WWF boss: Companies can reduce emissions in the value chain and exploit the market

Companies must focus on their value chains and use proven market mechanisms, writes Kirsten Schuijt

Kirsten Schuijt is Director General of WWF International.

Business leaders know that reducing emissions reduces the risk to their company. But given a patchwork of mostly inadequate national and regional regulations, it is not immediately clear what can be considered credible and ambitious climate action by companies.

Companies can make the greatest contribution to solving the climate crisis by reducing emissions from their value chains. Three quarters of companies’ direct and indirect climate impacts are attributed to so-called “Scope 3” emissions. They come from companies’ supply chains and the use of their products and services. And they are among the biggest challenges that companies have to overcome.

At this critical moment in humanity’s response to the climate crisis, companies need a range of flexible, yet science-based approaches to reduce these emissions.

Many companies are turning to voluntary organizations such as the Science Based Targets Initiative (SBTi), co-founded by WWF, to help them implement ambitious climate protection measures.

However, the SBTi’s recent announcement to propose the expanded use of market mechanisms to reduce Scope 3 emissions caused confusion and raised questions about its scientific basis. It also sparked an important discussion about how companies can credibly achieve their Scope 3 targets.

This debate was characterised by two camps: one focused on using market mechanisms to unlock much-needed capital for climate and nature, especially in developing countries. The other camp focused on creating incentives for an industry transformation to reduce emissions along the value chain.

But it is possible to do both.

The most effective way to decarbonize the global economy is to focus on reducing emissions along the value chain. There are numerous incentives for companies to take these steps as they mitigate risks, future-proof their businesses and create long-term certainty in supply and demand.

Companies with global value chains are already channeling significant capital to developing countries to reduce emissions in the energy, industrial, agricultural and forestry sectors. The SBTi’s new standard for accounting for land-related emissions also creates incentives for more companies to invest in sustainable agriculture and nature.

The targeted expansion of certain market mechanisms can offer new options and incentives to companies that are struggling to meet their Scope 3 targets. By investing in transforming the markets in which their value chains are located, companies can achieve credible and permanent emission reductions, for example through renewable energy certificates, and thus contribute to the energy transition.

Sustainable procurement tools such as green steel certificates can help build a sustainable steel industry. It is these innovative approaches that can unlock the true potential of corporate climate action.

The debate about Scope 3 targets does not boil down to a “for or against” of carbon credits, as some would have us believe.. Most companies are simply looking for simpler processes, easier target setting methods and frameworks that allow them to focus on the highest impact emission categories and invest in solutions – something that SBTi and the Greenhouse Gas Protocol (GHGP) should support.

While value chain decarbonisation is central to effective climate action, corporate investments also play a role beyond their value chains – for example in protecting vital natural carbon sinks and supporting a just energy transition in developing countries. Companies should consider a range of innovative public and private financing options for these investments.

It would also help to build a more credible voluntary carbon market that provides a valuable opportunity for companies to make additional investments. Achieving this credibility requires high-integrity accounting: projects that simultaneously benefit the climate, nature and local communities; and a fair carbon price that reflects the total cost of a high-quality intervention.

At WWF, we see an urgent need to increase funding for conservation and restoration in developing countries. We know the immense contribution nature makes to mitigating and adapting to climate change. But corporate finance should not be used to offset necessary emissions reductions, nor should it come at the expense of investments in the value chain that help drastically reduce emissions that are among the main causes of the climate and nature crisis.

The WWF global network agrees that credible, large-scale corporate climate action is essential to ensure a living planet for future generations. Government regulation and financing remain fundamental and important, but as both remain inadequate, voluntary corporate action must continue to be based on science and responsible corporate governance.

As the SBTi fills this gap and works with its partners to revise its Scope 3 requirements, it is critical to find solutions that are feasible, credible and can have a meaningful impact on the path to net zero.