WWF chief: Firms can cut value chain emissions and use the market

Kirsten Schuijt is Director General of WWF International.

Corporate leaders understand that cutting emissions will reduce risk to their companies. But with a patchwork of mostly  insufficient national and regional regulation, what counts as credible and ambitious corporate climate action isn’t immediately clear.

Businesses can make the greatest contribution to solving the climate crisis by reducing emissions from their value chains. Accounting for three-quarters of companies’ direct and indirect climate impacts, “Scope 3” emissions come from firms’ supply chains and the use of their products and services. And they are proving to be some of the most challenging for companies to address.

At this critical moment in humanity’s response to the climate crisis, companies need a suite of flexible yet scientifically rigorous approaches to reduce these emissions.

Many companies are turning to voluntary organisations, such as the Science Based Targets initiative (SBTi) - which WWF co-founded - to guide them towards ambitious climate action.

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

This debate has been characterised by two camps: one focused on using market mechanisms to unlock much-needed capital for climate and nature, particularly in developing countries - and the other focused on incentivising industry transformation to cut value chain emissions.

But it is possible to do both.

Focusing on reducing value chain emissions is the most effective way to decarbonise the global economy. There are plenty of incentives for companies to take these steps since they mitigate risk, future-proof their businesses, and build long-term certainty of supply and demand.

Companies with global value chains are already channelling significant capital to developing countries to address energy, industry, agriculture and forestry related emissions. SBTi’s new standard on accounting for land-related emissions also creates incentives for more companies to invest in sustainable agriculture and nature.

Expanding the targeted use of some market mechanisms can provide companies struggling to meet their Scope 3 targets with new options and incentives. By investing in transforming the markets where they have value chains, companies can deliver credible and durable emissions reductions, through vehicles such as renewable energy credits to contribute to the energy transition.

Sustainable sourcing instruments like green steel certificates can help forge a sustainable steel sector. It's these kinds of innovative approaches that can unlock the true potential of corporate climate action.

The debate on Scope 3 targets doesn’t boil down to “for or against” carbon credits, as some would have you believe. Most companies are just looking for simpler processes, easier target-setting methods, and frameworks that enable them to focus on the highest impact emissions categories and invest in solutions - something SBTi and the Greenhouse Gas Protocol (GHGP) should help support.

While in-value-chain decarbonisation is central to effective climate action, there is a role for corporate investments beyond their value chains - to protect vital natural carbon sinks and support a just energy transition in developing countries. Companies should consider a range of innovative public and private finance options to make these investments.

It would also be helpful to grow a more credible voluntary carbon market that can provide a valuable pathway for companies to make additional investments. Achieving this credibility will require high integrity accounting: projects that simultaneously benefit climate, nature and local communities; and a fair carbon price that reflects the full costs of a high-quality intervention.

At WWF, we see the urgent need to channel more funding into developing countries for nature conservation and restoration. We know the immense contribution of nature to climate mitigation and adaptation. But corporate funding should not be used for offsetting necessary emission reductions, or come at the expense of in-value-chain investments to aggressively reduce emissions that have been major drivers of the climate and nature crisis.

The WWF global network is united in the view that credible corporate climate action at scale is essential to ensure a living planet for future generations. Government regulation and finance remains fundamental and important but as both continue to fall short, voluntary corporate action must continue to be guided by science and grounded in good governance.

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