refinements, previously reported Scope 3 emissions were adjusted downward, as initial estimates had been overstated due to the limitations of spend-based factors. This update reflects broader trends in sustainability reporting, where companies are improving data quality to enhance the reliability of emissions disclosures.

Implications for Scope 3 Emissions Comparability

Novo Nordisk’s restatement highlights a key challenge in sustainability reporting: how comparable are Scope 3 emissions over time, and how useful is this information for investors and other stakeholders? If companies continually refine their methodologies, adjusting assumptions and incorporating new data sources, year-to-year comparisons become difficult. This raises fundamental questions about whether Scope 3 reporting provides a reliable basis for tracking progress or making investment decisions.

Scope 3 emissions, which involve a mix of spend-based estimates and activity-based data, are inherently complex. With ongoing adjustments, year-to-year comparisons become more challenging, and it raises the issue of whether Scope 3 reporting can serve as a reliable basis for tracking progress or making investment decisions.

Novo Nordisk now reports that 12% of its Scope 3 emissions is based on primary data, offering more insight into the accuracy of their numbers. Leveraging standardized data quality indicators like the PCAF framework could help improve comparability across companies.

What Does This Mean for Other CSRD-Reporting Companies?

For companies deep in sustainability reporting, one thing is becoming increasingly clear: Scope 3 emissions are anything but static, and restatements will likely become more frequent as better data and methodologies emerge. But what can other companies learn from Novo Nordisk’s experience?

• Switch to Activity-Based Emission Factors when possible: Companies should consider moving to activity-based calculations where supplier-specific data is available to provide more accurate emissions estimates.

• Ensure Transparency in Methodology: The importance of explaining changes and updates in Scope 3 emissions cannot be overstated. Novo Nordisk’s transparency in explaining their restatement gives stakeholders a clearer understanding of the company’s carbon footprint.

• Expect Changes and Refine Reporting: As methodologies improve, companies must anticipate fluctuations in Scope 3 emissions and adapt accordingly.

• Establish Consistency in Reporting: Despite inevitable restatements, it’s essential to maintain a consistent methodology for comparability in emissions data.

The Bigger Picture: GHG Restatements and the Evolution of Carbon Accounting

Novo Nordisk’s restatement is not an outlier; in fact, it reflects the natural evolution of carbon accounting. As methodologies improve and data sources are refined, companies will continue to adjust emissions estimates to meet CSRD and ESRS standards.

Shifting from spend-based to activity-based reporting is a more precise method for understanding and reducing emissions, which ultimately helps drive meaningful decarbonization.

One key takeaway from Novo Nordisk’s experience is that Scope 3 emissions should be considered a work in progress, with restatements being an essential part of improving accuracy and transparency in GHG reporting.

Accuracy vs. Transparency

While some may see Novo Nordisk’s restatement as a sign of uncertainty or inconsistency, it should be viewed as a more mature approach to sustainability reporting. By improving its emissions estimates and providing transparency into the process, the company is signalling its commitment to more accurate, transparent, and actionable reporting, which is crucial as companies align with CSRD and ESRS standards.

As GHG emissions reporting continues to evolve, data quality and methodology transparency will be key in ensuring that carbon footprints are accurately represented.

What Does This Mean for the Future of Sustainability Reporting?

As corporate sustainability practices mature, restatements are likely to become the norm. For ESG leaders, the goal is not rigid consistency but improved data quality, transparent methodology, and compliance with CSRD.

Novo Nordisk’s update sends a clear message: Scope 3 emissions are complex and dynamic. But with better frameworks, more standardized metrics, and a willingness to iterate, companies can build more trustworthy GHG disclosures.

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