Sharing the costs of supply chain decarbonization with Impact Units

Supply chain decarbonization is fundamental to achieving Net Zero targets by 2050, as Scope 3 emissions make up the majority of emissions for most companies. However, as they are outside the direct control of any single company, there are many complexities to accounting, claiming and reporting Scope 3 emission reductions or removals. Challenges related to tracking and allocating emission reductions across the various goods and actors in the value chain make it difficult to ascertain who can claim and report them.

To scale action, companies across the value chain need to be able to share the benefits as well as the costs of emission reducing interventions. To enable this, the mitigation outcomes can be unitized. SustainCERT has developed an innovative system based on Impact Units, which are verified greenhouse gas (GHG) outcomes from Scope 3 interventions. They are linked to the amount of goods sourced as well as an actor’s position in the value chain, ensuring credible transfers between actors. Impact Units enable companies to allocate and (co-)claim GHG reductions or removals in their Scope 3 reporting. Meanwhile, they also 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.

Read on to learn how your company can use Impact Units to credibly claim verified Scope 3 emission reductions and transfer mitigation outcomes. This will allow you to share costs with partners active in the same value chain and scale supply chain decarbonization.

To begin the process of using Impact Units, a company has to first implement an intervention. Interventions mean actions to reduce or remove emissions, such as using a new technology or practice. Implementing interventions in the value chain typically requires collaboration with upstream suppliers. For example in agricultural production, interventions might take place at farm level.

Companies need to collaborate with their suppliers to identify the appropriate measures that may be used to reduce or remove emissions. In food and agriculture, possible interventions include introducing regenerative agricultural practices, reducing the use of fertilizers, or supporting suppliers to change to renewable energy sources. To make sure the process runs smoothly, companies should spend some time setting up a supplier engagement strategy.

While implementing an intervention, suppliers and downstream partners should collect monitoring data such as the volume of product affected and baseline data. This data can be used to verify the mitigation outcomes of the interventions, which works as a basis for the rest of the process.

After an intervention has been implemented, the next step is verifying the mitigation outcomes. This increases the credibility and level of trust in the project, as well as safeguarding the quality of Impact Units. Verification provides trust about the value of the impacts and helps companies comply with stakeholder expectations and regulations.

SustainCERT applies a dual factor credibility framework for verifying mitigation outcomes and then unitizing, transferring, credibly claiming and reporting emission reductions in a Scope 3 inventory. The first factor of the verification includes assessing the GHG quantification approach and the project data, and assigning ownership of the mitigation outcomes.

Assignment of ownership helps assure that the reporting company has the exclusive rights to report the mitigation outcomes, avoiding double counting. It’s also possible to split the mitigation outcomes between different co-investors based on the volume of goods they are sourcing, or their proportion of investment. After verification, the company receives a verification statement which functions as the basis of issuing Impact Units.

The second stage of the dual factor framework enables sharing mitigation outcomes and costs across companies active in the same value chain. It does this by ensuring that mitigation outcomes are always linked to the actor's position and the correct volume of sourced commodities in a specific value chain. This is done by unitizing the GHG outcomes and registering them as Impact Units.

The companies investing in the intervention should demonstrate causality and proof of sourcing to show that they enabled the intervention to take place, and that they are sourcing from the Supply Shed where the intervention happened. This ensures the link to the value chain and enables emission reductions to be reported within Scope 3, rather than Beyond Value Chain Mitigation (BVCM) or similar. The investing company then becomes the owner of the Impact Units.

To ensure credible co-claiming of GHG outcomes across the value chain, Impact Units are issued at different stages of the value chain called Impact Layers, linking the mitigation outcomes to the actor’s position in a specific value chain. The main layers are raw material production, mid- and end-product processing, wholesaler and retailer. Companies at different Impact Layers are able to claim the mitigation outcomes of interventions as they relate to the product they source. For example, a farmer producing milk, a mid-product manufacturer producing whey, an end-product manufacturer producing cheese, and a retailer selling the cheese would all be able to claim the emission reductions that took place at farm-level, as long as they are able to show proof of sourcing linking them to the same value chain.

Finally, mitigation outcomes are assigned to a specific Supply Shed, which represents a common market to exchange service equivalent goods. This means that even when traceability to farm-level is not feasible, companies can report emission reductions based on investments made within the Supply Shed where they source.

Impact Units can be transferred to different actors in the same value chain, allowing companies to co-invest as a new financing stream for interventions. Transferring Impact Units happens within SustainCERT’s impact management platform, where they are transferred across the value chain between offtakers. Companies are able to agree on the price as part of their agreement with value chain partners.

A public registry is used to track the transfers of Impact Units and enhance transparency, reducing the risk of freeriding and double counting. However, only basic information of Impact Units is publicly available, and companies will gain access to more specific data once the Impact Unit has been transferred to them. If one company has claimed the Impact Units, they can still be claimed by other companies at different Impact Layers, provided they show proof of sourcing connecting them to the same value chain.

Companies can use the public registry to identify potential partners that are implementing interventions with a connection to the same value chain, unlocking new opportunities for transferring Impact Units.

After Impact Units are exchanged between different actors, each company can claim the underlying mitigation outcomes for their own Scope 3 reporting. Impact Units carry the verified data necessary for making claims and integrating them into reports. A company can claim as much of the mitigation outcomes as the amount of commodity they purchased, but it can’t claim emission reductions beyond this volume because the actual goods are sourced by someone else.

Here, it’s important to adjust the calculations according to the commodity that each company has purchased. Taking the example above of milk and cheese, each derivative product has its own emission factor that needs to be considered to accurately allocate the emission reductions and ascertain who can report what impacts.

Companies that wish to report Scope 3 mitigation outcomes in their inventory can use Impact Units to demonstrate the emission reductions and removals that have taken place. SustainCERT’s impact management platform allows the baseline and post-intervention emissions data to be used for inventory integration, allowing companies to measure year-on-year changes. Through Impact Units, companies can focus on reducing emissions within the value chain and showcase progress towards Scope 3 targets.

Verify your Scope 3 emission reductions and transfer Impact Units to share costs with value chain partners.