Potential of Beyond Value Chain Mitigation to Drive a Race to the Top: Compensate Foundation’s Take on SBTi’s Public Consultation

Tuesday, July 4, 2023

SBTi's public consultation on Beyond Value Chain Mitigation (BVCM) was launched on June 19 and is open for stakeholder comments until the end of July.

BVCM was first introduced in the SBTi Net Zero Standard in 2021 as a tool to help corporations complement climate mitigation efforts within their own value chains. The concept of BVCM is simple: companies can invest in climate change mitigation activities beyond their value chains, but this should never substitute or delay emission reductions. Initially, BVCM received limited attention, primarily because companies were solely focused on using carbon offsets to make carbon neutrality claims.

Two years later, this is about to change due to the growing expectation for companies to invest in BVCM. This shift is also driven by the shortcomings of the voluntary carbon market, the prevalence of greenwashing associated with climate claims based on offsets of dubious quality, and increased media attention towards misleading climate claims and consumer protection.

SBTi has assembled a team and a network of expert advisors to develop guidance for companies on BVCM, which will be published in Q4 2023. This gives hope that the topic will gain traction, and BVCM will play a central role in corporate climate action in the future.

Could BVCM Drive a Race to the Top?

The public consultation document inspires and guides companies to have the greatest climate impact, maximizing the value of their investments in climate action. BVCM could steer companies away from old practices of simple offsetting and encourage them to think outside the box, looking beyond the voluntary carbon market and its flaws.

With guidance on best practices, incentives, and the selection of the "right" approach to allocate funds for BVCM, companies could enhance their climate impact and become thought leaders, reevaluating their supply chains and accelerating emissions reductions.

The document explains different levels of ambition, along with their pros and cons, leaving it up to the companies to decide how far they are willing to go:

  1. Ton-for-ton: This is the lowest hanging fruit. It may result in wider adoption as companies only need to source an equivalent number of carbon credits from the market to match their emissions. However, this option is not favorable since it motivates companies to prioritize the lowest price, often resulting in the use of low-quality and ineffective credits. Projects associated with such credits often avoid or remove tCO2 only on paper. This option is the cheapest but can lead to a race to the bottom.

  2. Money-for-ton: This is the most responsible option of the three, as it incentivizes companies to reduce their value chain emissions by assigning a price to carbon. Although determining the "right" price for carbon is challenging, it can encourage ambitious actions due to its direct link to emissions size.

  3. Money-for-money: This option is not favorable as it is not tied to the size of emissions. For instance, a company with large emissions, such as a fossil fuel giant, can only allocate 1% of their profit, which is disproportionate to the damage they cause. Money-for-money is not compatible with the polluter pays principle as it is not directly linked to unabated emissions and will primarily affect low emitters.

Given the tension between responsibility and ability to pay, Compensate Foundation recommends that SBTi explores hybrid options that consider profits per tCO2e of unabated emissions, investment needs for abating value chain emissions, and potentially other factors such as historic emissions. A high price for CO2 emissions as part of BVCM will incentivize faster decarbonization of a company's supply chains.

Obtaining proper recognition for ambitious climate actions is of utmost importance to motivate companies to go the extra mile. This would require comparable reporting of BVCM.

Ensuring Quality Without Compromising Different Claims

The Compensate Foundation believes that companies should only count actions and investments towards their BVCM commitments if they undergo the same additionality tests as carbon credits. Exceptions should only be made for policy additionality when companies seek to make broader contributions to climate change mitigation by supporting countries in reaching their NDCs. This should be transparently communicated to avoid the risks of misleading claims or greenwashing.

Leakage and permanence should also be taken into consideration when choosing the activities companies want to support under BVCM. This will ensure that companies are consistently guided towards the most impactful climate actions.

Six Principles for Creating the Highest Impact

The document provides a comprehensive overview of the different types of climate actions companies can take and their impact on the broader climate crisis. The six guiding principles are:

  1. Scale: Maximizing climate mitigation in the near-term.

  2. Urgency: Avoiding tipping points and lock-in.

  3. Transformation: Innovation for net-zero.

  4. Financing Need: Focusing on underfinanced mitigation.

  5. Co-benefits: Supporting the SDGs.

  6. Climate Justice: Addressing inequality.

Companies can avoid greenwashing by selecting the appropriate level of responsibility or allocation approach and achieving maximum climate impact by focusing on key areas outlined in the principles.

If implemented correctly, BVCM has the potential to unlock companies' meaningful contributions to tackling the climate crisis. However, priorities must shift from quantity to quality for this to happen. Companies should be encouraged to take responsibility and make the right choices. For example, it is better to apply the money-for-ton approach with a well-estimated social cost of carbon, which may cover, initially, around 20% of a company's emissions, and invest in concrete actions, rather than using cheap carbon credits of dubious quality to cover 100% of emissions.

This consultation document provides practical, hands-on guidance for making BVCM commitments and related claims. It showcases good case examples, identifies potential pitfalls, and offers specific guidance to mitigate the risk of greenwashing accusations.

This is a valuable resource for any sustainability professional, providing new perspectives on climate action. The Compensate Foundation looks forward to reading SBTi's final guidance for companies on BVCM, expected in Q4 2023.

Text: Eftimiya Salo and Janne Rinne

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