VCI’s input to developing the SBTi Standard on Scope 3
Companies are eagerly awaiting the progress of the Science Based Targets initiative (SBTi)’s update process for its Corporate Net Zero Standard. As part of the update process of its standard, the SBTi is reviewing the role of Environmental Attribute Certificates (EACs) in setting Scope 3 targets. The SBTi recently hosted an open consultation on the discussion paper Aligning corporate value chains to global climate goals, published in July 2024. The paper outlines the challenges and opportunities associated with Scope 3 target setting and explores potential solutions to enhance the effectiveness and impact of value chain decarbonisation. It also acknowledges the existing limitations in greenhouse gas (GHG) emissions accounting and Scope 3 emissions reduction targets, and introduces the concepts the SBTi is exploring to solve these challenges.
The Value Change Initiative (VCI) has been actively engaging in SBTi’s open consultations and collaborating via other avenues over the years. The SBTi is a member of VCI and participates as an observer in VCI Working Groups and Labs. Our sessions provide a direct point of contact that allows the SBTi to access information on the challenges and solutions that corporates are dealing with. Our work is uniquely positioned to contribute to the innovation and development of Scope 3 standards. The VCI, with over 100 members from corporates, civil society, and internationally recognised frameworks, aligns on practical Scope 3 challenges and solutions.
We are proud to see that our pioneering work is increasingly being recognised and integrated into the development of Scope 3 standards, helping to accelerate the transition to Net Zero across sectors. VCI responded to SBTi’s open consultation on Scope 3 based on our pioneering value chain work and the challenges we see our corporate members dealing with. Our main takeaway is that companies need flexibility to be able to take decisive action – but safeguards need to be in place to ensure credibility. Read more about our input below.
Companies need flexibility to meet their targets
VCI supports the use of Market-Based Mechanisms, such as EACs, to accelerate corporate investments into the decarbonisation of value chains. We believe that Market-Based Mechanisms – with the right safeguards for integrity – are key to enable investments towards transitioning sectors and markets towards Net Zero. Furthermore, considering the complexity of value chains, Market-Based Mechanisms are a way to ensure that investments, as well as claims, can be shared across value chain networks efficiently. They could enable real systemic change at a landscape/Supply Shed level, helping to scale the transition from few to many. However, we see the need for clarity in many of these mechanisms – at the moment there is confusion about how EACs are defined and how to use them.
VCI recognises that current standards and frameworks might not always capture the full complexity of climate action for companies. While existing target-setting and accounting frameworks provide a starting point, they do not always have clear guidance on the specifics of what to do in cases with limited traceability, joint investments, or co-claiming. This means that some degree of flexibility should be built into the frameworks, so that companies can take action even when their particular situation requires adjustments based on the specifics of the situation.
Furthermore, the SBTi is still deciding on the level of granularity needed to break down Scope 3 emissions to identify relevant emissions sources for target setting. Options for this include category-level, specific activity level, or a combination where activity-specific emissions sources are required for the highest magnitude categories. VCI highlights the need for flexibility for companies to identify relevant activities for Scope 3 emission reductions, both upstream and downstream in their value chains. In VCI’s view, specific activity/commodity level emissions sources are preferred when data is available. However, there are situations where category-level reporting is sufficient. We also believe there should be flexibility for organisations to engage with suppliers and other players in the value chain ecosystems, as this enables important partnerships to develop.
The Scope 3 discussion paper introduces the concept of “alignment targets” that assess the alignment of a company’s upstream and downstream activities with global climate goals. VCI welcomes the possibility to have optional alignment targets that disclose corporate action through different metrics. This could allow companies to demonstrate their actions and establish a narrative on climate action. However, alignment targets would add an extra level of complexity given the diversity of companies and their actions. The chosen metrics and their relevance would likely depend on the specific sector. In terms of target-setting boundaries, VCI believes that the most appropriate solution is aligning the near-term boundary with net-zero target boundary requirements (90%), supplemented by climate-relevant emissions sources if necessary. This would enable a higher level of ambition for companies. However, this is only possible if pragmatic solutions such as effective Market-Based Mechanisms are in place, to empower companies to act and see the progress towards their targets.
VCI’s views on the proposed scenarios
In the Scope 3 discussion paper, the SBTi proposes five scenarios for the potential use of EACs in Scope 3. Below you can see VCI’s recommendations in relation to these scenarios.
Scenario 1: Use of commodity certificates from value chain activities
According to Scenario 1, certification systems could be used to allow those buying EACs to prove that their purchased commodities or activities meet emissions standards aligned with global climate goals.
VCI emphasises that clear guidance is needed on the types of certifications allowed for abatement and the required levels of verification. This includes the question of how to treat existing certificates like those covering no land-use change (LUC) or deforestation. Consistency in accounting approaches, particularly for abatement certificates and physical allocation, is also crucial.
Clear traceability and chain of custody (CoC) models are necessary for reductions and removals, potentially using mass balance CoC rules with flexibility in high-risk or less mature contexts. Safeguards must prevent double counting between certificate buyers and others in the value chain.
Alignment with standards like the Greenhouse Gas Protocol is vital for harmonised approaches. Climate mitigation requires immediate action, while developing certification systems and CoC models will take some time. Exploring the combination of Scenario 1 with Scenario 2—where certificates are complemented by “verified impact” measures—could accelerate progress.
Scenario 2: Use of commodity certificates from sources with lower or no value chain traceability
SBTi suggests that in situations where full traceability is difficult to achieve and sourcing commodities aligned with global climate goals remains unfeasible, using certificates from chain of custody models with lower traceability could be an interim measure. This would be provided that clear guardrails are in place.
VCI recommends that when examining Scenario 2, the SBTi should provide clear guidelines on the types of certifications allowed for abatement and the required levels of verification. Consistent accounting approaches are needed, particularly for emissions, removals, and impact metrics, with potential re-allocation methods for by-products or crop rotation.
What is meant by “lower traceability” must be clearly defined, along with verification levels and practical traceability applications. To help solve these questions, VCI has been working on operationalising the Supply Shed concept through our Working Groups.
Scenario 3: Use of carbon credits from mitigation activities within the value chain to substantiate value chain emission reduction claims
Scenario 3 suggests the possibility of carbon credits to support value chain emission reduction, provided the claims represent emission abatement within the value chain, as opposed to emissions avoidance or carbon dioxide removal. The mitigation outcomes should also be fungible with corporate GHG emissions inventory.
In VCI’s view, the SBTi should provide guidance on inventory and intervention accounting to clarify how companies could use the carbon credits within the value chain. Additionally, clarity is needed on the difference between credits generated within the value chain and “in close proximity” to the value chain, and what safeguards are in place to ensure materiality and the right to report. On our part, VCI has worked to operationalise solutions like the Supply Shed as we understand that value chains are dynamic by nature.
To prevent double counting, rules must regulate co-claimed credits and credits sold to both buyers and the market. Clarifying what “fungible with corporate inventory” means is important to provide guidance on integrating the different types of credits (reduction, avoided emissions, removals) into Scope 3 reporting, as well as the notions of insets and offsets.
Scenario 4: Use of carbon credits to support neutralisation of residual emissions
The SBTi Corporate Net-Zero Standard requires companies to neutralise the climate impact of residual emissions at their net-zero target year by permanently removing and storing carbon from the atmosphere. They suggest that carbon credits from GHG removal activities are a potential means to finance the neutralisation of these residual emissions.
VCI finds this scenario a reasonable use case for EACs, although it could be relevant to revisit the thresholds for neutralisation and what they entail.
Scenario 5: Use of carbon credits to support beyond value chain mitigation
The SBTi suggests that in addition to value chain activities, companies can contribute to the broader societal shift towards net-zero through Beyond Value Chain Mitigation (BVCM). This can be delivered through a range of instruments including the purchase and retirement of high-quality carbon credits and direct investments.
VCI finds that companies could benefit from support in building the business case for BVCM. If they do not have targets for BVCM, these might become narrative claims.
Recognising companies for their Scope 3 action
In conclusion, VCI welcomes broader flexibility for companies to capture meaningful steps in reducing their Scope 3 emissions. We hope new iterations of standards will support companies in getting recognition for their actions, as this will help establish the business case for Scope 3 emission reductions. We invite standards and other market actors to actively participate in the further development of Market-Based Mechanisms to incentivise decisive climate action.
Our guidance, created in collaboration with our 100+ corporate members, functions as the basis of our input to standards development. You can find our full guidance documents below.