For many businesses around the world, the most formidable barrier to decarbonization lies in their value chain: Scope 3 emissions are often the largest contributor to their carbon footprints, but also the trickiest to manage.
Today, on the official opening day of COP24, Gold Standard — along with the Science Based Targets initiative partners, Danone, Mars, Livelihoods Fund and Navigant — have released a suite of new solutions responding to key questions about Scope 3 reductions — to help turn these challenges into opportunities.
Who is responsible?
One company’s scope 3 emissions overlap with those of many suppliers, vendors and partners in its value chain, effectively outside the company’s direct control or ownership. This also introduces difficulties collecting accurate data. These barriers have often been used by companies as justification for not taking responsibility for Scope 3 emissions. However, the interdependency created by overlapping scope 3 inventories provides companies with opportunities for collaboration and innovation. Supply chain engagement can create a virtuous cycle where every company is actively working to reduce emissions in its value chain and benefits from the efforts of other companies. This also creates more robust data on which to base targets and performance tracking.
How to prioritize opportunities to reduce emissions?
There are a multitude of levers for reducing value chain emissions, from introducing new projects or programs in the value chain to business or investment decisions. Value Change in the Value Chain: Best Practices in Scope 3 Greenhouse Gas Management outlines these various levers — business model innovation, supplier engagement, procurement policy and choices, product and service design, customer engagement, and investment strategies. It helps companies navigate these to set the most effective strategies for their own business.
Why invest in value chain programs if not recognized by accounting protocols?
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Often, the most meaningful change can come from interventions that companies introduce in their value chains to help partners upstream and downstream reduce emissions. Yet to date, emission reductions at the intervention level could not be easily accounted for in the leading GHG accounting frameworks — such as the GHG Protocol, which are based on broader emissions-factor accounting, such as for purchased goods and services. Thus, companies were not adequately recognized for these emission reductions in their corporate footprint, limiting the incentive to invest in these projects and programs. The new Value Chain Interventions Guidance enables credible reporting for actions that reduce emissions and contribute toward performance targets, in line with common accounting frameworks such as the GHG Protocol.
How to get credible intervention-level data?
Tracking fuel usage or megawatt hours of electricity is relatively simple. But what about accounting for emissions related to commodity-driven deforestation? Or organic carbon stored in soils—a rapidly evolving sector? Focusing first on the Food & Beverage sector, the consortium developed Soil Carbon Guidance to demonstrate how to quantify carbon sequestered in soil, a severely neglected source of carbon sinks and a lynchpin in farmer productivity that represents a major opportunity for company inventories.
How can ambitious climate action create business value?
While energy-efficiency measures and even transitioning to renewals can lead to cost savings, it’s clear that some mitigation strategies, often the most transformational, come with a price tag. Still, reducing Scope 3 emissions comes with a variety of benefits to business. Scope 3 emissions-reduction efforts by one company led to emissions reductions in other companies’ inventories, providing a benefit for value chain partners who may become increasingly subject to carbon pricing or compliance requirements. These actions can also engender goodwill or incentives from host countries where companies do business. Furthermore, third-party verification of Scope 3 emission reductions using such globally accepted practices for value chain interventions increases credibility, and therefore confidence, among investors and consumers that companies are positioning their business in line with a low-carbon future.
Companies such as Danone and Mars are particularly motivated by how the Value Change program creates shared value for their suppliers and the global community. Beyond sequestering carbon for climate mitigation, these interventions help farmers around the globe improve soil health and increase crop yields, increasing both food security and the livelihoods of smallholders. It is also a win-win opportunity for pre-competitive climate action.
A number of corporates — including Mars, Danone, Barry Callebaut, Ben & Jerry's, Cargill, General Mills, L’Oréal, McDonald's, PepsiCo and Target — have signed up to pilot this new guidance in their value chains to provide feedback for a final version to be published in 2019. Future efforts under the Value Change programme will explore additional sector-specific applications, likely to include Textiles and IT.
While more complex, strategies to reduce scope 3 emissions are particularly fertile ground for synergies and collaboration. Clear guidance from the Value Change program on fundamentals from carbon accounting to supplier engagement and product design will help companies decarbonise their supply chains to align with the ‘net-zero by mid-century’ ambition set by the Paris Agreement, and help many more companies looking to reap the benefits of the transition to a zero-carbon economy.
This work is supported by EIT Climate-KIC to scale climate-positive action throughout corporate value chains.