About the Value Change Initiative

Since 2017, the Value Change Initiative has working closely with the private sector to tackle the challenges of Scope 3 emissions. Drawing on insights from over Working Groups and Labs involving more than 550 stakeholders, we focus on addressing key challenges in the Food & Agriculture, and Apparel sectors. Our expertise spans Scope 3 monitoring, accounting, reporting, and verification, enabling us to provide actionable recommendations.

The recommendations outlined in this letter are designed to inform discussions at COP29 in Baku, Azerbaijan, and support the submission of new Nationally Determined Contributions (NDCs) by 2025, ahead of COP30, Brazil. Please note, the contents of this letter may not reflect the individual views of all VCI members.

Introduction – The crucial role of Scope 3  

There are three different emission scopes, with this letter focusing on the importance of Scope 3 – widely regarded to be the most difficult type of emission to combat. This is because unlike Scope 1 (direct emissions from sources directly owned by the company or organisation) or Scope 2 (indirect emissions from the generation of purchased energy such as electricity, heating, cooling, or steam used by the organisation), Scope 3 is made up of all emissions across the value chain. This makes it significantly more difficult, as a reduction in Scope 3 emissions requires precise collaboration between multiple parties. 

For the following reasons and more, we believe that crucial action is required regarding Scope 3 emissions: 

– Scope 3 emissions account for 75% to 99% of a company’s total greenhouse gas emissions, averaging 11.4 times the direct emissions from their operational activities. 

– Due to the dynamic and intricate nature of global value chain emissions and international trade, the reduction cannot be considered individual responsibility – only strong collaboration will lead to success. 

– Addressing Scope 3 emissions requires a comprehensive, systematic approach at sector and cross-sector levels, which prioritises reducing the largest emission hotspots, activities, products, or services. 

– Furthermore, Scope 3 action is fundamental not only for its climate implications, but also in relation to other crucial aspects, such as Food Security in the case of the Food and Agriculture Sector, or increasing the competitiveness of other industries. 

– Governments play a crucial role in enabling the delivery of Net Zero actions. 

Current needs and challenges 

We recognise that achieving Net-Zero value chains comes with many challenges. Based on insights gathered by VCI, these challenges can be summarised into five key areas: 

1 – Challenges in implementing, accounting, and reporting Scope 3 interventions  
The private sector faces significant challenges in designing, implementing, accounting, and reporting on value chain interventions. There is a lack of consensus on key concepts like causality, traceability, right to report, double counting, intervention vs. organisational accounting, and the interpretation of “insetting” which challenges the credibility of interventions and the implementation and emission reduction claims. 

2 – Data collection and quality issues 
Collecting accurate, standardised data from across the value chain is complex, especially with siloed approaches and technology access challenges, particularly for stakeholders like farmers. Ensuring high-quality data and connectivity and sharing it fairly is key to making progress on decarbonisation efforts. 

3 – Lack of investment in value chain decarbonisation  
Investments in value chain decarbonisation remain too low, despite rising climate finance overall. This funding gap hinders efforts to reduce Scope 3 emissions. Tiers 1, 2, and 3 often bear the cost of energy reduction projects, while companies claim the benefits, making it difficult to balance the return on investment across the value chain. 

4 – Uncertainty around accounting standards and regulations 
Ongoing changes in Scope 3 accounting standards and regulations create uncertainty, making it hard for companies to plan long-term emission reduction projects. This ambiguity hinders action and leads to confusion, mistrust, and challenges like double counting or over-counting, and discourages investment. Furthermore, Current GHG reporting frameworks fail to incentivise investment in areas where traceability or allocation of emissions is limited.  
 
Additionally, the ongoing revisions of multiple accounting standards and frameworks, such as the GHG Protocol Scope 3 Corporate Standard, SBTI Net Zero Standard, and GRI Climate Standard Disclosures, increase uncertainty and fear of scrutiny. This often leads to criticism and erodes trust in future long-term commitments or investments, especially without clear final guidance. Monitoring project progress amid these shifting regulations and standards remains a major challenge. 

5 – Collaboration and ecosystem constraints  
Then ecosystem for Scope 3 interventions is still in its early stages, lacking the necessary infrastructure, knowledge, capacity, and technology for effective implementation. Minimal promotional activities and the complexities of shared co-investments create additional barriers. Inter-tier collaboration during the design phase is limited, often hampered by concerns about greenwashing, especially between fragmented tiers of the value chain. Moreover, the wide range of potential interventions makes it difficult to identify those with the greatest impact or the best cost-to-impact ratio. 

6 – Unclear business and value case for Scope 3 action  
While markets aim for efficiency, there is a lack of clarity on how the Net Zero transition translates into both business and systemic value for all participants. Individual actors struggle to see the direct benefits of taking Scope 3 actions. Governments can play a crucial role in defining this value and proving a clear vision to guide companies through the transition.  

Urgency of addressing Scope 3 emissions within climate agendas 

Given the challenges and barriers to investing and scaling decarbonisation efforts towards Net Zero, it is vital to heighten the sense of urgency and build a compelling case for reducing and removing Scope 3 emissions. Elevating the importance of Scope 3 as a key focus in the COP29 negotiations and the upcoming NDC submissions in 2025 will enable: 

– Increased understanding of the importance of Scope 3 interventions, and awareness of the roles and responsibilities of all parties involved in tackling value chain emissions  

– Increasing dialogue and collaboration among the parties involved 

– The creation of a supportive environment in which companies can efficiently allocate resources and which fosters collaboration in addressing Scope 3 challenges and opportunities 

– The building of trust and credibility in value chain interventions though the right instruments in the short term, and supportive policies in the longer term  

– The strengthening of the Scope 3 ecosystem which enables innovation and the development of new technology to deliver credible impact. 

Action required at COP29  

The recommendations drafted below draw insights from over 15 Working Groups involving more than 550 stakeholders. To ensure COP29 drives meaningful progress on Scope 3 emissions, we believe it is essential governments prioritise the following critical areas and associated calls to action: 

1 – Enhancing the understanding of the importance of Scope 3:
Governments must elevate the understanding of Scope 3 emissions at a country level and define clear roles and responsibilities for achieving Net Zero. For example, governments could support and enhance Scope 3 reporting by increasing awareness and creating resources for local small, medium and large companies to disseminate information and providing suggestions on how to reduce Scope 3 emissions.  Highlighting the business case for Scope 3 interventions will foster alignment among stakeholders, ensuring that all parties recognise the value and necessity of addressing these emissions through concrete implementation. This will encourage broader participation from the private sector in NDCs and help countries meet their climate targets. 
   

2 – Building a policy environment that supports Net-Zero 
Building on the momentum from corporates establishing ambitious goals and measuring progress, it’s essential to establish robust strategies and policies supporting a Net Zero economy and future. The integration of Scope 3 aspects within Net Zero policies will enable dialogue and faster action in delivering mitigation plans, as well as facilitate capital reallocation, promote collaboration and co-investments among companies. By establishing clear Net-Zero policies at sector and cross-sector level, governments can help businesses tackle Scope 3 challenges more effectively and seize related opportunities. 
 

3 – Designing effective incentive structures 
It is estimated that $1 trillion of the current annual spend would need to be reallocated from high-emissions to low-emissions assets. Governments should design tailored incentive systems that channel investments towards mitigation efforts around value chain emissions activities, products and services. These incentives should be designed to resonate with private and public investors, ensuring that the financial and environmental benefits of Scope 3 interventions are clear and compelling. 
 

4 – Building trust and credibility in Scope 3 investments  
To attract long-term investments in emission reductions and removals, governments must work to enhance the credibility of Scope 3 interventions. This involves supporting and coordinating the implementation of robust Monitoring Reporting and Verification (MRV) tools and mechanisms to collect data and ensure that investments are delivering ambitious reductions and removals and impact beyond carbon metrics. 
 

5 – Collaboration between the Global South and North 
The extraction of raw materials as well as manufacturing and logistics activities often take place in regions of the Southern Hemisphere. Collaboration between governments of the Global North and Global South is crucial to effectively address Scope 3 emissions. Governments can initiate discussions on the infrastructure, knowledge, competences, and skills required, involving business stakeholders in these conversations. A unified approach to emissions regulations, data collection, monitoring, validation and innovation will be crucial to the success of Scope 3 action.   

 Closing remarks  

By following these recommendations, governments will position themselves at the forefront of global efforts to reduce Scope 3 emissions and demonstrate their ambition in becoming leaders in climate action. Additionally, they will empower businesses to achieve ambitious targets in a credible and fair manner and deliver significant impact. Given that many Scope 3 emissions are beyond a company’s direct control, we aim for these recommendations to foster enhanced collaboration that benefits all parties involved. 

Governments play a crucial role in enabling the delivery of Net Zero action. We invite COP representatives and governments to participate as observers in the discussions held by the Value Change Initiative and contribute to the goal of achieving Net Zero value chains.