What is a Supply Shed?

Companies who have set Scope 3 targets are quickly realizing that getting there is still uncharted territory and guidance is hard to come by. The complexity and dynamic nature of global supply chains can make tracking the impact of interventions a challenge. However, limited traceability and lack of supplier-specific information should not deter companies from taking action and driving progress on their Scope 3 targets.

To help companies overcome these barriers and drive value chain decarbonization in line with their Science-Based Targets, the Value Change Initiative introduced the Supply Shed concept.

The Value Change Initiative Guidance (Value Chain Interventions – Greenhouse gas accounting & reporting guidance version 1.1) defines a Supply Shed as “a group of suppliers in a specifically defined market (preferably at sub-national level) providing similar goods and services (commodities) that can be demonstrated to be within the company's supply chain”.

Supply Shed is a concept and approach that caters to situations where a company may not be able to directly trace sourcing to a specific upstream supplier, but it is known (and can be demonstrated) that sourcing comes from a group of suppliers within a “market” from which the company sources.

For example, a Food & Beverage company knows that it sources its grain for baking bread from a specific region of the U.S. It also knows that the grain it sources is covered by an industry association covering 3 states in that region of the U.S. This Food & Beverage company can therefore define its Supply Shed as those 3 U.S. states that are covered by the same industry association. The key here is that the company knows that the grain coming from that 3-state Supply Shed is serving the same market, and that the type and quality of grain that is grown there is used for the same purpose (e.g. baking bread). The company can demonstrate that they source their grain from this Supply Shed (market) because they have procurement contracts with grain suppliers in 2 of those 3 states.

The Supply Shed concept is compatible with the “sourcing region” approach presented in the GHG Protocol draft Land Sector and Removals Guidance (LSRG), where it is defined as the region that serves a known first collection point or processing facility on a sub-jurisdictional level. In this context, a Supply Shed serves two key purposes:

1. Incentivising investments to enhance traceability by allowing companies to claim mitigation outcomes generated in a Supply Shed (market-based allocation or accounting). 
2. Enabling credible co-claiming and co-investment by allowing multiple parties to execute interventions in a region where they source, but may not directly influence their exact suppliers (market-based attribution).