Addressing Scope 3 emissions is essential for mitigating the damaging effects of global climate change because these emissions often represent the majority of a company’s climate impact. Scope 3 emissions are a company’s indirect, or value chain, emissions. They are not produced by the company itself but arise from activities upstream and downstream in its value chain, for example, from the upstream production and transportation of materials used to create its products or the downstream consumer use of its products.
According to the Science Based Targets Initiative (SBTi) (external), “Value chain decarbonization represents one of the most significant opportunities to catalyze system-scale transformation towards a net-zero economy.”
An increasing number of companies are willing to step up and take responsibility for abating the emissions in their value chains. More than 50% of the world’s largest publicly traded companies have set Scope 3 abatement targets. Companies are also increasingly regulated to set targets and/or report Scope 3 emissions (e.g., EU Corporate Sustainability Reporting Directive).
However, Scope 3 emissions abatement is currently not being achieved at the scale needed to meet decarbonization targets. A main challenge in this context is that companies lack guidance and a clear framework for accounting for value chain interventions so they can be reported and claimed toward their emissions targets. And, as the old saying goes, “You can’t change what you can’t measure”—to which we would add “and report,” because publicly disclosing the measured impact of value chain interventions is necessary to achieve credibility and to scale investment in these interventions.
This lack of a strong accounting framework disincentivizes impactful corporate climate action. It can also lead to decisions and claims in corporate climate strategies that are entirely focused on how certain actions address a company’s own emissions targets, instead of being wholistically aligned with—and supportive of—global emissions targets.
A new white paper, co-authored by SustainCERT and Verra, lays out what is needed to enable such accounting and reporting. This would facilitate companies’ Scope 3 climate strategy and decision-making and accelerate large-scale corporate climate action so that it aligns with global climate goals and benefits people and the planet. The paper lays out the necessary components of such an accounting framework, the Value Chain Intervention Framework (VCIF) and details how and why the framework enables large-scale value chain decarbonization.
The Value Chain Intervention Framework
The VCIF helps to standardize and streamline the process, from implementing an intervention to reporting it. It helps to lower the associated costs and reduce investment risk. In doing so, it provides a comprehensive solution to highlight the impacts of value chain interventions and incentivize value chain climate action that aligns with global climate goals.
The inspiration for the proposed framework is inspired by a combination of the Verra Scope 3 Standard (S3S) Program and the Dual Factor Credibility Framework (external) from SustainCERT.
The framework includes the following components:
When a value chain intervention has been implemented and the relevant data has been collected according to defined procedures, mitigation outcomes are quantified using the intervention data and standardized, science-based, and peer-reviewed project-based quantification methodologies adapted for value chain interventions.
In addition, the number of products impacted by the intervention is quantified and the appropriate mitigation outcomes are attributed to them.
The mitigation outcomes are verified by a third-party validation/verification body, certified, issued to the intervention proponent as standardized units, and tracked on a registry.
After the units are registered, companies have the opportunity to report them, if they can demonstrate a “right-to-report”—a value chain link between the impacted product and a product in their value chain.
The units can be claimed by more than one actor in the value chain, following the nested nature of Scope 3 emissions reporting.
After a company has been granted the right to report the impact of an intervention, it can integrate mitigation outcomes limited to the amount of impacted product that demonstrably lies within its value chain into its emissions report.
How the VCIF Enables Large-Scale Value Chain Decarbonization
The following three features of the VCIF are the reasons why the framework enables large-scale value chain decarbonization:
A specially adapted project-based accounting method, as proposed in the VCIF, will help identify the most impactful actions. It compares the emissions associated with the implementation of a new activity against a scenario in which the activity is not implemented. More precise quantification approaches that utilize more primary data will result from the focus on impacts that reward and direct efforts for effective action. The increasing use of primary data is often cited as a key driver of increasing transparency and ambition in corporate climate action by SBTi and other influential actors.
The VCIF enables different actors in the value chain to co-claim the benefits of an intervention. This creates opportunities for companies to co-invest in such interventions and share the costs of implementation, helping to de-risk and scale investments in value chain interventions.
Safeguards are needed to ensure that such co-claiming is credible and to prevent inappropriate double counting. Assignment of right-to-report with unitization and transparent tracking can serve as safeguards.
By providing flexible traceability rules, companies can report outcomes from interventions with products equivalent to those in their value chains. This approach promotes larger-scale interventions, reduces stranded asset risk, drives competition, and creates markets for activities that lower emissions or increase removals, ultimately accelerating sector-wide decarbonization.
Conclusion
Reducing Scope 3 emissions is urgent and important. The VCIF provides a pathway for measuring and reporting the impacts of interventions that reduce these emissions. “You can only change what you can measure—and report!”
If implemented and successful, this framework has the potential to incentivize large-scale climate action, without which we will not be able to limit global warming.
From Theory to Practice
Verra is preparing to launch a robust S3S Program that would enable parts 1–3 of the VCIF and include guidance for part 4.
The development of this program commenced in late 2023 with the launch of an S3S Program Development Group. The development process included the following:
- Extensive consultations with the S3S Program Development Group
- A piloting process to adapt and test methodologies that are active in Verra’s Verified Carbon Standard (VCS) Program for use in the S3S Program
- A rigorous public consultation on preliminary program documents
Meanwhile, SustainCERT’s Dual Factor Credibility Framework (external) covers the entire end-to-end process of the VCIF, differentiating between the 1st Factor that offers the verification of mitigation outcomes (VCIF – Part 1) and the 2nd Factor that enables credible co-claiming and reporting (VCIF – Part 2-4). SustainCERT’s value chain verification services incorporate this approach through the Rules and Requirements (1st Factor) and the Impact Management Platform (2nd Factor), while responding to market developments to ensure up-to-date alignment with standards.
Brief Explainer: Reducing Value Chain Emissions
What is value chain?
A value chain includes the full lifecycle of a product or service, from production to use to end of life. For example, the value chain for a box of cereal would include production of fertilizer used to produce the grain, production of the grain by the farmer, processing of the grain by the mill, production of the breakfast cereal by the consumer-packaged goods (CPG) company, sale of the cereal by a retailer, and transportation between each of these stages.
What are value chain emissions?
The emissions generated on the farm as the farmer produces and packages the grains are the Scope 1 emissions of the farmer. Those Scope 1 emissions of the farmer are the upstream Scope 3 emissions of the grain processor, the CPG company, and the retailer.
The Scope 1 emissions generated by the grain processor are the downstream Scope 3 emissions of the farmer, and the upstream Scope 3 emissions of the CPG company and the retailer.
What does reducing value chain emissions look like?
If a farmer implements an intervention that reduces the grain production emissions (e.g., by reducing tillage and planting cover crops), the farmer reduces their Scope 1 emissions and the upstream Scope 3 emissions of the grain processor, the CPG company, and the retailer. The same emission reduction is co-claimed by all value chain partners because they all reported the relevant emissions before the intervention was implemented.