Scope 3 emissions have always been hard for companies to control, manage, and report. But the Science Based Targets Initiative (SBTi) may have made it easier.
The organization is now allowing businesses to use environmental attribute certificates (EACs) for abatement purposes on certain Scope 3 emissions.
These certificates, also known as carbon credits, are a category of carbon accounting mechanism that include carbon offsets and renewable energy certificates.
This is a reversal of the organization’s current stance, which did not allow for the use of carbon offsets for short-term and mid-term targets. They could only be included to offset residual emissions.
In its press release, SBTi says that it considers this step a way to accelerate the decarbonization of value chains with compensation logic while companies make their way to eliminate carbon emissions at the root through innovation and technology improvements.
What this means
Margaret Morales, Director, Carbon for GreenBiz, describes three possible outcomes from the announcement.
The first is a rise in corporate climate target-setting. She says, “meeting Scope 3 decarbonization goals has been the biggest barrier to companies looking to set SBTi net zero targets…The new flexibility on Scope 3 abatement could eventually lead to a new wave of firms making commitments…”
The second outcome is the potential for serious investments in carbon markets. Morales says that the new ruling “could drive billions of dollars toward climate projects on the voluntary carbon market that restore nature, reduce emissions and capture carbon, helping to close the climate finance gap.” According to MSCI, this could be as high as $19 billion in the near term, and more than $65 billion by 2030.
The third is more diverse carbon projects. At the moment, “The current net zero standard does not permit companies to use any reduction-based carbon credits, such as those from improved fuel efficiency, reduced methane leaks from waste processing, and low-emission cookstoves, to meet near-term or net zero targets.”
Environmental attribute certificates can include:
- Energy attribute certificates for electricity
- Other energy carrier certificates, e.g. green hydrogen, green gas, Sustainable Aviation Fuel Certificates (SAFc)
- Emission reduction credits
- Certified commodities conveying a specific emission factor, e.g. green steel
Other approaches
Reduction of Scope 3 emissions can be accomplished by means other than carbon credits.
A whitepaper released by the World Economic Forum, The “No-Excuse” Opportunities to Tackle Scope 3 Emissions in Manufacturing and Value Chains Industry Net Zero Accelerator Initiative, outlines a 12-step program for businesses and governments to accelerate their decarbonization journey.
According to whitepaper, Scope 3 emissions account for more than 70% of industry’s greenhouse gas (GHG) emission.
“To mitigate Scope 3 emissions, a profound redesign of sustainable products and business models is crucial,” the whitepaper says. “This involves extending emissions reduction efforts to the entire product or service life cycle and swiftly adopting new technologies and digital innovations to scale the change across the organization.”
The 12 “No-Excuse” opportunities are broken into four action groups:
- Start from within
- Empower your supply chain
- Leverage industrial ecosystems
- Drive the cultural shift towards a sustainable society.
There are three action items under each category.
Looking at “Start from within,” a company can:
- Automate environmental data reporting, which streamlines data collection and analysis, improves transparency, and eases reporting and compliance with standards bodies and environmental regulations.
- Drive a green product design revolution through life-cycle thinking that optimizes each product life stage for minimal environmental impact. When designing products, one can assess material efficiency, using low-carbon materials such as recyclables, or biodegradable materials. Also, energy efficiency through designing products to consume less energy during manufacturing, as well as use and end-of-life phases. Make long lasting and easily repairable products. Use clear labeling and community to educate consumers about your efforts.
- Engage in sustainable business model innovation. This involves more than resource efficiency. It includes slowing resource loops by designing durable goods and extending product life through repair and remanufacturing; and closing resource loops through recycling to create a circular resource flow.
In order to “Empower your supply chain,” one can:
- Foster a partnership mindset to incentivize suppliers through “simplified GHG data collection via digital tools, internal team alignment, collaborative sustainability initiatives and using purchasing power to create early markets for clean technologies.”
- Bridge knowledge and technical expertise gaps by providing field and technical support and central learning opportunities.
- Be a role model in supply-chain transparency by implementing data platforms and internet of things (IoT) devices for sustainability data collection and sharing, data-sharing infrastructure, digital product passport applications for SKU-level sustainability information, and artificial intelligence, including generative AI, to identify and suggest low-carbon alternatives.
Under “Leverage industrial ecosystems,” a company can:
- Engage in Scope 3 standards harmonization through cross-industry initiatives that provide refined guidance for product carbon footprinting based on existing standards such as the ISO and GHG Protocol. Some of these are: the World Business Council for Sustainable Development (WBCSD), Partnership for Carbon Transparency (PACT), and sector-specific guidance from organizations such as the Rocky Mountain Institute, Catena-X, Together for Sustainability (TfS) and the Global Logistics Emissions Council (GLEC).
- Build product carbon footprint data exchange capability through technologies such as blockchain, AI or machine learning. The paper suggests that “the key lies in capturing product-level information based on suppliers’ primary data.”
- Support sustainable innovation and infrastructure by developing renewable energy grids for decarbonizing industrial assets, creating joint digital platforms for sharing sustainability information, or establishing circular systems for efficient logistics and waste recycling.
And finally, in order to “Drive the cultural shift towards a sustainable society,” a firm can:
- Shift mindsets to unlock business value beyond costs. Although this is often perceived as a cost-increasing measure, the whitepaper suggests that Scope 3 decarbonization can transform into a business value proposition.
- Rethink consumption and make green choices easier for consumers. Studies show that consumers and investors are looking for ethical and sustainable choices. Provide information and services for product disassembly and repair, advocate energy efficiency and endorse product reuse.
- Craft an exciting path to value-chain decarbonization through good leadership, communication, and example.
Between the SBTi announcement and the steps highlighted in the WEF whitepaper, a company should it easier to manage Scope 3 emissions.
