Impact Units and how they can help your company’s supply chain decarbonization

Claiming climate mitigation outcomes in a value chain can be complex. There are questions like who caused the emission reductions to happen, how can both a supplier and the company sourcing from them benefit from emission reduction claims, and, not least, who should be paying for these reductions.

SustainCERT has created Impact Units to enable companies to share the cost of interventions across the supply chain and be recognized for the impact generated. Impact Units can be incorporated into company reports and transferred – and co-claimed – between value chain partners, incentivizing action on supply chain decarbonization.

What are some common questions about Impact Units, and how can your company start making use of this innovative concept? Elena Saputo, Head of Value Chain Product at SustainCERT, shares her insight.

Impact Units are verified greenhouse gas (GHG) outcomes from Scope 3 interventions. They enable companies to allocate and (co-)claim carbon reductions or removals in their Scope 3 reporting.

One Impact Unit represents one ton of carbon reduced or removed by an intervention project. Impact Units mitigate common challenges affiliated with Scope 3 emission accounting, such as free riding, double counting and over-claiming, by ensuring fair allocation of impacts across investing value chain partners. Ultimately this can incentivize companies to collectively tackle Scope 3 emissions and scale action across the value chain.

Impact Units are allocated based on SustainCERT’s integrated Life Cycle Assessment (LCA) framework and proof of sourcing requirements. They can be allocated across actors and goods up and down the value chain. The verification process of the Impact Units ensures that GHG outcomes are claimed credibly by all actors.

Impact Units can add credibility to accounting processes. For most companies, Scope 3 emissions represent more than 75% of their total emissions, meaning that reducing them is fundamental to any Net Zero strategy. Due to the complexity and number of actors involved in value chains, there is a need for processes that allow companies to invest in interventions together with their value chain partners and mutually benefit from those investments. Impact Units enable companies to transfer or co-claim emission reductions or removals, which can be reported in the inventories of all involved value chain partners.

An intervention is any action that introduces a change to a Scope 3 activity to reduce or remove emissions, such as a new technology, practice or supply change. These can look different based on the sector and the involved companies. For example, interventions can focus on new low-emission technologies or changes in practices, such as regenerative agriculture.

According to guidance by the Value Change Initiative, supply shed refers to “a group of suppliers in a specifically defined market providing similar goods and services that can be demonstrated to be within the company's supply chain.” This, along with appropriate proof of sourcing, enables impact claiming and sharing even without full traceability to individual farm level, because it allows companies to prove that they are sourcing from the farmer base where they implemented an intervention.

One benefit of supply sheds is that they can reduce the risks of investment over time in volatile supply chains. Even if the particular supplier that implemented an intervention is no longer supplying to the investing company in 10 years, the company can maintain their claim as long as they monitor the intervention program over time.

The main difference between an Impact Unit and a carbon credit is that an Impact Unit is linked to a physical quantity of product affected by an intervention. Furthermore, Impact Units are always linked to the supply chain of a company, whereas carbon credits can be bought from project developers in different locations that hold no specific relation to the supply shed(s) of the company claiming them.

To claim an Impact Unit, a company must prove that it sources at least the amount of the product linked to it from the given supply shed. In practice, if a company wants to claim the emission reductions or removals from an intervention at a farm, it must be able to prove that it is sourcing from the relevant supply shed. Furthermore, if the company sources 1,000 tons of produce from that supply shed, it can only claim the Impact Units associated with that 1,000 tons of produce.

It’s also good to note that carbon credits can only be used once by one entity to offset residual emissions. Impact Units, on the other hand, can be co-claimed across companies at different layers in the value chain, provided that they can show proof of sourcing to the supply shed associated with the impact (following GHG Protocol Scope 3 accounting principles). This way claimed Impact Units can count towards supply chain decarbonization and Science Based Target initiative targets.

Following the logic of GHG Protocol’s Scope 3 accounting guidance, value chains are split into “impact layers” based on the position of different actors. The amount of Impact Units issued at each impact layer corresponds to the total impact generated by the intervention. Companies in the same impact layer (e.g. raw material production) will not be able to claim the same Impact Units, whereas two companies in different impact layers (e.g. raw material production and retail) will be able to claim the same impact twice as they will claim different Impact Units.

The World Economic Forum definition for carbon “insetting” focuses on doing more good rather than doing less bad within one’s value chain. Carbon insetting refers to the actions taken by an organization within its own value chain to fight climate change – for example interventions.  This means companies fund their own carbon reduction or removal project without transacting a carbon credit.

The concept of Impact Units, which is linked to a physical quantity of product affected by an intervention, goes further than insetting, because:

• More than one company can claim the impact.
• The right to report is checked through proof of sourcing/connection to supply shed.
• The impact that can be claimed by a company is capped to the volume sourced.