Unlocking the Path to Corporate Net-Zero: Enhancing Scope 3 Emissions Targets and the Role of Environmental Attribute Certificates (EACs)

As climate change intensifies, businesses across the globe are feeling the pressure to align with the ambitious goals set forth by the Paris Agreement. Achieving net-zero emissions by 2050 is no longer just an aspiration, but a necessity for businesses committed to sustainability. To truly transform corporate value chains and drive climate action, a major focus has been placed on Scope 3 emissions—those indirect emissions generated throughout a company’s value chain. However, managing Scope 3 emissions has proven to be one of the most significant challenges for businesses on their decarbonization journeys.

In light of these challenges, the Science Based Targets initiative (SBTi) is undertaking a pivotal revision of its Corporate Net-Zero Standard (CNZS), with the aim of improving the effectiveness of Scope 3 target setting and integrating Environmental Attribute Certificates (EACs) as key instruments in corporate climate strategies. This article dives deep into the SBTi’s latest research, providing insights into the complexities of Scope 3 emissions, the opportunities offered by EACs, and the next steps businesses need to take in their journey toward a carbon-neutral future.

The Critical Role of Scope 3 Emissions in Decarbonization

In today’s global business environment, indirect emissions from the supply chain often outweigh direct operational emissions. Known as Scope 3 emissions, they include all emissions outside of a company’s immediate control—such as those related to purchased goods and services, transportation, waste, and product use. According to the SBTi Research Discussion Paper released in July 2024, approximately 97% of companies with science-based targets include Scope 3 emissions in their reduction goals, indicating the growing recognition of these emissions as critical to corporate climate impact.

However, despite the increasing commitment to manage Scope 3 emissions, several challenges remain:

1. Complexity of Measurement: Aggregating Scope 3 emissions across multiple sectors of the value chain is difficult due to variability in accounting methods and the distinct nature of each emission source.
2. Influence and Control: Many companies struggle to influence emissions from upstream suppliers or downstream customers, making effective target implementation challenging.
3. Progress Tracking: Measuring progress toward Scope 3 targets is complicated by data limitations and the difficulty of linking specific mitigation actions directly to emission reductions.

Environmental Attribute Certificates (EACs): A New Tool for Corporate Climate Strategies

One of the most promising developments in the SBTi’s Corporate Net-Zero Standard revision is the potential use of Environmental Attribute Certificates (EACs) as a tool to track and verify environmental benefits in the value chain. These certificates, which quantify and communicate the environmental attributes of commodities or activities, could play a pivotal role in helping companies substantiate their claims of emission reductions and sustainability.

EACs cover a range of certificates, including carbon credits and renewable energy certificates, offering a way for businesses to demonstrate compliance with environmental standards and mitigate emissions. The Evidensia-led review commissioned by the SBTi explored how EACs can enhance corporate climate strategies. While carbon credits have been traditionally used as an alternative to direct abatement, the review found that their effectiveness as a standalone solution is limited. As such, the SBTi recommends a more nuanced approach where carbon credits are used to complement, but not replace, direct emission reduction efforts.

Key Findings and Recommendations from the SBTi’s Call for Evidence

In 2023, the SBTi conducted an extensive call for evidence to assess the use of EACs in corporate climate targets. The initiative received 438 submissions, reflecting a broad range of perspectives on how businesses could utilize EACs to achieve their sustainability goals. Key findings from the evidence collected include:

• The Potential of Carbon Credits: While carbon credits can provide a means to finance beyond value chain mitigation, they should not be used as a substitute for reducing emissions within the value chain.
• Certification and Traceability: For EACs to be effective, traceability mechanisms need to be strengthened to ensure that environmental claims are credible and backed by verifiable data. This requires robust chain-of-custody models that link certificates directly to environmental performance.
• Influence Over Value Chain Emissions: Companies need to adopt a more strategic approach to Scope 3 target setting, focusing on areas where they can exert the greatest influence. This could include prioritizing emission sources within sectors with the highest climate impact.

Addressing the Challenges of Scope 3 Target Setting

Despite significant progress, several challenges remain in effectively managing Scope 3 emissions. The SBTi’s discussion paper outlines the following key challenges:

• Aggregated Emissions as a Primary Metric: The reliance on aggregated Scope 3 emissions can obscure critical details, such as sector-specific emission sources and timing.
• Target Boundaries: Current methods require companies to address a minimum percentage of their Scope 3 emissions, but this approach can sometimes lead to the exclusion of crucial emissions or the misrepresentation of progress.
• Levels of Influence: Companies face varying degrees of control over different emissions sources, making it essential to differentiate interventions based on the level of influence a company has over its suppliers and customers.

Proposals for Enhancing Scope 3 Targets

In response to these challenges, the SBTi has proposed several options to enhance Scope 3 target setting:

• A Comprehensive Set of Tools: To improve the management of value chain emissions, the SBTi suggests using outcome-based metrics to assess the alignment of a company’s activities with global climate goals. This could include sector-specific benchmarks or intensity metrics.
• Prioritizing Climate-Relevant Activities: Companies should focus on the most climate-relevant emissions sources within their value chains, using parameters such as the magnitude of emissions and the risks of locking in future emissions.
• Integrating Certification Systems: EACs could support value chain mitigation efforts, but only when traceability is ensured, and robust standards are in place to verify environmental performance.

Operationalizing the Net-Zero Transition

The SBTi outlines a five-step process that companies can follow to operationalize the transition to net-zero across their value chains:

1. Measure and Disclose Emissions: Start by measuring greenhouse gas emissions across the value chain and publicly disclosing the results.
2. Identify Climate-Relevant Emissions: Prioritize emission sources based on their climate impact and exposure to high-risk sectors.
3. Establish Targets and Policies: Set science-based targets and implement policies to mitigate emissions.
4. Implement Action Plans: Execute action plans and take responsibility for emissions not yet included in target boundaries.
5. Measure Effectiveness and Communicate Progress: Continuously measure the impact of interventions and communicate progress transparently.

Conclusion: Charting a Path Forward

The SBTi’s revision of the Corporate Net-Zero Standard and its exploration of EACs as a tool for value chain decarbonization represent a significant step forward in corporate climate action. By focusing on Scope 3 emissions, businesses can address the most challenging yet impactful aspects of their carbon footprint. However, the road ahead requires collective action, robust standards, and a commitment to continuous improvement.

As the SBTi moves forward with the revision of its standards, businesses, academics, and stakeholders are encouraged to participate in the ongoing dialogue. The feedback gathered will be instrumental in shaping a more actionable, transparent, and impactful framework for managing Scope 3 emissions and achieving net-zero targets.

This moment presents a unique opportunity for businesses to lead the global transition to a sustainable future—one where value chains are aligned with climate goals, and every step of the production process contributes to a healthier, more resilient planet.

#NetZeroFuture #ClimateActionNow #Scope3Emissions #SustainabilityLeadership #CarbonCredits #CorporateClimateGoals

References:

• Science Based Targets initiative. (2024). Aligning corporate value chains to global climate goals: Scope 3 discussion paper. Retrieved from https://sciencebasedtargets.org
• Science Based Targets initiative. (2024). Evidence synthesis report: Part 1 - Carbon credits. Retrieved from https://sciencebasedtargets.org
• Evidensia. (2024, July 30). Systematic review on corporate carbon offsetting as an alternative to direct emissions abatement. Science Based Targets initiative (SBTi). Retrieved from https://sciencebasedtargets.org
• Intergovernmental Panel on Climate Change (IPCC). (2018). Special report on global warming of 1.5°C. Retrieved from https://www.ipcc.ch/sr15/