Finance & Investment

EACs for Scope 3 — Not Perfect, But Necessary

Despite promising developments, industry efforts to eliminate scope 3 emissions will not scale in time. EACs allow companies to invest in climate-change mitigation activities while they decarbonize their value chains.

Brand Provided | By Dr. Robin Daniels | Published 9 hours ago | About a 5 minute read

Image: Freepik

In the summer of 2024, the Science Based Targets initiative (SBTi) — the organization that creates standards for corporations’ greenhouse gas (GHG) emissions-reduction targets, and ensures their alignment with the goals of the Paris Agreement — was rocked by scandal. SBTi staff and advisors sent a letter to management protesting the Board of Trustees’ plan to allow the use of Environmental Attribute Certificates (EACs) — instruments used to quantify, verify and track the environmental benefits of climate-mitigation activities including carbon offsets and renewable energy certificates — in scope 3 emissions abatement under its Corporate Net-Zero Standard.

Scope 3 refers to a company’s indirect emissions — including emissions from business travel, from throughout a company’s supply chain, and transportation and consumer use of products. Scope 3 is the most difficult emissions category to address, and it often accounts for more than 70 percent of total emissions for many businesses. It involves changing supplier behaviors — which often takes time, training, transparency and further data collection.

A number of efforts are already underway to decarbonize global supply chains:

BMW is working to ensure its electric vehicle batteries are made with 100 percent renewable energy.
IKEA has so far facilitated access to renewable energy for suppliers in 13 countries.
Apparel companies including Bestseller, Gap Inc, H&M Group and Mango have joined the Future Supplier Initiative — a collaborative effort to drive the transition to renewable energy and other scalable solutions that will reduce the CO2 emissions from textile factories, which currently account for about 99 percent of the fashion industry’s total emissions.
More sustainable alternatives are being developed for high-carbon-emitting materials including concrete and steel.
Food waste accounts for 8-10 percent of global GHG emissions, mainly due to the methane released when food decomposes in landfills. New industry efforts to avoid this waste at the farm, manufacturing, retail and consumer levels are constantly emerging; and when all else fails, emissions are being avoided by upcycling food waste into biogas and other products.

Despite promising developments, industry efforts to eliminate scope 3 emissions will not scale in time. The world is off track to meet crucial 2030 emissions-reduction targets — threatening people’s wellbeing, ecosystems and the economy. Although increasing renewable energy around the world can help corporations and their partners reduce scope 3 emissions, clean energy is not currently widespread enough to meet demand in time to stave off catastrophic climate change. Even with a three-fold growth in renewable energy supply, a 42 percent shortfall is predicted by 2050.

So, how can corporate emitters go faster and further?

The case for EACs

SBTi’s Net-Zero Standard is being revised and will be open for public feedback and consultation sometime this month. As a business community committed to meaningful climate action, we should encourage SBTi to allow the use of EACs to help companies address scope 3 emissions — their inclusion helps to create a business case for investing in climate-change mitigation activities while corporations decarbonize their value chains.

EACs are not perfect. Like every other aspect of our decarbonization journey, they should be constantly tested against the best available science and against the future markets that institutional investors are striving for. That said, they are a crucial step in the journey.

The Intergovernmental Panel on Climate Change (IPCC) has stated that we need to at least triple current climate investments to stave off climate disaster. EACs can fund key climate-mitigation activities that otherwise would not occur, such as the costly destruction of ozone-depleting substances or renewable energy development. In 2022, 70 percent of the carbon-free energy capacity added to the grid was facilitated by voluntary renewable-energy procurement by corporate and institutional customers.

EACs, including carbon credits, have received backlash. Many claim that they enable greenwashing, deter long-term decarbonization and do not effectively mitigate climate change. If a company spends money purchasing carbon credits, will they be incentivized to also spend money on decarbonizing their supply chain?

In fact, the opposite is true. Companies that engage in the voluntary carbon market are 3.4 times more likely to have an approved science-based climate target and are three times more likely to include scope 3 emissions in that target. Let me be clear — carbon credits, or any EAC, should not be used in place of reducing emissions. Instead, EACs act as a complementary solution that furthers the fight against climate change.

As illustrated in the IPCC’s Sixth Assessment Report, in Antonio Guterres’ speech at COP29 and in headlines every day, we need every tool in the toolbox to mitigate the effects of climate change. EACs can be a useful mechanism — one of many — that must be implemented effectively, and with transparency and accountability. Every corporation and individual who cares about addressing climate change should urge SBTi to enable the use of EACs in scope 3 abatement. We don’t have time to lose.

Dr. Robin Daniels

Fellow, Wolfson College Cambridge

Robin Daniels is a serial entrepreneur and impact investor, and visiting fellow at University of Cambridge’s Wolfson College. He is focused on the environmentally sensitive application of technologies and new business models to drive innovation and investment into the global fight against climate change, social inequality and habitat loss.

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