Physical traceability is a key question for companies engaged in greenhouse gas (GHG) accounting for emissions across their value chains. For organizations to credibly report their Scope 3 emissions and reductions, they must demonstrate that reported volumes are linked to their value chain. Physical traceability ensures that the emissions and removals associated with the produced goods and services can be attributed to the products reported in the inventory. Without this link, GHG profiles such as emission factors (EFs) are decoupled from the physical goods, which would prevent companies from reporting them in inventories, or towards climate targets. Physical traceability therefore defines what can be included in inventories and under which conditions EFs can be applied.

However, due to complex, global value chains, establishing physical traceability throughout the journey of a product can be challenging. This is especially true in the Food and Agriculture sector, which has a multitude of suppliers and mid-product manufacturers across value chains.

The Value Change Initiative and ISEAL recently published a joint paper discussing the role of Chain of Custody and alternative traceability systems for GHG accounting in the Food and Agriculture sector. The paper clarifies the current rules and requirements under the Greenhouse Gas Protocol (GHG Protocol), using concepts and definitions from ISEAL guidance. It also presents learnings from practical examples, and considers complementary and alternative approaches that may be needed where existing Chain of Custody (CoC) systems are not feasible at scale. Read on to learn the key takeaways from the paper.

Physical traceability and Chain of Custody systems

Before diving deeper into the role of traceability systems, what do we mean when we talk about traceability and Chain of Custody?

Traceability is the ability to track and verify the history, origin, and journey of a material as it moves through various stages of production, processing, and distribution. It is often used retrospectively – looking back from a final product to its origin – and may rely on tools such as digital tracking platforms or data declarations from suppliers. Traceability systems vary in precision: some offer country- or region-level information, while others might identify specific farms or harvested plots. Traceability answers the question: Where did this come from?

Chain of Custody, on the other hand, is a forward-looking system that defines how materials and their associated characteristics are controlled, transferred, and verified between entities in a value chain. CoCs answer the question: How are volumes and attributes moved and handled from one actor to the next? CoC models provide rules for the treatment of materials, including how specified characteristics (e.g., “certified”, and increasingly also “low emissions”) are assigned, tracked, and reconciled through the value chain – even when physical mixing or processing occurs.

Role of physical traceability under the GHG Protocol

For a company to credibly claim lower emissions for their products, it should ensure that these reductions actually come from its own value chain. That’s what physical traceability means under GHG Protocol. It requires being able to link climate actions taken on farms or by suppliers to the products a company sells. Without that connection, climate progress can’t be verified or reported.

The GHG Protocol’s forthcoming Land Sector and Removals Standard (LSRS) requires physical traceability to report at the sourcing region or more granular levels. This is currently operationalized through the use of CoC models.

Four Chain of Custody models establish physical traceability under the LSRS:

– Identity Preservation, Segregation, and Controlled Blending always qualify.

– Mass Balance qualifies under specific conditions, depending on the boundaries of the system and the volume reconciliation timeframes.

Mass Balance beyond accepted conditions, as well as Book and Claim, cannot establish physical traceability under GHG Protocol rules.

Today’s traceability requirements don’t fit all agricultural realities

Existing Chain of Custody systems, the strict frameworks used to track materials from farm to shelf and required to demonstrate physical traceability, could work for shorter or already certified value chains like dairy or cocoa. But for global, complex commodities such as soy or sugar, these systems are often too rigid, too costly, or simply not feasible at scale. Challenges to implementing CoCs in this context include fragmentation and opaque networks of actors, large transfer boundaries, and limited digital maturity.

Inclusive ways to trace climate impact

For many complex agricultural value chains, implementing a CoC system for GHG accounting may not be possible or proportionate. Relying solely on CoC based physical traceability therefore risks disincentivizing interventions or discouraging investment in value chain decarbonization. This raises the need to explore other physical traceability pathways that can complement or substitute for CoCs where they are difficult to scale, while still maintaining enough connection to support robust and credible claims.

Some existing alternatives can still show a clear link between climate actions on the ground and the products companies source, without establishing the full physical traceability required by current accounting standards.

Alternative traceability systems:

– Proof of Sourcing: Verifies that goods come from specific regions or sustainability programs, without tracking every step.

– Regional emission factors: Use solid local data to estimate impact when full traceability isn’t possible.

– Probabilistic method: Assesses the likelihood that claimed products include goods from improved farms, keeping integrity even when data is incomplete.

These approaches focus on maintaining a credible connection between climate actions and value chain reporting. They can help fulfil the definitions of physical traceability as required by GHG Protocol, without leveraging full CoC systems. This allows a balance between credibility and integrity on the one hand, and feasibility and operationalizability on the other.

Over time, this could evolve toward an “impact traceability” system, where verified outcomes can be transparently claimed and rewarded, even without full physical tracking. This would allow claiming intervention outcomes on a separate impact ledger. Safeguards should be developed to enable credible claims using impact traceability, improving the potential for its use in broader climate frameworks.

Recommendations to the standards

While CoC systems remain an important foundation for establishing physical traceability, complementary approaches should be considered for situations where CoCs are not implementable at scale.

The VCI recommends that GHG accounting standards:

– Expand the requirements to establish physical traceability to include alternative pathways beyond CoCs that can ensure physical connectivity, such as backward traceability systems (e.g., Proof of Sourcing).

– Encourage and support early adopters to explore alternative ways of credibly accounting intervention outcomes.

– Prioritize the definition and operationalization of impact traceability, particularly if the pathways to establish physical traceability cannot be expanded.

– Adopt a tiered approach that treats physical traceability, physical connectivity, and impact traceability as a continuum.

These measures will incentivize companies to continue to actively explore and invest in decarbonization across diverse Food and Agriculture value chains.

Download the full paper for more insights

The joint paper from VCI and ISEAL, “Physical traceability in Greenhouse Gas accounting”, dives deeper into how CoC systems can be applied in the Food and Agriculture sector, and how alternative traceability systems relate to GHG Protocol requirements for credible Scope 3 accounting.