Understanding traceability in GHG accounting

ISEAL is in the process of revising its Chain of Custody (CoC) models and definitions guidance to improve clarity and consistency. As part of this effort, VCI is actively participating in the working group providing input and has submitted feedback on the public consultation in alignment with our members’ position.  

Learn more about the consultation: ISEAL Chain of Custody   

Why is this consultation important now? 

The current CoC guidance was established in 2016, and since then, there have been significant advancements in sustainability, climate-related initiatives, and technology for tracking and collecting data across value chains. Additionally, the original guidance was focused on Voluntary Sustainability Standards and Certifications, which may not fully meet the needs of GHG accounting.  

CoC models play a crucial role in ensuring physical traceability, which in turn determines what can be accounted for in GHG inventories. This update is an opportunity to align traceability frameworks with the growing demand for reliable emissions tracking and reporting. 

What are traceability and CoC systems? 

According to ISEAL:   

– Traceability is the ability to track and verify the history and location of materials movement through defined production, processing and distribution stages.  

– A Chain of Custody model defines how inputs, outputs, and related attributes are transferred, monitored and controlled as they move throughout the supply chain.  

VCI’s position on traceability in GHG accounting

Traditional CoC models in sustainability standards and certifications focus on documenting ownership/custody and preserving product integrity. This is essential for defining product attributes that carry market value such as organic certifications or other sustainability labels. However, in the context of GHG accounting, the priority shifts towards enabling traceability for accounting a quantitative attribute (the GHG emissions) across all commodities and products, and reflect existing variances. Another difference is that in commodity certifications, a CoC can only be established forward to preserve integrity, that means that all certified goods need to be tracked by a (centralized) system from the farm to end product.  

VCI proposes a differentiated CoC logic applicable GHG accounting that is more flexible and allows traceability to be established backward and forward. This is particularly important as GHG accounting often requires tracking emissions data from the end product backwards.  

CoC logic means applying the rules and requirements of a CoC model to an information tracking system (or a traceability IT tool that tracks product flows) to establish administrative and/or physical traceability of a product.  Key considerations for this adapted CoC logic include:  

– Flexible traceability systems that allow tracking both forward and backward, unlike traditional CoC models that only function forward.   

– Information tracking systems that record and track events and data. 

– Volume reconciliation as the core principle to track flows, enabling traceability systems to operate as a ledger or accounting system.  

– Support for impact accounting extending beyond physical traceability. 

This CoC logic in a traceability system can enable proving and preserving the physical connectedness of the emissions (as a quantitative attribute) and the product.   

Criteria for establishing physical connectedness in GHG accounting 

The information about the asset, in case of no segregation, must establish a reasonable physical link. This means that it is likely that the product sourced by the offtaker likely contains some or all the commodities with the desired transferable attributes because of: 

– Quantitative consistency – the quantity of impacted goods claimed does not exceed the actual quantity sourced.  

– Temporal consistency – the acquisition date of goods must align with the reporting period.  

– Functional/technical consistency – the purchased goods must realistically correspond to the impacted good based on technical qualitative parameters. This means that non-transferable attributes don’t allow for this consistency.  

– Geographical consistency – The purchased goods originate from a supply shed connected to the impact of the interventions taken to reduce emissions.     

What is next? 

We will continue our collaboration with ISEAL, advocating for traceability models that align with GHG accounting needs. We invite all our members and stakeholders to engage in these consultations, as they play a crucial role in shaping the future of Scope 3 emissions reporting.