VCMI launches Scope 3 Action Code of Practice for corporate emissions reduction; International Chamber of Commerce, World Economic Forum back framework to address 1.4 gigaton emissions gap

• Code backed by business organizations and coalitions including International Chamber of Commerce, We Mean Business Coalition, Environmental Defense Fund, and World Economic Forum, among others.  

• UK, Peru and Panama governments welcome Code. UK government also exploring implementation as part of live consultation.

London, United Kingdom – 30th April: The Voluntary Carbon Markets Integrity Initiative (VCMI) has today launched its Scope 3 Action Code of Practice1 . The new best-practice framework has been developed to ensure companies continue to take climate action every year, even when their efforts to reduce scope 3 greenhouse gas (GHG) emissions hit barriers2.

Corporate scope 3 emissions are not being reduced at the pace or scale needed, with many companies falling behind in meeting climate targets3. Increased action on scope 3 emissions is critical to meeting the goals of the Paris Agreement, yet the global ‘scope 3 emissions gap’ – the shortfall between corporate scope 3 emissions reduction targets and what they are achieving – is growing when it needs to be closed. At 1.4 gigatons GHG, the scope 3 emissions gap is equivalent to the combined total annual emissions of Germany, the UK and Italy (in 2023), and estimated to grow fivefold to 7 gigatons by 20304.

Scope 3 Action Code of Practice  

Recent research and wider analysis, shows that many companies face significant barriers in reducing scope 3 emissions in line with science-aligned decarbonization pathways. The Code provides a framework for companies to establish their scope 3 emissions gap, disclose the barriers they are facing, list measures implemented to overcome the barriers they hit, and take action on unabated scope 3 emissions using high-quality carbon credits.

Carbon credits are used in addition to, and not as a substitute for, direct decarbonization of emissions. The Code sets 2040 as the latest time by which companies should have overcome barriers and be back to their decarbonization pathway consistent with reaching net zero. Carbon credits, meeting quality criteria set out in the Code, are used in the interim to close the scope 3 emissions gap, meaning climate action continues to be funded every year through the financing of emissions reduction and removal projects elsewhere.

Mark Kenber, Executive Director, VCMI, said: “Addressing scope 3 emissions is one of the most pressing challenges in corporate climate action, yet many businesses lack the tools and frameworks to act effectively. The Scope 3 Action Code of Practice provides a practical, science-aligned solution to help companies close the gap between ambition and action.”

The Code’s framework for scope 3 action is also a valuable resource for governments and policymakers. It provides a clear, pragmatic and high-integrity approach to informing consistent policy frameworks that will incentivize greater corporate ambition. The UK government, in its recently launched consultation on the use of voluntary carbon markets, has welcomed VCMI’s work on scope 3 guidance and is exploring its implementation as a route for additional corporate action.

A range of global sustainability organizations and leaders have also endorsed the Code. This includes the International Chamber of Commerce, the We Mean Business Coalition, the Environmental Defense Fund, the Leaf Coalition, in addition to former UNFCCC Executive Secretary Christiana Figueres and businesses including Natura, among others.

Scope 3 Action Challenge

Alongside the Code, VCMI has launched the Scope 3 Action Challenge. The Challenge, supported by 10 partner organizations including the International Chamber of Commerce, The Nature Conservancy and the We Mean Business Coalition, calls on signatories from across business and civil society to drive a step change in scope 3 decarbonization, recognizing the scope 3 emissions gap is growing larger and the importance of additional action in keeping the goals of the Paris Agreement within reach.

At this crucial time in the run-up to COP30, the Challenge provides recognition for actors committed to tackling scope 3 emissions and signposts practical tools for companies to take action. Signatories will sign a pledge statement which commits to:

• Acknowledge the urgency of closing the scope 3 emissions gap and the growing risks of inaction.  

• Support the use of all credible solutions to accelerate corporate decarbonization.  

• Commit to transparency and accountability in their climate strategies.  

• Join a collective movement of leaders demonstrating ambition and action.  

Other Scope 3 Action Challenge Partners providing the solutions and capacity to tackle scope 3 emissions are Anthesis, Carbon Markets Institute, CNaught, Climate Impact Partners, Emergent, GenZero, Patch, Puro.earth and Verra.

VCMI’s Scope 3 Action Code of Practice is one aspect of a comprehensive menu of tools, mechanisms and guidance highlighted by the initiative to support companies to accelerate action on scope 3 emissions.

Updates to Foundational Criteria of VCMI Claims Code of Practice  

VCMI has also reviewed and revised the Foundational Criteria that form the first step of the VCMI Claims Code of Practice and the new Scope 3 Action Code of Practice5. The four Foundational Criteria must be met by companies before they can credibly make use of high-quality carbon credits as part of their climate commitments.

The revisions apply to two of the Foundational Criteria and have been reviewed by VCMI’s Expert Advisory Group and Stakeholder Forum, tested with a group of companies and approved by its Steering Committee. The changes have been made to ensure the Foundational Criteria evolve in line with best practice approaches and the practicalities of delivering on net zero corporate climate action.

– ends –

Supporting comments

Philippe Varin, Chair, International Chamber of Commerce (ICC), adds: “ICC represents a global business community committed to enhancing ambition on climate. Scope 3 emissions represent a significant share of our members’ greenhouse gas footprints and their supply chains are often complex, which can mean the path to decarbonization does not always run smooth. VCMI’s Scope 3 Action Code of Practice provides a high-integrity solution for businesses to close their scope 3 emissions gap. The time for action is now and we call on our members to follow the Code as their blueprint for delivering more rapid results and being part of the solution.”

Kerry McCarthy MP, UK Minister for Climate, explains: “The UK Government sees a clear and appropriate role for the responsible voluntary use of high integrity carbon credits and welcomes the ambition set out in VCMI’s Scope 3 Action Code of Practice. We are inviting views on this approach through our consultation on raising the integrity and impact of voluntary carbon and nature markets.

“By combining direct decarbonisation within the value chain alongside appropriate use of high-integrity carbon credits, businesses can go further, faster, and deliver finance to projects that reduce and remove emissions. Now is the time to embrace this approach, unlock momentum, and ensure companies deliver the speed and scale of global climate action required.”

Christiana Figueres, Founding Partner of Global Optimism and Former Executive Secretary, UNFCCC, added: “As the climate crisis deepens, corporate action on Scope 3 emissions – the largest share of many companies’ footprints – is falling far short of what science and frontline communities demand. The gap between ambition and action currently stands at 1.4 gigatonnes of CO₂e today and could grow to 7 gigatonnes by 2030. This trajectory threatens all of our shared futures, but we are not without solutions.

“The Voluntary Carbon Markets Integrity Initiative’s Scope 3 Action Code of Practice provides a science-aligned, practical pathway for credible action. It is not a license to delay, but a framework of integrity. It ensures carbon credits are used only where direct reductions face real barriers, and always in addition to deep emissions cuts.

“Developed through extensive stakeholder consultation, the Code reflects the ambition and accountability we need now. High-integrity credits are not a loophole, they are a lever of change. They can increase corporate ambition, accelerate global decarbonization, and channel urgently needed finance into emerging and developing economies.

“With courageous leadership and credible action, we can close the Scope 3 gap – and move closer to the safe and just future we owe the next generation.”

Juan Carlos Castro Vargas, Minister of the Environment, Peru, said: “The Peruvian Government, through the Ministry of the Environment, recognizes the urgency of accelerating climate action, with a particular emphasis on the corporate sector. The Scope 3 Action Code of Practice from the Voluntary Carbon Markets Integrity Initiative (VCMI) offers companies a science-based option to reduce carbon emissions that are difficult to address in the short term. This approach aligns with Peru’s commitment to decarbonization and for this reason, we support initiatives that help close the emissions gap and contribute to achieving global climate goals.”

Juan Carlos Monterrey Gomez, Special Representative for Climate Change and Director of Climate Change, Ministry of Environment, Panama, said: “The Government of Panama recognizes the urgent need for stronger action on corporate Scope 3 emissions, as current efforts remain insufficient to achieve global net-zero targets. The Climate Change Directorate of the Ministry of Environment of Panama welcomes the launch of the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Scope 3 Action Code of Practice. This initiative provides a pilot framework for companies to address unabated Scope 3 emissions through a dual approach: direct reductions and the responsible use of carbon credits when faced with decarbonization barriers.”

Ravi Menon, Singapore’s Ambassador for Climate Action, said: “I welcome efforts by the Voluntary Carbon Markets Integrity Initiative to support the use of high-quality carbon credits by businesses to close their scope 3 emissions gap. Corporate purchases of carbon credits can play a key role in enabling decarbonisation efforts that would otherwise not have been economically viable.”

Usha Rao-Monari, VCMI Chair, said: “High-integrity carbon markets are critical to delivering the scale and speed of climate action that is required. By following VCMI’s Scope 3 Action Code of Practice companies can signal their commitment to not just setting targets for the future but ensuring they are financing climate action each and every year. We need every solution available and everyone to step up, from government policy, to NGO campaigning, to corporate action. Now is the time for ambition and real-world impact.”

Pim Valdre, Head of Climate and Net Zero, World Economic Forum, said: “In the race to deliver net zero emissions, we must use every solution available to transform the global economy. Corporate leaders recognize that scope 3 emissions, though challenging, are critical to meeting net zero targets. Decarbonization must be the priority, but we need companies to go further, faster and the Scope 3 Action Code of Practice, developed by VCMI, provides companies with an additional option to deliver rapid, positive impact.”

Lea Borkenhagen, Senior Vice President, EDF+Business, said: “As climate impacts intensify, we must take every possible action to lower emissions. Decarbonizing now is a critical business imperative that builds resilience and competitive advantage. Global value chains are a major source of emissions and climate risk, but also complex systems that are difficult to decarbonize quickly. We must do two things at once: reduce emissions in line with science, and drive finance toward critical climate and nature efforts necessary to ensure a thriving planet for people and businesses. VCMI’s leadership will enable high-impact climate finance, give businesses the confidence to act today, and contribute to the protection of nature. EDF welcomes VCMI’s efforts to bring credibility and clarity to this essential effort.”

Jenny Ahlen, Managing Director of Net Zero, We Mean Business Coalition, adds: “The transition to a net zero future requires a drastic shift in the scale and speed of climate action. For business, this shift must include efforts to address scope 3 emissions, which often make up more than 70% of a company’s total emissions. We Mean Business Coalition works across business, policymakers and regulatory bodies to champion clear and pragmatic ways for companies to tackle their emissions. 

“VCMI’s Scope 3 Action Code of Practice lays out a high-integrity approach for businesses to use carbon credits as a complement to direct scope 3 emissions reductions efforts. It represents a valuable addition to the toolbox of solutions that can support businesses going further, faster. It’s time to act and we need to use every effective solution available.”

Fernanda Facchini, Head of Climate Change and circularity, Natura, said: “At Natura, we envision a regenerative future where every company embraces sustainable business practices. VCMI’s new Scope 3 Action Code of Practice provides a credible and practical pathway for companies at earlier stages of the transition to a low carbon economy — especially those navigating the complexities of decarbonizing their Scope 3 emissions. It’s an important step to broaden engagement and accelerate global progress toward net-zero.”

Phil Brady, Executive Vice President, Policy, Emergent, said: “While direct value chain decarbonization is essential, the scale of the climate crisis demands that companies utilize every credible tool available. VCMI’s Scope 3 Action Code of Practice provides much needed guidance on how high-integrity carbon credits – including those driving large-scale action through forest protection – can responsibly complement ambitious corporate climate action on the path to net zero.”

Key resources: 

• Scope 3 Action Code of Practice is available here: https://vcmintegrity.org/scope-3-action  

• The Scope 3 Action Challenge pledge is available here: https://vcmintegrity.org/scope-3-action-challenge_pledge-statement/ 

• See the following link for additional background on development of the Code and outcomes of a stakeholder public consultation by VCMI, informing its development: https://vcmintegrity.org/wp-content/uploads/2025/04/VCMI-Beta-Scope-3-Claim-Public-Consultation-Report.pdfScope 3 Action Report on public consultation and road test for VCMI beta Scope 3 Claim vcmintegrity.org Contents 5 1. Executive summary 6 1.1. Public consultation overview 6 1.2. Updates to the Scope 3 Action Code of Practice 9 2. Introduction 10 2.1. Background to the Scope 3 Action Code of Practice 11 2.2. The role of BSI 11 2.3. Overview of the consultation process 13 3. Public consultation feedback and final changes to the Scope 3 Action Code of Practice 14 3.1. Option box 2 - emissions sources outside of the target boundary 16 3.2. Option box 3 – carbon credits related to the source 18 3.3. Option box 6 – Carbon budget approach 20 3.4. Option box 5 – no limit set on the size of the emissions gap and carbon credit limit 22 3.5. 24% gap limit guardrail 26 3.6. 2038 phase out date – guardrail 28 3.7. Differentiation 29 3.8. Alignment across standards 30 3.9. Barriers towards scope 3 emissions reductions 31 3.10. Calculations 2 VCMI Scope 3 Action 32 3.11. Complexity/understanding 34 3.12. Guardrails – additional feedback 36 3.13. Editorial 36 3.14. Establish a scope 3 emissions trajectory 38 3.15. Foundational Criteria 39 3.16. High-quality carbon credits 40 3.17. Incentives to adhere to the beta Scope 3 Claim 42 3.18. Internal decarbonization 43 3.19. Monitoring, Reporting and Assurance (MRA) 44 3.20. Other general 46 3.21. Policy/ regulation 47 3.22. Procurement guidelines 48 3.23. Reputational 50 3.24. Scope 1 and scope 2 targets 51 4. Road test summary 52 4.1. Introduction to the road test 52 4.2. Key challenges identified 53 4.3. Findings on corporate readiness for a Scope 3 Claim 53 4.4. Recommendations for enhancing the beta Scope 3 Claim 54 5. Conclusion and next steps VCMI Scope 3 Action 3 About BSI: BSI is appointed by the UK Government as the National Standards Body and represents UK interests at the International Organization for Standardization (ISO), the International Electrotechnical Commission (IEC) and the European Standards Organizations (CEN, CENELEC and ETSI). Its role is to help improve the quality, safety and integrity of products, services, and systems by facilitating the creation and maintenance of consensus-based, market-led standards and encouraging their use. It publishes over 2,700 standards annually using a collaborative approach, engaging with industry experts, government bodies, trade associations, businesses of all sizes and consumers to develop standards that reflect good practice. 4 VCMI Scope 3 Action Executive summary VCMI Scope 3 Action 5 1. Executive Summary In July 2024, the Voluntary Carbon Markets Integrity Initiative (VCMI) announced the public consultation for its “beta Scope 3 Claim”. In August 2024, VCMI also announced a collaboration with the British Standards Institution (BSI) to deliver a robust consultation process, in line with key BSI good practice principles of transparency, openness, representation and fairness. This report, produced by BSI and the VCMI Secretariat, provides a summary of feedback received through the public consultation, the subsequent road-testing process and the resulting final changes to the document that has been launched as the VCMI “Scope 3 Action Code of Practice”. 1.1. PUBLIC CONSULTATION OVERVIEW VCMI engaged BSI to prepare for, manage and analyze feedback from a public consultation open between 02 September and 21 October 2024. Consultation methods included: • an open consultation platform for stakeholders to submit feedback; • public webinars and targeted focus groups with key stakeholder groups. Careful efforts were made to promote and drive representative engagement in the process across geographies, functions and sectors. In total, 311 stakeholders were engaged in the feedback process, 242 stakeholders attended the VCMI-led webinar ahead of the public consultation and a further 350 stakeholders attended the BSI-led public webinars during the consultation. 1018 individual comments were received from the consultation platform and focus groups and were reviewed and categorized into themes. The most significant topics (i.e. those where a large amount of feedback was received and/or involved particularly polarising perspectives) were taken forward for discussion with VCMI’s Expert Advisory Group (EAG). Results of the consultation, either through the EAG or otherwise, were used to inform a road-testing period led by VCMI, in partnership with the World Business Council for Sustainable Development (WBCSD) and the Boston Consulting Group (BCG). This has tested and resulted in a final set of changes incorporated into the next iteration of the scope 3 guidance. 1.2. UPDATES TO THE SCOPE 3 ACTION CODE OF PRACTICE While the Scope 3 Action Code of Practice provides clear guidance to companies, it does not currently allow for making a verified claim. As such, the updated document is considered a “Code of Practice”, as opposed to a “Claim”. The key updates to the Scope 3 Action Code of Practice are detailed below. 6 VCMI Scope 3 Action 6 Area beta Scope 3 Claim (public Scope 3 Action Code of Practice consultation document) Type of document The document was positioned as The updated document is framed as a claim. guidance, without the ability to currently make a verified claim. Although this is not yet a certifiable claim, companies wishing to seek assurance of their compliance with any or all of the metrics related to the guidance requirements can obtain assurance of their data through an independent third-party organization. Scope 3 emissions gap The 24% gap limit guardrail required the The rounded value of 25% has been limit of 24% - guardrail gap between a company's current scope established for the guardrail on the 3 emissions and where they need to be maximum emissions gap for the on their path to decarbonization, and Scope 3 Action Code of Practice. to be aligned with near-term science- aligned target, to not exceed 24% of the target emissions for any given year. Phase out of carbon The beta Scope 3 Claim was To acknowledge and account for credit use for the positioned as being available for a uncertainties and fluctuations, 2040 scope 3 emissions gap limited time to ensure continuous has been adopted in the Scope 3 by 2038 - guardrail improvement. This guardrail required Action Code of Practice as the phase- that by 2038, companies must have out year. closed their scope 3 emissions gap and returned to making progress to meet their net zero commitments. Carbon credit use Required companies to invest in high- This requirement has remained quality carbon credits that cover at least unchanged. Companies are required their entire scope 3 emissions gap. to retire high-quality carbon credits in a number at least equal to the total scope 3 emissions gap. No limit set on the size An option to remove the 24% gap This option has been removed for the of the emissions gap limit, but companies would still be Scope 3 Action Code of Practice. (Option box 5) expected to take action for the entirety of their scope 3 emissions gap. This would be done by a combination of two different elements: 1. retirement of high-quality carbon credits in an amount equal to the portion of the emissions gap that corresponds to the maximum of 24% of the scope 3 trajectory emissions 2. investment in measures to overcome remaining scope 3 barriers, which in turn will reduce future emissions, for the portion that exceeds the limit of the carbon credits use. VCMI Scope 3 Action 7 Area beta Scope 3 Claim (public Scope 3 Action Code of Practice consultation document) Emissions sources An option for restricting the use of This option has been removed for the outside of the target carbon credits to addressing emissions Scope 3 Action Code of Practice. boundary that are not accounted for within scope (Option box 2) 3 emission reduction targets – those outside the target boundary. Carbon credits related An option that recommended the This option has been removed for the to the source selection of high-quality carbon Scope 3 Action Code of Practice. (Option box 3) credits retired to be intentionally related – sectoral and/or geographical - to the sources of scope 3 emissions contained in the company’s scope 3 emissions gap. Carbon budget An option requiring companies to The Carbon budget approach approach calculate the scope 3 emissions gap has been incorporated into the (Option box 6) by considering cumulative emissions document as one of the two under a linear trajectory for the whole calculation approaches companies period, performing one calculation so can use to align with the Scope 3 that the total gap is known upfront. Action Code of Practice. Carbon credit Recommended companies to develop This has been removed for the Scope procurement and disclose their carbon credit 3 Action Code of Practice. guidelines procurement guidelines. Disclosure of scope Required companies to disclose the Companies are required to disclose 3 emission reduction barrier(s) being faced. the main current and anticipated barriers barrier(s) faced. Report on indicators Requirement on reporting on indicators Companies are recommended to drawn from climate drawn from climate transition plans report on indicators drawn from transition plans were unspecified and within broader climate transition plans related to disclosure of barriers disclosure. financial planning and value chain engagement. Examples of how to Four different examples of making 12 examples across all target follow the document/ a Scope 3 Claim in a given year implementation years are provided. perform the were given. calculations Other suggested changes from the public consultation, such as to improve the document’s readability and usability and editorial changes have also been incorporated into the Scope 3 Action Code of Practice. In addition, VCMI is considering longer-term developments, based on public feedback. The robust, extensive consultation period detailed in this report has resulted in an updated Scope 3 Action Code of Practice. The Code provides a high-integrity, practical solution to close the scope 3 emissions gap using high-quality carbon credits, ensuring companies continue to take action each and every year. 8 VCMI Scope 3 Action Introduction VCMI Scope 3 Action 9 2. Introduction In July 2024, the Voluntary Carbon Markets Integrity Initiative (VCMI) announced the public consultation for its beta Scope 3 Claim. In August, they announced a collaboration with the British Standards Institution (BSI) to deliver a robust, representative and transparent consultation process. This report, produced by BSI and the VCMI Secretariat provides a summary of feedback received through the public consultation and the resulting final changes to the document that has been launched: the Scope 3 Action Code of Practice. For transparency and to provide a comprehensive overview, VCMI has also provided a summary of the intensive four-week road-testing process, facilitated by Boston Consulting Group (BCG) and the World Business Council for Sustainable Development (WBCSD). As such, the report is divided into two key sections: 1. A summary of the feedback from the public consultation and the resulting final changes to the Scope 3 Action Code of Practice, per theme of comments received: Feedback received via the public consultation is presented by theme, reflecting the analysis process. This structured approach helps to review the 1000+ comments received. A summary of the process undertaken is included, with a series of Annexes providing full details. 2. Highlights of the road-testing activity: Containing key challenges identified, corporate readiness for the Scope 3 Action Code of Practice and recommendations for enhancing the Code. These findings fed into the final changes to the Scope 3 Action Code of Practice and reinforced the importance of ensuring that the Code is both ambitious and practical. 2.1. BACKGROUND TO THE SCOPE 3 ACTION CODE OF PRACTICE The initial beta version of the Scope 3 Claim was published in November 2023 and is an evolution of the VCMI Bronze Claim1, which was first introduced in the VCMI provisional Claims Code of Practice released in 2022. The beta version of the Scope 3 Claim was out for public consultation in September 2024 and has resulted in the current Scope 3 Action Code of Practice. This is available until 2040, by which time companies will be expected to have eliminated their scope 3 emissions gap. The use of high-quality carbon credits can, then, transition to enable companies to raise ambition, go beyond their decarbonization targets, and invest in activities that accelerate progress to global net zero. The Code serves as a stepping stone toward achieving Silver, Gold or Platinum Carbon Integrity Claims, ensuring companies consistently advance towards full decarbonization. A key objective of the Code is to accelerate climate action, with high-quality carbon credits used in addition to, not as a substitute for, direct decarbonization of scope 3 emissions. With this dual approach of overcoming the barriers to scope 3 emissions reduction and provisioning climate finance through the retirement of high-quality carbon credits, companies can continue to deliver on their climate commitments and accelerate global net zero. The Scope 3 Action Code of Practice provides clear guidance to companies, but not the ability to currently make a verified claim. Although this is not yet a certifiable claim, companies wishing to seek assurance of their compliance with any or all of the metrics related to the guidance requirements can obtain assurance of their data through an independent third-party organization. 1 The VCMI Bronze Claim was the initial design of a VCMI Claim for companies that were reducing scope 3 emissions within their value chains and combining this with the purchase and retirement of carbon credits for a limited time. 10 VCMI Scope 3 Action 2.2. THE ROLE OF BSI BSI collaborated with VCMI to deliver a robust, transparent, and representative consultation process for VCMI’s beta Scope 3 Claim. Accelerating progress towards a sustainable world and supporting the journey to net zero is fundamental to BSI’s purpose as a business. And as a global leader in standards, BSI is dedicated to driving trust and integrity, playing a neutral role in bringing stakeholders together to build international consensus on key issues. BSI managed the consultation process only and was not responsible for developing the technical content or for any decision-making activity as part of this process. BSI’s role was to gather the feedback received via the consultation and present this, in an impartial and balanced manner, to the VCMI Secretariat and their Expert Advisory Group (EAG) in preparation for approval by VCMI’s Steering Committee (SteerCo). 2.3. OVERVIEW OF THE CONSULTATION PROCESS The consultation process was designed to gather comprehensive feedback from a diverse range of stakeholders, ensuring that the next iteration of the document is based on a broad, representative input. BSI provided stakeholders with an open and accessible platform to review the document and share feedback against each section, enabling VCMI to refine and strengthen the Claim’s methodology to be more effective and robust. VCMI announced the public consultation of its beta Scope 3 Claim in July 2024 and announced collaboration with BSI via social media on 22 August 2024. The public consultation platform was launched on 2 September 2024 and was open until 21 October 2024, which included a set of survey questions and the ability to comment openly on sections of the document. A two-week extension was granted to allow sufficient time for comments to be submitted, in response to stakeholder feedback. BSI provided a number of engagement activities during the consultation period. This included two public webinars (in addition to a third led by VCMI ahead of the public consultation) scheduled across timezones for a global audience, and five focus groups with specifically selected stakeholder groups, representative across geography, sector and market function. This provided for more targeted discussions complementing the wealth of comments recevided via a publicly accessible consultation platform. Feedback received from both the focus groups and consultation platform was analyzed and categorized into themes following the public consultation close on 21 October 2024. Each individual feedback item was carefully reviewed and a number of key topics (where there was a signficant volume and/or diverse set of opinions from respondents) were drawn up. These topics, with the feedback and data recevied, were presented to VCMI’s EAG by BSI. BSI faciliated three workshops with this group to review the feedback and various arguments made, so that all perspectives was considered equally and the public consultation results (both qualitive and quantitive data) was reviewed. The role of the EAG was to provide advice and recommendations where a level of agreement could be reached on potential next steps and for road testing. The EAG membership is made public via VCMI’s website. VCMI incorporated a number of proposed changes from the consultation response and EAG meetings into the document in preparation for road testing. This testing phase began on 11 November and continued througout November into December, facilitated by BCG. It consisted of meeting with corporate groups to discuss the practicality and feasability of adhering to the scope 3 guidance, based on the revised methodology, guardrails and requirements from the findings of the public consultation. Factoring in the feedback from road testing, the next iteration of the document has been published based on this consultation response. The overall public consultation consultation timeline is set out below (Figure 1). VCMI Scope 3 Action 11 Figure 1: beta Scope 3 Claim consultation timeline 23/July/24 2/Sept/24 21/Oct/24 8/Nov/24 April/25 Public Public Public Scope 3 consultation consultation consultation Action Code announced opened closed of Practice • Focus groups • Comment published • Public webinars analysis • EAG meetings • Road testing with companies For more information on the public consultation, please see the accompanying annexes: • Annex A: provides a description of the process undertaken between July and November 2024 to run the public consultation to reach the set of changes made to the document, including details on representative stakeholder engagement, how comments were received, processed and categorized into themes and the role of the EAG. • Annex B: provides detail on the 2 public webinars held as part of VCMI’s beta Scope 3 Claim public consultation, including the feedback received. • Annex C: provides a summary of insights gathered through the five focus groups. • Annex D: provides a list of all comments submitted as part of the public consultation for VCMI’s beta Scope 3 Claim, alongside either the name or organization of the respondent (if responding on behalf of themselves or their organization, respectively), where they have not opted to remain anonymous. • Annex E: provides the results from the surveys conducted in the consultation platform. 12 VCMI Scope 3 Action Public consultation feedback and final changes to the Scope 3 Action Code of Practice VCMI Scope 3 Action 13 3. Public consultation feedback and final changes to the Scope 3 Action Code of Practice The following subsections provide a summary of the key points of feedback received through the public consultation, per each theme of comments, and the resulting changes to the Scope 3 Action Code of Practice. The feedback presented was obtained from two sources: the online consultation platform, which included section-by-section commenting and integrated survey questions for targeted input, and verbal feedback and live poll results during the focus groups. A summary of the focus group insights and a full list of all comments (organized by theme) and survey results from the public consultation platform can be found in Annexes C, D, and E. 3.1. OPTION BOX 2 - EMISSIONS SOURCES OUTSIDE OF THE TARGET BOUNDARY Option box 2 within the beta Scope 3 Claim proposed to restrict the use of carbon credits to addressing emissions that are not accounted for within scope 3 emission reduction targets – those outside the target boundary. Through the online consultation platform, respondents were asked to provide feedback specifically on the inclusion of this option and a survey question was asked to gain perspectives on this option (see Figure 2 below). Figure 2: Survey question results: Box 2 - restricting the use of carbon credits to addressing emissions outside of the target boundary. Total responses, N=35. T he use of carbon credits should be restricted to address emissions that are not accounted f or scope 3 emission reduction targets – outside the target boundary. 14 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=35) These comments were discussed as part of VCMI’s EAG meeting on 4 November 2024. Below is a summary of the feedback obtained and the final approved changes. 14 VCMI Scope 3 Action Number of responses Option box 2 – emissions sources outside of the target boundary Key points from the Both the survey question posed in the consultation platform and the general public consultation feedback were generally against restricting the use of credits to emissions feedback outside of the target boundary, but some respondents suggested this could be an additional option. Against this option entirely: Those against this option argued this may deter decarbonization and prevent the scaling up of the markets. Some thought this was confusing or needed further rationale, also highlighting that it would be difficult to communicate to those unfamiliar with target boundaries and that it could be perceived as outside of scope 3, such as scopes 1 and 2. Others disagreed with this option and stated that all scope 3 emissions should be included within the target boundary. Allow as an additional option: Those in favour of this being an additional option, but not restricted to this, argued that this would enable faster action, incentivize more ambitious emissions reductions targets and increase global emissions reductions. Others stated that the claim should cover all unabated emissions - increasing integrity and investment in climate action. A slight majority of these came from the Civil society, Academia, Research stakeholder group or a voluntary carbon market (VCM)-related body. In agreement with this option: A minority of respondents agreed with this option. Reasons included that this would ensure that organizations use credits to complement, rather than replace internal decarbonization and this would ensure credit use increases corporate climate finance and mitigation outcomes as it is over and above existing commitments. Scope 3 Action Code This option was removed from final document. of Practice This is supported by the results of the public consultation that was overwhelmingly against including this option as presented in the document for consultation. VCMI Scope 3 Action 15 3.2. OPTION BOX 3 - CARBON CREDITS RELATED TO THE SOURCE Option box 3 presented within the beta Scope 3 Claim would recommend the selection of high-quality carbon credits retired to be intentionally related – sectoral and/or geographical - to the sources of scope 3 emissions contained in the company’s scope 3 emissions gap. Consultation platform respondents were asked to provide feedback specifically on the inclusion of this option through a survey question (see Figure 3). Figure 3: Survey results: Inclusion of Box 3. Total responses, N=36. The selection of high-quality carbon credits retired to make the claim should be intentionally related – sectorally and/or geographically – to the sources of scope 3 emissions contained in the company’s scope 3 emissions gap. 14 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=36) Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. These comments were discussed during VCMI’s EAG meeting on 4 November 2024. 16 VCMI Scope 3 Action Number of responses Option box 3 – carbon credits related to the source Key points from the Both the consultation platform survey and general feedback were weighted public consultation against the option, although feedback was more nuanced highlighting the feedback various approaches VCMI could take. Against: There were many comments that disagreed with this recommendation, suggesting removing it altogether. Many of these comments came from VCM-related bodies. The rationale for this were around supply-side complications, such as adverse effects on market dynamics/ creating bottlenecks and reducing finance flow to the Global South. Others mentioned this would be restrictive, possibly reducing market participation and use of the Claim. Allow as an optional approach: Some suggested that this could be offered as an optional approach, less assertive than making it a recommendation. Reasons were that having it as an option could allow added credibility and show equivalence for those that chose to, but mandating was too strong, and could create issues for the supply, and flexibility was required. Make it a recommendation: Others suggested that this becomes a recommendation by VCMI. Comments stated that requiring this would be too restrictive and reduce flexibility. Others expressed concerns for the supply of carbon credits. However, they recognized that recommending this could bring equivalence, credibility, alignment with climate strategies and increasing finance flow into hard-to-abate sectors. Make it mandatory: A small number of respondents argued that this should be a mandatory requirement. The reasoning provided was focused on the importance of having a direct impact on emissions and being able to demonstrate this through the Claim. Scope 3 Action Code This option was removed from the final document. Though VCMI understands of Practice that the retirement of high-quality carbon credits related to the source of scope 3 emissions could be positive, it was also understood that such a measure could have been perceived as a market intervention, reducing the cost effectiveness achieved with carbon markets. This is in line with consultation feedback, where only a small number of respondents favoured this being a recommendation or requirement by VCMI. VCMI Scope 3 Action 17 3.3. OPTION BOX 6 - CARBON BUDGET APPROACH Option box 6 presented within the beta Scope 3 Claim required companies to calculate the scope 3 emissions gap by considering cumulative emissions under a linear trajectory for the whole period, performing one calculation so that the total gap is known upfront. To avoid companies using an excessive amount of carbon credits in the first years of the implementation period, Option box 6 limited the number of high-quality carbon credits used in any given year to no more than 40% of the scope 3 emissions budget. Consultation platform respondents were asked to provide feedback specifically on the inclusion of this calculation method and two survey questions were asked. See the below responses (Figure 4). Figure 4: Public consultation platform survey results: Carbon budget approach. Total responses, N=20, N=23, respectively. The limit of 40% of the maxiumum total The use of the carbon budget concept scope 3 emissions gap for the amount of ensures a credible science-aligned approach carbon credits to be retired in a specific and simplifies the claim calculation. year is sucient to prevent companies from using an excessive amount of their budget in any given year, especially at 12 the beginning. 10 7 6 8 5 6 4 3 4 2 2 1 0 0 Strongly Disagree Neither Agree Strongly Strongly Disagree Neither Agree Strongly disagree agree nor agree disagree agree nor agree disagree disagree Responses (N=20) Responses (N=23) These comments were discussed during VCMI’s EAG meeting on 4 November 2024. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. 18 VCMI Scope 3 Action Number of responses Number of responses Option box 6 – carbon budget approach Key points from the In line with the consultation platform survey responses, slightly more comments public consultation supported the carbon budget approach concept than disagreed with it. However, feedback this was not clear cut and there were strong views against this approach. For the carbon budget approach: Arguments for this approach said it still provides a structured framework but gives greater incentive to use the claim over multiple years. Some acknowledge the risks with this approach but deem it as acceptable in order to incentivize use and positive action to be taken. Recurring across comments was that this approach was less complex and simpler to follow. The majority of comments for this approach came from VCM-related bodies. Against: The key argument against the carbon budget approach was that it allows companies to steadily increase emissions in the first half of the target period, companies could then drop out before being required to reduce in the latter half. This would risk delaying meaningful climate action and the approach leaves too much room for abuse. Perspectives on the 40% guardrail: Perspectives on limiting a maximum of 40% of the budget to be retired in one year were varied. Some stated 40% was still too constraining, noting other guardrails in place, and either the limit should be removed entirely or argued for a higher limit to be set. One proposed raising the limit specifically to 50% for any given year. Others argued that 40% was too high, and that this should be reduced in order to prevent companies using all their budget early on then dropping the Claim. One comment was specifically in agreement with the 40%, although another noted it should depend on number of years’ commitment, e.g. allow 40% if the budget is over 10 years but if over 5 years, it is too high. Scope 3 Action Code The carbon budget approach was incorporated into the document as one of the of Practice two calculation approaches companies can use to align with the Scope 3 Action Code of Practice. The year-on-year calculation method can also be used. To prevent companies from using too many carbon credits early on, an annual limit on the budget to be used was set: the emissions gap in any given year cannot exceed 40% of the scope 3 emissions budget gap (defined as 25% of the scope 3 emissions budget in the Scope 3 Action Code of Practice). Including this approach as one of two approved methods in the Code of Practice reflects the balanced nature of the feedback received via the public consultation. VCMI Scope 3 Action 19 3.4. OPTION BOX 5 - NO LIMIT SET ON THE SIZE OF THE EMISSIONS GAP AND CARBON CREDIT LIMIT This section refers to comments made around if companies should be required to retire high-quality carbon credits for the full scope 3 emissions gap, or if retiring a lower amount than the gap should be allowed – with or without a limit set on the size of the emissions gap. Option box 5 within the beta Scope 3 Claim suggested to remove the 24% gap limit, but companies would still be expected to take action for the entirety of their scope 3 emissions gap through a combination of two different elements: 1. retirement of high-quality carbon credits in an amount equal to the portion of the emissions gap that corresponds to the maximum of 24% of the scope 3 trajectory emissions. 2. investment in measures to overcome remaining scope 3 barriers, which in turn will reduce future emissions, for the portion that exceeds the limit of the carbon credits use. Two survey questions were asked through the public consultation platform around the carbon credit limit (see Figure 5), and general feedback was provided. Figure 5: Public consultation platform survey results: Credit limit. Total responses, N=26, N=25, respectively. The volume of high-quality carbon credits It is credible for companies to make a retired to make a Scope 3 Claim should Scope 3 Claim if they are retiring high- be equal to, or greater than, the total gap quality carbon credits in an amount that between their most recently reported is lower than their total scope 3 emissions scope 3 emissions and their scope 3 gap provided they demonstrate investment emissions indicated by their trajectory for future scope 3 emission reductions. for the same year. 12 12 10 10 8 8 6 6 4 4 2 2 0 0 Strongly Disagree Neither Agree Strongly Strongly Disagree Neither Agree Strongly disagree agree nor agree disagree agree nor agree disagree disagree Responses (N=26) Responses (N=25) These comments were discussed as part of VCMI’s EAG meeting on 8 November 2024. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. 20 VCMI Scope 3 Action Number of responses Number of responses Option box 5 – no limit set on the emissions gap and carbon credit limit Key points from the The retirement of carbon credits for the full scope 3 emissions gap (at least 100% public consultation or beyond the gap) had strong views for and against. The consultation platform feedback survey results and comments were favoured towards requiring companies to retire credits for the full gap. Within each viewpoint concerning retiring credits for full or part of the gap, support was evenly divided across stakeholder groups – see Annex A, the public consultation process report, section 2.3 for more information on the stakeholder groups. Feedback ranged from the following: 1. Keep requirement to retire credits for “at least 100% of the gap”: Comments for the full gap suggested allowing anything less than this would seriously undermine the integrity of the Claim, reducing/delaying impact. It was suggested that this may make the claim available to companies that don’t display the necessary leadership or commitment. Comments also argued that action should be incentivized beyond the gap, stating that credits should be allowed for all scope 3 emissions and that restricting to a gap of 24% or less does not incentivize further positive action – half of these comments came from VCM-related bodies. 2. Companies do not have to retire credits equal to their entire gap: a. When there is no gap limit (like Option box 5): Comments supporting this pointed to increased incentives to use the Claim, and inclusivity allowing those that have met the initial steps to take positive action. Suggestions to road test with the threshold removed but with guardrails focused on transparency of the gap and plans / timelines to get back on track. b. With a gap limit: Comments highlighted challenges, such as cost barriers that some companies might face when making a claim if credits were required to be retired for the entire scope 3 emissions gap. It was suggested that allowing to claim for part of the gap, supported by other investments, would enable more companies to participate. Additionally, comments noted that this approach could provide further emission reduction benefits. 3. Limit the retirement of credits to be “equal to 100% of the gap” - what companies retire beyond that cannot be part of this Claim: A small number of comments did not support carbon credits to be used beyond the companies’ scope 3 emissions gap. These argued that additional retirements should be decoupled, calculated and supported separately. A suggestion was also made that investments beyond scope 3 emissions gaps should instead be focused on addressing scope 3 emissions reduction challenges. All of these comments came from Civil Society, Academia and Research. Scope 3 Action Code This option from Box 5 - no limit is set on scope 3 emissions gap - was excluded of Practice from the final document. Though the public consultation gave mixed opinion on this regard, a limit on scope 3 emissions gap was kept to avoid misuse of the guidance, as advised by some respondents. Also, considering positive feedback from the public consultation, no limit was set for the amount of high-quality carbon credits that can be retired. Companies are required to retire high-quality carbon credits in a number at least equal to the total scope 3 emissions gap. VCMI Scope 3 Action 21 3.5. 24% GAP LIMIT GUARDRAIL The 24% gap limit guardrail requires the gap between a company's current scope 3 emissions and where they need to make progress with decarbonization, and to be aligned with near-term science-aligned targets, must not exceed 24% of the target emissions for any given year. It also requires companies to invest in high-quality carbon credits that cover at least their entire scope 3 emissions gap, however, these comments are addressed in the previous section 3.4. Public consultation platform respondents were asked to respond to a survey question to gain targeted feedback on the gap limit guardrail and provided general feedback on this section of the document. Focus group participants were also asked for their agreement to the 24% guardrail through a live poll. Responses are shown below (see Figure 6). Figure 6.1: Consultation platform survey poll results: 24% guardrail. Total responses, N=32 Seing the scope 3 emissions gap limit at 24% of the emissions indicated by the trajectory in the Claim year is an adequate threshold to make sure most companies making e
  orts to reduce scope 3 emissions will be able to make the claim and prevent companies not making e
  orts from making a Claim. 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=32) Figure 6.2: Focus group poll results: 24% guardrail. Total responses, N=22 Do you agree with the 24%? 14 12 10 8 6 4 2 0 No, too low No, too high Yes Responses (N=22) Corporates NGO, academia & consultancy Market infrastructure & supply-side These comments, along with some comments on Box 5 – no limit, were discussed during VCMI’s EAG meetings held on 31st October and 8 November 2024. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. 22 VCMI Scope 3 Action Number of responses Number of responses 24% gap limit - guardrail Key points from the There was a mixed view from respondents on what the threshold should be, were public consultation this to remain. Some supported the current or a lower threshold, others argued feedback for higher. Limited comments agreed with the 24% as stated, with the majority disagreeing one way or another. Threshold too low: Similar to the Option box 5 (where there would be no limit set on the size of the emissions gap), many pointed to the restricting nature of this figure and that it would exclude many with challenges of scope 3 emissions reductions. There was challenge to the research behind this guardrail, specifically on the outliers and the selected industries (e.g. no oil and gas) with suggestions to road test a version with a higher threshold removing outliers and/or the upper 10. A few of these comments noted the rationale was ambiguous, complex and will become irrelevant over time – suggestions included making it 25% or 30% simply for ease. Some comments suggested moving from taking an average of hard to abate pathways to a “maximum acceptable” number. Half of the comments around the threshold being too low were from VCM-related bodies. Threshold too high: These referenced distractions to indirect emissions reductions and allowing some companies to increase in the short term. Some comments were against the Claim entirely. Two thirds of these comments came from the Civil society, Academia and Research stakeholder group. Remove limit entirely: There was much support for removing the limit entirely. Comments supporting this pointed to increased incentives to use the Claim, and inclusivity allowing those that have met the initial steps to take positive action. Suggestions included to road test with the threshold removed but with guardrails focused on transparency of the gap and plans / timelines ‘to get back on track’. VCMI Scope 3 Action 23 24% gap limit - guardrail Scope 3 Action Code A 25% gap limit and a phase-out year for 2040 was defined based on an analysis of Practice of the Mission Possible Partnership (MPP) mitigation pathways data for seven hard-to-abate sectors: aluminum, concrete & cement, chemicals, steel, aviation, shipping and trucking (Accenture, 2024. VCMI: Scope 3 Claim Assessment Final Report). The MPP average sectoral decarbonization pathway for these sectors was compared to the minimum reduction rate needed for SBTi’s scope 3 emissions reduction targets, which is based on a well-below 2° Celsius (WB2oC) scenario and reflects an absolute 2.5% decarbonization rate per year (SBTi, 2024. SBTi CORPORATE NET-ZERO STANDARD CRITERIA). Adopting 2020 as the base year for all curves with a normalized number for one curve to match the other, the average curve from MPP data was no higher than 124% of the SBTi’s curve on any year and peaked in 2030. Hence, the gap between these two curves is the highest at 24% in 2030 and tends to decrease until 2038, when it reaches zero, where the two curves intersect (Figure 7). This suggests that an emissions gap limit of 24% could set a pathway for scope 3 decarbonization for companies that are making efforts to reduce their emissions and that scope 3 emission reduction barriers could be overcome by 2038. Figure 7: MPP average sectoral decarbonization curves and SBTi WB2°C emissions reduction pathway (2020–2040) (Adapted from Accenture, 2024) 120 2030 24% emissions* gap 100 2038 80 60 40 20 0 2020 21 2 20 2 20 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 SBTi MPP Average Sectoral Curve 24 VCMI Scope 3 Action 24% gap limit - guardrail The emissions gap limit and the phase-out year were also assessed by examining company-level data from the SBTi 2022 Monitoring Report2, which covers companies’ progress in reaching their absolute reduction targets for scope 1, scope 2, and scope 3 emissions. The analysis showed: • Approximately 55% of companies making progress in reducing scope 1 and scope 2 emissions were also making progress in reducing scope 3 emissions. • Approximately 45% of companies had scope 3 emissions gaps and would need to take further action. • Among companies progressing on scope 1 and scope 2 targets but that need to further progress on scope 3 targets: • 75% had emissions gaps of 24% or less • 50% had gaps of 11.6% or less. A 24% maximum acceptable emissions gap considers scope 3 decarbonization challenges and excludes the top 25% companies with the largest gaps engaging and adhering to the guidance provided. The emissions gap limit is set at an adequate level if it allows companies making efforts to reduce scope 3 emissions to be distinguished from those that don’t. Furthermore, a sensitivity analysis has been carried out to check the appropriateness of the emissions gap limit. Some of the companies making efforts to reduce scope 3 emissions, and categorized as “A-type companies", according to CDP’s emissions and climate score data, have been identified as not being able to make a claim. This may suggest the established gap limit is too conservative. The current gap limit might prevent some companies which are making decarbonization efforts from being able to make a claim. This is to ensure that those that are not making efforts to reduce scope 3 emissions are not able to make a claim and get public recognition for it. In addition to this, to ensure that only companies facing scope 3 barriers and making efforts to address them would be able to make a claim, additional requirements, such as disclosing measures already implemented and emissions reduction that resulted from it, have been adopted to prevent misuse of the guidance. Final numbers for the guardrails – gap limit The rounded value of 25%, established for the guardrail on the maximum emissions gap for the Scope 3 Action Code of Practice, is also representative of the spread on SBTi scenarios for decarbonization3, where the budget from the upper range scenario, with low/no overshoot, is ~25% higher than the average. 2 SBTi (2023). SBTi Monitoring Report 2022. 3 SBTi (2021). PATHWAYS TO NET-ZERO: SBTi Technical Summary. VCMI Scope 3 Action 25 3.6. 2038 PHASE OUT DATE – GUARDRAIL The beta Scope 3 Claim was positioned as being available for a limited time to ensure continuous improvement. This guardrail requires that by 2038, companies must have closed their scope 3 emissions gap and returned to making progress to meet their net zero commitments. Respondents were asked to respond to a survey question and focus groups were specifically asked about the 2038 guardrail during a live poll (Figure 8.1). Consultation respondents also provided general feedback on this guardrail (Figure 8.2). Figure 8.1: Survey results: 2038 guardrail. Total responses, N=35. It is reasonable to expect that by 2038 companies will be able to have addressed scope 3 emission reduction barriers entirely and therefore that their emissions will be consistent with meeting their next near-term target. 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=35) Figure 8.2: Focus group live poll results: 2038 guardrail. Total responses, N=27. Do you think by 2038 companies will be able to address reduction barriers? 20 18 16 14 12 10 8 6 4 2 0 No, too early No, too late Yes Responses (N=27) Corporates, business networks & financial institutions NGO, academia & consultancy Market infrastructure These comments were discussed during VCMI’s EAG meetings held on 31st October and 8 November 2024. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. 26 VCMI Scope 3 Action Number of responses Number of responses 2038 - guardrail Key points from the The need for a phase out date public consultation feedback There were mixed views on the need for a date. Many argued over the timing, and some highlighted the need for a timebound fixed date to ensure integrity, but others argued for no date to be required. Against a phase out date entirely: There was a strong view that, while the concept of declining over time was needed, any phase out date entirely was at odds with the ambition to scale up carbon markets and would severely impact supply of nature projects that require long term commitment. This view was shared by almost half of comments on this topic. Proposals to focus on the transition of credits (e.g. to removals credits only for residual emissions) rather than phase out. There was a proposal from some to allow companies the opportunity to propose their own phase out date instead (dependent on a number of factors – sector, progress/track record, type of credits purchased etc.). Penalization non-declining gap: There was feedback that if the gap doesn’t reduce over several years in a row this should forfeit ability to use the Claim, as an alternative guardrail than the fixed date. Agreement with a phase out date: Of those that agreed there should be a phase out date, feedback was divided across when the exact phase out date should be. Too early: Comments support the survey results, with a view that 2038 was too early and some not understanding the logic and believing this date to be arbitrary. The majority of comments on this topic supported either a later date or no date at all. Of these, the majority were from VCM-related bodies. Their view is that not enough progress would have been made on scope 3 barriers within 14 years and too early a date may seriously reduce the incentive for companies trying in the first place. Some comments pointed to aligning with 2050 targets. A minimum date of 2040 was also shared. Agreement: Some comments agreed with the date, stating that companies that haven’t closed their gap by 2038 are unlikely to do so thereafter but there could be an interim date to be revisited. All of these comments came from Large Corporations or Business Networks or the Civil Society, Academia and Research stakeholder group. Too late: A smaller number of comments stated that 2038 was too late and should be brought forward, however most of these types of comments did not agree with the Claim in general. Scope 3 Action Code See commentary in section 3.6. of Practice Also, to acknowledge and account for uncertainties and fluctuations, 2040 was adopted in the Scope 3 Action Code of Practice as the phase-out year. This is supported by the results of the public consultation that supported revising the date and with 2040 specifically provided as an option. VCMI Scope 3 Action 27 3.7. DIFFERENTIATION Differentiation is referring to the many points voiced, across all stakeholder groups, recommending that a non- standardized approach is taken. It is important to note that as there was no specific question or option on differentiation, limited feedback was provided to counter these suggestions and therefore a balanced set of views on the merits for or against this topic cannot be presented. Feedback obtained within this theme were discussed during VCMI’s EAG meeting on 8 November 2024. Below is a summary of the feedback obtained. Differentiation Key points from the Most comments within this theme were focused on providing different limits to public consultation the guardrails, although some raised the point of differentiation throughout the feedback document more generally. Sector-specific approaches: The majority of comments in this theme advocated for a Claim that incorporates sector-specific approaches. The core rationale was that a requirement that might be reasonable for some sectors may not be for others. This was particularly stressed in relation to hard to abate sectors or where scope 3 was more prominent. Some argued this was not a fair or inclusive approach. Additionally, some comments noted that the research behind the guardrails is based on assumptions that are not fully representative, as it only focuses on seven sectors (around half of comments on this approach came from the Civil Society, Academia & Research stakeholder group). Other forms of differentiation: Other types of differentiation were also mentioned, including distinctions based on carbon credit type – highlighted in particular by VCM-related bodies, who argued that nature-based credits should always be permitted – as well as situationally dependant factors, such as the emissions source. Against differentiation: There was a voice from the Civil Society, Academia & Research stakeholder group in the focus groups openly against a sector-specific approach, noting the need for consistency across approaches. Scope 3 Action Code VCMI acknowledges the need for a more tailored approach, as a single uniform of Practice benchmark for the guardrails often fails to account for the varying levels of complexity and effort required from different companies to overcome scope 3 decarbonization barriers. 28 VCMI Scope 3 Action 3.8. ALIGNMENT ACROSS STANDARDS This section refers to comments made around the need to ensure the Claim aligns with other standards. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Alignment across standards Key points from the Comments generally stated the need for harmonization around existing standards, public consultation frameworks and guidance. feedback The majority of comments received within this theme were around the need for alignment across other standards setters such as the Science-based Targets Initiative (SBTi) and the International Standards Organization (ISO) Net-zero standard, specifically around the use of credits towards the delivery of near-term targets. Although another comment was that this Claim does not need to fit into the SBTi framework but should be an alternative to it. Other comments stated that alignment with the Greenhouse Gas Protocol (GHGP) and ISO 14068 around transitioning to net zero is also needed. Others stressed the importance of aligning with the Integrity Council for Voluntary Carbon Market (ICVCM) to ensure the availability of high-quality carbon credits, enabling companies to operationalize claims without delays. Scope 3 Action Code The Scope 3 Action Code of Practice is designed to work alongside other of Practice frameworks like SBTi – and soon ISO. It provides an additional tool for companies facing specific challenges in scope 3 emissions reductions to complement their internal decarbonization efforts. On relation to ICVCM, to align with the Scope 3 Action Code of Practice, companies shall retire ICVCM Core Carbon Principles (CCP)-labelled credits or Article 6.4 credits issued under methodologies approved by the Article 6.4 Supervisory Body when they become available. Further details on these mechanisms are outlined in the document. For VCMI Claims made before January 1, 2026, or until CCP-labelled and/or Article 6.4 credits become widely available, VCMI offers companies two approaches to retire high-quality carbon credits: • Option 1: Retire CORSIA eligible credits, when a specific activity type has not yet been assessed by the ICVCM. • Option 2: Disclose how due diligence processes align with all 10 CCPs. Other types of certificates are not yet part of the current VCMI guidance. VCMI Scope 3 Action 29 3.9. BARRIERS TOWARDS SCOPE 3 EMISSIONS REDUCTIONS These comments refer to points made around the barriers companies are facing towards scope 3 emissions reductions generally, and the requirement around the disclosure of the barriers in Step 2 of the beta Scope 3 Claim. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Barriers towards scope 3 emissions Key points from the Some respondents made editorial suggestions to improve the clarity in the public consultation language used around the requirement to disclose the barriers being faced feedback or stressed the importance of this step. Some comments were specific, such as questioning what should or shouldn’t be disclosed as part of this requirement and the need to balance this to not over burden companies. Other comments made were more high level around the barriers companies are facing in reducing scope 3 emissions, including what constitutes a valid barrier. Others highlighted the need for more guidance or tools around strategies to overcome them. Scope 3 Action Code To provide more clarity and avoid overburdening companies, the requirement of Practice for scope 3 decarbonization disclosure has been reframed. Companies are now asked to declare “the main current and anticipated barrier(s) faced to reducing scope 3 emissions and explain how they impede progress towards their near- term scope 3 emissions reduction targets”. They are not expected to describe all barriers and shall explain why they consider these to be the main barriers. In order to give the wider ecosystem a deep understanding of the challenges companies face in reducing their scope 3 emissions and analyze potential solutions to overcome such barriers, with associated costs and timeline, VCMI commissioned comprehensive research to identify and analyze barriers preventing companies across various sectors from fully reducing their scope 3 emissions. The objective of this work was to support businesses, policymakers, and stakeholders in overcoming challenges related to scope 3 decarbonization by providing practical recommendations that offer solutions to address priority scope 3 decarbonization barriers by sector.. 30 VCMI Scope 3 Action 3.10. CALCULATIONS Comments made around the calculation sections of the document are summarized in this section. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Calculations Key points from the The majority of the comments made around the calculation sections of the Claim public consultation referred to the need for more clarity. For example, a figure to demonstrate how feedback the emissions gap and the gap limit is calculated, with a worked example or for VCMI to provide further guidance and/or define the calculation methodology more clearly. A few comments were also made around intensity-based targets, arguing that VCMI should not let companies use the Claim when using this type of target setting mechanism. Non-linear reductions were also debated. Some respondents also left editorial and structural comments. Scope 3 Action Code On top of giving more clear guidance on the explanation of the calculation needed, of Practice new elements were added to the document: • Infographics with a brief explanation of all requirements and calculations needed on Step 2 of the four-step process. The calculations and guardrails are presented as a decision tree process to better guide companies through the methodology. • An Annex with 12 examples, with 6 different hypothetical companies using the two different calculation approaches: Year-on-year and Carbon Budget, is provided. Half of those companies have intensity targets and half uses absolute ones. • A calculation sheet has been developed to support the calculation of the carbon budget. Users input their data (base year, base year emissions, 1st target implementation year, target year and target reduction), and the sheet automatically processes the data and performs the required calculations. This can be assessed here. VCMI Scope 3 Action 31 3.11. COMPLEXITY/UNDERSTANDING This subsection refers to feedback received on respondents understanding of the Claim / the Claim’s complexity. Consultation platform respondents were also asked specifically if they agreed that the Claim’s methodology was easy to understand (see Figure 9). Figure 9: Survey results: understanding of the beta Scope 3 Claim. Total responses, N=41. The Scope 3 Claim methodology is easy to understand. 18 16 14 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=45) Below is a summary of the feedback obtained within this theme and the final changes to the Scope 3 Action Code of Practice. Complexity/understanding Key points from the There were multiple comments made around further clarity being needed public consultation on specific parts of the Claim. The most commonly questioned area was the feedback rationale behind the 24% and 2038 guardrails. Other comments were made that clarity is needed on aspects such as: • Calculating the emissions gap • How to measure scope 3 emissions • The emissions gap limit and use of credits • How target boundaries are defined and set Many comments were made stating that the Claim is too complex and needs simplification. Based on feedback, VCMI could produce additional guidance, suggested to cover: • Explaining the Claim and methodology simply and concisely for businesses • Corrective measures to address the emissions gap • Developing a transition plan / decarbonization strategy • Communications - how to communicate the use of the Claim externally and how to communicate action on residual emissions There was also a lack of understanding around how the Claim is positioned as not being an offsetting tool. Across the focus groups and consultation platform comments, respondents noted that better messaging is needed on this and how the Claim will incentivize emissions reduction. 32 VCMI Scope 3 Action Number of responses Complexity/understanding Scope 3 Action Code Scope 3 emissions and scope 3 emissions gap of Practice The whole methodological process was streamlined to reduce complexity and facilitate understanding on all calculations needed to obtain the scope 3 emissions gap, define how many credits should be retired and check guardrails. For a more detailed explanation on scope 3 emissions gap limit, see discussion above section 3.5. Target boundary is the activities and their associated emissions that are included in a target in the target base year and subsequent years within the timeframe of the target (SBTi, 2024). The science-aligned framework used by each company for setting their own target shall be used for setting the target boundary and emissions coverage. This coverage expresses the target boundary as the percentage of emissions in the target boundary out of the total. This total can be one or multiple emissions scopes and categories and may vary depending on the accounting year (SBTi, 2024. SBTi CORPORATE NET-ZERO STANDARD CRITERIA V 1.2) Communication guidance On communications, a new executive summary brings in clear and concise language on the overall explanation of the Code of Practice. Also, further material will be developed for high-level explanations on the methodology and guardrails, and how to communicate scope 3 action on remaining emissions to avoid greenwashing. Transition plan VCMI acknowledges that climate transition plans are a vital tool for organizations to demonstrate their climate action and commitment. Research and analysis have been conducted by VCMI across relevant climate transition plan frameworks, including those of CDP, Climate Action 100+, The Glasgow Financial Alliance for Net Zero (GFANZ) and Transition Plan Taskforce, to shortlist key indicators for monitoring the implementation of measures established by companies to overcome scope 3 emission reduction barriers. The intent was to consider other indicators which could be used to analyze the implementation of these measures, that was not restricted to emissions reduction data. Allocating financial resources and making plans to resource the current and planned activities set out in the list of measures are crucial. Value chain engagement with suppliers by asking them to meet environmental requirements as part of the organization’s purchasing process and establishing a percentage procurement from low-carbon suppliers that should be met could contribute to lowering the company’s scope 3 emissions. However, as the disclosure on those indicators is still a quickly evolving space, with currently low uptake from companies worldwide in reporting on them, VCMI will continue to monitor the progress of this work and align with best practice once it becomes widely adopted. Meanwhile, the Scope 3 Action Code of Practice states the report on indicators drawn from climate transition plans related to financial planning and value chain engagement as a recommendation. VCMI Scope 3 Action 33 3.12. GUARDRAILS – ADDITIONAL FEEDBACK This theme highlights suggestions made around the guardrails more generally (those not in relation to the 24% gap limit or phase out date guardrails), including specific recommendations for additional criteria the next iteration of the Claim should consider. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Guardrails - other Key points from the Extra guardrail to prevent making a claim if emissions increase year on year: public consultation feedback A concern was raised that organizations can technically increase emissions year on year while still being able to make a claim. It was noted that this could severely impact integrity and reputation of the Claim. There was a suggestion to add an additional guardrail to protect from this scenario, these included: Add an extra guardrail that requires emissions to reduce: There was feedback that suggested if the emissions gap does not decline over time, the use of the beta Scope 3 Claim should not be permitted. Proposals received focused on this being reviewed each year or at regular milestones (e.g. require at least a 5% decrease every 5 years). Percentage reductions could also relate to the gap percentage, which currently must decline over time but was viewed as vague without stated targets. Require companies not to increase absolute emissions: Concerns, however, were raised that requiring a continual decline in the emissions gap favours companies far ‘off-track’ over those nearly on target. It was raised that, as the goal is to incentivize participation from companies close to meeting targets, a simple approach requiring companies not to increase absolute emissions could provide more equal incentives. Extra guardrail to support decarbonization efforts: There were several (at least three) suggestions that the beta Scope 3 Claim would be more effective if only permitted following the development and implementation of a short-term scope 3 decarbonization strategy that identifies short-term actions to reduce scope 3 emissions. Features of a decarbonization strategy: • This could be a five-year plan that targets the most significant emissions sources. • A focus on identifying residual emissions for the use of credits. • Regular reporting on progress, barriers and changes made to overcome. • After this period the plan is updated, and a claim can be made. Ongoing review and evaluation on the guardrails: Several comments suggested that the guardrails should be tested, evaluated and reviewed on a regular basis. This would alleviate concerns about the current guardrails set by providing future flexibility for this to change. Suggestions included a review in five years' time or when new evidence or data becomes available. Rationale for review Most noted that the guardrails should be amended as new research emerges. Points were made that we don’t know what will happen, including world-wide progress on decarbonization, technological advances or the potential for emissions to increase requiring a shift. A fixed date may also be less useful for companies that set targets later and that this should be reviewed. 34 VCMI Scope 3 Action Guardrails - other Sub-point: phase-in of guardrails One comment was also made suggesting that restrictions on the use of the Claim could be phased in slowly, starting with initial steps, which would increase incentives to use the Claim. Scope 3 Action Code Guardrail/requirement for companies not to increase/reduce absolute emissions: of Practice Different measures to prevent the misuse of the Code of Practice were considered. However, given that scope 3 emissions fluctuate due to various factors (e.g., uncertainties related to emission factors and supply chain complexities), it is unrealistic to require companies to reduce emissions every year after aligning with the Code of Practice. It is important to note that the existing requirements and measures, including the transparency requested for the list of measures designed to overcome remaining barriers with an estimated timeline, aim to select companies that are making efforts to reduce scope 3 emissions. This approach enables businesses to use high-quality carbon credits to close the emissions gap while they put in place necessary measures to overcome emissions reduction barriers and get back to the trajectory consistent with their climate commitments, until the target year. Review process: Given that overall scope 3 decarbonization is a complex and evolving process, VCMI acknowledges that some parameters of the Scope 3 Action Code of Practice may need to be reviewed over time to incorporate new findings. Phase-in of guardrails Given that the Scope 3 Action Code of Practice is not yet a certifiable Claim, companies may choose to align with the Code as an ongoing process, gradually implementing requirements and guardrails. VCMI Scope 3 Action 35 3.13. EDITORIAL A small number of comments were made that were of an editorial nature. Below is a summary of the feedback obtained within this theme and the final changes to the Scope 3 Action Code of Practice. Editorial Key points from the Specific editorial comments on both the language and diagrams in the beta public consultation Scope 3 Claim were made. feedback The rationale for the changes was mainly around clarity and understanding, or to avoid negative language or to use metric measures for carbon instead of imperial. Scope 3 Action Code All editorial suggestions were a valuable input for all the text improvements made of Practice on the public consultation version to arrive on final text with much more clarity. All units use metric system. 3.14. ESTABLISH A SCOPE 3 EMISSIONS TRAJECTORY The beta Scope 3 Claim required companies to determine a scope 3 emissions trajectory consistent with their science-aligned target. This can either be their own trajectory, or they can assume a linear trajectory between their base year and target year. A survey question was also asked via the consultation platform to specifically gain feedback on if the emissions resulting from non-linear trajectories shall not be greater than those that would have resulted from a linear trajectory, ensuring that the company’s reduction pathway is aligned with net zero commitments. Figure 10: Survey results: emissions trajectories. Total responses, N=24. Cumulative emissions resulting from non-linear trajectories shall not be greater than the cumulative emissions that would have resulted from a linear trajectory to ensure that the company’s emission reduction pathway is coherent with a science-aligned outcome. 14 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=24) 36 VCMI Scope 3 Action Number of responses A number of comments were made on this section, mainly in comment to the survey. A summary of the feedback is provided below, alongside the changes to the Scope 3 Action Code of Practice. Establish a scope 3 emissions trajectory Key points The largest point of feedback in this section was around if the cumulative emissions from from the non-linear trajectories shall not be greater than those from linear trajectories, due to the public specific survey question being asked. Feedback was overall in agreement with this but consultation there were some comments that this is an oversimplification. feedback Other comments were made including for VCMI to consider including real-world examples to illustrate how to establish an emissions trajectory, or to create further guidance specifically around non-linear trajectories and how to justify them or document the external factors causing them. Scope 3 VCMI recognizes that many companies’ emissions do not follow a linear trajectory and, in Action Code some cases, may increase in a given year as a result of factors outside their control, such of Practice as changing practices, product lines and suppliers, adoption of new technologies, sales and acquisitions. For the Year-on-Year approach, cumulative emissions resulting from non-linear trajectories shall not be greater than the cumulative emissions that would have resulted from a linear trajectory, as illustrated by the examples below: [Step 2B] Base year 2020; Target year: 2030; Base year emission: 800 tCO2e; Target reduction: 25% by 2030; scope 3 emissions included in the target boundary (2025): 860 tCO2e [Step 2C] (tCO2e) Linear 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 scope 3 trajectory emissions 800 780 760 740 720 700 680 660 640 620 600 (example) Cumulative scope 3 emissions from a linear trajectory: 7700 tCO2e Alternatively: (tCO2e) Linear 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 scope 3 trajectory emissions 800 800 780 760 740 700 660 640 620 600 600 (example) VCMI Scope 3 Action 37 3.15. FOUNDATIONAL CRITERIA The Foundational Criteria applies to all VCMI Claims and are designed to be aligned with the long-term goals of the Paris Agreement, representing current corporate best practice. The Foundational Criteria requires companies to: • maintain and publicly disclose an annual GHG emissions inventory; • set and publicly disclose science-aligned near-term emission reduction targets, consistent with reaching net- zero emissions no later than 2050; • demonstrate that they are implementing measures on financial allocation, governance, and strategy towards meeting a near-term emission reduction target; and • demonstrate that their public policy advocacy supports the goals of the Paris Agreement and does not represent a barrier to ambitious climate regulation. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Foundational Criteria Key points from the Many comments on the Foundational Criteria were notes of agreement with the public consultation requirement of complying with the Foundational Criteria, with some comments feedback noting this encourages companies to prioritize in value chain decarbonization. A small number of respondents suggested reducing barriers to entry to making a claim for those companies that currently do not meet the Foundational Criteria, broadening participation, while they move towards compliance with the criteria. On the other hand, others suggested to further tighten the Foundational Criteria in the Claim, such as requiring that both GHG inventory and climate targets should be set up for scope 1, scope 2 and scope 3, requiring companies to publicly disclose a transition plan to achieve science-aligned targets or to be deforestation free by a set date. Scope 3 Action Code The Foundational Criteria have been updated to remove barriers of entrance and of Practice increase accessibility to a larger number of companies, while ensuring integrity from the demand side of voluntary carbon markets and technical rigour and robustness. 38 VCMI Scope 3 Action 3.16. HIGH-QUALITY CARBON CREDITS The beta Scope 3 Claim required companies to retire only Core Carbon Principles (CCP)-labelled credits. Until these become available, CCP-labelled and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) credits were said to be permitted. This section presents a summary of the feedback received on this requirement, and on types of carbon credits generally. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. High-quality carbon credits Key points from the The use of other types of credits to make a claim were mentioned by some public consultation respondents, such as the use of Article 6 credits. Alternative Environmental feedback Attribute Certificates were also mentioned as an alternative method to make a claim, including: • Renewable energy certificates • Sustainable aviation fuel certificates Some respondents emphasized the need to transition from emissions avoidance credits to removals credits, highlighting the importance of addressing long-term carbon sequestration rather than short-term avoidance measures. The limited availability of CCP-labelled credits was noted as a challenge, and variability in credit quality highlighted as a remaining issue, with one respondent from a VCM-related initiative suggesting a portfolio-based approach to carbon credit risk. Adding a requirement for companies to purchase credits from projects with carbon credit ratings was also mentioned. Further requirements were recommended for nature-based credits, including the application of principles such as like-for-like replacement4. Scope 3 Action Code Companies shall retire ICVCM Core Carbon Principles-labelled credits or Article of Practice 6.4 credits issued under methodologies approved by the Article 6.4 Supervisory Body when they become available. Further details on these mechanisms are outlined in the document. For VCMI Claims made before January 1, 2026, or until CCP-labelled and/ or Article 6.4 credits become widely available, VCMI offers companies two approaches to retire high-quality carbon credits: • Option 1: Retire CORSIA eligible credits, when a specific activity type has not yet been assessed by the ICVCM. • Option 2: Disclose how due diligence processes align with all 10 CCPs. Other types of certificates are not yet part of the current VCMI guidance. 4 “Like-for-like removals are defined by the UNFCCCs Race to Zero campaign as ‘when a source of emissions and an emissions sink correspond in terms of their warming impact, and in terms of the timescale and durability of carbon storage’. This definition indicates that CO2 that came from permanent storage, such as fossil fuels, must be returned to permanent storage. At the same time, CO2 released from insecure storage such as forests or soils can be returned to the same type of storage (i.e. offset land use change with forestation). It also means that short-lived greenhouse gasses such as methane could potentially be neutralised by CO2 storage with the same lifetime as methane (adjusting volumes for global warming potential). The like-for-like principle stems from the structure of the natural carbon cycle and safeguards against, for example, an oil company continuing to produce fossil fuels and releasing CO2 from the long carbon cycle, while offsetting their emissions by planting trees and restoring carbon into the short carbon cycle.” – Carbon Gap, 2023. VCMI Scope 3 Action 39 3.17. INCENTIVES TO ADHERE TO THE BETA SCOPE 3 CLAIM Comments assigned to this theme refer to comments made around the incentive companies have for adhering to the beta Scope 3 Claim. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Incentives to adhere to the beta Scope 3 Claim Key points from the Motivation to adhere to the Claim: public consultation feedback Many respondents, particularly in the Corporate focus group, mentioned that the incentives for companies are not clear and only a few are making VCMI Claims. It was noted that the Claim is perceived as an added cost and that it does not currently bring much brand benefit. It was also raised that there is no incentive for companies to buy credits more than their scope 3 emissions gap, and organizations currently lack the ability to make a higher-tier claim. Some suggested that allowing organizations to also claim for their scope 1 and scope 2 emissions if they are not meeting those targets was an additional way to incentivize use of the Claim and encourage broader participation. Others mentioned that the Claim offers a solution to replace offsetting which companies see as beneficial. Another mentioned that there should be a remedy framework for missed targets which could help increase use of the Claim. Integration with SBTI: Some respondents mentioned how there would be a greater incentive if the Claim could contribute to an SBTi target in future. It was recommended that VCMI work directly with SBTi to have the approach laid out in this Claim mandated in the Corporate Net Zero Standard as an obligation for companies who are missing their scope 3 emissions targets. This approach was said to have the potential to drive action and accelerate action towards global net zero. Coverage / relevancy: It was mentioned that the current approach is “too supply chain/ value chain” focused and is not applicable to all sectors, such as banks. It was also mentioned that being heuristic takes the focus away from whole decarbonization and that a more holistic approach should be taken. Timing / priority: An issue was raised by respondents that carbon reporting is a new effort for many companies and focusing on scope 3 emissions at this stage is premature. Some respondents felt that scope 3 is not currently a priority for companies; they are currently focusing on scope 1 and scope 2. One participant also raised that money can be spent either on credits or in investments in scope 3 reductions, and VCMI should decide how much can be utilized on credits. 40 VCMI Scope 3 Action Incentives to adhere to the beta Scope 3 Claim Scope 3 Action Code Motivation to adhere to guidance provided: of Practice The Scope 3 Action Code of Practice provides guidance for companies making efforts to reduce scope 3 emissions and facing barriers to do so. Companies can use high-quality carbon credits to close the scope 3 emissions gap while they put in place necessary measures to overcome emissions reduction barriers and get back to the trajectory consistent with their climate commitments, until target year. Companies should take action for their emissions gap each and every year and retire high-quality carbon credits to close that gap. VCMI recommends target setting frameworks to adopt and apply the same approach for the target year. Integration with SBTi: The Scope 3 Action Code of Practice is designed to work alongside other frameworks like SBTi – and soon ISO. It provides an additional tool for companies facing specific challenges in scope 3 emissions reductions to complement their internal decarbonization efforts. The Scope 3 Action Code of Practice guidance is complementary to target setting frameworks as it requests action to be taken by companies each and every year of the target implementation period and not just at target year. Coverage / relevancy: VCMI considers developing a differentiation framework for a future iteration of the document. VCMI is also developing a white paper on the different roles financial institutions can play in scaling up voluntary carbon markets. VCMI Scope 3 Action 41 3.18. INTERNAL DECARBONIZATION A small number of comments were made referring to a company’s effort to reduce their emissions. Below is a summary of the feedback obtained within this theme and the final changes to the Scope 3 Action Code of Practice. Internal decarbonization Key points from the One respondent suggested there should be flexibility if an organization hasn’t public consultation reduced scope 1 and scope 2 emissions, though many emphasized that progress feedback on reducing scope 3 emissions should be prioritized. There were multiple calls for clearer guidance on internal reductions, including tools and strategies to overcome barriers, linking it to the broader theme of challenges to internal decarbonization. The need to uphold the mitigation hierarchy was stated as crucial to maintaining integrity, with a clear emphasis that a claim should not serve as substitute for direct emissions reductions. Some respondents suggested further requirements for investment in actions to ensure meaningful progress. Concerns were also raised about the potential for claims to undermine internal decarbonization efforts, citing insufficient incentives to prioritize these reductions. A common suggestion was to link claims to the implementation of a robust decarbonization strategy. Scope 3 Action Code The Scope 3 Action Code of Practice is designed for companies making of Practice progress in scope 1 and scope 2 emission reductions and making efforts but facing barriers to reduce scope 3 emissions. Mitigation hierarchy is addressed by requiring companies to provide a list of measures already taken to enable scope 3 emissions reductions and results obtained. Companies are also required to provide a list of: • measures to be implemented to address remaining barriers; and • the expected timeframe for it as a decarbonization strategy. 42 VCMI Scope 3 Action 3.19. MONITORING, REPORTING AND ASSURANCE (MRA) Step 4 in the beta Scope 3 Claim required companies to obtain third-party assurance following the VCMI Monitoring, Reporting & Assurance (MRA) framework. Comments categorized within this theme relate to this step. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Monitoring, Reporting and Assurance (MRA) Key points from the The main point of feedback in this section was to ensure that VCMI’s MRA public consultation framework is updated to include scope 3, however one respondent noted that feedback the framework cannot be applied to scope 3 but they are very supportive of third-party assurance. The majority were in agreement with this requirement and felt that it is vital to build trust, but a minority noted requiring this was a barrier to entry. Other comments were made questioning how the requirement that the scope 3 emissions gap must decline over time will be assured. Scope 3 Action Code Scope 3 Action Code of Practice – Annex C is provided for companies to be of Practice aware of specific information to be publicly reported when demonstrating alignment with this Scope 3 Action Code of Practice. It is recommended that companies make this information publicly available, such as through a company website, a standalone report (e.g. annual climate report) or within a more comprehensive report (e.g. sustainability report). Annex C, along with the key metrics listed in the VCMI MRA Framework, can be used to guide a company’s data reporting and assurance process to ensure alignment with the Scope 3 Action Code of Practice. VCMI recommends that companies obtain third-party verification of the reported data to substantiate any communication regarding alignment with this Scope 3 Action Code of Practice. Though companies are not using the Scope 3 Action Code of Practice to make a claim, companies can refer to the MRA Framework to understand the reporting and assurance requirements relating to the Foundational Criteria. VCMI Scope 3 Action 43 3.20. OTHER GENERAL Presented here are the other, general comments that do not refer to a specific aspect of the document, nor fit into any of the other themes. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Other general Key points from the Use of a claim for scope 3: public consultation feedback Some stated that carbon credits should not be used for scope 3 emissions, and that scope 3 cannot be an additional voluntary target. A couple of respondents noted that something should be done to prevent 'leakage' of emissions from scope 1 and scope 2 into scope 3. One respondent noted that the bar should be ‘set even higher’ and short-term insufficient claims shouldn’t be rewarded to incentivize long-term claims as companies might withdraw. Some felt that the Claim might de-incentivize long-term decarbonization efforts. There were also some views that a balance should be established between immediate action and long-term claims and there should be interim solutions on the way to transition. Others commented that companies ‘lagging behind’ on targets should be supported. It was also mentioned by a few respondents that taking a more holistic view to emissions reductions should be made clear, taking into account an organization’s overall emissions reduction strategy. Target setting: One respondent questioned if companies could set another near-term target once they reach the first one. Transparency: One respondent noted that transparency through disclosure is welcomed, however they see an issue with companies setting their own decarbonization pathway and then stating they are ‘on track’, even if emissions are increasing. Alternative proposals: The use of energy attribute certificates (EAC) for addressing emissions reduction in an organization’s value chain was mentioned in various points throughout the consultation feedback. The E-liability carbon accounting framework was suggested by one respondent as an alternative framework. One respondent noted that investment in scope 3 may restrict investments in scope 1 and scope 2. A shared responsibility mechanism was proposed for scope 3 emissions. Improvements to the claim: Some respondents left long comments with items for improvement, most of which were also listed elsewhere in the consultation sections (e.g. 2038 timeframe and 24% threshold). Something else to be considered is how to ensure no double- counting between scope 1, scope 2 and scope 3. 44 VCMI Scope 3 Action Other general Scope 3 Action Code Use of a claim for scope 3: of Practice A key objective of the Code is to accelerate climate action, with high-quality carbon credits used in addition to, not as a substitute for, direct decarbonization of scope 3 emissions. With this dual approach of overcoming the barriers to scope 3 emissions reduction and provisioning climate finance through the retirement of high-quality carbon credits, companies can continue to deliver on their climate commitments and accelerate global net zero. Target setting: Companies should follow a science-aligned target setting framework criteria to set near-term emissions reduction. Transparency: If companies choose to use their own non-linear scope 3 emissions trajectory, the cumulative emissions resulting from this trajectory shall not be greater than the cumulative emissions that would have resulted from a linear trajectory to ensure alignment with the Intergovernmental Panel on Climate Change (IPCC) mitigation pathways assumptions. For some years this could even mean a growth in absolute scope 3 GHG emissions. Alternative proposals: The use of energy attribute certificates (EAC) is not part of the scope of this document. Improvements to the Claim: The Scope 3 Action Code of Practice requires companies to disclose relevant data related to retired high-quality carbon credits (e.g., project ID, retirement serial number, and retirement date). Double counting: Double counting is a situation in which a single GHG emission reduction or removal is counted more than once towards achieving mitigation targets or goals. Double claiming occurs when the same GHG emission reduction or removal is claimed by two different entities towards achieving mitigation targets or goals: for example once by a country, jurisdiction or other entity that reports lower GHG emissions or higher GHG removals for the purpose of demonstrating achievement of a mitigation target or goal, and once by the entity retiring the carbon credit for the purpose of reducing internal emissions to meet a target. When credits are authorized for international transfer under the Paris Agreement, a corresponding adjustment is required to avoid double counting across two or more national accounting systems, not between a national and corporate accounting system. Voluntary corporate reporting is independent of, and does not contribute to, national emissions accounting under the Paris Agreement. The voluntary use of carbon credits allows private sector finance to flow into climate mitigation efforts beyond regulatory requirements, enabling additional emissions reductions that would not otherwise be funded through government policies or compliance markets. A corporate can purchase non-authorized credits and the country hosting the carbon market project can count those emissions reductions toward their Nationally Determined Contribution (NDC), if they have an economy wide NDC or the credits fall in a sector within the NDC. It is acceptable that the corporate claims the use of these credits separately from reporting greenhouse gas emissions in their inventory. The country in which the corporate is does not need to be informed and the credit use is not reported in their NDC accounting, therefore there is no double counting with the project’s host country’s NDC. VCMI Scope 3 Action 45 3.21. POLICY/REGULATION Presented here are all comments made relating to wider policy / regulation considerations. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Policy/regulation Key points from the Penalties / incentives: public consultation feedback There were questions asked around how the mechanism is going to be enforced. Whether there would be reputational benefits, incentives for take up and penalties for not achieving targets and heavy reliance on carbon credits was debated. It was also mentioned that once incentives and penalties are in place, a body is needed to manage the latter; potentially an existing one. Clear rules are needed to prevent greenwashing accusations: There were questions and concerns around greenwashing. Respondents mentioned that clear rules and labels are needed around claims. The lack of jurisdictional agreement on required substantiation for ‘Green Claims’ creates confusion and increases the risk of greenwashing. Holistic industry wide guidance is needed on what good substantiation for climate claims looks like. It was also mentioned that there needs to be a standard to cover different jurisdictions. Green Claims Directive: There was a view that claims being made are dependent on the outstanding legislation in development – the Green Claims Directive (GCD). There was a view that the Claim can be used voluntarily by companies, but they will only get legal security from the GCD. Variance across jurisdictions: Respondents from different jurisdictions commented that their government doesn’t have any guidance or regulation around scope 3 emissions. It was felt that the voluntary element is not enough and there should be a mandate for companies to set targets and take measures for achieving them. Some noted that accounting liability is needed. Recognition by other programmes: Respondents noted that scope 3 emissions regulations cannot exist in isolation and there should be engagement with other regulations, schemes or standards. 46 VCMI Scope 3 Action Policy/regulation Scope 3 Action Code The Scope 3 Action Code of Practice promotes complementary use of high- of Practice quality carbon credits so that companies have a credible path for the voluntary use of carbon credits they wish to make. Organizations are recommended to take independent legal advice on their intended use of the Code in the jurisdiction on which they operate. VCMI standards and its associated Claims are broadly consistent with the EU GCD's criteria set forth in its provisions for trader claims based on the use of credits. VCMI will continue to monitor the GCD’s development—currently in its trilogue phase—to ensure that its Claims and guidance fully comply with the directive’s criteria and objectives. Recognition by other programmes VCMI has designed its MRA Framework building on and aligning with — rather than duplicating — existing benchmarks and corporate accountability frameworks (e.g. Climate Disclosure Project (CDP)). VCMI respects and recognizes the role each organization plays in voluntary carbon markets and engages in ongoing coordination efforts with the Science Based Targets initiative (SBTi), the Greenhouse Gas Protocol (GHG Protocol), CDP, We Mean Business, and the Integrity Council for the Voluntary Carbon Market (ICVCM), among other key corporate voluntary standards bodies. VCMI’s role in voluntary carbon market governance is one piece of a larger puzzle. Ensuring the effective wider governance of voluntary carbon markets requires a broader convergence of actors and resources to fill the need for assurance services, among other components. 3.22. PROCUREMENT GUIDELINES Presented here are all comments relating to carbon credit procurement guidelines. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Procurement guidelines Key points from the The general feedback from the small number of comments in this section supported public consultation an optional recommendation for companies to disclose their carbon credit feedback procurement guidelines for transparency, balancing this disclosure without over burdening companies. Scope 3 Action Code The recommendation for companies to develop and disclose the company’s of Practice carbon credit procurement guidelines was removed from the Code. Though VCMI understands that the development of procurement guidelines is positive for companies, it was chosen to keep in the document only the requirements and recommendations that are closer related to the objectives of the Scope 3 Action Code of Practice. This is to avoid overburdening companies that will want to adhere to all recommendations. VCMI Scope 3 Action 47 3.23. REPUTATIONAL Comments presented in this theme refer to remarks made around how VCMI’s reputation may be affected, adversely or inadvertently, by the beta Scope 3 Claim. Consultation platform respondents were specifically asked a survey question (Figure 11) to gain perspectives on if the Claim appropriately balances the requirements and guardrails to ensure the credible use of carbon credits. Respondents also made general comments in the consultation platform and during the focus groups. Figure 11: Survey results: The Claim appropriately balances the requirements placed on companies with the rigour needed to ensure that companies’ actions on retiring high-quality carbon credits are credible. Total responses, N=35. The claim appropriately balances the requirements placed on companies with the rigour needed to ensure that companies’ actions on retiring high-quality carbon credits are credible. 14 12 10 8 6 4 2 0 Strongly disagree Disagree Neither agree Agree Strongly agree nor disagree Responses (N=35) 48 VCMI Scope 3 Action Number of responses Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Reputational Key points from the Offsetting: public consultation feedback There were views by some that the Claim will reduce decarbonization efforts of an organizations value chain and increase the appeal of offsetting. Greenwashing: There were mixed views around the Claim and how it’s positioned in terms of greenwashing. One respondent stated that allowing companies to exceed their emissions targets by 24% annually until 2038 contradicts the necessary emissions reduction rates to meet the Paris Agreement's target. They stated this could lead to widespread greenwashing, as it creates a misleading impression of corporate decarbonization efforts, potentially hindering global climate action and misleading consumers and investors about companies’ true environmental impact. On the other hand, others felt that the Claim strikes the right balance and allows climate leadership that will increase engagement with carbon credit use due to the Claim’s guardrails that offer protection from greenwashing accusations. Messaging around accountability for emissions reductions: One respondent noted that the beta Scope 3 Claim is designed for companies to take extra responsibility if they fall short of their emissions targets, not as a way to ease reduction requirements or permit reliance on carbon credits. It was suggested that messaging around this should be made very clear up front – favouring reductions over credit use. Against the Claim generally: There were a few respondents, both in the focus groups and in the platform comments, that are generally against the Claim, and do not see it is a useful tool. Reasons being are that it delays from urgent climate action that is needed now and is perceived as a way out for companies. How the Claim is perceived in the context of other standards: One respondent raised that other standards (e.g. ISO, SBTi) do not allow credits to be used within an organizations value chain and that if VCMI allow this, could risk damaging credibility. Scope 3 Action Code The Scope 3 Action Code of Practice provides guidance for companies making of Practice efforts to reduce scope 3 emissions and facing barriers to do so. Companies can use high-quality carbon credits to close the scope 3 emissions gap while they put in place necessary measures to overcome emissions reduction barriers and get back to the trajectory consistent with their climate commitments, until target year. Companies should take action for their emissions gap each and every year and retire high-quality carbon credits to close that gap. VCMI recommends target- setting frameworks adopt and apply the same approach for the target year. A key objective of the Code is to accelerate climate action, with high-quality carbon credits used in addition to, not as a substitute for, direct decarbonization of scope 3 emissions. With this dual approach of overcoming the barriers to scope 3 emissions reduction and provisioning climate finance through the retirement of high-quality carbon credits, companies can continue to deliver on their climate commitments and accelerate global net zero. VCMI Scope 3 Action 49 3.24. SCOPE 1 AND SCOPE 2 TARGETS This category relates to a range of comments made concerning scope 1 and scope 2 targets. Below is a summary of the feedback obtained and the final changes to the Scope 3 Action Code of Practice. Scope 1 and scope 2 targets Key points from the A number of respondents noted to extend the Claim to allow to claim for scope public consultation 1 and scope 2 emissions, some arguing for their remaining emissions only, but feedback others also if there is a gap between where they need to be for their science- aligned target. Some commented that organizations that have a gap for their scope 1 or scope 2 emissions shouldn’t be able to make a claim and anyone that has a scope 3 gap shouldn’t be able to achieve Gold or Platinum Carbon Integrity Claims. It was highlighted that disclosure of scope 1 and scope 2 progress should be mandatory. One respondent raised that the Claim should allow some sectors facing challenges in scope 1 and scope 2, such as steel and cement, to still make a Claim (this is related to the point on differentiation). VCMI was advised to better define what ‘progress’ on scope 1 and scope 2 is – a clearer demonstratable sign of progress was mentioned by a few respondents. An example of 4% was given to be ‘on track’ with a science-aligned pathway. Scope 3 Action Code The Scope 3 Action Code of Practice requires companies to publicly disclose of Practice the percentage of emissions reductions achieved in greenhouse gas (GHG) emissions for scope 1 and scope 2 in the most recent reporting year, in comparison to the base year (i.e. base year used in the near-term emission reduction target). The Scope 3 Action Code of Practice provides guidance for companies making progress on scope 1 and scope 2 emissions reductions and making efforts but facing barriers to reduce scope 3 emissions. VCMI recognizes that some companies also face challenges in reducing scope 1 and scope 2 emissions, but challenges are different than those faced on scope 3 emissions reduction, so specific guidance would have to be provided in that regard. 50 VCMI Scope 3 Action Road test summary VCMI Scope 3 Action 51 4. Road test summary 4.1. INTRODUCTION TO THE ROAD TEST VCMI’s beta Scope 3 Claim document underwent an intensive four-week road-testing process, facilitated by BCG and coordinated with WBCSD, with participation from 10 companies. The objective was to assess the operability, clarity, and incentives of the Claim, as well as explore challenges related to scope 3 emissions. The process also evaluated naming and branding aspects of the Claim, culminating in key findings and recommendations for improvement. 4.2. KEY CHALLENGES IDENTIFIED The road testing highlighted several challenges, both related to scope 3 emissions in general and to the Claim itself; • Nascent scope 3 reporting & prioritization: Many companies are still in the early stages of tracking and reporting scope 3 emissions, making it difficult to commit to near-term claims, and provide information on actions already undertaken to address scope 3 emissions. • Complexity & justification of parameters: Companies initially found the Claim challenging to understand and questioned the justification behind specific parameters and guardrails. • Need for additional guidance: When provided with extra guidance and calculation tools, companies found the Claim more actionable. • Cost concerns: The financial burden of purchasing carbon credits to cover scope 3 emissions gaps was a concern, particularly for industries where scope 3 emissions constitute the majority of their footprint. 52 VCMI Scope 3 Action 4.3. FINDINGS ON CORPORATE READINESS FOR A SCOPE 3 CLAIM • While 55% of companies disclose their scope 3 emissions to CDP, overall tracking and reporting remain in early stages, limiting their ability to make a Scope 3 Claim in the near term. • Companies with scope 3 roadmaps may be prioritizing direct decarbonization efforts over carbon credit purchases, making it premature for many to disclose barriers in their scope 3 strategies. • As scope 3 remains a developing area, companies need guidelines that are clear, credible, and easily communicated to internal stakeholders, including C-suite executives and investors. • All participating companies communicated that the beta Scope 3 Claim provided valuable guidance that they would use. 4.4. RECOMMENDATIONS FOR ENHANCING THE BETA SCOPE 3 CLAIM To address the challenges and maximize corporate engagement, key changes were recommended: 1. Flexible approach to scope 3 strategy maturity: Introduce both a Year-on-Year and a Carbon Budget approach to accommodate varying levels of scope 3 strategy development. 2. Enhanced clarity and credibility: Anchor the Claim to established climate frameworks, ensuring clear guardrails and incorporating support materials like calculation sheets and graphs. 3. Enhanced clarity within the technical requirements: Specific guardrails should be simplified, such as changing the 24% emissions gap limit, and 2038 phase out year, to 25% and 2040 respectively. 4. Improved communication & usability: Ensure the Claim is concise, operable, and easy to implement within corporate business planning processes. 5. Alignment with corporate needs: Make the Claim scientifically credible while being practical for companies to communicate to climate leadership. 6. The naming and branding should explicitly refer to the main focus of the Claim, being scope 3 emissions. VCMI Scope 3 Action 53 Conclusion and next steps 54 VCMI Scope 3 Action 5. Conclusion and next steps The Scope 3 Action Code of Practice has been developed through a robust, extensive consultation process providing a high-integrity solution to using high-quality carbon credits to close the scope 3 emissions gap. The road-testing process reinforced the importance of ensuring that the Scope 3 Action Code of Practice is both ambitious and practical. Companies are central to the Code’s success, and their feedback has been instrumental in refining its design. By integrating the recommended changes, VCMI aims to facilitate and incentivize corporate adherence to the Scope 3 Action Code of Practice, ultimately driving meaningful near-term action on scope 3 emissions. The Scope 3 Action Code of Practice, launched in April 2025, serves as guidance that companies can use immediately to ensure they are following best practice and following a high-integrity approach to the use of high- quality carbon credits to close the scope 3 emissions gap. VCMI Scope 3 Action 55 The Voluntary Carbon Markets Integrity Initiative is an international initiative to drive credible, net zero- aligned participation in voluntary carbon markets. vcmintegrity.org 

Notes to Editor:  

1. The Scope 3 Action Code of Practice https://vcmintegrity.org/scope-3-action is an evolution of VCMI’s earlier work developing a beta Scope 3 Claim. This process has included an extensive public consultation (involving more than 600 stakeholders from 31 countries), technical assessment and road testing of the process with companies. Its development has also included on-going review and feedback from VCMI’s Expert Advisory Group and Stakeholder Forum. See this report to learn more about steps involved in the process.

2. Scope 3 emissions are the indirect emissions that occur across an organization’s value chain. Research into scope 3 emissions and the barriers corporates face in addressing them recently conducted and published by RambollBarriers to Scope 3 Decarbonisation 1 Scope 3 Decarbonisation: Practitioner Challenges April 2025 Barriers to Scope 3 Decarbonisation 2 Barriers to Scope 3 Decarbonisation 3 Table of Contents 1. Executive summary 04 5. Barrier prioritisation 50 2. Introduction and literature review 14 6. Potential solutions to scope 3 decarbonisation barriers 52 2.1. Objectives of this report 15 6.1. Costs and timelines of solutions 53 2.2. Summary of the current state of knowledge on scope 3 barriers 15 6.2. Techno-economic barriers to upstream decarbonisation: 56 3. Methodology 18 6.2.1. Introduction 56 4. Barriers to scope 3 decarbonisation 22 6.2.2. Results from survey responses 58 4.1. Introduction 23 6.2.3. Discussion 60 4.2. Survey results: understanding the respondents and their companies 23 6.3. Supply chain coordination and emissions reporting 62 4.2.1. Scope 3 ‘maturity’ of respondents 23 6.3.1. Introduction 62 4.2.2. Material scope 3 categories 25 6.3.2. Results from survey responses 62 4.3. Overview of barriers 27 6.3.3. Discussion 64 4.3.1. Severity of barriers 27 6.4. Industry-specific analysis 66 4.4. Regional and cross-sector analysis 28 6.4.1. Financial services 66 4.5. Industry-specific insights 29 6.4.2. Information and/or communication technology 68 4.5.1. Biotech and pharmaceuticals 30 6.4.3. Real estate 71 4.5.2. Consumer packaged goods 32 6.4.4. Transportation and/or distribution services 72 4.5.3. Professional services 34 7. Annexes 74 4.5.4. Financial services 36 7.1. Timelines 75 4.5.5. Information and/or communication technology 38 7.2. Barrier explanation 75 4.5.6. Manufacturing 40 8. References 80 4.5.7. Real estate 42 4.5.8. Retail 44 4.5.9. Transportation and/or distribution services 46 4.5.10. Utilities and/or energy 48 This research was conducted by Ramboll for the Voluntary Carbon Markets Integrity Initiative (VCMI). While research planning and report drafts were routinely reviewed and refined in collaboration with VCMI, Ramboll’s analysis and conclusions were developed independently. Barriers to Scope 3 Decarbonisation 4 Barriers to Scope 3 Decarbonisation 5 Executive Summary Top material scope 3 category by number of responses Upstream Downstream 50 As global efforts to mitigate climate change intensify, Additionally, companies will face investor pressure and risk 40 addressing scope 3 emissions has emerged as a critical regulatory penalties, reputational damage, and higher costs focus for organisations across industries. Scope 3 emissions, of financing. 30 which encompass indirect emissions occurring throughout the value chain, are often the largest and most complex Drawing on insights from surveys, interviews, and existing 20 source of corporate greenhouse gas emissions. Despite literature, this report describes which scope 3 categories growing awareness and the establishment of reduction are considered the most material to companies today, the 10 targets by many companies, significant barriers persist, barriers associated with those categories, as well as potential hindering corporate decarbonisation progress. According to solutions to mitigate the aforementioned risks. 0 1 3 6 4 5 2 7 8 15 9 11 13 10 12 14 a recent survey from Science Based Targets Initiative, 50% In doing so, it highlights cross-sector challenges that Scope 3 Categories of respondents self-reported to be “off track” for delivering companies face, such as the limited availability and high their scope 3 target indicating that new solutions are needed costs of low-carbon alternatives, as well as industry-specific to deliver results (SBTi, 2023)1. Failure to decarbonise scope Scope 3 category Category name issues. By examining these barriers and exploring potential 3 emissions jeopardises global climate goals, particularly solutions, the report seeks to equip businesses, policymakers, 1 Purchased goods and services those outlined in the Paris Agreement, which aims to limit and stakeholders with insights to accelerate scope 3 global temperature rise to well below 2°C above pre- 2 Capital goods decarbonisation efforts. industrial levels, while pursuing efforts to limit it to 1.5°C. 3 Fuel- and energy-related activities Inaction on these emissions may further exacerbate climate change, leading to further temperature rise and intensifying 4 Upstream transportation and distribution Upstream environmental impacts such as more frequent extreme 5 Waste generated in operations weather events, rising sea levels, and ecosystem disruptions (IPCC, 2023)2. 6 Business travel 7 Employee commuting 8 Upstream leased assets Upstream categories dominate scope 3 priorities 9 Downstream transportation and distribution A global survey of 180 sustainability professionals formed Following the identification of the most material categories 10 Processing of sold products the foundation of the analysis. Across sectors, the top two and barriers, we assessed solutions to barriers provided by 11 Use of sold products scope 3 categories account for approximately 80% of total respondents, including estimations on timelines and cost Downstream scope 3 emissions, underscoring the impact that the barriers provided by participants in order to implement the solutions. 12 End-of-life treatment of sold products associated with these have on decarbonisation progress 13 Downstream leased assets (CDP, 2024)3. To effectively assess the top barriers, each Overall, there is a noticeable imbalance between upstream respondent identified their two highest-emitting scope 3 and downstream categories, with greater emphasis placed 14 Franchises categories. Across sectors and regions, upstream categories on addressing upstream emissions. From a geographical 15 Investments of Purchased Goods and Services (Category 1) and Fuel- perspective, Purchased Goods and Services was especially and Energy-Related Activities (Category 3) stood out as prominent in North America and Europe, while Fuel- and the most significant contributors to scope 3 emissions. Energy-Related Activities was more prominent in Asia, Latin Then respondents selected three barriers inhibiting America and the Middle East. The regional variation between From the downstream categories analysed, Investments (Category 10) and Use of Sold Products (Category 11), may decarbonisation in that category. This step was critical Category 1 and Category 3 likely reflects a combination of (Category 15) was also prominent, primarily driven by the have been expected to feature more prominently given their to ensure that the identified barriers align with the most supply chain positioning, regional energy systems, data financial services industry. Additionally, relatively infrequently potential significance in certain industries. significant sources of emissions. maturity, and economic structures. selected categories, such as Processing of Sold Products Number of respondents 6 7 Cross-sectoral and industry-specific barriers Top barriers by sector impede scope 3 progress Sector Priority barrier 1 Priority barrier 2 Cost of switching to electric / alternative High dependency on air and sea freight that has Biotech The results indicate that scope 3 decarbonisation is hindered supply chains, faced more niche material categories and, fuel fleets limited decarbonisation options by a combination of cross-sector and industry-specific consequently, more industry-specific barriers. Industry- Consumer packaged Limited availability of technically-suitable Cost of switching to electric / alternative barriers. However, not all barriers are equally important. specific barriers were still considered critical, given goods low-carbon options fuel fleets Some barriers have a broader impact, affecting multiple respondents scored them just as severe as more common sectors, and therefore influence larger levels of emissions cross-sector barriers. The tables below show the top ranked Finance Lack of emissions disclosure by investees Risk return concerns on green investments globally. Additionally, certain industries, due to their distinct barriers both across sectors and within sectors. Information Cost of implementing recycling/circular Employee preference for air travel technology technologies and methods in-house Cross-sector top 10 barriers Sectors impacted Limited availability of technically-suitable Manufacturing Dependency on fossil fuel suppliers low-carbon options Limited availability of technically-suitable low-carbon options Lack of control or influence over indirect Professional services High costs of carbon-free energy and fuels Lack of control or influence over indirect suppliers suppliers Real estate Difficulty monitoring tenant energy use Tenant engagement challenges High cost of low-carbon alternatives Cost of implementing recycling/circular Retail High cost of low-carbon alternatives technologies and methods in-house Supplier granular emissions data unavailability Lack of control or influence over indirect Limited availability of carbon-free energy Transport High costs of carbon-free energy and fuels suppliers and fuels Utilities and energy High costs of carbon-free energy and fuels Dependency on fossil fuel suppliers Cost of implementing recycling/circular technologies and methods in-house Orange text shows barriers that will be discussed in a cross-sector context Dependency on fossil fuel suppliers Light blue text indicates sector-specific barriers not present in top 10 cross-sector barriers Cost of switching to electric / alternative fuel fleets To identify which barriers should be prioritised, the study ability of their company to meet future targets. The findings used five specific factors from the survey data – how often from this study point to two main themes and five top Difficulty shifting direct supplier relationships the barrier was selected, prevalence of the barrier across barriers to scope 3 decarbonisation for companies today, sectors, barrier severity, historical emissions change of the with each barrier present in at least 8 sectors: High dependency on air and sea freight that has limited decarbonisation options respondent’s company, and the respondent’s perceived Top 5 cross-sector barriers Biotech Consumer packaged goods Professional services Financial services Retail Techno-economic barriers to upstream decarbonisation Supply chain coordination and emissions reporting Real estate Utilities and energy Information technology Manufacturing Transport Limited availability of technically-suitable low-carbon options Lack of control or influence over indirect suppliers High cost of low-carbon alternatives Supplier emissions data unavailability   High costs of carbon-free energy and fuels In addition to cross-sector challenges, results pointed carbon-free energy and fuels, exacerbated by infrastructure to unique obstacles within industries. For example, the and technological limitations. financial services sector struggles with inadequate emissions Regional disparities also exacerbate challenges. While disclosure by investees and balancing risk-return concerns companies located in developed markets often benefit for green investments. Real estate companies encounter from government incentives and advanced frameworks, significant challenges in monitoring tenant energy use and companies in emerging markets tend to face resource engaging tenants in sustainability efforts. Transportation limitations including funding and technology, as well as companies are constrained by the limited availability of knowledge gaps. 8 9 Results indicate positive perceptions of ability Addressing techno-economic barriers to upstream to overcome barriers decarbonisation While respondents identified multiple high-impact barriers to indicates potential misalignment in the transport and utility Addressing the techno-economic barriers to upstream While literature highlights the pivotal role of subsidies, scope 3 decarbonisation, results from this study also indicate sectors, where implementation may lag stated targets. decarbonisation requires actionable steps, through carbon pricing, and government incentives in overcoming that 70% of respondents perceive their company’s ability 65% of sustainability professionals in this study suggest that company-level behavioural changes and broader structural high costs and accelerating the adoption of low-carbon to meet scope 3 targets was either adequate, good, or very they could implement solutions to address barriers within 5 shifts. The high costs and limited availability of low-carbon solutions, these structural changes received comparatively good. Over 55% of respondents indicated scope 3 target years and another 20% could implement solutions within 10 alternatives remain central challenges, but these challenges less attention. For instance, tax incentives for renewable dates between 2030 and 2040. This indicates that 2030 and years. However, this is not necessarily the entire picture as present opportunities for targeted intervention. Companies energy adoption and direct government funding for green 2040 targets could be within reach – provided perceptions implementation is contingent on other factors such as having should focus on accelerating innovation to drive both the infrastructure projects have shown significant promise, but accurately reflect the pace and feasibility of implementation the necessary resources and stakeholder support in place cost reduction and availability of low-carbon technologies. In were not widely emphasised by respondents. Similarly, pilot and the current state of progress remains on course. Overall, and many solutions to key challenges rely on significant addition, investments in R&D should be made for developing projects that scale renewable energy and implement circular this study reveals that respondents have a relatively positive structural changes beyond the control of individual firms. low-carbon materials and fuels, such as hydrogen and economy solutions demonstrate the potential for long-term perception of timelines necessary to implement solutions Overall, the specifics for how solutions could be achieved bio-based plastics, which will provide critical pathways for market shifts and cost reductions through coordinated to address barriers with a moderate level of constraint. were fragmented across responses, regardless or sector enabling upstream decarbonisation. innovation and policy support, yet this was less prominently Timelines to overcome key barriers generally align with or region. Policy interventions are equally critical in addressing discussed in the survey findings. corporate target years across most sectors, though analysis systemic barriers yet appeared underplayed in survey responses. Solutions fall within cohesive themes, but include Addressing supply chain coordination and broad ranges for cost and implementation timelines emissions reporting barriers regardless of industry or region Improving supply chain coordination and emissions respondents suggests that companies may be navigating a The study assessed a wide range of solutions to overcome capabilities, and supplier engagement. Regional responses reporting is vital to addressing scope 3 barriers. Embedding degree of uncertainty in defining solution specifics. Some the top barriers identified, provided by survey respondents also exhibited thematic groupings related to available sustainability clauses into supplier contracts has proven of this may stem from limited internal expertise, while in or interviews. Many of these solutions coalesced around incentives and technologies, depending on market maturity. effective, fostering collaboration and accountability while other cases, it could reflect the early-stage nature of many thematic groupings related to costs, technological driving improvements in supplier engagement. Digital proposed initiatives. This uncertainty highlights the need for platforms play an important role in standardising data clearer industry guidance and knowledge-sharing to help collection and enabling emissions transparency across supply businesses refine their cost and timeline estimates as they Solutions to top cross-sector barriers chains. However, challenges remain, as many of the solutions transition from planning to execution. Solutions for techno-economic barriers to upstream Solutions for supply chain coordination and emissions proposed in the survey lacked the granularity needed to fully assess and compare the cost and implementation timeline Collaboration among supply chain stakeholders is critical for decarbonisation reporting estimates. This may indicate a knowledge gap in how large-scale decarbonisation. Co-investment in sustainable Innovation and development Collaboration and engaging suppliers companies translate high-level ambitions into actionable, technologies and joint initiatives can align interests and scalable strategies. Estimates provided by companies vary foster accountability across value chains. By integrating Partnerships and market mechanisms Expanding or diversifying supplier base widely based on ambition, geography, and revenue, further digital tools with robust policy support and fostering deeper Carbon credits and interim reductions Embedding sustainability into contracts complicating efforts to present a cohesive strategy for supply chain partnerships, companies can make meaningful addressing these issues. progress in overcoming the barriers associated with supply Policy and regulation Promoting supply chain proximity chain coordination and emissions reporting. Consumer demand and business model adjustments Leveraging digital tools and software The variability in cost and timeline estimates across Standardisation of data collection processes 10 11 Specifics for costs and timelines for implementation Across all sectors and solutions to all barriers, the average expectation of solution costs across sectors, with retail, estimated solution cost was between 250K – 1M USD and transportation, and utilities expected to be the most costly. were fragmented regardless of sector or regional 1M – 5M USD categories. Across industries, the average cost Additionally, there was little regional variation, with the varies between the two, indicating a relatively consistent average falling within the same range. similarities Estimated costs for solutions addressing top 5 barriers The data reflected little consensus on implementation end (above 10M USD). Similarly, timelines ranged between Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD timelines and associated costs when solutions were analysed under 2 years to more than 15 years, but nearly all responses in aggregate. For all responses associated with each top were assessed to be achievable within the next ten years. 100% barrier, the cost of individual solutions proposed always Moreover, there was no relationship between company size 9% 12% 10% ranged from the low end (under 250K USD) to the high and cost of suggested solution. 13% 14% 15% 15% 14% 16% 21% Estimated costs for solutions addressing top 5 barriers 6% 7% 15% 9% 19% 14% 20% 35 18% 30 14% 24% 25% 25 24% 26% 20 27% 22% 20% 15 26% 33% 10 50% 5 36% 32% 0 31% 28% Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD 25% 30% 28% 37% Estimated timelines for solutions addressing top 5 barriers 29% 7% 24% 60 20% 50 28% 25% 24% 21% 40 18% 20% 12% 14% 14% 30 8% 0% 20 Biotech Consumer Financial Information Manufacturing Professional Real Retail Transportation Utilities and/or packaged services and/or services estate and/or and/or energy 10 pharmaceuticals goods communication distribution technology services 0 Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: Industry fully implemented fully implemented fully implemented fully implemented fully implemented by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 However, when examining top barriers by thematic groups, above 10M USD, while solutions addressing supply chain some trends emerge. The market believes techno-economic coordination barriers most frequently estimated costs under barriers will be more expensive to overcome compared to 250K USD. For both solution groups, the results did not supply chain coordination-related barriers. Responses for follow a clear progression, suggesting a level of uncertainty techno-economic solutions most frequently estimated costs in cost estimations across respondents. Number of respondents Number of respondentsPercent of respondents 12 13 Estimated costs for solutions addressing techno-economic barriers Estimated timelines for solutions addressing supply chain coordination barriers 30 30 25 25 20 20 15 15 10 10 5 5 0 0 Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: fully implemented fully implemented fully implemented fully implemented fully implemented by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 Estimated costs for solutions addressing supply chain coordination barriers 30 Recommendations for next steps tracking tools should be more widely adopted by 25 Overall, this study provides a comprehensive analysis companies of all sizes to streamline collection, of the key barriers inhibiting scope 3 decarbonisation, verification, and reporting of emissions-related data. 20 identifying both cross-sector and industry-specific Finally, collaboration on industry-wide and policy- 15 challenges. It examines linkages across sectors and driven solutions—such as co-funding advanced 10 regions while highlighting critical differences. By technologies and advocating for clean energy integrating survey data, interviews, and existing incentives— is a clear strategy for all companies to 5 literature, the report offers a nuanced understanding help scale decarbonisation efforts more effectively. 0 of the most material scope 3 categories – Categories Survey data indicates that solutions related to techno- Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD 1 and 3, the obstacles companies face – techno- economic barriers are likely to be more expensive and economic and supply chain coordination, and potential take longer to implement compared to supply chain solutions to overcome them. coordination. The supply chain coordination solutions typically focus on Across solutions for all top barriers, the majority of This study identified that barriers can be overcome While this study successfully maps barriers and optimising existing processes or updating operating models respondents estimated that it would take no more than through a variety of solutions to bridge the gap associated solutions in depth, the findings also rather than developing or deploying new technologies. This 10 years to implement associated solutions, which aligned between corporate targets and current progress. highlight a fragmented landscape of cost and timeline aligns with expectations, as improving operating models with survey-wide timelines. Similar to the results obtained Specifically, overcoming these barriers requires estimates for solutions, with notable uncertainty often demands fewer resources compared to the larger in the costs analysis, respondents believe that techno- structured supplier collaboration through formal around implementation feasibility. This underscores the financial investments associated with new technological economic solutions will take longer to implement compared engagement programs, data-sharing mandates, and need for additional research and pathway modelling solutions for decarbonisation. with supplier management and supply chain coordination targeted training to improve emissions reporting and to refine barrier-specific solutions, establish clearer solutions. This again aligns with expectations as techno- accountability. Piloting low-carbon material and fuel cost benchmarks, and further evaluate implementation Timelines across both subsets of barriers were slightly more economic solutions may require the development, testing, alternatives—such as bio-based inputs and electric timelines necessary for effective decarbonisation. cohesive, but still ranged across the entire spectrum of and scaling of new technologies or infrastructure to fully vehicle fleets—can help demonstrate commercial Future work should focus on quantifying the possible answers (under 2 years to more than 15 years). implement. viability and ease adoption challenges. financial implications and effort levels of barrier- specific solutions. By advancing barrier and solution Additionally, companies should implement tiered Estimated timelines for solutions addressing techno-economic barriers identification through pathway modelling, businesses, incentive structures for suppliers, rewarding emissions policymakers, and other stakeholders will be better 30 reductions through procurement advantages. Given positioned to reduce scope 3 emissions at scale. the challenge of fragmented data, centralised digital 25 20 15 10 5 0 Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: fully implemented fully implemented fully implemented fully implemented fully implemented by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 Number of respondents Number of respondents Number of respondents Number of respondents 14 15 02 2.1. Objectives of this report Scope 3 emissions are significantly more complex and harder This report aims to support businesses, policymakers, and to determine (Busch et al., 2022; Dahlmann & Rohrich, 2019; stakeholders in overcoming challenges related to scope 3 Downie & Stubbs, 2012, as cited in Hettler., 2023)4. decarbonisation. The objectives of this report are as follows: This gap is in part due to the sheer breadth and complexity 1. Identify key barriers: of value chain emissions, which encompass everything from a. To determine the primary barriers inhibiting scope 3 upstream supplier activities to downstream product use decarbonisation at a macro level and assess the impact of and disposal. Scope 3 emissions are exceedingly difficult Introduction and those barriers across various sectors and geographies to calculate and manage for sectors with complex value b. To prioritise barriers based on weighting criteria utilising chains. The more steps in a value chain, the more difficult it five specific factors from the survey data – frequency is to calculate and manage scope 3 emissions. According to of selection, sector spread, barrier severity, historical a recent study, companies have limited knowledge of their Literature Review emissions change, and perceived ability to meet future value chains and firms are still making significant efforts targets. to map and assess the impact of their first-tier suppliers or customers. Only 15% of companies engage with further 2. Provide actionable recommendations: tiers of their value chains, suggesting that companies that a. To offer practical and actionable solutions to address the have less visibility the broader and deeper supply chains prioritised barriers. stretch (Vieira et al, 2024)5 . This complexity across sectors b. Where possible, include estimated timeframes and costs is compounded by varying regional approaches to climate for implementing these measures. targets, including national wealth, regulatory and policy By achieving these objectives, this report seeks to provide regimes, cultural acceptance of climate targets, and the state a picture of the current state of scope 3 decarbonisation of technological advancement and availability. As such, there progress. In doing so, it aims to support efforts to accelerate has been much research and discussion about the challenges overall progress by equipping stakeholders with the insights that organisations face when attempting to decarbonise necessary for meaningful action. their supply chains. 2.2. Summary of the current state of knowledge on scope Available research has identified a myriad of barriers to 3 barriers scope 3 decarbonisation across and within sectors. For As global emissions continue to exacerbate the effects of example, a 2014 study established four broad categories of climate change, many organisations—including governments, barriers from a macro perspective — structural, regulatory, regulatory bodies, NGOs, and private companies—are cultural, and contextual —while identifying a lack of financial striving to tackle this. Historically, efforts have primarily incentives and ambiguity in the meaning of low carbon as focused on reducing emissions from companies’ direct the two most frequently mentioned challenges (Liu, 2014)6 operations (scope 1) and purchased energy (scope 2). While . Additionally, a study of six organisations in Europe and some early movers began addressing value chain emissions South Asia, found that supply chain decarbonisation was (scope 3) nearly two decades ago, their focus has recently hindered by a lack of awareness, a lack of expertise, major become more widespread as organisations consider that on upfront costs, and a resistant mindset (Zhang et al., 2022)7 . average, scope 3 emissions comprise 75% of a company’s Another study of four Norwegian healthcare companies total carbon footprint (CDP, 2024). Given the broader identified key challenges, including a lack of concrete data, a context and definition of scope 3 emissions, this carbon lack of financial incentives, and the absence of standardised accounting component is particularly challenging to manage reporting, the difficulty of exerting influence or control and reduce. While established frameworks and standardised due to a high number of suppliers (Andersen, 2024)8. The methodologies exist for calculating and managing scope 1 various studies found some common barriers throughout. and 2 emissions, scope 3 methodologies lag. Scopes 1 and 2 The table below compiles a list of key studies and identified emissions are relatively easier to measure and report as they barriers to scope 3 decarbonisation. lie mostly within the operational sphere of a corporation. 16 17 Key studies and identified barriers to scope 3 carbonisation The existing bodies of research have provided the critical foundation in Research Research focus Barriers understanding scope 3 emissions and the barriers to decarbonisation. However, much of this research is limited in scope Extended supply chain practices for • Insignificant financial gains across several dimensions. Key studies Zhu and Geng, 20139 energy saving and emission reduction • Lack of resources and capabilities often examine only a small number of among Chinese manufacturers • Lack of information participants and are, therefore, based on a limited set of primary data sources. Additionally, many studies focus exclusively Low carbon production of industrial • Lack of financial incentives Liu, 2014 on a single industry or region, which firms • Ambiguity in the meaning of low carbon restricts the applicability of findings and may overlook cross-sector analysis and potential synergies from a solution • Different regulation perspective. Furthermore, some research Carbon efficient supply chain in the Olatunji et al. 201910 • The awareness of consumers does not specifically address scope 3 manufacturing industry • The complexity of supply chain tracking emissions, but discusses decarbonisation barriers more broadly, or focuses on scope 3 barriers overall that are not sector- • Lack of awareness specific. Supply chain decarbonisation Barriers to supply chain decarbonisation • Lack of expertise Zhang et al., 2022 presents its own set of unique challenges and strategies to overcome barriers • Major upfront costs compared to scope 1 and scope 2 and • A resistant mindset should be studied as a distinct area of • Data quality issues focus to address the complexities inherent • Lack of standardised reporting and in value chain emissions. Barriers and enablers of corporate scope Hettler, 2023 frameworks 3 emissions reporting and reductions In summary, no studies were identified • High transaction costs to capture and which comprehensively examine the most measure data critical barriers to scope 3 decarbonisation within specific sectors and regions. These Challenges faced by healthcare • Lack of concrete data studies often do not assess the impacts Andersen, 2024 organisations in managing scope 3 • Lack of financial incentives of these barriers concerning potential emissions • Absence of standardised reporting decarbonisation outcomes. As a result, the barriers identified are not always • Supplier and downstream consumer connected to the most material scope Managing greenhouse gases engagement 3 categories. Qian, 202411 in steel production, including inventory • Variation in supplier practices and strategic reductions This research seeks to address these gaps • Data collection and management by pinpointing the most material scope 3 categories by segment and linking • Data availability and reliability them directly to the barriers that impede • Limited influence over supply chain decarbonisation. We aim to examine not stakeholders Overview of the status and current only these barriers but also potential • Adhering to the 67% boundary may result SBTi, 202412 practices of scope 3 target setting, while solutions, associated costs, and the in the exclusion of high-climate-impact discussing challenges and opportunities timeframes necessary for implementing activities these solutions. Our study aims to balance • Lack of sector-specific and regional sector-specific insights with a broader contextualisation perspective, enabling us to capture cross- sector linkages and consider dependencies • Low supplier engagement and limited data holistically. While this study does not seek transparency to provide definitive answers, it seeks to Supply chain challenges and solutions • High financial costs for mitigation and CDP, HSBC, 202413 advance the discussion around the most for scope 3 decarbonisation technology adoption pressing scope 3 challenges and provide • Misalignment between sustainability and insights that can guide future research procurement priorities and action. Barriers to Scope 3 Decarbonisation 18 Barriers to Scope 3 Decarbonisation 19 03 This study used a structured, multi-method approach to The survey was designed to adapt dynamically to each investigate barriers to scope 3 decarbonisation across respondent’s previous answers, with subsequent questions diverse sectors and regions. The methodology combined based on prior responses. For instance, the set of potential a detailed literature review, survey, interviews with barriers presented to respondents as multiple choice decarbonisation practitioners, and desktop research to varied depending on the scope 3 category they selected ensure robust and actionable findings. as most material previously. Each barrier was then rated by respondents based on its perceived severity (e.g., significant, Literature review Methodology moderate, or insignificant). The study began with an initial hypothesis on potential barriers to decarbonisation. From there, a comprehensive Survey implementation and data cleaning literature review was conducted to summarise existing Survey responses were collected from 181 sustainability knowledge on scope 3 barriers and identify research gaps. practitioners across industries and regions, and with varying The selection of sources was guided by two main criteria. levels of commitment to emissions reduction targets (see We specifically searched for sources that were highly next section for a full overview of respondents). Responses cited and examined more recent sources even if they were were reviewed for completeness, consistency, and logical not cited as frequently. This ensured there was a balance coherence. Ambiguous answers and outliers were flagged between established foundational knowledge and emerging for further review or excluded as necessary to maintain trends or new insights in the field. The literature evaluated data quality. industry-specific papers and broader, cross-sector private- sector reports, enabling us to capture sector-specific Interview process challenges and overarching barriers that might affect In addition to the survey, 10 semi-structured interviews were multiple industries, ultimately setting the foundation for conducted with decarbonisation practitioners from different the survey design. industries to validate survey findings and gather qualitative insights. Survey design Based on the initial hypothesis of barriers and further Data analysis refinement from the literature review, a long list Data analysis integrated survey responses, interview was developed of all potential barriers to scope 3 narratives, and desktop research. Descriptive demographic decarbonisation. These barriers were mapped across all data were segmented to further refine the analysis, scope 3 categories and used to inform the multiple-choice identifying trends where relevant by variables such as options for survey questions related to barriers (i.e., some industry, region, or company size. Key steps included: barriers are only relevant to certain scope 3 categories). The Interviews survey questionnaire was structured to capture data across Interview transcripts were coded, and results were grouped key variables, including: into key themes to identify recurring themes, key patterns, • Regions of operation and industry-specific nuances. Cross-analysis was conducted • Industry classification to compare interview insights with survey findings, ensuring alignment or identifying discrepancies that required further • Top two scope 3 categories examination. Interviews helped contextualise the quantitative • Top three identified barriers to emissions reductions survey results by providing real-world examples and • Proposed solutions, including estimated costs and timelines explanations behind reported barriers. • Perceived and actual progress on scope 3 reductions Barriers to Scope 3 Decarbonisation 20 Barriers to Scope 3 Decarbonisation 21 Survey: 4. Development of final list of barriers: Addressing study limitations To arrive at the final list of barriers for solutions analysis, a Barriers were ranked and consolidated into a final list, This study acknowledges several potential four-step process was implemented: focusing on those with the greatest impact on emissions limitations inherent to its methodology: reduction across sectors. • Sample representation: While the survey 1. Raw survey data assessment: aimed for broad representation across About the solutions: • Data was gathered from the survey where respondents industries and regions, the sample size of Potential solutions to address the top barriers were identified selected the barriers, they faced in achieving scope 3 180 participants may not fully capture the using insights from the literature review, survey results, decarbonisation. diversity of perspectives in all sectors or interviews, and desktop research. In the survey, respondents • Barriers were assessed based on the following information geographic areas. Consequently, findings were asked to provide one potential solution to each barrier from the survey: may reflect trends more relevant to indicated: - Frequency of selection: How commonly selected the certain industries or regions over others. - If you were to propose one comprehensive solution for barrier was across all respondents. • Focus on short-term challenges: your company to implement to resolve each of these Respondents may exhibit present - Barrier severity: The perceived difficulty of overcoming barriers, what would it be? Please provide detailed bias—a cognitive tendency to focus the barrier. responses. on immediate and pressing challenges Respondents were also asked to report solutions to barriers - Sector spread: How many different industries were rather than long-term systemic barriers. already addressed: represented by the respondents choosing that barrier? While this provides valuable insights into - Which solutions did your company implement to This also helped to counterbalance the frequency current obstacles, it may underrepresent successfully address [previously addressed barrier] of selection (i.e., if respondents from a sector that structural or future-oriented challenges in the past? was disproportionately represented in the survey all critical to achieving long-term scope 3 There were therefore two potential sources to inform this selected the same barrier it would be over-represented, decarbonisation goals. section from the survey: but the barrier would also score low on this factor). • Limitations in timeline and cost - Actual solutions that companies have implemented - Actual emissions change: estimates: Assessing the timelines and Historic data from the towards specific barriers costs of implementing identified solutions respondents’ companies indicating if their company - Potential, proposed solutions from sustainability relies on self-reported data and estimates had seen emissions rise or fall in recent years. Barriers practitioners rather than robust modelled analysis. cited by companies showing a lack of historical A simple methodology was then applied to screen, group, These estimates may vary significantly progress scored higher. and analyse the solutions: based on the company context and - Identification of themes - Perceived future ability to meet targets: Respondents’ available information, potentially reducing - Comparison of costs and timelines perception of their ability to meet their future targets. the precision of the findings. To account - Comparison to interview content and literature where Barriers from companies who perceived an inability to for these limitations, the study integrated available meet future targets scored higher. triangulation techniques, incorporating - Commentary using Ramboll experience data from interviews and desktop 2. Normalisation of scores (1-10): A note about costs and timelines: research to validate survey findings. • Scores from the survey categories described above were As follow-up questions, respondents were asked the The analysis also sought to balance normalised on a 1-10 scale to ensure comparability across following mandatory questions: short-term and systemic challenges by responses and factors. If you were to make a very high-level estimate, what would emphasising barriers with significant 3. Application of weightings: be (or ‘what was’ for already implemented solutions) the long-term emissions reduction potential • The following weightings were applied to prioritise the total cost to your company to fully implement solutions to during the prioritisation process. Finally, barriers based on specific factors: these barriers? With the following options: all analytical processes, from survey - Frequency of selection: 40% - Under 250K USD design to barrier prioritisation, were - Actual emissions change: 15% - 250K – 1M USD documented with transparency to ensure - Perceived future impact: 20% - 1M – 5M USD reproducibility and credibility. - Barrier severity: 15% - 5M to 10M USD - Sector spread: 10% - Above 10M USD If you were to make a very high-level estimate, what would be (or ‘what was’ for already implemented solutions) the timeline for your company to fully implement solutions to these barriers? With the following options: - Under 2 years - 3-5 years - 6-10 years - 11-14 years - 15 years or more 22 23 04 4.1. Introduction 4.2.1. Scope 3 ‘maturity’ of respondents This chapter includes a review of the survey respondents, an 71% of respondents’ companies have set scope 3 emissions overview of cross-industry trends, an examination of barriers reduction targets, while 29% have not yet done so. The specific to individual industries, and, where data allows, a timeline for these targets varies, with many aiming for regional breakdown of challenges. Together, these insights completion between 2030 and 2040, though a smaller provide a nuanced understanding of the systemic, sectoral, proportion have targets as early as 2025 or as late as 2050. and regional factors that are preventing organisations from When asked about their ability to meet stated scope 3 Barriers to Scope 3 addressing their most material scope 3 categories. targets, responses were skewed toward “somewhat limited” (39%) and “adequate” (30%) with fewer respondents This section provides context for understanding the rating their ability as “good” (22%) and only low numbers remainder of the report, as it frames the type of companies describing it as “very good” (4%) or “very limited” (5%). represented in the study and their maturity in addressing This lack of a normal distribution highlights a predominant Decarbonisation scope 3 emissions. perception of moderate constraints rather than high 4.2. Survey results: understanding the respondents and confidence or severe limitations. their companies Regarding past progress on scope 3 emissions reductions, The survey captured responses from 181 participants, most respondents rated their performance as “as expected” representing a diverse array of industries and regions, which (46%) or “below expectation” (36%) with far fewer indicating can be seen in Figure 2. This distribution highlights a strong “above expectation” (13%) or “far above expectation” (4%). regional representation from developed and emerging This distribution is similarly skewed, reflecting a general markets, ensuring diverse insights into the challenges and trend of companies feeling their progress has been average opportunities for scope 3 decarbonisation across global or underwhelming. supply chains. Actual emissions outcomes showed a mixed picture, with Industry distribution of respondents a substantial proportion reporting decreases in scope 3 emissions (46%), while many also reported increases (38%). Manufacturing The remainder (16%) reported no significant change, creating Information and/ or a largely bimodal pattern of progress. For those reporting Communication Technology changes, the most common magnitude was in the range 11 Professional Services of 0-10%, with fewer respondents reporting larger shifts. 12 34 This skewed distribution suggests that most companies are Retail 14 experiencing incremental changes rather than substantial Financial Services transformations. Over 35% of respondents who reported an 14 22 increase in scope 3 emissions identified company growth Real Estate or calculation methodologies (e.g., spend base) as the 15 primary reason. In direct contrast, some note that emissions 22 Consumer Packaged Goals have decreased due to a decrease in overall revenue. Taken 18 19 Transportation and/ together, these findings reflect variability in scope 3 maturity or Distribution Services and progress among companies, with most facing moderate Utilities and/or Energy challenges in achieving stated scope 3 targets and reporting Biotech and/ or incremental rather than significant improvements. Pharmaceuticals Regional distribution of respondents Findings reflect variability in scope 6 3 maturity and progress among 18 North America companies, with most facing Europe moderate challenges in achieving 30 78 Latin America stated scope 3 targets and reporting incremental rather than significant Asia improvements. Middle East 49 24 25 Respondents with scope 3 targets and target years How would you describe your company’s ability to meet 4.2.2 Material scope 3 categories also stood out as a key focus, being the most material for 11% stated scope 3 emissions reductions targets? The survey asked companies to identify their most material of respondents, although this is driven by the respondents (highest emitting) scope 3 emissions categories, as well from the financial sector. Somewhat limited as their second most material (next highest emitting). The 2025 2034 results, displayed in the graphs below reveal trends in the When considering only the most material category, 2026 2035 Adequate prioritisation of scope 3 categories across industries. Categories 1, 3, and 15 dominate, receiving the highest proportion of mentions. However, when the second most 2027 2040 Good The most selected category, both for the most material and material category is included, the distribution becomes more 2028 2045 combined first and second most material was Purchased balanced. While Categories 1, 3, and 15 still stand out, other 2029 2047 Very limited Goods and Services (Category 1). This category was categories—such as Capital Goods (Category 2), Use of Sold 2030 2050 identified as the most material by 26% of respondents and Products (Category 11), and Downstream Leased Assets Very good accounted for 38% of all combined responses, underscoring (Category 13)—see a relatively equal boost in representation. YES NO its dominant relevance across a wide range of companies. This indicates that while companies tend to prioritise a few 0% 10% 20% 30% 40% 50% The second most selected category overall was Fuel- and key categories as their top concern, their broader scope 3 71% 28% Percent of respondents Energy-Related Activities (Category 3), selected as most considerations are more evenly distributed when secondary material by 17% of respondents and 26% of respondents as priorities are included. either 1st or 2nd most material. Investments (Category 15) Most selected scope 3 categories (from 1st and 2nd most relevant) How would you describe your company’s past Did scope 3 emissions increase or decrease between the 40% 38% progress on scope 3 emissions reductions? earliest year and latest year for which you have calculations? 30% 26% As expected Decrease Below expectation 20% 17% Above expectations Increase 13% 15% 13% 11% 11% 12% Far below expectation 9% 10% 8% No significant change 6% 7% Far above expectations 3% 3% 0% 10% 20% 30% 40% 50% 0% 10% 20% 30% 40% 50% Percent of respondents Percent of respondents 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scope 3 category Most selected scope 3 categories (most material only) By what percent do you estimate that emissions have By what percent do you estimate emissions have gone down? gone up? 30% 25% 91-100 31-40 20% 17% 61-70 21-30 10% 51-60 10% 7% 7% 6% 3% 4% 4% 3% 11-20 2% 2% 31-40 1% 2% 0.5% 0% 21-30 0-10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11-20 Scope 3 category 0% 5% 10% 15% 20% 0-10 Percent of respondents 0% 5% 10% 15% 20% Percent of respondents Number of respondents Number of respondents 26 27 Barriers to decarbonisation for most material scope 3 category 4.3. Overview of Barriers When analysing both the frequency and severity, several The graph to the left shows the barriers indicated by trends emerge. The scatterplot reveals no clear relationship Lack of control or influence over indirect suppliers respondents to decarbonising their most material scope 3 between how often a barrier was selected and its average Limited availability of technically-suitable low-carbon options categories. Each bar represents the number of times that a severity rating. High-frequency barriers tend to cluster near High costs of carbon-free energy and fuels particular barrier was selected. the average severity score of approximately 2.28, while Limited availability of carbon-free energy and fuels lower-frequency barriers show a wider range of severity The graph displays a clear pattern where the barriers to Supplier granular emissions data unavailability scores. decarbonisation are distributed unevenly, with a steep Dependency on fossil fuel suppliers High dependency on air and sea freight that has limited decarbonisation options decline from the most frequently selected barriers to those The severity distribution chart shows that many barriers fall Diculty shifting direct supplier relationships less frequently chosen. The highest-ranking barriers have a within the moderate severity range (2.0-2.5). This indicates High cost of low-carbon alternatives significantly larger count compared to the rest, creating a that most barriers are perceived as significant enough to Cast of switching to electric / alternative fuel fleets pronounced “long-tail” effect. hinder progress. Only three barriers fall below a severity Lack of infrastructure for refueling and recharging station for alternative fuel vehicles score of 2.0, suggesting that even less frequently selected The top barriers, such as “Lack of control or influence Limited supplier decarbonisation capabilities barriers are still meaningful obstacles. over indirect suppliers”, “Limited availability of technically Complex global supply chains complicate tracking suitable, low-carbon options”, and “Lack of granular data on Some infrequently selected barriers have notably high Inconsistent ESG reporting standards Lack of emissions disclosure by investees energy sources”, are widespread and commonly faced by severity ratings, such as “Difficulty monitoring granular Cast of implementing recycling/circular technologies and methods in-house respondents. tenant energy use” (3.0) and “Remote work resistance” Fragmented carbon accounting for portfolios (2.8). These barriers are likely context-specific, impacting The shape of the graph highlights the existence of a few Employee preference for air travel particular industries. While their severity ratings may be critical barriers that affect most respondents, alongside a Lack of visibility into transport emissions influenced by fewer respondents selecting them, these diverse range of less prominent issues that may reflect more Limited low-carbon transport options barriers highlight critical challenges and are discussed in localised or sector-specific challenges. Unpredictable customer usage patterns / preferences sector-specific chapters. Diculty monitoring tenant energy use 4.3.1. Severity of barriers Inconsistent emissions accounting methods across suppliers Barriers that were selected more frequently, such as “Lack As well as indicating barriers to progress, respondents Lack of granular data on energy sources of control or influence over indirect suppliers” and “Limited provided a severity score for each barrier chosen. Inadequate sta† training on waste management availability of technically suitable, low-carbon options,” Respondents were asked, “How much do these barriers Limited availability of sustainable disposal methods tend to have severity scores close to the average of 2.28. impact your company’s ability to make progress on Risk-return concerns on green investments This suggests that as barriers become more widespread, emissions reductions in this category?” “This category” is Tenant engagement challenges their severity stabilises at a moderate level. These barriers the one previously selected (either most or second most Lack of visibility into use of sold products emissions represent significant obstacles that may require scalable, material to their company’s scope 3). The options available Complex supply chain coordination cross-industry solutions to unlock progress. to respondents were: 1: Not significantly – we can reduce Consumer packaging preferences Long asset life cycles emissions in [category] while this barrier is in place; 2. The overall clustering of severity scores in the moderate Regulatory restrictions on product design Moderately – we expect emissions to stay the same in range highlights that severity should be primarily interpreted Split incentives between owners and lessees [category] while this barrier is in place; 3. Significantly – we within industry-specific contexts. While severity scores Consumer resistance to green alternatives expect emissions in [category] to go up while this barrier is provide a useful measure of impact at the cross-industry Employee vehicle preferences in place. This section examines severity at the cross-industry level, they are less effective as a differentiating factor across High upfront casts for greener assets level. all companies. Lack of visibility into detailed processing emissions data Limited availability of low-carbon technologies for industrial processes Most selected scope 3 categories (from 1st and 2nd most relevant) Uncertainty in product lifecycle emissions data Diculty monitoring granular tenant energy use 3.0 High disposal costs for greener methods We see no relationship between severity of the Lack of financing options for law-carbon capital goads barriers and the frequency for which they were chosen Lack of remote working incentives 2.5 Lack of standardized asset emissions data e.g. LCAs 2.28 Limited influence over downstream processors Limited public transport infrastructure including cycling and walking 2.0 Supply chain fragmentation Building upgrade/eciency cast limitations Diculty tracking and calculating commuting emissions High capital costs for processors 1.5 Limited control over franchise operations Limited market for recycled materials Misaligned incentives for decarbonisation 1.0 Remote work resistance 0% 5% 10% 15% 20% Severity score: 0 5 10 15 20 25 30 1 = Not significant | 2 = Moderate | 3 = Significant Number of respondents Percent of respondents Barrier description Average severity of barriers Barriers to Scope 3 Decarbonisation 28 Barriers to Scope 3 Decarbonisation 29 4.4. Regional and cross-sector analysis In addition to financial services, investment emissions are a 4.5. Industry-Specific Insights The survey findings reveal clear trends regarding the most large concern for Retail and Information Technology. The following sections provide a sector-by-sector analysis of the barriers to scope 3 decarbonisation, as identified through survey material scope 3 emissions categories across industries, responses and interviews. By examining the unique characteristics and challenges faced by different industries, the analysis aims while also highlighting sector-specific nuances. Category 1: In tandem with common categories, the cross-sector analysis to uncover sector-specific trends and insights about the barriers faced. The sectors covered in this chapter include: Purchased Goods and Services emerged as the dominant reveals a set of common barriers—namely lack of supplier scope 3 category across most sectors, reflecting the control, limited availability of low-carbon alternatives, and widespread reliance on upstream suppliers and procurement data transparency challenges—highlighting systemic hurdles activities as major contributors to emissions. For instance, in to scope 3 decarbonisation. Across all sectors, the lack of manufacturing, 41% of respondents identified this category control or influence over indirect suppliers is one of the as their most material, while for consumer packaged goods, most frequently cited barriers. This challenge is particularly this figure was even higher, at 64%. Interestingly, Category 1 evident in industries with complex supply chains, such as was selected at a much higher frequency in North America manufacturing, consumer packaged goods, and retail, where Biotech and/or Consumer Professional (37%) and Europe (29%) compared to other regions, which companies rely on multiple tiers of suppliers. pharmaceuticals packaged goods services ranged from 0-10%. At the sector level, only one respondent Another widely shared barrier is the limited availability in consumer packaged goods and manufacturing across of technically suitable low-carbon alternatives, which is Asia, Latin America and the Middle East selected Category 1 prominent in sectors such as manufacturing, consumer as a top barrier. packaged goods, and real estate. These industries rely In addition, Fuel- and Energy-Related Activities (Category heavily on raw materials, such as fossil-based chemicals, 3) consistently appear as a top category in sectors with construction materials, and packaging, for which viable low- significant energy requirements, such as utilities, and carbon substitutes remain underdeveloped or prohibitively transportation and distribution services. Category 3 expensive. Financial challenges compound this issue, as was a much larger concern for Asia (selected by 33% the high costs of low-carbon solutions are reported across Financial Information and/or Manufacturing of respondents), Latin America (selected by 23% of multiple sectors, including manufacturing, transportation, services communication technology respondents), and the Middle East (selected by 50% of and retail. Even when alternatives exist, their premium respondents). North America and Europe fell between 4-12%. pricing makes adoption difficult. The regional variation in Category 1 and Category 3 likely Data-related barriers, including inconsistent emissions reflects a combination of supply chain positioning, regional accounting methods and lack of granular supplier data, energy systems, data maturity, and economic structures. also emerge as significant challenges across sectors. These While North American and European companies emphasise issues are particularly acute in the financial services and emissions from purchased goods and services due to their information technology sectors, where accurate carbon reliance on upstream suppliers and advanced data tracking, accounting relies on emissions data from investees, suppliers, Real estate Retail Transportation companies in Asia, Latin America, and the Middle East or end-users, but are generally persistent throughout. and/or distribution prioritise fuel- and energy-related activities due to an even While many common themes emerged from cross-sector services greater reliance on fossil fuel-intensive energy production. analysis, sector-specific barriers, such as tenant engagement The prominence of Category 15: Investments in regions in real estate, illustrate the importance of understanding like North America and Europe reflect the maturity of their industry-specific dynamics and complexities. financial sectors, stricter regulatory requirements (SFDR, EU Taxonomy), and generally better access to emissions data from portfolio companies compared to Asia, Latin America, Utilities and/or and the Middle East. energy The regional variation in Category 1 and Category 3 likely reflects Respondents selected a sector from the above list. For each in the conclusions. The smallest sample size for a sector is a combination of supply chain sector, the most material scope 3 categories are discussed, 11 respondents, while the largest is 34. As such, the findings as well as the key barriers faced, and any notable trends that should be interpreted with caution, particularly for sectors positioning, regional energy emerged within and across sectors. However, it should be with fewer respondents, and viewed as indicative rather than systems, data maturity, and noted that at the sector-specific level, the sample size can definitive. economic structures. become quite small, have impacted the level of confidence Barriers to Scope 3 Decarbonisation 30 Barriers to Scope 3 Decarbonisation 31 4.5.1. Biotech and pharmaceuticals respondents as their most critical emissions source. This Barriers visibility into downstream emissions as a critical gap, The biotech and pharmaceutical sector survey respondents dominance aligns with the sector’s reliance on upstream Respondents from the biotech and pharmaceutical sectors describing it as a “black hole” for data. paint a picture of a sector with a strong commitment to suppliers for raw materials, laboratory equipment, and identified several key barriers to decarbonising their most scope 3 decarbonisation, with 80% of respondents having production inputs. Interview findings strongly support this, material scope 3 categories. The most frequently selected Another frequently cited barrier, also identified by 30% established scope 3 targets. However, maturity levels vary with a practitioner emphasising that 85% of their total barriers reveal critical challenges concentrated in supply of respondents and rated at a severity of 2.67, is the lack widely, as evidenced by a broad range of target dates emissions are scope 3, predominantly from raw materials. chain control, transportation decarbonisation, and supplier of infrastructure for refuelling and recharging stations for and mixed perceptions of companies’ abilities to meet The complexity of managing emissions across diverse and engagement. Interview findings align with these barriers alternative fuel vehicles. This systemic issue reflects the these goals. While most respondents report tangible numerous suppliers further reinforces the central importance while adding depth to the analysis, particularly regarding broader challenges companies face in adopting alternative emissions reductions, with 60% indicating decreases and of this category. data quality, cost dynamics, and technological limitations. fuels, as they are dependent on external infrastructure. many achieving reductions of 30% or more, challenges Interview findings expanded on this theme, pointing to the persist. Around 30% of respondents report progress below Category 4: Upstream Transportation and Distribution and The lack of control or influence over indirect suppliers sector’s reliance on public-private energy infrastructure, such expectations, and some have experienced increases or Category 9: Downstream Transportation and Distribution are was the most significant barrier, cited by half of all survey as hydrogen availability, to support decarbonisation efforts. stagnation in emissions. These findings highlight that the next most frequently selected categories, each identified respondents and rated at a severity of 2.33. This reflects the while many companies are making steady progress, by 20% of survey respondents as key contributors to scope 3 sector’s reliance on complex and independent supply chains, The limited availability of technically suitable, low-carbon systemic barriers—particularly in upstream supply chains emissions. These findings reflect the significance of logistics where enforcing decarbonisation efforts or tracking progress options, identified by 20% of respondents and rated at 2.11, and transportation—continue to hinder more ambitious in handling and delivering sensitive materials and products. remains a persistent challenge. Interviewees reinforced was also noted as a barrier but was less central compared to reductions. This context is important for understanding Interviews add further depth by highlighting the importance this, highlighting upstream supply chain complexity, with the top challenges. Interviewees elaborated on this, citing the the sector’s material scope 3 categories and the barriers of transportation emissions, particularly upstream, while companies managing thousands of suppliers and facing dominance of fossil-based raw materials and the difficulty companies face in accelerating their decarbonisation efforts. also noting limited visibility into downstream logistics and difficulties in tracking emissions across varied raw materials. of finding viable substitutes. Trade-offs, such as land- product processing. Smaller suppliers were noted as particularly limited in their use impacts with bio-based materials, were also flagged, Top categories: capacity to provide accurate carbon footprint data. highlighting the need for life cycle assessments (LCAs) to Overall, Purchased Goods and Services are indicated as the Category 5: Waste Generated in Operations was also evaluate these alternatives beyond GHG emissions. dominant scope 3 category for biotech and pharmaceuticals, one of the most relevant categories, with 40% of survey The cost of switching to electric or alternative fuel fleets was across both survey and interview findings, while emissions respondents identifying it as a top priority. This underscores selected by 30% of respondents and rated the most severe Additional insights from the interviews emphasise data from logistics (upstream and downstream transport and the emissions impact of managing specialised or at 2.88, emphasising the financial challenges associated with quality issues in scope 3 accounting, with practitioners operations) and waste management represent significant hazardous waste, which is often highly regulated. Although transitioning logistics operations to low-carbon alternatives. noting heavy reliance on secondary data and limited use but secondary priorities. The emphasis on these categories interviews did not explicitly focus on waste emissions, they Similarly, the high dependency on air and sea freight, of primary data (only 25%). Improving data transparency reflects the sector’s reliance on supply chains and logistics, acknowledged the emissions challenges tied to downstream also identified by 30% of respondents and rated at 2.67, and supplier collaboration were identified as foundational as well as the operational complexity of managing emissions product use and end-of-life treatment, potentially highlights the limitations of current decarbonisation options challenges that underpin many of the sector’s barriers. from waste and end-of-life processes. overlapping with this category. for long-distance and temperature-controlled transportation. Furthermore, interviewees highlighted the commercial Interviewees corroborated these findings, noting that unviability of emerging technologies, such as carbon capture Category 1: Purchased Goods and Services is the The graphs below display the scope 3 categories identified logistics emissions, both upstream and downstream, are and low-carbon feedstocks, as another hurdle that limits most material scope 3 category for the biotech and as the most material and joint 1st and 2nd most material by significant contributors, but they also emphasised limited the sector’s ability to address key emissions categories pharmaceutical sector, identified by 50% of survey respondents from the biotech and pharmaceutical sector effectively. (in comparison to the overall results from all sectors). Biotech and pharmaceuticals: barriers to decarbonisation for most material scope 3 categories Most selected scope 3 categories (from 1st and 2nd most relevant) Limited availability of technically-suitable low-carbon options 50% 50% High cost of low-carbon alternatives 40% 40% Lack of control or influence over indirect suppliers 30% 30% 30% 30% Limited supplier decarbonisation suppliers 20% Cost of switching to electric / alternative fuel fleets 10% 10% 10% Supplier granular emissions data unavailability 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Di­culty shifting direct supplier relationships Scope 3 category High dependency on air and sea freight that has limited decarbonisation options Lack of infrastructure for refueling and recharging station for alternative fuel vehicles Most selected scope 3 categories (most material only) Complex global supply chains complicate tracking 50% Dependency on fossil fuel suppliers 50% Di­culty monitoring tenant energy use 40% Limited availability of carbon-free energy and fuels 30% 20% 20% Split incentives between owners and lessees 20% 10% Tenant engagement challenges 10% 0% 0% 10% 20% 30% 40% 50% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Percent of respondents Scope 3 category Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 32 Barriers to Scope 3 Decarbonisation 33 4.5.2. Consumer packaged goods Category 1: Purchased Goods and Services was identified The limited availability of technically suitable, low-carbon datasets and standards further complicates efforts to The consumer packaged goods (CPG) industry survey by 64% of survey respondents as their most material scope options stands out as the most significant barrier for the engage suppliers and track emissions accurately. respondents demonstrate a strong alignment with scope 3 category, increasing to 71% when combining the top two CPG industry, cited by 50% of respondents and rated a 3 decarbonisation efforts, with over 90% of companies categories. This dominance underscores the sector’s heavy severity of 3.0. This highlights the difficulty of identifying Similarly, limited supplier decarbonisation capabilities, also having established scope 3 targets. However, there is reliance on raw materials such as agricultural products, alternative materials, technologies, or processes that meet cited by 28% of respondents and rated moderately severe at diversity in target dates, ranging from 2025 to 2040, plastics, and packaging, which often have substantial operational and quality standards. Many of these options 2.18, reflect the lack of readiness among suppliers to adopt with nearly 60% opting for a 2030 target. While many embodied emissions from resource extraction and energy- are underdeveloped or incompatible with existing systems. low-carbon practices due to infrastructure, expertise, or companies express confidence in their ability to meet these intensive production processes. Interview insights strongly Interviews reinforced this challenge, emphasising the financial constraints. Interviewees highlighted the reliance targets, approximately one-third describe their capacity as align with this finding, emphasising that emissions from dominance of emissions from Purchased Goods and Services on secondary data and the challenge of improving primary “somewhat limited,” signalling persistent challenges in scope purchased goods and services dominate scope 3 emissions, and the need for life cycle assessments (LCAs) to evaluate data collection from smaller suppliers, which slows progress 3 management. This is further reflected in companies’ self- particularly in material processing. Supplier collaboration was trade-offs such as land-use impacts. across the supply chain. assessments of progress – a notable portion, around 50%, noted as essential but challenging, especially when working report falling below expectations, while only a small fraction with smaller suppliers who often lack resources for emissions The high cost of low-carbon alternatives, cited by 35% of Finally, the cost of switching to electric or alternative fuel achieved progress exceeding expectations. tracking. respondents and rated moderately severe at 2.24, represents fleets, cited by 21% of respondents and rated moderately another critical challenge. Even when low-carbon materials severe at 2.07, underscores the financial and logistical Top categories: Category 4: Upstream Transportation and Distribution was or technologies are available, their premium pricing makes burden of transforming transportation systems. This barrier Overall, Purchased Goods and Services dominate the most selected by 43% as either 1st or 2nd most material category. widespread adoption difficult, particularly for companies involves not only the high initial investment in vehicles but material category for consumer packaged goods across This highlights the sector’s reliance on global supply chains operating on tight margins. Interviewees corroborated this also the costs of building the necessary infrastructure, such both survey and interview results, followed by material and the significant emissions from trucking, shipping, and finding, noting that conducting LCAs or testing materials can as charging or refuelling stations, which are not yet widely contributions of transportation-related categories, both other logistics operations needed to transport raw materials cost between 10K USD and 350K USD. This financial burden available. While the survey emphasises these financial upstream and downstream. The interviews add depth by and components over long distances. Interviewees confirmed is especially prohibitive for smaller companies, which often challenges, interviewees added that logistical issues in pointing to significant data challenges in tracking emissions the importance of upstream logistics, while also emphasising lack the resources to pursue decarbonisation at scale. transportation are secondary to emissions from purchased and the sector’s growing focus on e-commerce logistics. limited visibility into lower-tier suppliers, which complicates goods and services, which remain the dominant contributor. accurate emissions reporting. The lack of control or influence over indirect suppliers, cited by 28% of respondents but rated the least severe at 1.88, Interviewees also introduced additional challenges Most selected scope 3 categories (from 1st and 2nd most relevant) reflects the sector’s reliance on extensive supply chains with not explicitly highlighted in the survey, such as the multiple tiers. Many indirect suppliers lack the incentives misrepresentation of materials in supply chains, including or resources to prioritise emissions reductions. Interview fraudulent practices like mislabelled recycled content. This 75% 71% findings echo this, emphasising limited visibility into Tier issue undermines decarbonisation efforts by complicating 60% 4 and Tier 5 suppliers and the absence of harmonised the integrity and reliability of supply chain emissions data. 42% 45% emissions calculation methodologies. The disparity between 30% 21% 21% 14% 14% 15% 7% 7% Consumer packaged goods: barriers to decarbonisation for most material scope 3 categories 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Limited availability of technically-suitable low-carbon options Scope 3 category High cost of low-carbon alternatives Lack of control or influence over indirect suppliers Most selected scope 3 categories (most material only) Limited supplier decarbonisation suppliers 75% 64% Cost of switching to electric / alternative fuel fleets 60% Supplier granular emissions data unavailability 45% Di­culty shifting direct supplier relationships 30% 14% 15% High dependency on air and sea freight that has limited decarbonisation options 7% 7% 7% 0% Lack of infrastructure for refueling and recharging station for alternative fuel vehicles 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scope 3 category Complex global supply chains complicate tracking Dependency on fossil fuel suppliers Barriers options, high cost of low-carbon alternatives, lack of supplier Di­culty monitoring tenant energy use Respondents from the consumer packaged goods (CPG) control, limited supplier decarbonisation capabilities, and industry identified several key barriers to decarbonising switching to electric fleets. Interview findings align with Limited availability of carbon-free energy and fuels their most material scope 3 categories. The most frequently these barriers while adding depth to the analysis, particularly Split incentives between owners and lessees selected barriers reveal critical challenges concentrated in regarding data quality, methodology challenges, and supply Tenant engagement challenges the limited availability of technically suitable, low-carbon chain misrepresentation. 0% 10% 20% 30% 40% 50% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 34 Barriers to Scope 3 Decarbonisation 35 4.5.3. Financial services This reflects the financial services sector’s reliance on Barriers Fragmented carbon accounting for portfolios, cited by The financial services sector demonstrates moderate investments as a key driver of emissions. Interview findings Overall, the results show that emissions data and approximately 25% of respondents, further emphasises maturity in scope 3 decarbonisation, with 83% of strongly align, emphasising the inclusion of portfolio transparency barriers remain the primary hurdles for the the complexity of consolidating emissions data within respondents reporting established targets, with target dates companies’ emissions within Category 15 and highlighting financial services sector, with additional challenges arising diverse investment portfolios. Interview findings echoed of either 2030 or 2050. Most companies rate their ability the growing regulatory focus on these emissions through from balancing profitability and sustainability in green this challenge, describing how inconsistent frameworks to meet these targets as “somewhat limited” or “adequate,” frameworks like CSRD and SFDR. This underscores the investments. and limited primary data availability impede the ability to indicating moderate confidence, while progress is generally centrality of investments in the sector’s decarbonisation aggregate and assess scope 3 emissions. described as “as expected”. Emissions trends reveal more strategies. Emissions data-related challenges dominate the barriers to extreme changes than other sectors, with many companies scope 3 decarbonisation in the financial services sector. The Risk-return concerns on green investments were highlighted reporting changes beyond incremental levels. While Category 6: Business Travel is the second most frequently lack of emissions disclosure by investees, cited by nearly by 30% of respondents, reflecting a tension between aligning several respondents estimate changes within ±10%, 70% identified category, selected by 50% of survey respondents 50% of respondents, emerged as the most significant financial returns with sustainability objectives. Interviewees of respondents are spread between 11-30% or -11 to -30 %, as among the top two material categories. This highlights obstacle. This reflects the sector’s reliance on investees reinforced this, noting that investor expectations for profit- reflecting a mix of meaningful progress and setbacks. the emissions impact of frequent travel within the financial to provide accurate and comprehensive emissions data, maximising decisions often conflict with decarbonisation services sector, a characteristic of global operations. which is critical for assessing scope 3 emissions linked goals, which still often come at a cost. They also highlighted Top categories: to investments. Interview insights align with this finding, regional differences in regulatory and financial drivers, with Overall, the results highlight the overwhelming importance Category 1: Purchased Goods and Services is less prominent emphasising poor data quality and reporting gaps within some markets prioritising financial gains over sustainability of Category 15: Investments as the key scope 3 category but still notable, with 33% including it as either the first portfolio companies as major obstacles. Frameworks due to weaker regulations. for the financial services sector, with business travel and or second most material category. The category reflects like CSRD and SFDR were identified as pivotal drivers in procurement emerging as secondary but relevant areas of emissions from office supplies, technology, and other improving disclosure practices (in Europe) and harmonising The interviews add additional depth to these findings by focus. procurement activities. reporting standards, underscoring their role in addressing emphasising the growing importance of regulatory drivers this critical barrier. like CSRD and SFDR (in a European context) in overcoming Category 15: Investments is overwhelmingly identified as the emissions data challenges. These frameworks are driving most material scope 3 category, selected by 61% as within Similarly, inconsistent ESG reporting standards, also selected better emissions disclosure and influencing investment their top 2 material categories. by nearly 50% of respondents, highlight the challenges decisions, creating an evolving landscape for financial posed by the absence of standardised frameworks, which services institutions to address scope 3 barriers. Additionally, Most selected scope 3 categories (from 1st and 2nd most relevant) complicate the aggregation, comparison, and tracking of interviewees highlighted the role of active ownership, where emissions data across portfolios. Interviewees elaborated financial institutions leverage board engagement and day-to- 75% on this issue, noting the disparate methodologies and day influence to push for emissions reductions and improved 61% lack of harmonisation in emissions calculations. These data quality in portfolio companies. 60% 50% inconsistencies hinder accurate carbon accounting and 45% 33% create significant barriers to managing portfolio-wide emissions. 30% 27% 15% 11% 11% 5% Financial services: barriers to decarbonisation for most material scope 3 categories 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Lack of emission disclosure of investess Scope 3 category Inconsistent ESG reportiing standards Most selected scope 3 categories (most material only) Risk-return concerns on green investments Fragmented carbon accounting for portfolios 75% Limited low-carbon transport options 60% 55% Employee preference for air travel 45% 30% 22% Di­culty tracking and calculating commuting emissions 15% 11% 5% 5% Employee vehicle preferences 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 High costs of carbon-free energy and fuels Scope 3 category Lack of control influence over indirect suppliers Lack of granular data on energy sources Limited availability of technically suitable low-carbon emission Limited public transport infrstructure including cycling Remote work resistance Supplier granular emissions data unavailability 0% 10% 20% 30% 40% 50% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 36 Barriers to Scope 3 Decarbonisation 37 4.5.4. Information and/or communication technology This category captures emissions from the procurement Barriers A recurring theme from the interviews is the sector’s reliance The information and/or communication technology of hardware, software, and operational resources. The The survey identified inconsistent ESG reporting standards on data quality and traceability: sector demonstrates notable engagement with scope interviewee corroborated this focus, emphasising upstream as a notable barrier in the ICT sector, though its severity 3 decarbonisation efforts, with approximately 73% of emissions from materials like aluminium, semiconductors, was rated moderately at 1.94. However, overall responses “Current data collection methods rely heavily on spend- respondents setting scope 3 emissions targets, with target and plastics, as well as the challenges of supplier for this sector were fragmented, with each barrier receiving based approximations” and “Poor supply chain traceability dates ranging from 2025 to 2050. When it comes to the engagement in addressing these emissions. only one or two mentions. This lack of consensus likely leads to misinformation, reducing data accuracy”. ability to meet these targets, the sector shows a mixed reflects the diverse nature of the ICT sector, where business While this was not explicitly highlighted in the survey outlook. Around 40% of respondents describe their ability Other categories, such as Category 5: Waste Generated models, emissions sources, and operational challenges responses, it helps explain the inconsistent ESG reporting as “somewhat limited,” though a significant portion feel their in Operations, Category 7: Employee Commuting, and vary significantly across organisations. Key categories like standards identified as a significant barrier. The reliance capacity is either “good” or “adequate”. Progress to date has Category 12: End-of-Life Treatment of Sold Products, were Business Travel, Investments, and Purchased Goods and on secondary data and the absence of standardised been better than many other sectors, with a majority rating less frequently selected overall but stand out as notable Services demonstrate this diversity, as companies focus on benchmarks exacerbates reporting challenges, particularly their progress as “as expected” and a significant number of areas of focus in the data (when top 1 and 2 categories different aspects of their value chains. for companies operating across complex supply chains. companies reporting achieving reductions of either 10-30% were selected). Category 5, cited by 18% of respondents, and some reporting decreases of more than 50%. However, reflects emissions associated with managing operational The interview findings reinforce this fragmented landscape, The interviews also highlight the low adoption of low- challenges remain, as over 20% report increases or no waste, including disposal and treatment processes, which particularly for hardware manufacturers within the sector. carbon materials and technologies as a key barrier for significant change in emissions. can be energy-intensive. Category 7, also identified by 23% A key challenge cited in the interviews is upstream supply manufacturers: “Switching to bio-based plastics introduces of respondents, highlights the emissions impact of employee chain transparency: “We source components rather than raw complexity, such as accounting for land-use changes,” and Top categories: commuting—a growing consideration in sectors with large materials, which makes tracing upstream emissions difficult”. “Recycled aluminium requires significant testing to ensure The ICT sector exhibits one of the most varied sets of priority workforces spread across global operations. Similarly, product quality”. scope 3 categories among the sectors analysed, reflecting Category 12, selected by 23% of respondents, underscores This highlights a barrier in emissions traceability, particularly for emissions-intensive inputs like mining, semiconductors, This adds depth to the survey’s broader reflection of the the diverse nature of its operations and value chain. the importance of addressing emissions from end-of-life treatment of sold products, a challenge noted in interviews and plastics. While Purchased Goods and Services was limited availability of low-carbon options, particularly for Category 6: Business Travel is the most frequently identified due to limited visibility on downstream product use and identified as a significant scope 3 category in the survey, companies that depend on materials requiring rigorous scope 3 category, selected by 36% of survey respondents disposal. These findings, combined with the sector’s top interviewees emphasised the complexities of engaging performance standards. as within the top 2 most material scope 3 categories. This categories, reflect a distributed emissions profile that spans suppliers and obtaining accurate emissions data. Smaller Overall, the survey results point to a fragmented set of highlights the sector’s continued reliance on business procurement, transportation, operational processes, and end- suppliers often lack the resources to provide reliable barriers without clear consensus, which aligns with the travel for physical collaboration, client engagement, and of-life considerations, underscoring the complexity of scope carbon footprints, compounding the issue. The downstream ICT sector’s diversity in operations. The interview findings operational oversight. 3 management in ICT. emissions visibility challenge also emerged in the interviews: provide additional clarity, particularly for manufacturing “We have little to no visibility on how our products are used Category 1: Purchased Goods and Services also ranks highly, companies, where barriers related to upstream supply or transported by resellers”. identified by almost a quarter of survey respondents when chain complexity, downstream emissions visibility, and data both the first and second most material categories are This aligns with the survey’s findings that downstream traceability are particularly acute. These challenges may considered. categories, such as Transportation and Distribution, and differ substantially for other ICT subsectors, such as software end-of-life emissions are relevant. Fragmented logistics data, providers, data centre operators, or telecommunications Most selected scope 3 categories (from 1st and 2nd most relevant) where forwarders subcontract to multiple parties, further firms, highlighting the need for tailored solutions across the complicates emissions tracking. sector. 40% 36% Information and/or communication technology: barriers to decarbonisation for most material scope 3 categories 30% 22% 22% 22% 25% 18% 18% Inconsistent ESG reportiing standards 13% 13% Cost implementing recycling/circular technologies 9% 9% 10% Dependency on fossil fuel suppliers 4% 4% 4% Di
culty monitoring tenant energy use 0% Employee preference for air travel 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Fragmented carbon accounting for portfolios Scope 3 category High costs of carbon-free energy and fuels Inadequate sta  training on waste management Lack of control influence over indirect suppliers Most selected scope 3 categories (most material only) Lack of emissions disclosure by investees Limited low carbon transport options 25% Supplier granular emissions data unavailability 20% 18% 18% complex global supply chains complicate tracking consumer packaging preferences 15% 13% 13% Cost of switching to electric / alternative fuel fleets 10% 9% 9% 9% Di
culty shifting direct supplier relationships 4% 4% Employee vehicle preferences 5% High costs of low carbon alternatives 0% High dependancy on air andsea freight that has limited 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Inconsistent emissions accounting methods across suppliers Scope 3 category 0% 5% 10% 15% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 38 Barriers to Scope 3 Decarbonisation 39 4.5.5. Manufacturing sector, selected by 41% of survey respondents when Barriers fragmented downstream operations, limit our ability to track The manufacturing sector shows moderate engagement with combining first and second rankings. This reflects the The results collectively highlight the diverse and and manage freight emissions effectively”. This highlights scope 3 decarbonisation, with nearly 59% of respondents sector’s reliance on upstream supply chains for raw materials interconnected barriers faced by the manufacturing sector, not only dependency on freight but also the difficulty having established scope 3 emissions targets. while 40%, and components, which are often emissions-intensive due to ranging from technological and financial hurdles to supply in obtaining reliable emissions data, especially across have yet to set such targets, reflecting varying levels of extraction, processing, and transportation. The prominence chain and data management challenges. Interviews further multi-tiered supply chains. Similarly, the lack of control or prioritisation within the industry. Half of those with targets of this category aligns closely with interview insights, where underscore the difficulty in addressing scope 3 emissions influence over indirect suppliers reflects another shared have set a target goal date of 2030. When evaluating a chemicals manufacturer noted that scope 3.1 accounts for within a sector heavily reliant on fossil-based materials, concern between survey respondents and interviewees. their ability to meet these targets, most respondents up to 75% of total emissions, largely driven by the extensive complex supply chains, and transportation logistics. The The interviews highlighted the sector’s reliance on suppliers cite “somewhat limited” capacity, though a notable variety and volume of raw materials used. The interviewee chart below highlights a range of barriers to decarbonisation to decarbonise their scope 1 and 2 emissions as a key percentage rate their ability as “adequate” or “good”. highlighted the sheer scale and complexity of tracking within the manufacturing sector, reflecting the sector’s barrier, with one participant noting: “We rely heavily on our This sentiment aligns with self-assessments of historical emissions across “over 20,000 raw materials that are complexity and diversity. The most frequently identified upstream suppliers, but we lack the leverage to enforce their progress, where many respondents describe their efforts chemically or mechanically processed”. barriers include the limited availability of technically suitable, decarbonisation actions”. This reliance creates bottlenecks, as “below expectation,” though a significant portion report low-carbon options, unpredictable customer usage patterns as progress upstream directly impacts manufacturers’ ability outcomes “as expected”. Only a small minority exceed Category 11: Use of Sold Products also emerged as a key and preferences, and high dependency on air and sea freight, to address their scope 3 emissions. expectations, indicating room for improvement across the category, selected by 27% of survey respondents. This each cited by approximately 15–20% of respondents. These sector. In terms of actual progress made, many companies underscores the emissions generated during the life cycle barriers were rated as moderately severe to severe, with Financial challenges, such as the high costs of carbon-free achieved reductions of 10-30% but a significant number of and operational use of manufactured products, such as scores ranging between 2.13 and 2.39. energy and fuels, were identified in the survey and interviews. respondents reported increases or no significant change energy-intensive machinery or electronics. Interview insights Participants from the chemical manufacturing sector in emissions, reflecting ongoing hurdles in decarbonising revealed challenges in accurately quantifying emissions from The prominence of technically suitable, low-carbon options stressed the cost pressures in a low-margin industry, with supply chains, energy use, and production processes. product use and end-of-life treatment, with the interviewee aligns strongly with interview findings, where participants one interviewee explaining, “Investments in decarbonisation stating: “We are manufacturing a small part of a much larger highlighted significant challenges in identifying and scaling are difficult when operating on single-digit profit margins, Top categories: product, making proportional allocation nearly impossible”. alternative materials. A chemicals manufacturer noted, and customers are unwilling to absorb green premiums”. This Overall, the results illustrate that upstream emissions from “[its] products are fundamentally fossil-based, creating an reinforces the financial barriers to implementing low-carbon purchased goods dominate the manufacturing scope 3 Other moderately selected categories include Category 9: inherent barrier to achieving true decarbonisation,” while solutions, particularly in price-sensitive markets. profile, while downstream product use and logistics also Downstream Transportation and Distribution and Category also emphasising that bio-based or recycled alternatives are play a critical role. Interview insights further emphasise the 3: Fuel- and Energy-Related Activities, which highlight often costly and deliver limited emissions reductions when The survey also highlighted inconsistent emissions sector’s systemic challenges in managing complex supply emissions generated from transporting raw materials considering full life cycle impacts. This reflects the sector’s accounting methods across suppliers as a notable barrier, chains and quantifying emissions beyond production. and finished goods, as well as the energy required during reliance on innovation that is still distant from commercial which aligns with interview findings around data quality and production processes. These categories reflect the broader viability. traceability issues. One participant described the reliance on Category 1: Purchased Goods and Services dominates as emissions impact across the manufacturing value chain. estimated data, stating: “All data today is heavily estimated, the most material scope 3 category for the manufacturing The high dependency on air and sea freight was a top which introduces cascading inaccuracies through the supply survey barrier. In the interviews, transportation was similarly chain”. The challenge of obtaining precise, primary data from Most selected scope 3 categories (from 1st and 2nd most relevant) identified as a critical contributor to scope 3 emissions, but suppliers further complicates efforts to track and reduce interviewees underscored additional layers of complexity. emissions effectively. 50% As one participant shared: “Logistical challenges, such as 41% 40% Manufacturing: barriers to decarbonisation for most material scope 3 categories 30% 26% 26% 20% 20% 25% 14% 14% 14% 14% Limited availability of technically-suitable low-carbon options Unpredictable customer usage patterns / preferences 10% 2% 2% High dependency on air and sea freight that has limited decarbonisation options 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Lack of control or influence over indirect suppliers Scope 3 category Lack of visibility into use of sold products emissions Consumer resistance to green alternatives Dependency on fossil fuel suppliers Most selected scope 3 categories (most material only) High costs of carbon free energy and fuels Inconsistent emissions accounting methods across suppliers 25% 26% Lack of visibility into transport emissions 23% Limited availability to sustainable disposal methods 20% Limited supplier decarbonisation capabilities 15% Regulatory restrictions on product design 11% 11% 10% 8% Supplier granular emissions data unavailability 5% 5% 5% 2% 2% Complex global supply chain complicate tracking Complex supply chain coordination 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cost of implementing recycling/circular technologies and methods in-house Scope 3 category High cost of low-carbon alternatives ack of infrastructure for refueling and recharging stations Limited availability of carbon-free energy and fuels 0% 5% 10% 15% 20% 25% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 40 Barriers to Scope 3 Decarbonisation 41 4.5.1. Professional services Related Activities (40%) and Category 1: Purchased Goods Barriers Additionally, the cost of implementing recycling and circular The professional services sector survey respondents paint a and Services (20%) dominate. This highlights the sector’s The graph highlights the primary barriers to scope 3 technologies and dependency on fossil fuel suppliers were picture of a sector with a moderate level of commitment to primary focus on emissions from energy consumption and decarbonisation faced by the professional services sector. identified by approximately 15–20% of respondents, with scope 3 decarbonisation, with 53% of respondents having procurement, which are likely significant contributors to their The most frequently identified barrier is the high costs severities of 2.33 and 2.54, respectively. These barriers established scope 3 targets. However, maturity levels vary, overall carbon footprint. of carbon-free energy and fuels, followed by the limited emphasise the financial and structural hurdles that hinder the as evidenced by a range of target dates spanning from 2028 availability of carbon-free energy and fuels, each selected adoption of sustainable waste management practices and to 2050 and mixed perceptions of companies’ abilities to However, when respondents’ second most material by over 25% of respondents. These findings underscore the alternative energy sources. meet these goals. Most respondents describe their ability as categories are included (top graph), additional categories sector’s reliance on energy-intensive operations and the “somewhat limited,” while fewer feel “adequate” or “good,” emerge. Notably, Category 7: Employee Commuting and challenges associated with transitioning to cleaner energy Other barriers, such as inconsistent emissions accounting highlighting significant challenges. While many respondents Category 5: Waste Generated in Operations gain traction, sources due to financial and supply constraints. These methods across suppliers and difficulty shifting direct report slight emissions reductions, with changes typically with 40% and 33% of respondents identifying them as barriers are perceived as moderately severe, with ratings of supplier relationships, while cited by fewer respondents, within a modest range of 0–10%, others have experienced material, respectively. This expanded focus reflects the 2.58 and 2.33, indicating they significantly hinder progress. are rated among the most severe at 2.67, highlighting stagnation or increases. Progress is often described as “as sector’s recognition of the emissions impact associated with their significant impact on emissions reduction efforts. expected” or “below expectation,” underscoring the sector’s commuting in employee-intensive organisations like hospitals The lack of control or influence over indirect suppliers These issues point to critical gaps in data consistency struggle to achieve more transformative reductions. These and universities, as well as the importance of addressing is another significant barrier, selected by around 25% of and the operational difficulties of engaging suppliers in findings suggest that while some incremental progress is waste management emissions. respondents and rated at 2.48 in severity. This reflects decarbonisation initiatives. being made, systemic barriers continue to hinder the sector’s the complexity of managing emissions within extensive These results suggest a tiered prioritisation approach within ability to scale up its decarbonisation efforts. supply chains, where companies often struggle to influence Overall, the results point to a sector constrained by financial the sector, where energy use and procurement dominate upstream suppliers’ practices effectively. and supply limitations, particularly in energy and supplier Material categories: initial decarbonisation efforts while commuting and waste engagement. The survey results indicate a clear prioritisation of scope management are acknowledged as critical secondary areas 3 categories among respondents from the professional of focus. This layered understanding provides insight into Professional services: barriers to decarbonisation for most material scope 3 categories services sector. When considering only the most material the challenges and opportunities for decarbonisation within High cost of low-carbon alternatives categories (lower graph), Category 3: Fuel- and Energy- professional services. Limited availability of carbon-free energy and fuels Lack of control or influence over indirect suppliers Most selected scope 3 categories (from 1st and 2nd most relevant) Cost of implementing recycling/circular technologies Dependency on fossil fuel suppliers 50% 46% Inconsistent emissions accounting methods across suppliers 40% 40% 33% Di­culty shifting direct supplier relationship 30% 26% Employee vechicle preferences 205% Fragmented carbon accounting for portfolios 13% 13% High cost of low-carbon alternatives 10% 7% 7% 7% 7% High disposal costs on waste management 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Lack of granular data on energy sources Scope 3 category Limited availability of sustainable disposal methods Limited availability of technically-suitable low-carbon options Limited influence over downstream processors Most selected scope 3 categories (most material only) Limited low-carbon transport options Supplier granular emissions data unavailability 50% 40% Supply chain fragmentation 40% 0% 5% 10% 15% 20% 25% 30% 35% 30% 20% Percent of respondents 20% 10% 7% 7% 7% 7% 7% 7% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scope 3 category Percent of respondents PPeerrcceenntt ooff rreessppoonnddeennttss Barrier description Barriers to Scope 3 Decarbonisation 42 Barriers to Scope 3 Decarbonisation 43 4.5.2. Real estate The survey identifies Category 13: Downstream Leased Barriers Financial constraints were another shared challenge, 79% of the real estate sector survey respondents report Assets as the most material category, selected by 57% Overall, the survey and interviews align on tenant including building upgrade/efficiency cost limitations (rated established scope 3 targets, with target dates mostly of respondents when combining first and second-most engagement and energy monitoring as the most pressing 2.50) and high costs of carbon-free energy and fuels (rated concentrated around 2030 and 2050, reflecting a mix of material responses. This reflects the significant contribution barriers in the real estate sector, alongside financial 2.31). Interviewees expanded on this, emphasising the high near-term and long-term ambitions. Most respondents of emissions from leased properties, particularly residential constraints and supply chain challenges. Interviews premiums for low-carbon materials like concrete and the lack describe their ability to meet these targets as “somewhat and office buildings. Interviews confirm this, with participants highlighted the split incentives between tenants and owners, of demand to drive commercial viability: “Low embodied limited” (40%) or “adequate” (30%), while a smaller emphasising emissions from resident energy usage, including the difficulty of scaling low-carbon construction materials, carbon materials are not yet viable without broader proportion consider it “good” (20%) or “very limited” (10%). gas and electricity: “The largest component of our footprint and operational challenges tied to retrofitting existing adoption”. Perceived progress aligns with this moderate confidence, is resident emissions”. buildings. with 30% describing their progress as “as expected,” though Supply chain challenges, including complex global supply 40% report progress as “below expectation,” suggesting Category 1: Purchased Goods and Services was the next The survey identifies tenant engagement challenges and chains and difficulty shifting direct supplier relationships, challenges in achieving reductions. Actual emissions trends most cited, reflecting emissions from procurement activities difficulty monitoring tenant energy use as the top barriers, were also prominent in survey responses, although rated also reflect mixed outcomes: while 35% of respondents like construction materials. Interviewees corroborated this, each selected by over 30% of respondents and rated as less severe (2.11 and 1.73). Interviews corroborated these report decreases, 30% report increases, and 25% observe pointing to “embodied carbon in building materials” as a moderately severe (2.19 and 2.25, respectively). Interviews challenges, citing “fragmented supply chains” and the no significant change. The proportion of respondents key source of emissions, but flagged the high costs of low- confirm these findings, with participants pointing to resident difficulty of securing reliable emissions data, particularly for experiencing emissions increases highlights a gap between carbon alternatives as a significant barrier: “Low embodied emissions as a dominant part of the sector’s footprint. Split construction materials. perceived and actual ability to decarbonise, indicating that carbon concrete comes with significant premiums”. incentives, where tenants benefit from efficiency upgrades Additionally, the limited availability of technically suitable, while engagement with scope 3 decarbonisation is evident, while owners bear the costs, were frequently cited in an Category 3: Fuel- and Energy-Related Activities, identified many companies face difficulties translating intentions into interview with a developer and investor: “Residents pay low-carbon options (15% of respondents, rated 2.40) and by 36% of respondents, underscores the emissions linked impactful outcomes. their own bills, so they reap the benefit of making efficient operational barriers, such as retrofitting existing buildings, to upstream energy production. Interview participants choices, but we don’t see the return”. were highlighted in interviews. Participants noted that Material categories: added that “electrifying existing buildings” remains complex, “electrifying older systems” remains particularly challenging Overall, the survey and interviews align on the importance particularly when retrofitting older systems. due to technological and logistical constraints. of emissions from leased assets, procurement of building Less frequently selected categories like Category 8: materials, and energy-related activities as critical scope Real estate: barriers to decarbonisation for most material scope 3 categories Upstream Leased Assets, and Category 15: Investments, 3 categories. Interviews additionally highlighted the split reflect niche but relevant emissions sources. Diculty monitoring tenant energy use incentives between owners and residents, the challenges of decarbonising construction, and retrofitting existing Tenant engagement challenges buildings. Complex global supply chains complicate tracking Most selected scope 3 categories (from 1st and 2nd most relevant) Diculty shifting direct supplier relationships High costs of carbon-free energy and fuels 60% 57% 50% Split incentives between owners and lesses 40% 35% 28% Diculty monitoring tenant energy use 30% 21% 21% 20% 14% 10% 7% 7% 7% Limited availability of carbon-free energy and fuels 0% Limited availability of technically-suitable low-carbon options 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scope 3 category Supplier granular emissions data unavailability Building upgrade/eciency cost limitations Most selected scope 3 categories (most material only) Dependency on fossil fuel suppliers 30% 28% 28% High costs of low -carbon alternatives 21% Lack of granular data on energy sources 20% 14% Limited supplier decarbonisation capabilities 10% 7% Misaligned incentives for decarbonisation 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0% 5% 10% 15% 20% 25% 30% 35% Scope 3 category Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 44 Barriers to Scope 3 Decarbonisation 45 4.5.3. Retail additional insights into challenges related to product life Barriers in addressing these costs, but current financial incentives are The retail sector survey respondents demonstrate decent cycles, material sourcing, and supply chain complexity. The Overall, the survey and interview findings align on the insufficient to drive widespread adoption. engagement with scope 3 decarbonisation, with 72% broader spread of material categories reflects the diverse critical barriers for the retail sector, particularly those tied reporting established targets, with mostly short-term target nature of retail operations, encompassing procurement, to financial constraints, supply chain complexities, and Supply chain challenges, including high dependency on air dates of 2025 to 2030. Most respondents rate their ability distribution, energy use, and end-of-life treatment of operational challenges. Interviews expand on these issues by and sea freight and lack of control over indirect suppliers, to meet these targets as “adequate” (40%) or “somewhat products. emphasising data availability and harmonisation challenges, were also emphasised in the survey, with severities of 2.3 and limited” (30%), while fewer consider it “good” (20%) or “very as well as the difficulty in engaging smaller suppliers and 2.11, respectively. Interviewees confirmed these difficulties, limited” (10%). Perceived progress is similarly optimistic, The survey identifies Purchased Goods and Services as the ensuring transparency across global supply chains. highlighting “limited visibility into global supply chains” with 40% describing their past progress as “as expected” most material category, emphasising the sector’s reliance and “fraud in material sourcing” as significant barriers. They and about 30% as “above expectations”. However, actual on procurement for products sold in retail operations. The survey highlights the high costs of carbon-free energy also pointed to the “need for harmonisation in emissions emissions trends paint a more mixed picture: 40% of This finding is strongly supported by interviews, which and fuels and the limited availability of low-carbon options calculation methodologies”, which complicates supply chain respondents report decreases, but 30% report increases, emphasise emissions from “material processing” and as prominent financial barriers, each rated at 2.3 in severity. decarbonisation efforts and creates inefficiencies in tracking and 20% observe no significant change. While perceived the dominance of purchased goods within the sector’s These findings align with interview insights, which cite emissions. ability and progress suggest moderate confidence in scope 3 emissions profile. However, interviewees highlight “significant costs for low-carbon materials” and challenges decarbonisation efforts, the significant proportion of challenges with “supplier collaboration” and smaller suppliers faced by smaller companies in adopting greener practices. Additional barriers identified in the survey included such as respondents reporting emissions increases indicates a lacking resources to provide accurate data, complicating Interviews add that “regulatory frameworks” could play a role the cost of implementing circular technologies and the lack of infrastructure for recharging/refuelling. disconnect between expectations and outcomes. This decarbonisation efforts across the supply chain. highlights the variability in the sector’s decarbonisation The survey also identifies Downstream Transportation and Retail: barriers to decarbonisation for most material scope 3 categories performance, with some companies achieving meaningful Distribution and End-of-Life Treatment of Sold Products as reductions while others struggle to align progress with their key categories, reflecting emissions from product distribution High costs of carbon-free energy and fuels targets. and environmental impacts post-consumer use. High dependency on air and sea freight that has limited decarbonisation options Material categories: Fuel- and Energy-Related Activities is another material Lack of control or influence over indirect suppliers Overall, the survey and interviews align on the importance category highlighted in the survey, likely underscoring the Limited availability of carbon-free energy and fuels of Purchased Goods and Services as the dominant scope emissions associated with energy consumption in retail 3 category for the retail sector, while interviews provide Limited availability of technically-suitable low-carbon options operations like stores and warehouses. Complex global supply chains complicate tracking Most selected scope 3 categories (from 1st and 2nd most relevant) Cost of implementing recycling/circular technologies and methods in-house Fragmented carbon accounting for portfolios 44% 40% High cost of low-carbon alternatives 30% Lack of infrastructure for refueling and recharging station for alternative fuel vehicles 22% 22% 22% 20% 16% 16% Supplier granular emissions data unavailability - 11% 11% 11% 11% 11% Complex supply chain coordination 10% Consumer packaging preferences 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cost of switching to electric/alternative fuel fleets Scope 3 category Dependency on fossil fuel suppliers Most selected scope 3 categories (most material only) Di­culty shifting direct supplier relationships High disposal costs for greener methods 30% 27% Inadequate staƒ training on waste management Inconsistent ESG reporting standards 20% 16% 11% 11% Lack of visibility into detailed processing emissions data 10% 5% 5% 5% 5% 5% 5% Lack of visibility into transport emissions 0% Limited availability of low-carbon technologies for industrial processes 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Limited supplier decarbonisation capabilities Scope 3 category 0% 5% 10% 15% 20% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 46 Barriers to Scope 3 Decarbonisation 47 4.5.4. Transportation and/or distribution services The survey provides a broad perspective across the sector, Barriers as well as the lack of supporting infrastructure, were The transportation and/or distribution services sector survey while the interview focuses on rail manufacturing, offering The transportation and distribution services sector faces emphasised as critical barriers, particularly in the rail respondents demonstrate moderate engagement with more niche insights into the product life cycle and customer significant barriers to scope 3 decarbonisation, reflecting subsector. This aligns with survey findings but adds scope 3 decarbonisation, with 71% reporting established adoption challenges. the sector’s reliance on traditional energy sources, logistical nuance by highlighting the interdependence of regulatory targets between 2025 and 2030. Respondents largely rate complexity, and the financial burden of transitioning frameworks and infrastructure development. For example, their ability to meet these targets as “adequate” (50%) or The survey identifies Fuel- and Energy-Related Activities as to low-carbon alternatives. Survey respondents most the absence of rail-specific policies compared to trucking “somewhat limited” (30%), while a smaller proportion view the most material scope 3 category, selected by 50% across frequently cited the limited availability of carbon-free and aviation delays investment in alternative fuels and their ability as “very good” (20%). Perceived progress aligns the top two rankings. However, the interview places greater energy and fuels and dependency on fossil fuel suppliers, associated technologies. with this moderate confidence, with 40% of respondents emphasis on the lifetime emissions of sold products, (in this each selected by over 20% of respondents. These barriers describing their progress as “as expected” and 30% reporting case diesel locomotives), which make up “97% of scope 3 underscore the sector’s dependence on conventional energy The survey results point to the high costs of carbon-free it as “above expectations,” though 20% indicate it is “below emissions” for the manufacturer interviewed. This divergence infrastructure and the challenges of adopting cleaner energy energy and fuels as a prominent barrier. Similarly, interviews expectation”. highlights differences in priorities between energy use during alternatives. Both barriers were rated moderately severe, noted the financial challenges associated with transitioning operations (survey focus) and product life cycle emissions with scores of 2.38, emphasising their substantial impact on to hydrogen, with interviewees citing “cost competitiveness” Actual emissions trends reveal mixed outcomes: 40% of (interview focus). decarbonisation progress. as a decisive factor for customer adoption. Additionally, respondents report increases in emissions, while 30% report the interview provided a unique perspective on managing decreases, and 20% observe no significant change. The The survey also highlights Purchased Goods and Services Additional barriers highlighted by the survey include the risks in R&D investments, with manufacturers balancing the magnitude of emissions changes varies, with many reporting (36%) and Downstream Transportation and Distribution cost of switching to electric or alternative fuel fleets and the development of new technologies against customer demand shifts within ±10%, but a considerable share indicating larger (21%) as significant scope 3 categories. While the interview lack of infrastructure for refuelling and recharging stations and regulatory timelines. reductions of 21–30% or increases of 31–40%. These results mentions Category 1 (Purchased Goods and Services), it for alternative fuel vehicles, cited by 15–20% of respondents. suggest a partial disconnect between perceived and actual states that it represents “only a small portion of total scope These reflect the financial and logistical challenges of The interview touched on the long lifespans of rail assets ability to decarbonise. While many respondents express 3 emissions” for the manufacturer. This suggests that the deploying low-carbon technologies, with severity ratings (common throughout the sector with other transport modes confidence in their progress, the substantial proportion prominence of this category in the survey likely reflects the ranging from 2.17 to 2.33. too), which complicate emissions reductions. Retrofitting reporting emissions increases highlights ongoing challenges broader sector’s reliance on procurement and logistics rather existing locomotives to use cleaner fuels was highlighted as in achieving consistent reductions. than rail-specific manufacturing priorities. Insights from interviews reinforce and expand on these a potential interim solution, addressing barriers related to the findings. The limited availability of hydrogen and biofuels, cost and timeline of full fleet replacement. Material categories: Overall, the survey and interviews both highlight the critical Transportation and/or distribution services: barriers to decarbonisation for most material scope 3 categories importance of energy-related emissions in the transport and Limited availability of carbon-free energy and fuels distribution sector, while also revealing differences in the specific priorities and challenges faced by stakeholders. Dependency on fossil fuel suppliers Cost of switching to electric/alternative fuel fleets Most selected scope 3 categories (from 1st and 2nd most relevant) High cost of carbon-free energy and fuels 50% Lack of infrastructure for refueling and recharging stations 40% 35% Limited supplier decarbonisation capabilities 30% 28% Complex supply chain coordination 21% 20% Consumer packaging preferences 14% 14% 10% 7% 7% 7% 7% 7% Employee preference for air travel Fragmented carbon accounting for portfolios 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 High capital costs for processors Scope 3 category High dependency on air and sea freight that has limited decarbonisation options High upfront costs for greener assets Most selected scope 3 categories (most material only) Inadequate sta training on waste management 30% 28% Lack of control or influence over indirect suppliers Lack of financing options for low-carbon capital goods 20% 14% 14% Lack of visibility into detailed processing emissions data 10% 7% 7% 7% 7% 7% 7% Lack of visibility into transport emissions Limited availability of sustainable disposal methods 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Limited availability of technically-suitable low-carbon options Scope 3 category Limited low-carbon transport options Long asset life cycles 0% 5% 10% 15% 20% 25% 30% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 48 Barriers to Scope 3 Decarbonisation 49 4.5.5. Utilities and/or energy energy-intensive operations and the emissions associated Barriers availability of low-emission steel and cleaner marine fuels like The utilities and/or energy sector survey respondents with upstream energy use and production. While the survey Overall, the survey and interviews highlight a sector hydrogen and methanol for offshore operations. show lower than average engagement with scope 3 responses highlight this category as central, it is worth constrained by financial pressures, supply challenges, and decarbonisation, with 58% reporting established targets and noting that the interviewee—representing an offshore wind data limitations. However, the interviews provide additional Other notable barriers include the lack of granular data on varied timelines, including key dates in 2028, 2029, 2030, company—focused more on emissions from steel production insights into dependencies on suppliers, lacking policy energy sources, limited availability of carbon-free energy and 2050. Respondents were split on their ability to meet and marine vessels, which may not fully align with the support, and the lack of uptake of circular solutions. and fuels, and limited availability of technically suitable, these targets, with 40% indicating “somewhat limited”, and broader sector’s perspective on scope 3 priorities. low-carbon options, each selected by around 20% of 52% describing it as either “good” or “adequate”. Perceived The energy and utilities sector faces significant financial and respondents. These were rated with severity scores ranging progress is mixed, with most describing it as “as expected,” Purchased Goods and Services and Use of Sold Products are operational challenges in its efforts to decarbonise scope from 2.33 to 2.64, reflecting their considerable impact. or “below expectation”. Actual emissions trends highlight also notable categories, with 25% of respondents selecting 3 emissions. The most frequently cited barriers include Interviewees further emphasised the challenge of improving challenges, with the most cited category being an increase each as either the most or second-most material category. the high costs of carbon-free energy and fuels and the data quality, particularly in transitioning from spend-based of 11–20%, alongside a relatively even distribution across These categories reflect emissions from the procurement dependency on fossil fuel suppliers, each selected by over to activity-based emissions calculations. They also noted other ranges, including both increases and decreases. This of materials like steel for construction and the downstream 30% of survey respondents and rated moderately severe at the misalignment of decarbonisation timelines between the suggests an optimism to meet targets not matched by impacts of sold energy products during their use phase. 2.48. These barriers reflect the sector’s reliance on traditional energy sector and key suppliers, such as steel and marine previous performance. Interviews emphasise the emissions-intensive nature of energy sources and the substantial financial constraints industries, which often target 2050 for achieving emissions material sourcing, particularly steel, which dominates the associated with transitioning to cleaner alternatives. reductions, creating additional hurdles for sectors aiming for Material categories: sector’s upstream emissions and poses challenges due to Interviews reinforced these findings in an offshore wind earlier targets (e.g., some offshore wind players targeting The Fuel- and Energy-Related Activities category dominates cost and limited low-emission alternatives. context, highlighting the prohibitive costs and limited 2040). scope 3 emissions for the energy and utilities sector, identified as the most material category by 42% of survey Upstream Transportation and Distribution, selected by 17% of Utilities and/or energy: barriers to decarbonisation for most material scope 3 categories respondents and cited by 58% when the top two rankings survey respondents as the most material category, highlights are considered. This underscores the sector’s reliance on the importance of emissions from supply chain logistics. High cost of carbon-free energy and fuels Most selected scope 3 categories (from 1st and 2nd most relevant) Dependency on fossil fuel suppliers Lack of granular data on energy sources 58% 60% Limited availability of carbon-free energy and fuels 40% 25% 25% 25% Limited availability of technically-suitable low-carbon options 20% 16% 16% 8% 8% 8% 8% Cost of implementing recycling/circular technologies 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Cost of switching to electric / alternative fuel fleets Scope 3 category High cost of low-carbon alternatives Most selected scope 3 categories (most material only) High dependency on air and sea freight 50% High upfront costs for greener assets 41% 40% Lack of control or influence over indirect suppliers 30% 20% 16% 16% Lack of infrastructure for refueling and recharging stations 8% 8% 8% 10% 0% Lack of standardized asset emissions data e.g. LCAs 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scope 3 category Lack of visibility into use of sold products emissions Limited availability of sustainable disposal methods Long asset life cycles Uncertainty in produt lifecycle emissions data 0% 10% 20% 30% 40% 50% Percent of respondents Percent of respondents Percent of respondents Barrier description Barriers to Scope 3 Decarbonisation 50 Barriers to Scope 3 Decarbonisation 51 05 While the previous chapter focused on the broader analysis of all identified barriers, a key objective of this study was to move beyond identification and toward actionable solutions. To accomplish this, the barriers were prioritised using five factors that provided an indicator for their overall impact: Prioritisation factor Rationale for inclusion To understand which barriers are most encountered across the survey sample, highlighting Barrier Frequency of selection widespread issues that affect a significant number of companies. Sector spread To identify barriers that are shared across multiple industries. Prioritisation Barrier severity To prioritise barriers that were perceived as particularly challenging to overcome. To prioritise barriers cited by companies with limited historical emissions reduction progress, Actual emissions change focusing on factors that may directly impede measurable scope 3 decarbonisation outcomes. Perceived future ability To address barriers highlighted by companies that foresee challenges in meeting future to meet targets decarbonisation goals, ensuring solutions address forward-looking concerns and strategic gaps. Prioritisation was guided by the need to balance breadth The top barriers provide insight as to where companies are and depth, ensuring that prioritised barriers were both feeling the pain points the most as well as where efforts broadly applicable across sectors and deeply impactful on could be concentrated to achieve meaningful progress decarbonisation progress within each sector. This approach in scope 3 emissions reductions. A clear theme emerged recognises that not all barriers are equally influential; some across sectors around the upstream supply chain, with represent isolated challenges, while others resonate across organisations recognising the urgent need for accelerated industries and fundamentally play a larger role in impeding technology development to make low-carbon alternatives scope 3 emissions reductions. viable and cost-effective. Equally significant is the necessity for all supply chain actors to engage more deeply in the The resulting prioritised barriers were grouped into either decarbonisation agenda, emphasising the importance of cross-sector categories or sector-specific barriers. collaboration and shared accountability. Additionally, the Cross-sector barriers: growing focus on carbon reporting literacy highlights a need for enhanced data transparency and capacity-building across Techno-economic barriers to upstream decarbonisation: the value chain. Together, these findings underscore that • Limited availability of technically suitable, low-carbon overcoming these barriers is not only about innovation but options also about fostering alignment and shared understanding • High cost of low-carbon alternatives across the entire ecosystem. • High costs of carbon-free energy and fuels Supply chain coordination and emissions reporting: • Lack of control or influence over indirect suppliers • Supplier granular emissions data unavailability Industry-specific barriers: • Finance: Lack of emissions disclosure by investees, and risk-return concerns on green investments • ICT: Employee preference for air travel • Real estate: Difficulty monitoring tenant energy use, and Tenant engagement challenges • Transport: Limited availability of carbon-free energy and fuels 52 53 06 The search for solutions to barriers in addressing scope 6.1. Costs and timelines of solutions 3 emissions remains a complex and evolving field. This This section presents the estimated timelines and costs for chapter aims to illuminate some potential pathways while the solutions proposed by survey respondents to address acknowledging that it cannot offer definitive answers. key scope 3 decarbonisation barriers. The analysis first Central to this discussion is an exploration of costs and considers overall costs and timelines across all solutions, timeline estimates—areas where the data collected from then examines variations by industry and region, and finally this study is only indicative. These estimates are included evaluates them concerning specific barriers identified. Potential Solutions to to fill gaps in understanding, recognising their limitations Results presented here should be treated cautiously, as this in precision and reliability. While broader decarbonisation data is based on self-reported estimates for unimplemented models for industries exist, their scope does not provide the solutions. The accuracy of cost and timeline projections has granularity needed to evaluate specific claims highlighted in not been tested. our survey. This study’s goal is to advance the conversation scope 3 Decarbonisation by examining available insights and identifying opportunities When looking at only the solutions addressing the five key for further exploration. cross-sector barriers identified, the data showed a lack of trends on implementation timelines and associated costs The survey responses reflect a range of approaches to when barriers were analysed in aggregate. For all the top barriers overcoming the barriers. The below sections provide barriers identified, responses always ranged from the low a detailed analysis of the top five cross-sector barriers end (under 250K USD) to the high end (above 10M USD) to identified, including the recommended solutions and their address the same barrier. Similarly, timelines ranged from associated costs and timelines. It also considers these factors under 2 years to more than 15 years, but the majority of in the context of various sectors and geographical nuances. responses were assessed to be achievable within the next The analysis aims to highlight relevant themes for how ten years. respondents have successfully addressed this barrier and explore suggested (not implemented) solutions from survey respondents and interviewees. Costs for solutions addressing top 5 barriers 35 30 25 20 15 10 5 0 Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD Timelines for solutions addressing top 5 barriers 60 50 40 30 20 10 0 Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: fully implemented fully implemented fully implemented fully implemented fully implemented by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 Number of respondents Number of respondents 54 55 Across all sectors and solutions to all barriers, the average expectation of solution costs across sectors, with retail, Costs for solutions addressing supply chain coordination barriers estimated solution cost was between 250K – 1M USD and transportation, and utilities expected to be the most costly. 1M – 5M USD categories. Across industries, the average cost Additionally, there was little regional variation, with the 30 varies between the two, indicating a relatively consistent average falling within the same range. 25 20 Estimated costs for solutions addressing top 5 barriers 15 Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD 10 100% 5 13% 9% 14% 15% 15% 14% 12% 10% 16% 21% 0 6% 7% 15% 9% Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD 19% 18% 14% 20% 14% 24% 25% 24% The supply chain coordination solutions typically focus on of possible answers (under 2 years to more than 15 years). 27% 26% 22% optimising existing processes or updating operating models Across solutions for all top barriers, most respondents 20% 26% 33% rather than developing or deploying new technologies. This estimated that it would take no more than 10 years to 50% 36% aligns with expectations, as improving operating models implement associated solutions, which aligned with survey- 32% 31% 28% often demands fewer resources compared to the larger wide timelines. Similar to costs, techno-economic solutions 25% 30% 37% 28% financial investments associated with new technological will take longer to implement compared with supplier 29% 7% 24% solutions for decarbonisation. management and coordination. This again aligns with 20% expectations as techno-economic solutions may require the 25% 28% 24% 18% 21% 20% Timelines across both subsets of barriers were slightly development, testing, and scaling of new technologies or 12% 14% 14% 8% more cohesive but still ranged across the entire spectrum 0% infrastructure to be fully implemented. Biotech Consumer Financial Information Manufacturing Professional Real Retail Transportation Utilities and/or Packaged Services and/or Services Estate and/or and/or Energy Timelines for solutions addressing techno-economic barriers Pharmaceuticals Goods Communication Distribution Technology Industry Services 30 However, when examining top barriers by thematic groups, coordination barriers were generally estimated between 25 some trends emerge. The market believes techno-economic 250K USD – 1M USD and most frequently estimated under 20 barriers will be more expensive to overcome compared to 250K USD. For both solution groups, the results did not 15 supply chain coordination-related barriers. Responses for follow a clear progression, suggesting a level of uncertainty techno-economic solutions most frequently estimated costs in cost estimations across respondents. 10 above 10M USD, while solutions addressing supply chain 5 0 Costs for solutions addressing techno-economic barriers Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: fully implemented fully implemented fully implemented fully implemented fully implemented 30 by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 25 20 Timelines for solutions addressing supply chain coordination barriers 15 30 10 25 5 20 0 15 Under 250K USD 250K USD - 1M USD 1M USD - 5M USD 5M USD - 10M USD Above 10M USD 10 5 0 Under 2 years: 3-5 years: 6-10 years: 11-14 years: 15 years or more: fully implemented fully implemented fully implemented fully implemented fully implemented by end of 2026 between 2027 - 2029 by 2030 - 2034 between by 2035 - 2038 after 2038 Number of respondents Number of respondents Number of respondents Number of respondentsPercent of respondents 56 57 6.2. Techno-economic barriers to upstream As well as pure availability, cost considerations decarbonisation: of the low-carbon alternatives were also a top barrier across sectors. While not the most 6.2.1. Introduction frequently cited, the high cost of low-carbon Three of the top cross-sector barriers all options held significant weight in terms of relate to the techno-economic barriers to severity and connection to respondents who upstream decarbonisation. These were limited had poorer historical performance on emissions availability of low-carbon options, high costs reductions. Sectors like manufacturing and of alternatives, and the expense of carbon- consumer packaged goods find it particularly free energy, and were widely reported across challenging to balance sustainability goals with sectors and regions. In the survey, the limited financial feasibility. availability of suitable low-carbon options was the most frequently cited challenge, with Furthermore, only a small fraction of nearly one-third of respondents identifying it organisations reported progress in addressing as critical, while the high costs of both low- this barrier, underlining the need for innovative carbon alternatives and carbon-free energy financial and collaborative strategies. were cited by 15% and 20% of respondents, respectively. These barriers are deeply Similarly, the financial burden associated interconnected; for instance, the high cost with carbon-free energy and fuels remains a of low-carbon alternatives often stems from critical hurdle. This barrier, tied exclusively to limited availability, while the financial burden scope 3.3 emissions, was selected by one- of carbon-free energy amplifies the overall fifth of respondents, reflecting its widespread challenge of adopting sustainable solutions. impact. The prohibitively high costs limit adoption across supply chains, particularly Rooted in both technological limitations and for businesses operating with narrow profit economic constraints, these barriers are critical margins. The challenge is compounded to addressing emissions in scope 3 categories, in competitive markets were passing on particularly 3.1 (purchased goods and services) additional costs to consumers is and 3.3 (fuel- and energy-related activities). not feasible. However, it was a barrier that many respondents have begun to address, The limited availability of technically suitable, showing that there is ongoing progress here. low-carbon options emerged as the most significant across all sectors in the weighting These interrelated barriers underscore exercise, with nearly one-third of respondents the complexity of achieving upstream identifying it as a critical challenge for decarbonisation. Limited availability and high addressing scope 3.1 Purchased Goods and costs of low-carbon solutions, whether in Services and 3.2. Capital Goods. The availability materials or energy, hinder companies’ ability of low-carbon solutions is uneven, with service- to make meaningful progress. Below is a based sectors less affected than those reliant summary of the proposed and implemented on difficult-to-decarbonise materials such as solutions addressing these barriers, as well as steel and concrete. This issue emphasises the a discussion incorporating insights from the pressing need for innovation and supply chain literature. collaboration to accelerate accessibility to sustainable alternatives. These barriers are deeply interconnected; for instance, the high cost of low-carbon alternatives often stems from limited availability, while the financial burden of carbon-free energy amplifies the overall challenge of adopting sustainable solutions. 58 59 6.2.2. Results from survey responses Partnerships and market mechanisms duty vehicle fleets or adopting energy-efficient equipment, The barriers of limited availability of technically suitable, Collaboration across supply chains emerged as a vital were also noted, requiring investments of 250K USD – low-carbon options, the high cost of low-carbon strategy, enabling organisations to align resources, share 1M USD over three to five years. Data-driven diagnostic alternatives, and the expense of carbon-free energy and expertise, and scale decarbonisation efforts. Costs for measures complement electrification efforts, enabling fuels represent interconnected challenges that require partnership-driven solutions typically range between 250 organisations to identify inefficiencies and optimise energy multi-faceted solutions. Insights from survey responses and 1M USD, with timelines of three to five years. Examples use. Energy audits, for instance, were reported as short-term demonstrate a breadth of strategies to address these include adjusting procurement strategies to prioritise low- solutions costing 250K USD – 1M USD and completed within systemic issues, which span technological innovation, carbon materials, developing long-term supplier contracts to two years. These audits often lay the groundwork for more market mechanisms, and policy interventions. stabilise costs, and pooling demand for green technologies. extensive decarbonisation initiatives. It was unclear however how effective these solutions would Survey respondents addressing the availability of Policy and regulation be in fully addressing the barriers. low-carbon options and the high cost of alternatives State incentives and regulatory frameworks were suggested identified three primary solution categories: Innovation Fleet and logistics optimisation often intersects with to be crucial enablers for both availability and cost barriers. and development, partnerships and market mechanisms, partnerships, involving collaborative efforts to improve Medium-cost solutions, such as leveraging subsidies or and carbon credits. Solutions addressing the high cost routing efficiency, upgrade vehicle fleets, or transition to low- tax credits, typically required 250K USD – 1M USD in of carbon-free energy and fuels introduced additional carbon logistics solutions. These strategies, while resource- investments and timelines of three to five years. Italian strategies, including electrification, fleet and logistics intensive, demonstrate significant emissions reduction respondents emphasised the importance of such policies optimisation, and leveraging policy incentives. Together, potential. Respondents noted costs exceeding 1M USD for in supporting renewable energy adoption, while U.S.-based these approaches reflect the diversity and complexity of transformative logistical upgrades, particularly in sectors projects highlighted the role of the Inflation Reduction solutions required to overcome decarbonisation barriers. like retail and transportation. For example, partnerships with Act in financing large-scale electrification and low-carbon technology providers to integrate fleet electrification and infrastructure projects. Innovation and development improve last-mile delivery efficiency have proven effective in Innovation lies at the core of addressing both availability Policy also plays a key role in addressing the high costs reducing emissions over the medium to long term. and cost barriers. Solutions in this category focus on of carbon-free energy. Subsidies for renewable energy creating, testing, and scaling low-carbon technologies or Carbon credits and interim reductions production, carbon pricing, and incentives for infrastructure transforming existing systems. Costs range widely, from While not a direct solution to availability issues, many development were repeatedly cited as critical. For example, low-cost initiatives like material scouting and testing (under respondents saw offsets as an interim strategy for driving respondents leveraging favourable local policies in Italy 250K USD) to high-cost investments such as acquiring climate finance into activities that reduce and/or remove reported implementing renewable energy projects at lower hydrogen buses, conducting large-scale research, or carbon when low-carbon options are inaccessible or costs and within shorter timelines. electrifying fleets (exceeding 10M USD). Timelines similarly unaffordable. Reported costs for carbon credit strategies vary, with short-term actions achievable in under two years typically fell between 250K USD and 1M USD, with timelines Consumer demand and business model adjustments and medium-term research and development initiatives ranging from short-term actions like purchasing verified Strategies to foster consumer willingness to pay for low- requiring six to ten years or more. credits to medium-term efforts such as developing new carbon products and adjust business models to align with carbon credit pathways. Examples included companies in decarbonisation goals were prominent. Branding efforts, Electrification represents a significant aspect of this the U.S. biotech sector leveraging carbon credits as stopgap demand pooling, and education campaigns were highlighted category. Investments in electric vehicles (EVs), charging measures while awaiting the commercialisation of low- as tools to create market conditions that justify the green infrastructure, and battery technologies were reported as carbon materials. premium. For instance, targeting sustainability-focused transformative solutions but often required substantial customers required investments under 250K USD for capital and extended timelines. For instance, large-scale Electrification and infrastructure development short-term efforts or 1M USD – 5M USD for medium-term projects like battery-electric bus adoption in the U.S. or Electrification and the development of supporting strategies spanning three to five years Adjusting business Australia involve costs exceeding 10M USD and spanning infrastructure represent capital-intensive but impactful models to capture the green premium also involved up to 15 years. However, such investments offer long-term solutions. These projects often exceed 10M USD and span leveraging customer demand to justify investments in emissions reductions and represent critical pathways for timelines of 15 years or more. Examples included integrating carbon-free energy or low-carbon alternatives. This strategy sectors like transportation and logistics. renewable energy into operations, constructing EV charging aligns closely with fostering market readiness for emerging networks, and transitioning to low-carbon industrial technologies, particularly in sectors like consumer goods and processes. Medium-cost efforts, such as electrifying light- real estate. Costs range widely, from low-cost initiatives like material scouting and Electrification and the development testing (under 250K USD) to high- of supporting infrastructure cost investments such as acquiring represent capital-intensive but hydrogen buses, conducting large- impactful solutions. These projects scale research, or electrifying fleets often exceed 10M USD and span (exceeding 10M USD). timelines of 15 years or more. Barriers to Scope 3 Decarbonisation 60 Barriers to Scope 3 Decarbonisation 61 6.2.3. Discussion Literature complements this by emphasising the long-term Respondents frequently cited progress in adopting renewable emerging market respondents were more focused on resource- Both the survey responses and literature identify need for stabilising supply chains and scaling production energy solutions, but their focus was primarily on leveraging constrained initiatives, such as low-cost energy audits and collaboration and government support as central to to drive down costs. For instance, the IEA’s 2023 Net-Zero existing incentives and reducing operational costs. Literature, material scouting. Literature, particularly the IEA’s Net-Zero addressing the barriers of limited availability and high Roadmap documents an 80% decline in aggregate costs such as the IEA’s 2024 World Energy Outlook, underscores Roadmap, highlights the need for international cooperation to costs of low-carbon technologies, alternatives, and fuels. for solar PV, wind, heat pumps, and batteries over the past the urgency of expanding renewable capacity to nearly 10,000 address these disparities, ensuring equitable access to funding, Survey respondents emphasised partnerships and market decade (IEA, 2023). This aligns with survey findings, where GW by 2030 and highlights gaps in clean energy supply technology transfer, and capacity-building in emerging mechanisms to source low-carbon options, while the respondents noted progress in addressing cost barriers, chains and investment flows (IEA, 2024)16. These structural economies (IEA, 2023). This broader systemic view was largely literature highlights the pivotal role of policy, infrastructure but also points to a gap: The survey rarely addressed the challenges are underexplored in the survey responses, which absent from the survey results. development, and technological progress. Comparing and structural drivers of these cost reductions, such as public focused more narrowly on immediate business actions rather contrasting these perspectives reveals both alignment and investment in R&D and manufacturing capacity. than systemic market transformations. The Technology The interdependence between availability and cost barriers gaps in strategies. Readiness Level (TRL) framework provides a useful lens to is evident in both survey responses and literature but with The costs of decarbonising fuel-intensive sectors provide contrast the two perspectives further. Survey respondents differing emphases. Survey respondents highlighted consumer- Survey findings highlighted a business-led focus on a stark contrast between the two perspectives. Survey emphasised solutions in the mid-TRL range, such as driven demand generation and short-term partnerships to innovation and collaboration as key to addressing availability respondents acknowledged the high costs of electrification partnerships for sourcing green materials or implementing reduce costs, while the literature points to structural enablers barriers. Respondents frequently cited partnerships with and logistics optimisation but generally approached renewable energy projects. These actions align with the and aligning decarbonisation efforts across sectors. These suppliers, adjustments to procurement strategies, and these as incremental business investments. Literature, by literature’s focus on scaling mid-TRL technologies, but the examples underscore the need for integrated approaches incremental improvements like energy audits as solutions. contrast, frames these challenges as requiring large-scale literature also stresses the critical role of public policy in that combine short-term business strategies with long-term These actions align with the literature’s emphasis on systemic shifts. MissionGreenFuels highlights the need bridging the “valley of death” for these technologies. For systemic changes. leveraging market mechanisms to improve access to for cheap electricity and low-cost electrolyzers to make example, while green hydrogen and sustainable aviation fuels low-carbon technologies. However, the survey placed green hydrogen competitive and stresses the importance In conclusion, the survey responses provide valuable insights (SAFs) were mentioned in significantly less emphasis on systemic policy interventions. of integrating green fuels with existing energy systems into business-led solutions and incremental actions, but they the survey as high-cost solutions, the literature provides For example, respondents seldom mentioned carbon pricing (MissionGreenFuels, 2024)15. While survey respondents often lack the systemic and policy-oriented focus found in the greater depth by emphasising the role of subsidies and cross- or large-scale infrastructure investment, which are central mentioned infrastructure development, it was often in the literature. While both perspectives recognise the importance sector collaborations in accelerating their adoption themes to overcoming availability barriers in the literature context of short-term operational improvements, rather than of collaboration and innovation, the literature provides a more (MissionGreenFuels, 2024). (IEA, 2023)14. the large-scale integration envisioned in the literature. comprehensive view of the structural changes needed to Regional disparities offer another point of contrast. Survey overcome availability and cost barriers. Addressing these gaps Cost-related barriers in the survey responses leaned heavily Scaling renewable energy capacity is another area where respondents from developed markets frequently cited will require integrating robust policy frameworks with business- on financial mechanisms, such as subsidies and supply survey and literature insights partially align. policy-driven solutions, such as leveraging the U.S. Inflation driven initiatives to accelerate the transition to a low-carbon contracts, to reduce immediate economic pressures. Reduction Act or European Green Deal incentives. However, economy. 62 63 6.3. Supply chain coordination and emissions reporting responsibility further down the chain. These approaches 6.3.1. Introduction emphasise the importance of strong relationships and Two of the top barriers were broadly related to supply alignment with suppliers to drive decarbonisation. Supply chain coordination and management. Specifically, they chain engagement strategies were typically regarded as were indirect supplier engagement and supplier emissions more complex and therefore were associated with higher unavailability, which were always connected to Category costs (250K USD – 1M USD). Sectors like manufacturing 1 (Purchased Goods and Services). These barriers are and retail, which manage large supplier networks, often deeply intertwined as a lack of supplier influence is often highlighted the need for supplier engagement. a direct cause of poor supplier emissions data. Indirect Expanding or diversifying the supplier base supplier engagement was the most frequently cited barrier, Another common approach involves expanding or highlighted by 28% of survey respondents, covering all diversifying the supplier base to include partners who sectors and regions except the Middle East. The intricate are more aligned with sustainability goals. Respondents nature of global value chains—with their multitude emphasised the value of finding new suppliers who are of partners, suppliers, and service providers—hinders already committed to decarbonisation, which can reduce the coordination and collaborative initiatives often essential for complexity of engaging existing suppliers. driving decarbonisation. This lack of cohesion often leads to slow progress, which came across strongly in the interviews Embedding sustainability into contracts and surveys. This complexity is compounded by suppliers’ Embedding sustainability clauses into supplier contracts was varying levels of capability, awareness, and resources to frequently reported as a mechanism for driving compliance adopt low-carbon practices, creating systemic challenges in and accountability. By making sustainability commitments reducing emissions. contractual, organisations aim to formalise expectations and foster long-term alignment with their suppliers. Embedding Additionally, supplier emissions data unavailability sustainability clauses was generally associated with medium- was identified as the fourth most critical barrier to term timelines of 3-5 years. decarbonisation. It was selected by nearly 14% of respondents across all regions with the majority Promoting supply chain proximity concentrated in North America and Europe and nearly all Some respondents highlighted the importance of promoting sectors except for Utilities. The complexity of global value geographic proximity within their supply chains to improve chains, coupled with variability in supplier capabilities and control and reduce emissions. This approach focuses resources, compounds the difficulty of obtaining accurate, on optimising supplier networks to enable more direct reliable emissions data. This lack of data transparency engagement and oversight. One example of this came and granularity often results in reliance on estimations or from a respondent in the Mexican CPG sector. Similar to incomplete reporting, which came through in the survey supplier engagement, promoting supplier proximity was data and interviews, and ultimately hinder organisations’ typically associated with higher costs (250K USD – 1M decarbonisation efforts. The survey data and insights USD). Promoting supply chain proximity often required presented here underline the importance of addressing this medium-term timelines (3-5 years), suggesting that they barrier as a cross-industry priority. Effective solutions will require significant planning and business model changes to require robust strategies to foster supplier collaboration, implement. enhance transparency, and improve data-sharing mechanisms. Leveraging digital tools and software Respondents highlighted the adoption of digital tools 6.3.2. Results from survey responses and platforms, such as emissions tracking software and Several themes and groups have been identified from automation to streamline data collection and improve the survey respondents addressing indirect supplier transparency. These tools were reported to facilitate better management and supplier data unavailability. These data management and sharing and validation, which responses were categorised into six themes: collaboration enhanced the accuracy and reliability of supplier-reported and engagement with suppliers, expanding or diversifying emissions data. Building out digital tools capabilities was the supplier base, embedding sustainability into contracts, seen as more resource-intensive endeavor, requiring 3–5 supply chain proximity, leveraging digital tools and years for full implementation. Embedding sustainability clauses into standardising data collection processes. These solutions have supplier contracts was frequently reported been analysed by the indicated cost, timeline, sector, and Standardisation of data collection processes country to provide additional details and context. Some respondents emphasised the importance of as a mechanism for driving compliance and developing standardised data collection processes and accountability. By making sustainability Collaboration and engagement suppliers aligning with and implementing available frameworks. These Many respondents focused on fostering better collaboration approaches can simplify the reporting process for suppliers commitments contractual, organisations with their suppliers. Reported strategies include changing and improve the comparability and consistency of emissions aim to formalise expectations and foster the collaboration model, engaging third-party influencers, data across the supply chain. Sectors like manufacturing and working directly with suppliers to resolve second-tier retail, whose supply chains like have many diverse suppliers, long-term alignment with their suppliers. issues, or encouraging them to adopt SBTi and passing the emphasise the importance of standardising data collection. Embedding sustainability 64 65 6.3.3. Discussion are increasingly valuable in fostering collaboration and Survey findings provide additional insights into sectoral and estimate guidance, suggesting robust methodologies in this While some respondents identified other potential strategies, innovation, providing shared access to tools and AI- geographic nuances. Respondents with implemented solutions sector compared to others. such as increased regulation to mandate emissions reporting powered analytics for sustainability efforts (Jorzik, et al., often demonstrated higher resource availability and policy and improved estimation methodologies, many suggested 2024)19. support, enabling transformative projects such as transport Research findings align closely with survey responses, solutions mirrored strategies already implemented by fleet electrification and charging infrastructure construction, emphasising the importance of supplier engagement, training, others, including updating contractual obligations, supplier The World Economic Forum emphasises decarbonising particularly in the United States and Australia. Conversely, and digital tools as key strategies for addressing emissions engagement, digital tools, and standardisation. This supply chains by committing to green product offtakes, respondents proposing unimplemented solutions tended to data gaps. However, survey results reveal that unimplemented widespread recognition highlights these approaches as demanding stronger supplier commitments, co-shaping and emphasise regulatory measures, market mechanisms, and solutions often rely more heavily on systemic approaches and effective pathways to address the lack of granular supplier co-investing with suppliers, and deploying large- subsidies, reflecting financial constraints and reliance on external dependencies, such as carbon markets or expanded emissions data. Costs and timelines for suggested solutions scale support programs (WEF, 2024)20. This aligns with external factors. For example, companies in Italy highlighted subsidies, indicating barriers related to financial feasibility were similar to those of implemented strategies. respondents’ suggestions but provides greater detail, such power purchase agreements and energy audits, while those and readiness for operationalisation. This highlights a gap in as aligning suppliers to 1.5°C pathways, committing to green in the UAE and Mexico focused on incremental strategies like awareness or adoption of advanced technological solutions Available research supports these findings. Supplier offtakes, scaling supply upstream, and co-funding supplier changes and fleet transition targets. These patterns and suggests the need for further research and analysis as engagement and training programs are essential for decarbonisation efforts. underscore the importance of tailoring strategies to regional companies continue to iterate on solutions. bridging gaps in emissions data and fostering sustainable and sectoral contexts to ensure effective implementation. practices. Research identifies six key strategies, including Furthermore, sustainability clauses in supplier contracts, effective communication, trust-building, and tailored supplier increasingly driven by legislation like the Corporate Sectoral differences also emerged, with manufacturing and guidance, which significantly improve scope 3 emissions Sustainability Reporting Directive (CSRD), are proving retail respondents prioritising large-scale engagement and management (Butt et al., 2024)17. Initiatives like the Carbon effective in improving supplier performance and ensuring standardisation, while service-oriented sectors like finance Disclosure Project (CDP demonstrate that companies compliance (EcoVadis, 2019)21. Localising supply chains also placed less emphasis on these strategies due to fewer direct actively engaging suppliers are 6.6 times more likely to significantly reduces scope 3 emissions; for instance, supplier dependencies. Respondents in the Real Estate sector set 1.5°C-aligned emissions targets (We Mean Business sourcing 30% of textile suppliers locally resulted in a 669- found success overcoming data gaps using proxy data and Coalition, 2024)18. Additionally, platform business models ton CO2 reduction over two years, with a projected 20,122- ton decrease over the next decade (BUJSE, 2023)22. 66 67 6.4. Industry-specific analysis improved collaboration with investees, which often involves Insights from literature indicates that integrating carbon pricing into investment For barriers that ranked among the top two within an time-consuming efforts such as building consensus, Available research largely supports the survey findings while decisions enhances the financial performance of green individual sector but did not appear in the top 10 cross- aligning reporting frameworks, and supporting investees in identifying gaps in some areas. Specifically, it highlights the investments by accurately assessing carbon risks, influencing sector barriers, we have conducted a sector-specific analysis. developing the tools and skills for emissions tracking and importance of transparent emissions reporting for accurate portfolio strategies, and aligning with sustainability goals, These cover the following: disclosures. decision-making. For instance, a 2024 paper notes that a ultimately leading to better risk management and potential • Financial services: Lack of emissions disclosure by lack of investee emissions disclosures complicates scope returns (Hu, 2024)25. investees, and risk return concerns on green investments A quarter of Financial Services respondents believe that 3 decarbonisation for investors, as it hinders accurate • ICT: Employee preference for air travel they have successfully addressed the barrier – mainly using assessment of carbon footprints and limits the ability to Recommendations • Real Estate: Difficulty monitoring tenant energy use, and estimations or proxy data to achieve results. Some were influence sustainable practices across investee firms (Mejia Overall, while existing literature aligns with key survey Tenant engagement challenges able to implement successful strategies in under 2 years, and Kajikawa, 2024)23. Another 2024 paper emphasises the insights, there is a clear need for more empirical data on • Transport: Limited availability of carbon-free energy and while costs varied which is likely a product of the number need for standardised reporting to enhance the quality and implementation costs, timelines, and indirect benefits to fuels of investments or the diversification of investments. Many comparability of scope 3 emissions data from investee strengthen evidence-based decision-making in financial respondents identified regulation as another avenue to break companies (IGCC, 2024)24. It suggests that consistent services. Further research is needed to assess the accuracy 6.4.1. Financial services down the barrier; identified costs could be associated with disclosure practices can mitigate data gaps and improve of estimates in emissions disclosures, to better understand Introduction updating compliance systems, lobbying or advocacy, and investors’ ability to improve climate performance. strategies to lower the cost of capital and to understand the The Financial Services industry faces significant barriers to training. Interestingly, these responses came from not only For risk-return concerns on green investments, a 2024 study impacts of carbon pricing on risk returns for investors. decarbonisation and while the survey elicited a wide variety the US and UK but the EU as well, which implies that even of responses, lack of emissions disclosure by investees and the global leader could potentially benefit from additional risk-return concerns on green investments were determined policy levers. most critical. These barriers were largely unique to the Risk-return concerns on green investments industry. Investees often fail to provide transparent and For risk-return concerns on green investments, respondents reliable greenhouse gas emissions data. This could be highlighted solutions focused on promoting long-term due to inadequate reporting frameworks, reluctance to investment horizons, reducing the cost of capital, internal disclose potentially sensitive data, or insufficient resources carbon pricing, and government subsidies. Internal carbon to measure emissions accurately. Additionally, green pricing incentivizes lower-carbon investments by assigning investments often face higher perceived risks and lower a monetary value to greenhouse gas emissions, effectively returns compared to traditional investments due to higher adding a “cost” to emissions-heavy investments. This upfront costs (“green tech is often capital intensive”), longer makes low-carbon or green investments more financially payback periods, unproven technologies, and uncertain attractive in comparison, improving their risk-return profile. market conditions. In response to these challenges, several Cost estimates for addressing this barrier range from under solutions were proposed with some respondents beginning 250K to over 10M USD, with the majority (approximately to overcome barriers with both. Both barriers pertain to 60%) identifying costs between 1M and 5M USD. Timelines challenges within Category 15: Investments. vary widely, from under 2 years to over 14 years, with most Results from survey solutions respondents estimating implementation between 3 and 10 years. Lack of emissions disclosure by investees For lack of emissions disclosures by investees, according to Of the respondents in Financial Services who identified respondents, solutions cluster around three main themes risk-return concerns on green investments as a barrier, including the use of estimates, increased regulation, and approximately 45% reported progress in addressing better collaboration with investees. Regarding costs, risk-return concerns on green investments, primarily by responses range from under 50K USD to 5M USD, with introducing internal carbon pricing mechanisms or lowering 50% indicating that costs will fall between 250K USD and the cost of capital to make green investments more 1M USD. Similarly, timelines range from under 2 years to as competitive, and ultimately improve the risk-return profile. many as 14 years for implementation, with 65% indicating In other cases, increasing the investment time horizon also implementation would take between 3 and 5 years. Firms helped successfully address the barrier. estimating longer implementation times are recommending 68 69 6.4.2. Information and/or communication technology Two Canadian respondents proposed adopting digital Employee preference for air travel collaboration platforms to maintain productivity without relying on air travel. These solutions are estimated to cost Introduction between 250K USD and 1M USD, with implementation Employee preference for air travel in the ICT sector refers timelines of under 2 years. By enabling seamless virtual to the tendency of employees to choose air travel over communication, this approach aligns with modern workplace alternative, lower-carbon modes of transportation, such trends and offers an efficient alternative to traditional travel- as trains or buses, even when viable options exist. This dependent practices. barrier is particularly relevant in the ICT sector, where global operations, frequent client engagements, and the need for Insights from literature rapid response often make air travel the default option. Available research largely supports the survey findings while Factors such as the convenience, speed, and perceived identifying gaps in some areas. Specifically, it highlights the necessity of air travel are reinforced by the sector’s fast- role of employee travel preferences in driving emissions paced and efficiency-driven culture, which frequently within the ICT sector and the potential for digital tools and prioritises time savings over sustainability considerations. policy interventions to mitigate this impact. A recent study Scope 3 category 6 – Business Travel – was the third most underscores the climate mitigation potential of teleworking, selected scope 3 category, and companies from many noting that a shift toward remote work can significantly sectors face the challenge of employees preferring air travel reduce business travel emissions by (Tao et al., 2023)26. It due to ease and cost. In the survey, ICT, professional services, emphasises that behavioural shifts and company policies and financial services particularly dominated this barrier. promoting virtual collaboration are critical to lowering the sector’s reliance on air travel. Results from survey solutions To address the challenge of employee preference for air Similarly, a 2021 study explores strategies for reducing travel, organisations have proposed solutions across three emissions from long-distance business travel (Li et al., primary themes: green travel policies, internal carbon 2021)27. The findings indicate that many corporate trips can targets, and online remote tools. These solutions aim to be effectively replaced with virtual participation, aligning reduce reliance on air travel by influencing organisational with survey responses suggesting that digital collaboration practices, encouraging behavioural change, and leveraging platforms are a viable solution. The study highlights the technological advancements. need for corporate travel policies that prioritise remote meetings over air travel whenever feasible to drive emissions One proposed solution involves the implementation of reductions. green travel policies, such as guidelines that ban air travel for “unnecessary” business trips. For example, a German A recent report from the UK Government, Greening ICT, company suggested this policy-driven approach, which further supports these findings, documenting how a digital- seeks to redefine what constitutes essential travel within first approach has significantly reduced air travel among the organisation. By establishing formal restrictions, government employees (Department for Environment, employees are encouraged to consider alternative modes 2022)28. The report notes that the adoption of e-conferences of transportation or virtual collaboration. This solution is increased from 18.3 million in 2020 to 38 million in 2022, estimated to cost under 250K USD and is expected to take demonstrating the effectiveness of digital solutions in 3–5 years to fully implement, reflecting the time required to minimising business travel. This aligns with survey responses establish and enforce new travel norms effectively. that pointed to the role of internal carbon targets and remote collaboration technologies in addressing air travel Another approach focuses on internal carbon targets, where emissions. departments are held accountable for reducing their carbon footprints. A U.S.-based organisation proposed committing While research highlights the effectiveness of green travel every department to a 10% reduction in emissions within policies, internal carbon targets, and digital collaboration the first year. This solution emphasises measurable progress tools in reducing air travel, it also suggests that and accountability while integrating sustainability into the organisational culture and ingrained travel habits present company’s operational goals. With a low estimated cost of ongoing barriers. Studies emphasise the need for sustained under 250K USD and a short implementation timeline of behavioural change efforts and clear company policies to under 2 years, this strategy offers a practical and scalable ensure long-term reductions in emissions from business way to encourage employees to limit air travel and adopt travel (Tao et al., 2023; Li et al., 2021; Department for lower-carbon alternatives. Environment, 2022). Another approach focuses on internal carbon targets, Finally, several organisations highlighted the use of online remote tools as a technological solution to replace in-person where departments are held accountable for reducing meetings and reduce the need for frequent travel. their carbon footprints. A U.S.-based organisation proposed committing every department to a 10% reduction in emissions within the first year. 70 71 6.4.3. Real estate such as tenant engagement programs, green lease provisions Introduction and increased regulation. The Real Estate sector faces highly sector-specific barriers. Roughly 30% of respondents identified progress in tackling Its unique barriers to decarbonisation seldom came across this barrier, often through tailored incentive programs. for other sectors. While a wide range of barriers were Respondents also note that starting small – one portfolio at evaluated, the two most critical were difficulty monitoring a time – can lead to successful outcomes. Other respondents tenant energy use and tenant engagement challenges, both proposed regulation. A Canadian respondent suggested of which pertain to Category 13: Downstream Leased Assets. regulatory requirements will play a critical role in fostering Potential solutions to these issues vary in complexity, cost, tenant engagement related to energy management. Another and implementation timelines but demonstrate the potential respondent in the UK pointed to a carbon tax, which would to drive meaningful progress. force improved tenant engagement. Lastly, a US respondent Results from survey solutions seeks to align firm sustainability goals with tenant goals Difficulty monitoring tenant energy use through green lease provisions. Monitoring tenant energy use presents challenges because Insights from literature energy is often shared across units and not easily separable. One proposed solution, green lease provisions, shows Many buildings lack individual meters for each tenant, which promise for addressing both barriers as they often have means they are disconnected from their consumption. In terms that require tenants and landlords to collaborate other cases, energy usage is metered at the tenant level on energy efficiency goals, which helps to address both and billed directly to the tenants meaning the property monitoring energy consumption and tenant participation owner does not have direct access to meter readings. in sustainability efforts in tandem. By aligning both parties’ In mixed-use spaces, tenants may have vastly different interests and incentivising energy-saving practices, green energy requirements (e.g., office, retail, and restaurants) leases create a framework where energy usage can be which can make standardised monitoring difficult. Solutions actively tracked and reduced, fostering better tenant cluster around three main themes: installation of submeters involvement and more efficient energy management. and smart metering technologies, green lease provisions Respondents indicated that green lease provisions have been and regulatory requirements for tenant disclosures. Most effective in overcoming difficulties related to monitoring solutions for this barrier were provided by respondents tenant energy usage. These leases facilitate the sharing located in North America, specifically the US and Canada, of energy data and create a mutual incentive to adopt with some in the UK. Respondents in the US emphasised energy-efficient technologies, thereby enhancing energy better access to data through submetering and technology. performance across the building. Recent research tends to While Canada and UK respondents stressed a more holistic corroborate these survey findings. Research from a 2020 approach to technology, legislation, and sustainable lease study found that implementing green leases in commercial agreements. office spaces could result in energy savings ranging from 11% Approximately 40% of respondents who work in the Real to 22%. The study estimates that green leases could yield Estate sector reported overcoming this barrier, largely 17.8B USD in annual energy savings across all commercial through the installation of submeters or the adoption of leased space in the U.S. (White, et al., 2020)29. smart metering systems, which were specifically used in While many of the respondents propose smart metering, North America. These solutions enable tenants to access with some seeing successful results that encourage energy direct energy use data, fostering greater transparency. savings by giving tenants the ability to track and adjust their Costs were generally proportional to timelines for these energy use, some studies only indicate marginal energy respondents. They were estimated at 250K USD to 1M savings. Specifically, a study published in the International USD for projects under 5 years and 1M USD to 5M USD for Journal of Sustainable Development and Planning evaluated project timelines between 5 and 10 years. Additionally, one the effectiveness of smart meters in parts of Europe. The respondent in the UK successfully implemented green lease research found that smart meters enabled energy savings provisions to overcome the barrier, which took between 6 of up to 4.5% among residential customers, with continuous and 10 years to implement. feedback contributing to persistent savings (M. Bauer, et Tenant engagement challenges al., 2018)30. This suggests that smart metering can lead to Tenant engagement barriers come in a variety of forms. some energy reductions. however, the effectiveness of smart Tenants’ priorities do not always align with those of the meters depends heavily on the type of feedback provided owner. For example, retail storefronts may keep doors open and consumer engagement. to attract potential customers leading to higher heating Recommendations and cooling costs. Additionally, real estate companies may The Real Estate sector should look to a three-pronged not always have effective methods for communicating with approach to overcome tenant engagement and tenant tenants, especially in residential buildings. Lastly, there may energy monitoring barriers incorporating green lease be cultural resistance, and tenants may not be inclined to provisions, smart metering and improved engagement adopt new habits, such as shutting off lights and recycling. programs to communicate initiatives and create buy-in. Addressing tenant engagement challenges involves solutions 72 73 6.4.4. Transportation and/or distribution services co-develop renewable energy infrastructure, such as charging stations for electric vehicles. This partnership was Limited availability of carbon-free energy and fuels deemed critical for overcoming infrastructure bottlenecks Introduction that hinder the adoption of alternative energy sources. These This barrier is particularly challenging given the sector’s varied approaches underscore the complexity of addressing reliance on fossil fuels for mobility and freight. Unlike this barrier, with solutions ranging from immediate mitigation other industries that can leverage operational efficiency strategies to long-term investments in technological and improvements or electrification more readily, transportation infrastructure development. requires scalable low-carbon alternatives such as hydrogen, biofuels, or advanced renewable energy sources. However, Insights from literature these alternatives face hurdles including high production Existing research aligns with survey findings, highlighting costs, limited infrastructure, and technological immaturity. the significant challenges posed by limited carbon-free fuel For example, hydrogen requires substantial investment in availability. A 2022 study by the International Renewable both production facilities and distribution networks, while Energy Agency found that while hydrogen could play biofuels often compete with food production and have a transformative role in the transportation sector, its supply chain complexities. These challenges make the production costs remain prohibitive, requiring significant transition to carbon-free energy both capital-intensive and public and private investment to scale (IRENA, 2022)31. logistically demanding. Similarly, research on biofuels suggests that while they can serve as a lower-emission alternative to fossil fuels, Respondents identified two major themes in potential their long-term effectiveness in decarbonisation varies solutions: investing in new technologies and collaborating widely depending on feedstock and production methods. with governments to create policy incentives. However, Lifecycle emissions and production costs differ significantly less than 10% of respondents in the transportation sector across biofuel types, and although they are generally more reported successfully addressing this barrier, indicating the expensive than fossil fuels, policy incentives are key to difficulty of overcoming it within current market and policy supporting their deployment. conditions. Recommendations Results from survey solutions To overcome the limited availability of carbon-free Survey respondents highlighted three main approaches energy and fuels, the transportation sector must adopt a to addressing the limited availability of carbon-free multi-faceted approach. Scaling up R&D investments in energy and fuels. One respondent from the United States technologies like hydrogen and advanced biofuels is critical reported investing in the development of alternative energy to creating scalable, cost-effective solutions. Public-private technologies, such as hydrogen fuel cells. While this strategy partnerships can accelerate infrastructure development, such shows promise, the timeline for full implementation was as charging networks and renewable energy distribution. estimated to be 10-15 years, reflecting the long-term nature Policymakers should expand incentives, including tax breaks of such initiatives. In contrast, a respondent from the EU and carbon credit programs, to reduce financial barriers and noted progress using government-mandated carbon credits, encourage adoption. Stronger regulatory frameworks, such allowing the company to offset the absence of carbon-free as renewable fuel standards, will also be essential to support fuels in the short term while continuing to explore low- the transition. By combining innovation, collaboration, and carbon options. Another respondent from the UK policy support, the sector can address this systemic barrier highlighted collaboration with government bodies to and advance decarbonisation efforts. 74 75 07 7.1. Timelines Timeline Definition Short-term Up to 2 years Annexes Medium-term 3 – 10 years Long-term 11+ years 7.2. Barrier’s explanation however, survey respondents were not provided with these The following table provides general definitions for each definitions while answering the survey, and their responses identified barrier to decarbonisation to aid understanding; were based on their interpretations of these terms. Barrier Explanation The price of cleaner technologies and solutions is often higher than conventional High cost of low-carbon alternatives options, making adoption costly. Limited availability of technically There may not be sufficient low-carbon solutions that meet the specific technical suitable, low-carbon options requirements of industries. Difficulty shifting direct supplier Companies face challenges in switching to more sustainable suppliers due to relationships contracts, costs, or supply reliability concerns. Lack of control or influence over Organisations struggle to manage emissions from suppliers further down the indirect suppliers supply chain (Tier 2, Tier 3, etc.). Supplier granular emissions data Difficulty in obtaining precise emissions data from suppliers hinders accurate unavailability carbon accounting. Inconsistent emissions accounting Differences in how suppliers measure and report emissions create inconsistencies methods across suppliers in data collection. Complex global supply chains The global and interconnected nature of supply chains makes tracking emissions complicate tracking across different regions and suppliers difficult. Limited supplier decarbonisation Suppliers lack the knowledge, resources, or infrastructure to reduce their capabilities emissions. Capital-intensive assets, such as industrial equipment, have long lifespans, Long asset life cycles delaying the transition to cleaner alternatives. Although sustainable assets may have long-term benefits, their initial investment High upfront costs for greener assets costs can be prohibitive. Lack of standardised asset emissions Inconsistent life-cycle assessments (LCAs) across industries hinder comparability data, e.g., LCAs and informed decision-making. 76 77 Barrier Explanation Barrier Explanation Lack of financing options for low- Limited availability of loans, incentives, or investment for decarbonisation projects Organisations may not promote work-from-home policies, which could reduce Lack of remote working incentives carbon capital goods slows adoption. commuting emissions. Some companies remain reliant on suppliers that predominantly use fossil fuels, Difficulty tracking and calculating Dependency on fossil fuel suppliers Gathering accurate data on employee travel habits is challenging. making it hard to decarbonise. commuting emissions High costs of carbon-free energy and Limited public transport Renewable energy and alternative fuels are often more expensive than fossil fuels. Poor transit and non-motorized transport options make low-carbon commuting fuels infrastructure, including cycling and difficult. walking Limited availability of carbon-free Access to renewable electricity, hydrogen, or biofuels can be constrained by energy and fuels geography and infrastructure. Some employees or employers resist flexible working arrangements that could cut Remote work resistance emissions. Lack of granular data on energy Companies struggle to track and verify the energy mix used by suppliers or sources facilities. Staff may favour personal or company vehicles with high emissions instead of Employee vehicle preferences greener alternatives. Lack of visibility into transport Emissions from freight and logistics may not be fully tracked or reported, leading emissions to underestimation. Inadequate charging infrastructure at workplaces discourages electric vehicle Lack of EV charging adoption. High dependency on air and These transport modes have fewer viable low-carbon alternatives compared to sea freight that has limited Difficulty monitoring granular tenant Landlords and businesses struggle to track energy consumption at a detailed road or rail. decarbonisation options energy use level. Cost of switching to electric/ Transitioning company fleets to EVs or hydrogen vehicles requires substantial Misaligned incentives for Incentive structures may not prioritise or reward emissions reductions. alternative fuel fleets investment. decarbonisation Lack of infrastructure for refueling Tenant energy use preferences Tenants may choose energy sources based on cost rather than sustainability. and recharging stations for alternative The availability of charging stations and alternative fuel depots remains limited. fuel vehicles Building upgrade/efficiency cost Retrofitting buildings with energy-efficient technologies is expensive. limitations Limited availability of sustainable Proper recycling or disposal options for sustainable products are often insufficient. disposal methods Lack of visibility into detailed Companies struggle to track emissions at each stage of product processing. processing emissions data Cost of implementing recycling/ circular technologies and methods Developing internal systems for circular economy practices can be expensive. Limited influence over downstream in-house Businesses have little control over emissions from their product processors. processors Demand for recycled materials may be weak, limiting incentives for waste Limited market for recycled materials Complex supply chain coordination Managing emissions across multiple suppliers and regions is difficult. reduction. Customers’ expectations for packaging, such as plastic durability, may conflict High capital costs for processors Upgrading processing facilities to low-carbon technologies is costly. Consumer packaging preferences with sustainability goals. Limited availability of low-carbon Inadequate staff training on waste Employees may lack knowledge on best practices for waste reduction and Certain industries lack commercially viable clean alternatives. technologies for industrial processes management recycling. Consumer resistance to green Customers may not be willing to pay a premium or change behaviours for Decentralised and complex supply networks make emission tracking and Supply chain fragmentation alternatives sustainable products. coordination difficult. Lack of visibility into use of sold Tracking the emissions from product use phase is challenging. Employee preference for air travel Staff often favor flights for business travel, which has a high-carbon footprint. products emissions Companies and employees may lack access to sustainable commuting or logistics Regulatory restrictions on product Limited low-carbon transport options Compliance requirements may limit sustainable innovation in product design. solutions. design Unpredictable customer usage Variability in how consumers use products affects emissions estimates. patterns/preferences 78 79 Barrier Explanation Uncertainty in product life cycle Difficulty in assessing full emissions impact across a product's life. emissions data High disposal costs for greener Sustainable waste management can be expensive. methods Tenant engagement challenges Encouraging tenants to adopt sustainable practices can be difficult. Split incentives between owners and Building owners may not invest in efficiency upgrades if tenants pay utility bills. lessees Standardised agreements to encourage sustainability in leased properties are Lack of green lease standards lacking. Complexity in emissions data Gathering and verifying emissions data is resource intensive. collection Franchisee reluctance to invest Franchise businesses may resist investing in decarbonisation due to cost concerns. Inconsistent sustainability standards Differing frameworks across industries complicate compliance. Limited control over franchise Parent companies may struggle to enforce sustainability measures across operations franchises. Fragmented carbon accounting for Investors and companies face challenges in tracking emissions across diverse portfolios assets. Lack of emissions disclosure by Investors may not receive full emissions data from the companies they fund. investees Risk-return concerns on green Investors may perceive sustainable projects as financially risky. investments Variability in Environmental, Social, and Governance (ESG) reporting makes Inconsistent ESG reporting standards comparisons difficult. 80 81 References 1 Catalyzing Value Chain Decarbonisation: Corporate Survey Results. Science Based Targets, Feb. 2023. https:// 17 Butt, Atif Saleem, et al. “Role of Supplier Engagement to Reduce Scope 3 Emissions in Circular Supply Chains.” Business sciencebasedtargets.org/resources/files/SBTi-The-Scope-3-challenge-survey-results.pdf Strategy and the Environment, 17 Oct. 2024, https://doi.org/10.1002/bse.3994. 2 Climate Change 2023: Synthesis Report. Contribution of Working Groups I, II and III to the Sixth Assessment Report of the 18 Clandillon, Susan. “The Data Showing Supplier Engagement Is Driving Climate Action.” We Mean Business Coalition, 12 Dec. Intergovernmental Panel on Climate Change [Core Writing Team, H. Lee and J. Romero (eds.)] https://www.ipcc.ch/report/ 2024, www.wemeanbusinesscoalition.org/blog/the-data-showing-supplier-engagement-is-driving-climate-action/. ar6/syr/downloads/report/IPCC_AR6_SYR_LongerReport.pdf 19 Jorzik, Philip, et al. “AI-Driven Business Model Innovation: A Systematic Review and Research Agenda.” Journal of Business 3 CDP Technical Note: Relevance of Scope 3 Categories by Sector CDP Climate Change Questionnaire. (n.d.). https://cdn.cdp. Research, vol. 182, 1 Sept. 2024, pp. 114764–114764, https://doi.org/10.1016/j.jbusres.2024.114764. net/cdp-production/cms/guidance_docs/pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-by-sector. pdf?1649687608 20 Bold Measures to Close the Climate Action Gap: A Call for Systemic Change by Governments and Corporations. World Economic Forum, Jan. 2024. https://www3.weforum.org/docs/WEF_Bold_Measures_to_Close_the_Climate_Action_ 4 Hettler, Maximilian, and Lorenz Graf-Vlachy. “Corporate Scope 3 Carbon Emission Reporting as an Enabler of Supply Chain Gap_2024.pdf Decarbonisation: A Systematic Review and Comprehensive Research Agenda.” Business Strategy and the Environment, vol. 33, no. 2, 23 June 2023, https://doi.org/10.1002/bse.3486. 21 Commercial, in. “Sustainability Clauses in Commercial Contracts: The Key to Corporate Responsibility.” Ecovadis.com, Sustainability Clauses in Commercial Contracts: The Key to Corporate Responsibility, 2019, resources.ecovadis.com/ 5 Leticia Canal Vieira, et al. “Impact Pathways: The Hidden Challenges of Scope 3 Emissions Measurement and Management.” whitepapers/sustainability-clauses-commercial-contracts-key-corporate-responsibility?utm_. International Journal of Operations & Production Management, 24 June 2024, https://doi.org/10.1108/ijopm-01-2024-0049. 22 Sarioglu, D Ozgun. “The Effect of Using Nearshoring Strategy on CO2 Emissions for Sustainability in Global Textile 6 Liu, Yong. “Barriers to the Adoption of Low Carbon Production: A Multiple-Case Study of Chinese Industrial Firms.” Energy Supply Logistics.” Istanbul Beykent University Journal of Science and Engineering, 4 Apr. 2023, https:// Policy, vol. 67, Apr. 2014, pp. 412–421, https://doi.org/10.1016/j.enpol.2013.12.022. doi.org/10.20854/bujse.1272033. 7 Zhang, A., Alvi, M. F., Gong, Y., & Wang, J. X. (2022). Overcoming barriers to supply chain decarbonisation: Case studies of 23 Mejia, Cristian, and Yuya Kajikawa. “Estimating Scope 3 Greenhouse Gas Emissions through the Shareholder Network of first movers. Resources, Conservation and Recycling, 186(0), 106536. https://doi.org/10.1016/j.resconrec.2022.106536 Publicly Traded Firms.” Sustainability Science, 22 Feb. 2024, https://doi.org/10.1007/s11625-023-01460-8. 8 Andersen, Andrea, et al. MEASURING SCOPE 3 EMISSIONS in HEALTHCARE: Challenges and Strategies 24 Considerations for Portfolio Reporting and Target-Setting Uses and Limitations of Investee Scope 3 Disclosures for for Sustainable Practices. 2024. https://uis.brage.unit.no/uis-xmlui/bitstream/handle/11250/3150776/ Investors. Investor Group on Climate Change, Mar. 2024. https://igcc.org.au/wp-content/uploads/2024/03/2024-IGCC- no.uis%3ainspera%3a243616766%3a244065574.pdf?sequence=1&isAllowed=y Scope-3-Emissions-Paper.pdf?utm_source=chatgpt.com 9 Zhu, Qinghua, and Yong Geng. “Drivers and Barriers of Extended Supply Chain Practices for Energy Saving and Emission 25 Hu, Zifei. “Carbon Risk Assessment in Investing Decision-Making: The Role of Carbon Pricing Policies.” Advances in Reduction among Chinese Manufacturers.” Journal of Cleaner Production, vol. 40, no. 1, Feb. 2013, pp. 6–12, https://doi. Economics, Management and Political Sciences, vol. 67, no. 1, 5 Jan. 2024, pp. 94–101, https://doi.org/10.54254/2754- org/10.1016/j.jclepro.2010.09.017. 1169/67/20241270. 10 Olatunji, Obafemi O., et al. “Competitive Advantage of Carbon Efficient Supply Chain in Manufacturing Industry.” Journal of 26 Tao, Y., Yang, L., Jaffe, S., Amini, F., Bergen, P., Hecht, B., & You, F. (2023). Climate mitigation potentials of teleworking are Cleaner Production, vol. 238, Nov. 2019, p. 117937, https://doi.org/10.1016/j.jclepro.2019.117937. sensitive to changes in behaviour, technology, and energy sources. Proceedings of the National Academy of Sciences, 120(39), e2304099120. https://doi.org/10.1073/pnas.2304099120 11 Qian, Yibo, et al. “Greenhouse Gas Control in Steel Manufacturing: Inventory, Assurance, and Strategic Reduction Review.” Carbon Research, vol. 3, no. 1, 25 Mar. 2024, https://doi.org/10.1007/s44246-024-00118-z. 27 Li, R., Kockelman, K. M., & Lee, J. (2021). Reducing greenhouse gas emissions from long-distance business travel. Transportation Research Record, 2675(10), 1–10. https://doi.org/10.1177/03611981211036682 12 Science Based Targets initiative (SBTi). (2024). Aligning corporate value chains to global climate goals. SBTi Research: Scope 3 Discussion Paper https://sciencebasedtargets.org/resources/files/Aligning-corporate-value-chains-to-global- 28 Department of Environment, UK Government. (2022). Greening Government ICT - Annual Report 2021 to 2022. Retrieved climate-goals-SBTi-Research-Scope-3-Discussion-Paper.pdf from https://www.gov.uk/government/publications/greening-government-ict-annual-report-2021-to-2022 13 Strengthening the Chain. CDP. HSBC, 2024. https://cdn.cdp.net/cdpproduction/cms/reports/documents/000/007/934/ 29 White, Andrew. New Leasing Languages -How Green Leasing Programs Can Help Overcome the Split Incentive. RE original/CDP_HSBC_Report_2024.pdf?utm_ Tech Advisors, US Department of Energy, 2020. https://imt.org/wp-content/uploads/2020/08/ACEEE-Summer- Study-2020-Final-Paper.pdf 14 International Energy Agency (IEA). (2023). Net Zero Roadmap: A Global Pathway to Keep the 1.5°C Goal in Reach – 2023 Update. IEA. Retrieved from https://www.iea.org/reports/net-zero-roadmap-2023 30 Bauer, M., et al. “Greener Households? The Effectiveness of Smart Meters in Reducing Energy Consumption Levels in the Dach Region.” International Journal of Sustainable Development and Planning, vol. 13, no. 02, 1 Feb. 2018, pp. 258–267, 15 MissionGreenFuels. (2024). Roadmap for Green Fuels in Transport and Industry. https://www. missiongreenfuels.dk https://doi.org/10.2495/sdp-v13-n2-258-267. International Energy Agency (IEA). (2024). World Energy Outlook 2024. IEA. Retrieved from https://www.iea.org/reports/ 31 “Global Hydrogen Trade to Meet the 1.5°c Climate Goal: Part II.” Irena.org, International Renewable Energy Agency, 27 Apr. 16 world-energy-outlook-2024 2022, www.irena.org/publications/2022/Apr/Global-hydrogen-trade-Part-II? Barriers to Scope 3 Decarbonisation 82, highlights a range of challenges such as the limited availability of technically suitable low-carbon options (Ramboll, 2025). This is supported by broader wide-ranging analysis.

3. Research by CDP and Bain found that 47% of companies are ‘well behind’ on delivering their scope 3 targets (Bain & Company & CDPThe Visionary CEO’s Guide to Sustainability 2024 How leaders can meet the moment with pragmatism Acknowledgments For their contributions to this report, the leadership team of Bain & Company’s Global Sustainability & Responsibility practice would like to thank the following people: Yelena Ageyeva-Furman, Derek Baraldi, Jeff Bauter Engel, Joel Benzimra, Hannah Bingley, Morgan Booher, Bob Brinckman, Anne-Elise Brouillard, Jan Budde, Nanette Byrnes, Julian Critchlow, Prashant Das, Jenny Davis-Peccoud, David Diamond, Juan Diego Gavidia, Amalie Dualeh, Katherine Duceman, Gail Edmondson, Robert Ferguson, Giulia Gallo, Nidhi Garg, Sheena Garg, Mael Gourlaouen, Christian Graf, Ellyn Gray, Chris Griffith, Johnny Hanson, Molly Hart, Annabell Marlen Hillenbrand, Lutchia Jakmakian, Matthieu Jonard, Paul Judge, Andrew Kahn, Juan Kaiser, Niels Koggersbol, Sune Kok, Emily Leinbach, Chloé Marchal, Lorenza Montedoro, Martha Moreau, Rupert Ottinger, Tracy Parker, Tanja Pick, Andrew Pontti, Abhijit Prabhu, Louis Roger, Aya Sakaguchi, Manya Sodhani, Tania Strauss, Holly Sullivan, Tiiram Sunderland, Himadri Suri, Joe Tan, Tarah Walker, Katie Ware, Melanie Zook, and the Editorial team. This work is based on secondary market research, analysis of financial information available or provided to Bain & Company, and a range of interviews with industry participants. Bain & Company has not independently verified any such information provided or available to Bain and makes no representation or warranty, express or implied, that such information is accurate or complete. Projected market and financial information, analyses, and conclusions contained herein are based on the information described above and on Bain & Company’s judgment, and should not be construed as definitive forecasts or guarantees of future performance or results. The information and analysis herein does not constitute advice of any kind, is not intended to be used for investment purposes, and neither Bain & Company nor any of its subsidiaries or their respective officers, directors, shareholders, employees, or agents accept any responsibility or liability with respect to the use of or reliance on any information or analysis contained in this document. This work is copyright Bain & Company and may not be published, transmitted, broadcast, copied, reproduced, or reprinted in whole or in part without the explicit written permission of Bain & Company. Copyright © 2024 Bain & Company, Inc. All rights reserved. The Visionary CEO’s Guide to Sustainability 2024 Contents Meeting the Moment with Pragmatism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2024 Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 From Sustainability Commitments to Impact: Four Pragmatic Questions for Visionary CEOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The Sustainability Puzzle: What Do Consumers Really Want? . . . . . . . . . . . . . . . . . . 13 How to Master the Art of Selling Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Getting It Done . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 How CEOs Can Turn Decarbonization Setbacks into Progress . . . . . . . . . . . . . . . . 30 AI and Sustainability: The Power of Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Olam Food Ingredients: Pioneering a New Financial Model for Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Transitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Winning in the Energy Transition, One Step at a Time . . . . . . . . . . . . . . . . . . . . . . . .48 All Together Now: Partnerships Are Key to Circularity . . . . . . . . . . . . . . . . . . . . . . . .54 Faster by Design: New Models for Financing the Food Transition . . . . . . . . . . . . . 60 1 The Visionary CEO’s Guide to Sustainability 2024 Meeting the Moment with Pragmatism For sustainability, 2023 was the year boundless excitement gave way to pragmatic realism. As the challenge of meeting bold commitments became clear, many companies started to rethink what is achievable and on what timeline. Building a sustainable business remains a strategic imperative. Customers, consumers, and regulators are demanding it. Risk and competition will compel it. Transitions in energy, food, and other sectors are well underway. Sooner than expected, a mix of new technologies, consumer and customer behavior, and smart policy will create valuable opportunities for the most forward-thinking companies across industries. In this report, Bain experts with diverse perspectives and industry experience offer new research, market intelligence, and insights to help navigate current trends and transitions while planning for the coming year and beyond. Jean-Charles van den Branden Leader of Bain’s Global Sustainability practice 2 The Visionary CEO’s Guide to Sustainability 2024 Customers are pressuring businesses to uphold sustainability commitments US consumers are willing to pay a premium for sustainability 60% 36% of consumers’ climate change concerns have of B2B customers would change suppliers today increased over the past two years if their sustainability needs aren’t met Source: Bain & Company Sustainability technology development has outpaced forecasts Global solar electrical capacity (in gigawatts) 10,000 Potential development 2023 forecast 5,000 2023 deployment was 3x more than the 2015 forecast 2015 forecast 0 2010 2015 2020 2025 2030 2035 2040 Source: Bain & Company 3 2024 Trends From Sustainability Commitments to Impact: Four Pragmatic Questions for Visionary CEOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 The Sustainability Puzzle: What Do Consumers Really Want? . . . . . . . . . . . . . . . . . . 13 How to Master the Art of Selling Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2024 Trends From Sustainability Commitments to Impact: Four Pragmatic Questions for Visionary CEOs Amid competing priorities, CEOs and consumers still say sustainability matters . By acting now, companies can set the stage for profitable growth . By Jean-Charles van den Branden, François Faelli, John Blasberg, and Karan Singh At a Glance Inflation, AI, and geopolitics are in the spotlight, but Bain research shows that CEOs and consumers still value sustainability . Sooner than expected, a mix of new technologies, consumer behavior, and smart policy will create opportunities . Asking and answering four questions can help CEOs set the right ambition and identify a practical, effective path forward . If 2021 and 2022 were years of near boundless excitement, bold commitments, and mobilization, the past 12 months brought a hefty dose of reality about sustainability as CEOs juggle an increasing number of sweeping, systemic challenges. Global surveys reveal a sharp decline in CEOs’ prioritization of sustainability relative to other topics. Disruptive technology, growth, inflation, and geopolitical uncertainty have taken the top spots on their agendas (see Figure 1). 6 The Visionary CEO’s Guide to Sustainability 2024 Figure 1: CEOs’ prioritization of sustainability has declined sharply Importance of sustainability according to CEOs, indexed to 2018 160 Inflation 140 Artificial intelligence Growth concerns 120 Geopolitical uncertainty 100 2018 19 20 21 22 23 Note: Based on separate CEO surveys Sources: IBM; Gartner; PwC; KPMG; Bain analysis Even as these other concerns rise, Bain & Company research shows that sustainability remains important to executives and consumers. Of nearly 19,000 consumers surveyed, roughly 60% are more concerned about climate change than they were two years ago, often due to personal experience of extreme weather. Among B2B buyers, 36% say they would leave a supplier that didn’t meet their sustainability expectations. They are right to care. A temperature increase of 2 degrees Celsius would have devastating consequences not only for mankind, nature, and biodiversity, but for the economy as well. The International Monetary Fund estimates that the cost of capital could rise by more than 1%. That alone could cut $6 trillion from the value of the S&P 500. Sustainability still matters, but companies are struggling to meet their existing commitments. Of the companies disclosing their progress via CDP, 30% are well behind on their Scope 1 and 2 emissions reduction goals, and almost half are behind on Scope 3. Many companies are reassessing, adjusting, and, in some cases, retracting their climate commitments. Some are simply missing the mark. In March 2024, 29% of companies in the Science Based Targets initiative’s Business Ambition for 1.5C campaign were removed for noncompliance. This is unfolding against a backdrop of heightened regulatory demands, as policymakers increasingly require public companies to disclose material mitigation activities and sustainability targets. 7 The Visionary CEO’s Guide to Sustainability 2024 Noncompliance risks penalties and reputational harm—both to companies and to their leaders individually—pressuring executives to either double down or step back. A familiar cycle The transition to a more sustainable world is following a familiar cycle (see Figure 2). These cycles of transformation typically start with a trigger—a technological breakthrough, a sudden societal change, or a regulatory impulse. A “hype” phase of excitement, hope, and frenzied activity follows this trigger, with behavior often accelerated by generous policy incentives. When sky-high expectations are not quickly met, or governments pull back prematurely, sentiment falls into the “trough of disillusionment,” a realization that the transformation will not be as quick or as easy as expected. At this point, it’s common for stakeholders to rethink their approach. Many sustainability efforts are currently in this trough. The shape and pace of this curve are influenced by the interplay of three forces discussed in last year’s CEO guide to sustainability: technology, consumer/customer behavior, and policy. As technology Figure 2: An illustrative view of common transformation cycles Enthusiasm Reality Expectations Time 1 2 3 4 5 Innovation trigger Peak of inflated Trough of Slope of expectation disillusionment enlightenment Plateau of productivity Sources: Gartner; Bain analysis 8 The Visionary CEO’s Guide to Sustainability 2024 advances, companies improve efficiency and lower costs. As costs decline, adoption by customers and consumers picks up, growth accelerates, and a tipping point is reached. Before that critical threshold, government policies such as subsidies and regulation can provide a bridge of support as companies build knowledge and experience. The history of the electric vehicle industry in Germany and Norway illustrates how policy can shape this trajectory. As EV manufacturers have moved along the technology experience curve over the last six years, battery costs have dropped by one-third and are projected to fall another 25% by 2030. Through its policies, Norway has steadily supported EVs and consumer adoption. As a result, sales there have continued to grow. In Germany, by contrast, direct subsidies for EV purchases were significantly reduced at the beginning of 2023 and cut altogether at the end of the year. EV sales promptly dropped and remain below 2023 levels. Germany’s government cut support too early, before the cost of technology could reach the point at which the market would be self-sustaining. This dynamic takes time to play out. CEOs should take a long-term view and not overreact to short-term trends. The trajectories of early sustainable technologies like solar are instructive (see Figure 3). Pushed by technological breakthroughs and government subsidies, Europe’s solar industry grew Figure 3: Solar energy has followed a common transformation cycle Solar energy capacity addition per year in Europe (in gigawatts) 80 Feed-in tariffs and Installations exceed strong company forecasts; governments ambitions fuel cut costly subsidies 60 growth Ukraine war speeds up renewable growth 40 as buyers look to cut A tipping point is reached reliance on Russia as tech development drives down costs 20 0 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025F 2027F 1 2 3 4 5 Innovation trigger Peak of inflated Trough of Slope of expectation disillusionment enlightenment Plateau of productivity Sources: IRENA (2023); IEA Main Case scenario 2024–28 9 The Visionary CEO’s Guide to Sustainability 2024 dramatically from 2000 to 2011. Then, as governments cut subsidies faster than the cost benefits from technological breakthroughs could be realized, the market cooled significantly. But by 2017, solar had reached its tipping point. Panel producers had enough experience and costs had declined to the point where mainstream consumers and energy companies were buying. Companies and CEOs that stayed the course put themselves in position to benefit from the now-clear business case for solar. Today, installations are booming across Europe and much of the world. As cost and adoption continue their dynamic interaction, many sustainable technologies are likely to reach their tipping point more quickly than expected. Forecasts for the development of solar and wind capacity, for example, have consistently underestimated market growth. Actual 2023 solar capacity was more than three times 2015 forecasts (see Figure 4). If this underforecasting continues, deployment may be even quicker than currently expected. As business leaders navigate these challenges, visionary pragmatism is needed more than ever. Based on conversations and work with hundreds of companies and executives, we have identified four key questions that will help leaders in any industry or location set their ambition and begin to chart the path ahead. Figure 4: Forecasts consistently underestimate the speed of renewables’ development Global solar electrical capacity (in gigawatts) 10,000 2023 forecast 8,000 Potential development 6,000 4,000 2020 forecast Actual 2023 deployment about 3 times greater than 2015 forecast 2,000 2015 forecast 2010 forecast 0 2010 2015 2020 2025 2030 2035 2040 Notes: IEA forecasts for 2010–18 based on the New Policies scenario and for 2019–23 based on the Stated Policies scenario; potential development forecast based on previous years’ underestimation Sources: IEA World Energy Outlook 2006–23; Bain analysis 10 The Visionary CEO’s Guide to Sustainability 2024 1. How will global sustainability transitions shape the future business landscape? Dramatic shifts are underway in our energy supply, our global food system, the financing of sustainability, and materials supply and consumption. These transitions bring risks and opportunities that will play out over horizons far beyond the typical two- to three-year planning period. There will be new profit pools, supply chain disruptions, and scarcity. Political and technological developments, such as AI’s huge energy demand, will create disruption. To prepare, companies must first envision the future and develop scenarios and future-back strategies that ensure they are ready to make the right choices. This may include quickly securing a reliable supply of raw material, making foundational investments in sustainability, or evaluating the vulnerabilities of a fixed asset base. One example: In response to increasing regulation and decarbonization targets for high-carbon- emitting steel production, steel companies are building green steel production in phases. They are gradually replacing existing blast furnaces with hydrogen-based direct reduction and green-electricity- powered arc furnaces, thereby developing technological and sustainable selling expertise while protecting their license to operate as regulation accelerates. 2. What are our critical priorities, and how fast must we move? Moving from ambitious commitments to practical delivery is hard. Focus on truly material topics— those that are critical for the business and where it is possible to make meaningful change—is essential. Some companies are rethinking and restating sustainability targets, and more are asking tough questions. It will be important to stay focused on sustainability and prepare to accelerate in order to gain competitive advantage as scenarios change. Moving from ambitious commitments to practical delivery is hard. Focus on truly material topics—those that are critical for the business and where it is possible to make meaningful change—is essential. One example: a hypothetical machinery company. One of the first to set ambitious environmental, social, and governance targets, the company realizes it is spread too thin and that some of its commitments are not directly tied to competitive advantage or business value. Others have had limited impact. The company refocuses on a smaller number of meaningful changes, setting ambitious 11 The Visionary CEO’s Guide to Sustainability 2024 Scope 1 and 2 and upstream Scope 3 decarbonization goals. The company also zeroes in on one additional area that matters most to it and its customers: circularity. 3. How can we build a business case for sustainability? High costs and uncertain return on investment are the two impediments to developing sustainability programs most frequently mentioned by executives. To build a business case for sustainability, focus on multiple aspects: cost reduction from more efficient raw materials and energy consumption, commercial opportunities such as new customers, price premiums, and avoiding downside risks. Implementing changes with positive ROI first, companies can gain the momentum needed to tackle more complex ones. One example: In the chemical industry, companies will need to make substantial capital investments in decarbonization. To offset these costs, one company is exploring commercial opportunities in sustainable plastics such as low-carbon-intensity polyethylene. It has identified several suitable applications and end markets that could help it gain share, thereby building a clear business case for the investment. 4. What actions should we take with external stakeholders? Sustainability issues are complex and systemic. Companies can’t go it alone. They must work up and down their supply chain to develop end-to-end solutions. Industry coalitions can help signal shared intent and foster precompetitive collaboration. Executives must work proactively to shape the policy landscape and build relationships in the public and nonprofit sectors. One example: a textile company that faces shortages in recycled inputs such as rPET due to inefficient and inconsistent collection methods and competing demand from other industries. It looks to develop partnerships across the value chain with fiber and PET recyclers, collaborate precompetitively with other textile companies, and create partnerships with consumer products companies facing similar shortages. Such broad coalitions might help influence country-level recycling regulations and boost supply. Helping executives answer these four questions is the aim of this CEO guide. We offer new research on B2B customers and end consumers—what they want, how willing they are to pay for sustainability, and how to influence their behavior. We dive deeply into challenging transitions, including energy, AI, and food systems. And we speak to a CFO who is pioneering a new financial model for sustainability. We hope you find both inspiration and practical ideas to take to your teams and organizations. 12 2024 Trends The Sustainability Puzzle: What Do Consumers Really Want? How businesses can unlock the challenge of helping consumers live sustainably . By John Blasberg, Jean-Charles van den Branden, Harry Morrison, David Zehner, and Leah Johns At a Glance In our global study, roughly 60% of consumers say their concerns about climate change have increased in the past two years . The best companies will develop solutions that help consumers live more sustainably, not just buy more sustainably . Companies can’t market “sustainability” as a single concept or address consumers as a monolithic group, but value can be created by targeting specific customer segments with category- relevant claims . Packaging and recyclability have surfaced as key concerns for consumers . The last year has given consumers much to worry about. From wars to heightened political tensions to lingering inflation, new reasons for unease have gained mindshare around the world. But these worries have barely dislodged a major issue in consumers’ consciousness: Concerns about sustainability remain high and are competing with cost of living, political, and household finance worries. This 13 The Visionary CEO’s Guide to Sustainability 2024 comes at a time when many global CEOs are turning their attention to pressing matters such as disruptive AI technology, the need for growth, and geopolitical uncertainty. Even as CEOs deal with competing priorities, the message from people around the world in our second annual global study is clear. Among the nearly 19,000 consumers in 10 countries who participated in our recent survey, roughly 60% say that their concerns about climate change have increased over the past two years, often sparked by personal experience of extreme weather (see Figure 1)—the same as when we asked the question last year. In a broad-ranging study that included a survey, in-depth interviews, and shopping trips with global consumers, many told us that they want to live sustainably and that they believe their personal actions make a difference (see Figure 2). However, consumers have trouble figuring out how to live sustainably and look to brands and retailers, in addition to government, to help them. This opens up opportunities for companies that can support consumers’ continuing quest for a sustainable lifestyle. But it also surfaces some fundamental issues that raise the stakes for businesses in the current economic climate. For example, there is a consistent view in developed markets that living sustainably is inherently more expensive (see Figure 3). That isn’t always true. Some consumers, while trying to save money, are adopting habits that also happen to be more sustainable, such as driving less, buying secondhand clothing, and, in some cases, actively cutting down on meat and dairy (see Figure 4). But the common Figure 1: When asked, most consumers say their concerns about climate change have increased in the past two years Q: How have your climate change concerns changed over the past two years? Percentage of respondents 100% 8% 7 8 11 12 8 6 10 8 4 4 17 24 19 31% 34 28 42 40 33 39 37 78 70 73 61% 59 62 62 51 52 50 51 0 Overall US UK Netherlands Germany France Italy Japan Brazil China Indonesia My concerns have intensified/increased My concerns have not changed My concerns have subsided/decreased Notes: Excludes respondents who said they do not believe the climate is changing; columns may not total 100% due to rounding Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) 14 The Visionary CEO’s Guide to Sustainability 2024 Figure 2: A majority of consumers believe that a sustainable lifestyle is important because their actions have an impact Percentage of respondents for whom practicing a sustainable lifestyle is important 90% 90 90 84 80 77 76% 75 73 70 70 67 65 64 60 Overall US UK Netherlands Germany France Italy Japan Brazil China Indonesia Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) Figure 3: In most developed countries, consumers say it would be more expensive to live a sustainable lifestyle Q: Which of the following statements do you most agree with? Percentage of respondents 100% 25 49% 47 41 36 59 63 59 59 51 52 22 25 24 24% 27 26 22 21 21 26 24 52 36 40 27% 19 17 20 17 26 23 22 0 Overall US UK Netherlands Germany France Italy Japan Brazil China Indonesia Developed markets Fast-growing markets To live more sustainably … It would cost me less money/be cheaper for me It wouldn’t be any more or less expensive It would cost me more money/be more expensive for me Note: Columns may not total 100% due to rounding Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) 15 The Visionary CEO’s Guide to Sustainability 2024 Figure 4: When adopting lifestyle habits that support sustainability, consumers cite motivations beyond environmental concerns Q: Which of the following best describes your main reason for adopting this lifestyle habit? Percentage of respondents by main reason for activity Habits with the 10 highest rates of adoption 0 100% Limiting home energy use 34% 47 16 2 Recycling 67% 11 19 2 Limiting purchases of disposable products 68% 14 15 3 Carrying your own water bottle/cutlery/straw 46% 16 28 10 Walking/cycling/using public transport instead of driving 25% 24 24 26 Composting food waste 66% 7 23 3 Minimizing airplane travel 43% 28 23 3 Purchasing products secondhand 27% 48 22 2 Actively cutting down on meat/dairy 29% 15 26 28 Purchasing clothing secondhand 26% 49 23 1 Environmental concern Affordability/value for money Personal preference Health Notes: Only includes respondents who reported having sustainable lifestyle habits; “other” responses not shown Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) perception that a sustainable lifestyle is expensive poses a challenge for brands, especially amid intensified cost-of-living worries. Conversely, consumers in some fast-growing markets believe that living more sustainably would actually cost them less. The frugal behavior they associate with sustainability could lead to an overall reduction in demand and consumption, complicating companies’ growth plans. The need to deaverage consumers Just as these beliefs vary by geography, approaches to sustainable lifestyles diverge based on factors ranging from cultural norms to political leanings. Our research also helped us identify how people value different sustainability attributes across product categories (see Figure 5). The division extends to where consumers learn about sustainability. Gen Zers in the US turn to a variety of sources for information about sustainability, with 37% relying on social media—the predominant source for them. Only 3% of US baby boomers rely on social media. There’s also a division among consumers in the types of businesses they trust to sell them sustainable products. In most countries, consumers are more likely to trust smaller businesses, but in China and Japan, big companies are more trusted. And consumers are more likely to pay a premium in certain categories with certain benefits. In the US, for example, consumers say they’re willing to pay up to 10% more for products that have minimal environmental impact and up to 15% more for products that have health benefits. 16 The Visionary CEO’s Guide to Sustainability 2024 Figure 5: Consumers prefer different sustainability attributes depending on the product category, but “natural” is always No . 1 Q: Which of the following environmental sustainability and social responsibility elements are most important to you when purchasing products in these categories? Percentage of respondents that selected option in their top three Fresh food Beauty and personal care Natural 35% Natural 36% Organic 26 Animal welfare 28 Animal welfare 23 Sustainable packaging or packaging-free 23 Packaged food and beverages Household cleaning supplies Natural 34% Natural 36% Sustainable packaging or packaging-free 24 Sustainable packaging or packaging-free 26 Low carbon footprint 24 Low carbon footprint 25 Note: Respondents were asked to rank up to five options, starting with the most important Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) This means that it isn’t effective for companies to market “sustainability” as a single concept or to target consumers as a monolithic group. Businesses need to understand what different consumer segments are after on a category-by-category basis. Yet appealing to specific sustainability priorities means taking a targeted approach to product development and marketing that runs counter to the movement toward simplicity. We call this smart complexity: striking the right balance between agility and scale to maximize the benefits of streamlining without sacrificing responsiveness to consumer needs. Indeed, companies need a more flexible and agile supply chain that allows for more variations— enabling, for example, flexible modular designs and packaging with targeted messages. Smart complexity also allows companies to target consumers based on their specific sustainability needs. And with the right products in hand, some companies have begun relying on digital and AI tools to experiment with and customize their messaging to consumers. As they develop new products and services, the best companies will consider how those offerings will help consumers live more sustainably, not just buy more sustainably. It’s one thing to introduce a greener version of an existing product at a higher price point than many consumers are willing to pay. There’s much more value to be created if that new product meets other key purchasing criteria—for example, if it saves the consumer time, helps lower their energy bill, or improves their health. Take wool dryer balls, which serve as a chemical-free alternative to dryer sheets or fabric softener while also cutting down on drying time and energy costs. 17 The Visionary CEO’s Guide to Sustainability 2024 Consumers say that brands and retailers play a big role in their sustainability journey: 28% indicate that awareness campaigns by brands and retailers prompted them to start buying more sustainable products. As a sign of retailers’ part in the equation, 33% of consumers report that they started buying sustainable products because they became available in the places they shop (see Figure 6). Consider the full product life cycle This year’s research also highlights the growing importance of packaging in consumers’ perception of sustainability (see Figure 7). This finding raises the pressure on companies (many of which report being behind schedule to meet 2025 recycling targets) both for recycled packaging and for the recyclability of their packaging. Consumers determine whether or not packaging is sustainable primarily from the perspective of what happens to it once they are ready to dispose of it—for example, if it is recyclable. In fact, consumers tell us that the ability to recycle packaging is significant to them and that the choice of material and use of recycled content also matter (see Figure 8). Because consumers care about what happens to their waste, companies can distinguish themselves by leaning into the entire packaging value chain, including the downstream segment. As they do, they must face the big question of how to finance the collection, sorting, and recycling infrastructure, especially in less developed markets. They also must tackle the challenge of educating consumers. For example, consider that most surveyed consumers believe that the production of single-use, virgin Figure 6: Consumers cite environmental issues, media articles, local availability, and brand campaigns as main drivers for shopping sustainably Q: What prompted you to start buying sustainable products? Percentage of respondents that selected option in their top four Personally experiencing the impact of environmental issues (e.g., floods, pollution, wildfires) 40% News/magazine articles or documentaries 35 They became available in the places I shop 33 Awareness campaigns by brands or retailers 28 Influence of my peers (e.g., friends, colleagues, family) 22 They became cheaper than they were previously 22 Social media posts or ads 19 Conventional ads (e.g., on TV, in newspapers) 17 Government programs or publicity 17 Having a child 12 Notes: Respondents could select up to four options; only includes those who selected “minimal environmental footprint” or “ socially responsible” as a top four key purchasing criterion in at least two product categories Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) 18 The Visionary CEO’s Guide to Sustainability 2024 Figure 7: Consumers care about the environmental impact of packaging, giving it relatively higher importance in Brazil, China, and Indonesia Q: How important to you is the environmental impact of your packaging choices? Percentage of respondents 100% 5% 6 6 7% 10 7 4 4 0 2 9 7 9 5 6 1 13 10 3 12 2 3 12 18 21 29% 29 34 34 32 32 39 39 25 36 40 32% 33 31 35 34 24 32 32 51 53 28% 29 17 20 19 22 0 11 11 34 Overall US UK Netherlands Germany France Italy Japan Brazil China Indonesia Very important Not important at all Notes: Based on weighted average score per country; columns may not total 100% due to rounding Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) Figure 8: For packaging attributes, consumers are most concerned about what happens to packaging after using the product Q: Which of the following sustainable attributes of packaging do you look for in the products you buy? Percentage of respondents that selected option, weighted across categories Recyclable packaging 48% Downstream Reusable packaging 40 Upstream Recycled packaging 38 Plastic-free packaging 33 Downstream and upstream Packaging-free product 25 Note: Respondents were asked to choose up to two attributes in various categories (fresh food, packaged food and beverages, beauty and personal care, household cleaning supplies, apparel and accessories, electronic devices, and furniture and home decor) Source: Bain Consumer Lab ESG Survey 2024 (n=18,991) 19 The Visionary CEO’s Guide to Sustainability 2024 glass has a lower carbon footprint than plastic, yet the opposite is true. Adding to the complexity for global companies, there’s a wide disparity in recycling regulations and infrastructure among markets. Unlocking the challenges What to do? We see five critical steps. Size the opportunity to seize the opportunity. Brands can help consumers in their sustainability quest and spur profitable volume growth by drawing on their well-honed ability to segment and target consumers. Companies need to be willing to invest in identifying and developing products that meet untapped sustainability needs—and create the right messaging. That means determining where people are willing to pay more (and their limits) and where the company can gain share, and then taking a test-and-learn approach to innovation and marketing. Companies need to be willing to invest in identifying and developing products that meet untapped sustainability needs— and create the right messaging. Organize for results. Many traditional companies’ operating models are not set up to serve the needs of sustainability-minded consumers. A simple example of the disconnect: The costs of developing new sustainable formats or purchasing more sustainable input materials are often assumed by supply chain and operations. However, these teams are detached from marketing and an understanding of what consumers value. Too often, the costs and benefits are misaligned, and companies miss opportunities to use sustainability to gain value with consumers. Prepare to manage complexity. Be ready to acknowledge the fragmented market, both in production and in marketing. Companies need a more agile supply chain to make more variations, for example. And in many situations, marketing complexity arises from the new imperative to use different messaging for different consumer segments. For example, a plant-based spread could be promoted with one set of messages to a consumer group whose primary concern is animal welfare and with completely different messages to those who are focused on healthy food. Tackle the packaging challenge. Not only do companies need to make packaging sustainable, they need to communicate that value to consumers while also educating them about the nuances of material choices. They also can work to solve the downstream piece of the puzzle, addressing the recycling infrastructure where it’s necessary. 20 The Visionary CEO’s Guide to Sustainability 2024 For example, the best companies will avoid making packaging out of multiple different materials so that it needs to be disassembled to recycle. Nestlé is actively working in this direction. The company’s Purina brand launched its first designed-to-be-recyclable mono-material pet food pouch in 2022, and Nescafé debuted its first refillable paper pouch for coffee in 2024—all part of Nestlé’s promise to introduce reusable or recyclable packaging by 2025. (The Consumer Goods Forum’s Golden Design Rules for plastic packaging are an industry standard in packaging design.) Brands also can ensure that information about packaging is transparent. Being clear about recyclability, for example, makes it easy for consumers to make the right disposal choice. Together, retailers and brands can reduce confusion and help consumers understand what the sustainable options are and why. Build channel partnerships. Companies can help speed consumers’ paths to achieving a sustainable lifestyle by forging the right partnerships across the value chain. That includes brand owner and retailer collaboration. With so many consumers telling us that accessibility is one of the key barriers preventing them from purchasing sustainable products, companies can collaborate to ensure prominent product placement and encourage new behavior in areas like refills or packaging returns. For example, The Perfume Shop partnered with L’Oréal to launch the UK’s first multi-brand fragrance refill station, including YSL, Prada, Armani, Mugler, and Lancôme brands. Will such moves spur consumers to action? If we’ve learned anything about sustainability over the years, it’s that consumers will change their behavior if stakeholders make it easier for them or provide incentives. Despite their many other worries, consumers tell us they still are concerned about living and shopping sustainably. They have different preferences and even different definitions of sustainability. But they are uniform in their need for others—governments, industry organizations, brands, and retailers—to pave the way. 21 2024 Trends How to Master the Art of Selling Sustainability Our survey of 500 B2B buyers and sellers shows a widening chasm on sustainability . A new industrial sales model is needed to close this buy-sell gap . By Torsten Lichtenau, Jamie Cleghorn, Xavier Houot, Mattias C. Karlsson, Yelena Ageyeva-Furman, and Jan Budde At a Glance Sustainability is a top criterion for B2B buyers; 36% would leave suppliers that don’t meet sustainability expectations . Although 85% of suppliers embed sustainability in their offerings, just 53% of customers feel the options meet their needs . By taking four steps—on customer, value, salesforce, and pricing—suppliers can start selling sustainability smarter . It’s not just consumers who are shopping for sustainability these days. Sustainability is now one of corporate buyers’ top three purchasing criteria as well. More than a third of companies say they are willing to leave suppliers that don’t meet their sustainability criteria, and nearly 60% say they’ll be willing to do so three years from now, according to Bain & Company’s 2024 survey of B2B buyers and sellers (see Figure 1). The implications are profound, threatening to put a large number of suppliers at risk of replacement and pointing to potentially significant shake-ups in market share. 22 The Visionary CEO’s Guide to Sustainability 2024 Figure 1: B2B customers will increasingly consider sustainability when choosing suppliers Customers’ ranking of key purchasing criteria Percentage who say they will change suppliers when selecting suppliers that don’t meet sustainability criteria Today In three years 57% Quality/meeting 1 Quality/meeting specifications specifications 2 Price/cost Sustainability of their operations 36% 3 Sustainability of their operations Price/cost 4 Service levels Sustainability of their offers 5 Sustainability of their offers Service levels 6 Supplier reputation, Supplier reputation, scale, resilience scale, resilience 7 Joint innovation Joint innovation Today In three years Note: Excludes “I don’t know” responses Source: Bain Global B2B Survey, April 2024 (n=503) Figure 2: B2B suppliers are not consistently meeting their customers’ sustainability needs 85% of suppliers are embedding sustainability ... but only about half of customers say sustainable in their products and services to some extent ... options address all dimensions of their expectations 100% 1% Not considered at all 14% Considered, but no impact on product Disagree 21% 36% Started to implement 53% Agree 15% Embedded in design and innovation Indifferent 26% 23% Developed some products 0 11% Integrated in all products Note: Excludes “I don’t know” responses Source: Bain Global B2B Survey, April 2024 (n=503) 23 The Visionary CEO’s Guide to Sustainability 2024 Unfortunately, this message seems to be getting lost on suppliers. While 85% of them report that they embed some degree of sustainability in their products and services, only 27% consider themselves very knowledgeable about their customers’ sustainability needs. Indeed, only 53% of customers say the sustainable options they are offered fully meet their expectations (see Figure 2). Closing this buy-sell communication gap is critical to ensuring that suppliers don’t lose sales to more agile competitors, but they can’t accomplish that by doing more of the same. Suppliers need to catch up to their customers, move fast, and be more systematic. With sustainability, many B2B suppliers must create entirely new markets, something that calls for a set of skills they may not have exercised for a very long time. To master selling sustainability, companies should focus on four things. 1. Use data to prioritize the most sustainability-focused customers Suppliers need to systematically identify the individual customers and customer segments that are most likely to be interested in sustainable offerings. This involves creating a profile that reflects how much they spend, the importance they place on sustainability, whether the supplier’s product offers them a relatively low-cost way to lower their carbon footprint, the specific aspects of sustainability they care about most, and the goals they have set for those priorities. Goals might relate to emissions targets, circularity, biodiversity, transparency, or social dimensions. Only when a supplier has this kind of detailed understanding of customers’ sustainability expectations can it begin to influence buying decisions. When an aluminum manufacturer began Use data to prioritize the Construct a sustainable most sustainability- value proposition planning to invest in low-carbon primary and focused customers recycled aluminum production, executives knew the company would have to reinvent how 1 2 it goes to market. As a first step, the manufacturer identified its priority customer segments as those with ambitious public decarbonization targets, high internal or regulatory cost of carbon, and end customers who value green products. This led to a much more detailed understanding of customer needs than traditional 4 3 sales had required and helped the company identify automotive manufacturers as a key customer segment to target early with its Capture all Power up your low-carbon aluminum. sources of value salesforce 2. Construct a sustainable value proposition Armed with a more granular understanding of customers, suppliers can tailor value propositions that deliver the right mix of sustainability components and traditional key purchasing criteria like 24 The Visionary CEO’s Guide to Sustainability 2024 price and performance. For many buyers, quantified CO2 emissions reduction will be a critical part of the mix as that becomes a material aspect of their own sustainability and financial performance. Selling such bespoke approaches requires translating sustainability features into benefits that sales teams can easily communicate, in a way suited to each customer’s specific attitude toward sustainability. Suppliers must make clear the value on offer. Importantly, no single product can bring any customer all the way to its sustainability target. Today two-thirds of customers report having a low or average understanding of what justifies the price of their suppliers’ sustainable offerings. Some 45% don’t believe their suppliers clearly state the financial return on that investment, limiting their willingness to pay a premium. There is clearly room for companies to better construct and communicate their sustainable value propositions. Customers are notorious for overestimating what they would be willing to pay, but in our survey nearly 50% said they would pay a sustainability premium of 5% or more today. Only 6% stated that they would not pay any premium (see Figure 3). Customers also expect their willingness to pay to increase in the future. Partnering with customers is the best way to translate sustainable initiatives into enhanced customer value and address their unmet needs. H2 Green Steel successfully did this, partnering with key early- adopter customers to secure substantial offtake agreements for its initial years of production. Before even breaking ground on its production facility, the company had already announced offtake agreements at a price premium for 1.5 million metric tons of green steel per year, showing that there is a clear demand for its product, that customers understand the value proposition, and that they are willing to pay for it. 3. Power up your salesforce Selling sustainability requires different skills and tools from traditional sales approaches, processes, and models. Sales teams that have been historically product focused have to learn to emphasize not just a product’s attributes and features but also the financial and sustainability value it offers the customer. They must truly understand how their offerings can support the sustainability agenda of the customer. That means companies need to equip their salesforces with the right knowledge and digital tools to target customers based on their sustainability commitments and pair these approaches with an incentive program that properly rewards the new selling motions. To date, suppliers have not been taking this tack. Only 35% specifically target sustainability-conscious customers, and fewer than one in three have an incentive system in place to promote sustainable selling (see Figure 4). When a paper and packaging company introduced new low-carbon packaging and products that substitute paper for plastic, it didn’t stop at creating a new catalog featuring plastic-free luxury shopping bags and thermoformed cellulose packaging. It also developed sales pitches, provided 25 The Visionary CEO’s Guide to Sustainability 2024 Figure 3: Almost half of customers are willing to pay a price premium of 5% or more Share of respondents willing to pay a specified premium for a more sustainable product or service Price premium: 0% 1%–5% 5%–10% 10%–20% 20%+ 6% 45% 35% 13% 1% Source: Bain Global B2B Survey, April 2024 (n=503) Figure 4: Sustainable selling systems are still relatively immature Q: How well equipped are you to sell sustainable products/services? Our salesforce understands carbon and the economic benefits 50% of sustainable products Our salesforce is equipped with specific marketing material 47% to emphasize product sustainability Our salesforce has a basic understanding of our 39% products’ sustainability Our salesforce specifically targets customers with high 35% sustainability commitments We have an incentive plan in place for sales of sustainable products 30% Source: Bain Global B2B Survey, April 2024 (n=503) 26 The Visionary CEO’s Guide to Sustainability 2024 prototypes to the salesforce, held sessions with key customers describing the new products, and trained the entire sales network, enabling them to effectively sell the new products. The company also set up a dedicated tracking system to monitor its pipeline of sustainability-focused clients. Part of a long-term innovation transformation the company had underway, these efforts have contributed to increases in both revenue and margin. 4. Capture all sources of value Sustainable products and services offer customers new sources of value, such as the opportunity to build market share in attractive segments and to realign their portfolio toward sustainable, value- added offerings. Suppliers must align their pricing strategy with the full array of value their products offer customers. This may include enhancing their customers’ sustainability. Or it may involve helping them gain market share, shift to more attractive customer segments, achieve higher profit margins, or charge a premium price. For many, sustainability alone won’t justify a higher price, but once a fuller understanding of a product’s value is established, sales teams can leverage that to negotiate prices with customers. A global chemicals company collaborates with automotive manufacturers to supply them with low-carbon and circular coatings, plastics, and additives. The resulting innovations notably reduce vehicles’ environmental impact by adhering to stringent sustainability criteria, including lower emissions and enhanced recyclability. By helping its customers make their cars more sustainable, the company has increased its products’ value to automakers and earned a premium position in the market. The company’s approach to partnership underscores its commitment to sustainability and has solidified its position as a preferred supplier of innovative solutions in the automotive sector. Extreme changes, extreme measures These four actions can help companies retrofit and turbocharge how they sell sustainable products and services. But when a supplier’s sustainability strategy leads to new products, new customers, or a new go-to-market strategy that falls too far from its core, its legacy structures may simply prove too slow and cumbersome. In this situation, companies may have to consider spinning off their sustainable business units or setting up new companies focusing on sustainable products and customers, allowing them to both develop new innovations at speed and build a sales organization that can do the same. Industrial selling is changing. Learning how to convey the true value of sustainability to customers is critical. This evolution can help companies protect or gain market share while growing green businesses to a scale at which sustainability becomes affordable for more and more customers. 27 Getting It Done How CEOs Can Turn Decarbonization Setbacks into Progress . . . . . . . . . . . . . . . . 30 AI and Sustainability: The Power of Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Olam Food Ingredients: Pioneering a New Financial Model for Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Getting It Done How CEOs Can Turn Decarbonization Setbacks into Progress Successful companies are establishing a strong business case and then collaborating across the value chain . By Torsten Lichtenau, Peter Guarraia, Abhijit Prabhu, Anna Fritz Månsson, and Euan Murray At a Glance According to Bain’s analysis, 36% of companies are behind on their Scope 1 and 2 targets, and 51% are behind on Scope 3 targets . Those that do succeed value decarbonization holistically and embed it across the business . They also collaborate effectively with external groups, including suppliers, customers, policymakers, and standard setters . Based on the number of companies that have set decarbonization targets, commitment to the carbon transition is growing fast. That’s good news for the environment. It also means that simply committing to decarbonize no longer differentiates. What does set a company apart today is the ability to deliver on those ambitions and then monetize the gains in a way that’s sustainable from a business perspective. Yet many companies are struggling. Higher-than-expected costs and tight timelines are making it difficult to meet their Scope 1, 2, and 3 emissions targets (see Figure 1). 30 The Visionary CEO’s Guide to Sustainability 2024 Figure 1: Companies are falling behind on their commitments to decarbonize Scope 1 and 2 Scope 3 753 1,323 1,883 260 701 1,000 Well behind 22% 33 30 Slightly 36% behind 3% 44 47 5 6 1% 3 On track 4 or ahead 74% 62 64 63% 53 49 CDP 2021 CDP 2022 CDP 2023 CDP 2021 CDP 2022 CDP 2023 Notes: CDP database covers prior year results; “on track or ahead” achieved or exceeded target, “slightly behind” achieved 80%–99%, and “well behind” less than 80%; percentage of actual reduction vs. intermediate target from base year to reporting year, assuming constant annual reduction; analysis includes most representative ongoing absolute near-term target; CDP 2021 data is less granular than data from other years; columns may not total 100% due to rounding Sources: CDP; Bain analysis So, what can companies learn from those that are on track? Decarbonization leaders consistently do two things right. First, they are visionary pragmatists, having built a clear and realistic business case for how they will decarbonize. Second, they collaborate internally and also externally, with others in their value chain and with third parties like regulators. Many other efforts follow from these, but absent these two priorities, decarbonization ambitions seem to stall. Step 1: Building the business case for decarbonization Decarbonization efforts can be expensive and uncertain, especially in heavy-emitting industries. The more complex a company’s path to decarbonization, the more likely it is to fall behind (see Figure 2). While buying green electricity and renting energy-efficient office space can go a long way toward reducing the service sector’s carbon footprint, results are slower for industries that rely on new technologies and solutions to decarbonize or on partners, customers, and suppliers to do so—or both. Food, beverage, and agriculture companies, for example, have incredibly complex supply chains that represent the vast majority of their emissions. As a result, meeting targets is proving difficult. Though there is no one standard approach to building the business case for decarbonization, companies that are having the most success do three things differently. First, they holistically value decarbonization’s contribution to the business. Second, they understand the decarbonization 31 The Visionary CEO’s Guide to Sustainability 2024 Figure 2: The more complex an industry’s emissions landscape, the harder it is to decarbonize Comparatively simple Moderate Complex Easily manageable emissions Either Scope 1 and 2 or Scope 3 Highly complex emissions relative to peers emissions are complicated and landscape results mixed Services Manufacturing Food, beverage, and agriculture 4% 5% 13% Scope Scope Scope 1 and 2 69% 27% 1 and 2 67% 28% 1 and 2 51% 36% Scope 3 57% 37% Scope 3 50% 47% Scope 3 31% 69% 6% 3% On track or ahead (100% or greater) Slightly behind (80%–99%) Well behind (less than 80%) Notes: Percentage of actual reduction vs. intermediate target from base year to reporting year, assuming constant annual reduction; analysis includes most representative ongoing absolute near-term target Sources: CDP 2023; Bain analysis experience curve and pace themselves accordingly. Finally, they build flexibility into their plans and adjust to market changes and other factors. Identifying value. If only operating costs are considered, decarbonization won’t always offer a positive return on investment, so companies look for other sources of value. These can range from highly tangible benefits—things like carbon tax risk mitigation, subsidies, or price premiums—to less tangible ones, such as premium valuations by investors (see Figure 3). Decarbonization can help safeguard market share from agile competitors, ensure a company is not locked out of low-cost or scarce low-carbon supplies, or keep it ahead of costly regulatory changes such as carbon pricing. Given the uncertainties ahead, companies are exploring multiple approaches. Consider the approach of one chemicals company. Forming exclusive partnerships with green suppliers of low-carbon feedstock early helped the company explore new technology and develop strategic partnerships to assure customers that they would have access to critical supplies as the market evolves. Over time, those supplier relationships should be financially beneficial for the company and help it build a strong market position as the industry shifts toward decarbonization. Pacing for the decarbonization experience curve. In many industries, full decarbonization will require nascent technologies to mature. Successful companies aren’t sitting back and waiting. They are focusing first on established ways of reducing carbon and then dynamically adding new approaches as their 32 The Visionary CEO’s Guide to Sustainability 2024 Figure 3: Companies need to look holistically at the sources of value from decarbonization 1 2 3 Savings and bottom line Accelerated top-line growth Equity value and cost of debt Revenue from Operating cost savings Revenue from existing portfolio new products Premium investor valuations and services Risk mitigation for costly Revenue from Price premiums new ventures for sustainable Preferred financing terms regulatory changes products Lower cost of Increased Stronger brand emissions compliance market share value for customers Subsidies for innovative Secure supply chain access sustainability initiatives Source: Bain & Company capacity increases and emerging technologies mature or become economically viable. They also are developing a superior understanding of the decarbonization experience curve and the cost trajectory of key technologies. That’s how a dairy company has phased in its commitment to decarbonize. It will achieve the first 45% of its emissions reduction in the near term by pulling mature carbon levers like renewable electricity and cattle-feeding regimes that reduce methane emissions. The next 35% will come from packaging redesign, including lightweighting and increased levels of recycled content, and through sourcing lower-carbon raw materials. The final 20% will take longer and depends on new initiatives in logistics and innovation with suppliers. This could include working with partners to promote broader use of innovative low-carbon technologies, such as deploying battery electric vehicles in logistics. Exhibiting flexibility. Companies make decisions in highly complex and unsure environments. The prices and availability of new materials and services are often uncertain. It’s important to be able to adjust plans when new signals come in from customers, investors, government action, or technological change. Consider how surging electric demand from generative AI has challenged many companies’ established sustainability plans. In 2023, Microsoft reported a roughly 30% increase in Scope 3 emissions due to 33 The Visionary CEO’s Guide to Sustainability 2024 AI- and cloud-related data center expansion. In response, the company has adjusted its approach, enforcing a requirement that major suppliers utilize 100% carbon-free electricity by 2030. Step 2: Collaborating across the value chain Decarbonization requires both independent action and collaboration across the value chain and with external participants. Companies that understand that embed decarbonization in their operating model and then work with a variety of external groups, from suppliers and customers to policymakers and standard setters. Embedding decarbonization in operations. Decarbonization is the biggest internal operational shift many companies have faced since lean manufacturing. To instill a systematic approach to incremental change and a culture of continuous improvement, lean manufacturers develop new capabilities and embed them in their operating model. Decarbonization is the biggest internal operational shift many companies have faced since lean manufacturing. Similarly, decarbonization requires companies to manage carbon like they manage cost by putting an internal price on it, mastering their marginal abatement cost curves, and flexibly adapting to their experience curve. These new capabilities must be embedded by aligning organizational incentives and assigning ownership of decarbonization to functional leaders. Leading companies consider carbon when making decisions and recognize that a low-carbon focus can help build a differentiated company culture. Working with customers and suppliers. In most industries, indirect emissions outweigh direct emissions, so progress requires collaboration with stakeholders up and down the value chain. This means companies must identify value for their customers, for their customers’ customers, and for their own suppliers. It starts with better understanding and deaveraging individual customers and then educating them on the price, quality, and sustainability of the company’s offering, as well as how it can help them and their own customers decarbonize. By understanding their customers, companies can work with them to develop the right new products and services, ones whose differentiation can be confidently asserted without risk of greenwashing. With suppliers, it’s important to build a similarly granular understanding of their carbon footprint and to identify which are critical emitters. (The largest source of Scope 3 emissions is often raw materials way up the value chain.) Helping suppliers decarbonize will involve advising them, innovating new products and solutions together, developing decarbonization plans, and possibly supporting the 34 The Visionary CEO’s Guide to Sustainability 2024 financing of those plans. Sometimes, companies have to switch suppliers to reach their goals. Some 39% of B2B buyers report that they are already giving more business to sustainable suppliers. A forward-thinking aluminum packaging company illustrates the dividends a “me and we” effort can pay. Internally, the company studied how to decarbonize production efficiently, identifying immediate no-regret moves, like manufacturing lighter cans and using renewable energy, that saved money and lowered costs. Simultaneously, it built a list of more strategic steps that could be taken over time, like shifting the supply mix to higher recycled content and electrifying manufacturing. Understanding they couldn’t reach their goals alone, executives also studied where carbon could be lowered across the whole value chain—from mining and refining to end users and recycling. So far, the company has identified ways to abate up to 80% of emissions by 2030, and it expects tens of millions of dollars in financial upside from cost savings and more circular and lower-carbon products. Working with policymakers and standard setters. Leading companies anticipate and work with their value chain partners to understand and respond to upcoming regulation, such as carbon taxes, subsidies, or carbon border adjustment mechanisms. They also work with policymakers and standard setters to shape policy, supporting legislation that improves the ROI of decarbonization—either by subsidizing green efforts or by putting a cost on the negative consequences of carbon—and efforts to create common certification standards. Change is collaborative, and companies need to work together to bring a cohesive industry voice to government partnerships. Through coalitions, they can outline the support needed to accelerate the sustainability transition. By framing the incentives well, they can illustrate how the right policies will help government address societal needs while providing companies with critical interim support as clean tech scales. Governments need to know what really moves the needle, and making the case in this way can help defend against future pressure to roll back good policies. New opportunities Even though decarbonization is complex, companies don’t have to give up on their ambitions. By integrating sustainability into their core business and partnering with key stakeholders, companies can effectively manage risks and at the same time capitalize on new growth opportunities. Building a strong business case for decarbonization greatly improves the odds for any company to reach its environmental goals. 35 Getting It Done AI and Sustainability: The Power of Integration Three practices will help companies deploy a more carbon-conscious “eco-AI” approach to their technology and sustainability priorities . By Jean-Charles van den Branden, Caroline Jean, and Martha Moreau At a Glance AI is helping to solve vital sustainability business challenges in ways that deserve CEO and executive attention . Constraints on green energy will likely increase, so companies must act now to win the race for future supply . CSOs and CTOs need to work together on key steps, including supporting suppliers, upskilling staff, and deploying AI . Artificial intelligence and sustainability are hot topics in business, but while AI has enormous and accelerating momentum, there is concern that sustainability’s moment may be passing. In truth, both are profoundly important and in only their very first stages. Indeed, we are early enough in their evolution to bring AI and sustainability together to create—using what we call an eco-AI approach— an incredibly powerful source of advancement for both the planet and the corporate bottom line. 36 The Visionary CEO’s Guide to Sustainability 2024 Four pioneering strategic applications of AI Increasing numbers of forward-thinking companies are using AI to work on sustainability in ways that generate true business value. Here are four approaches that are worth every CEO and business leader’s attention. Deliver value to customers while boosting sustainability. Consumers and customers continue to rate sustainability as an important purchase criterion, but they often lack a clear understanding of what makes a product or service sustainable. AI can help close this gap by providing new and more effective approaches to communicate about sustainable products and propositions. Home furnishings giant Ikea, for example, built an AI recommendation engine that can tailor product suggestions for consumers based on their sustainability preferences. Twenty percent of interactions with the tool drive traffic to the company’s website, with 5% of those visits leading to transactions. Improve financial and sustainability results. AI and digital systems can help companies develop sustainable offerings that save money, streamline innovation, and build new businesses. Consider how a food company might use digital tools to track and reward farmers for reducing their emissions. In addition to creating a more sustainable supply of raw materials, this could help the company build a premium, low-carbon product line. Profits from that line could then be used to pay back the upfront costs, thereby creating a positive flywheel. AI and digital systems can help companies develop sustainable offerings that save money, streamline innovation, and build new businesses. Reduce operational risk and maximize resilience. Bain & Company estimates that losses from natural disasters could represent up to 4% of global GDP by 2050. Remote monitoring, space-based technology, and more powerful predictive models all will be needed to assess exposure and build more resilient operations. AI can help mining, agriculture, and other companies estimate the exposure of facilities to a range of natural risks, including precipitation, heat, fire, wind, cold, and flood, and develop mitigation and transition plans for the most endangered locations based on that analysis. Build operational and supply chain digital twins. When fully deployed, AI will revolutionize how companies identify and realize sustainability improvements within operations and along the supply chain. By instantly modeling the impact of decisions on spending, carbon emissions, and other sustainability metrics, digital twins will strengthen decision making and reduce consumption of materials, energy, and water. In the public sector, the Virtual Singapore platform shows the possibilities. 37 The Visionary CEO’s Guide to Sustainability 2024 Pulling from diverse data sources, the platform’s 3D city model helps urban planners and designers identify opportunities for energy efficiency, assess the environmental impacts of development, and reduce emissions through optimized transportation systems. Eco-AI’s power couple: CSOs and CTOs As AI experimentation accelerates, leaders must consider the future implications of their IT strategies and priorities on their net-zero plans. While AI holds great promise to advance and speed sustainability efforts, the potential impact on emissions must be understood and addressed from the outset. This will require companies’ sustainability and technology functions to work together on key priorities. Three principles for effectively doing so are emerging. 1. Technology’s power use and emissions can no longer be an afterthought. Carbon emissions from IT traditionally have been seen as little more than a rounding error. This was fine when most companies’ IT departments had a relatively small carbon footprint. For a typical consumer products company, for example, IT has historically represented about 1% of its carbon footprint, compared with 25% each for packaging and raw materials. AI will change that. By 2030, Bain projects that the growth of AI, along with increased cloud usage and rising volumes of data in traditional applications, will lead to significantly higher IT carbon emissions across industries. In consumer products alone, IT emissions are expected to increase by at least three times (see Figure 1). Companies should act now to ensure they are first in line for green power. This starts with understanding the power usage efficiency of data center providers and alternative suppliers. A number of factors are pushing up AI’s energy use and carbon emissions. The first is an explosion of users and applications. Bain’s 2024 cross-industry AI survey shows that almost 90% of large companies in the US are using generative AI in some capacity. And corporate users are tapping increasingly large, sophisticated, and power-hungry models. The total number of parameters grew from 1.5 billion for GPT-2 in 2019 to 1.7 trillion for GPT-4 in 2023. Users are also engaged in more energy-intensive activities. Video generation, for example, requires up to 300 times more power than image generation. Projected gains in the energy efficiency of processes and chips are unlikely to offset this surging demand. A significant portion of tech-related emissions sits outside the IT department’s control. As a result, companies will have to take a broad and systemic view when mapping future emissions from technology. 38 The Visionary CEO’s Guide to Sustainability 2024 Figure 1: The carbon emissions of IT departments are climbing, driven by generative AI IT carbon footprint projection for a typical consumer goods company (in CO2e) More than 3x Cloud s ervices (generative AI) Traditional cloud services (storage, analytics) Hardware IT services 2023 2030 Source: Bain & Company For B2C companies, this should include a calculation of emissions from consumer use of AI-enabled apps. With a large user base and a bias toward image and video generation, many of these apps are more power-intensive than most organizations realize. As AI-enabled initiatives expand in teams like purchasing, marketing, and finance, CTOs and CSOs will have to work across functions to get the information needed to build a holistic picture. This review should include work with third-party suppliers—for example, when marketing departments work with outside agencies on AI use cases. 2. Win the race to decarbonize your cloud. Bain analysis shows that up to 70% of a typical company’s IT Scope 3 decarbonization goals will depend on the decarbonization of its IT suppliers. The fastest way to decarbonize IT is therefore to engage suppliers and support their decarbonization journeys. Cloud providers are scrambling to meet the burgeoning demand for sustainably powered data services and to capture the opportunities this presents. While progress is advancing on many fronts, the supply of green energy will be quite constrained in the medium term, creating significant headwinds for the net-zero ambitions of both the tech sector and its customers. Indeed, many experts expect total demand for electricity to increase beyond total supply in the next few years (see Figure 2). Companies should act now to ensure they are first in line for green power. This starts with understanding the power usage efficiency of data center providers and alternative suppliers. There is a high level of variation across companies and among the sites of any single provider. New tools to track the energy efficiency of cloud service providers are becoming available, and suppliers are offering dashboards to 39 The Visionary CEO’s Guide to Sustainability 2024 Figure 2: If electricity generation growth remains as forecast, demand is likely to exceed supply in the near-term US electricity historical and forecast demand vs. generation (in terawatt-hours) 5,000 Demand forecasts Forecast FERC 4,500 Goldman Sachs Bank of America EIA generation forecast Historical energy generation ISO EIA 4,000 Historical energy demand 3,500 2005 2010 2015 2020 2024 2028 Note: EIA combined forecasts of electricity demand and generation for 2023 to 2025 taken from the EIA Short-Term Energy Outlook (May 2024) and for 2025 to 2028 from the EIA Annual Energy Outlook (March 2023) Sources: ISO (data from H2 2023–H1 2024); FERC Grid Strategies; Bank of America; Goldman Sachs analyst forecasts, April 2024; EIA help monitor and test consumption. Supplier selection and management processes will need to be bolstered, and purchasing teams will have to be trained to embed sustainability criteria in their process. 3. Don’t hit the brakes on AI, but integrate sustainable behavior from the start. Could the combination of tremendous growth in AI demand, limited availability of green energy, and sustained stakeholder pressure to decarbonize eventually result in constraints on AI usage, or even rationing? While this sounds extreme, it’s urgent that forward-looking CEOs, CTOs, and CSOs push their organizations to use AI in the most effective and efficient ways. Two areas warrant immediate focus. The first is upskilling and creating awareness within the organization of eco-design and eco-utilization of generative AI. This includes selecting appropriately sized models for the task at hand. There can be more than 100 times difference in power use between the smallest and the largest model when applied to the same task. Also, not everyone needs AI’s most powerful tools. Bain estimates, for example, that 90% or more of a typical consumer goods company’s employees do not require access to energy-consuming video generation tools. There are other technical actions to take as well. Companies can leverage prompt engineering, such as the selection of predefined prompts for all users and semantic “caching” of existing responses based on identical or similar user requests, to reduce the number of requests per user. Fine-tuning a 40 The Visionary CEO’s Guide to Sustainability 2024 model rather than using a multipurpose one can reduce emissions by up to 70%, and deploying quantization in open-weight models to reduce model size and speed up processing can reduce emissions by up to 50% without a significant impact on output quality. • • • Merging AI and sustainability presents tremendous opportunities for business. Companies should strategically embed AI within sustainability initiatives to fuel innovation, efficiency, and resilience. However, the surge in AI’s energy demand calls for a smart, sustainable approach. By embedding sustainability from the start, businesses can meet carbon targets and lead the charge toward a greener, tech-driven future. The challenge is clear: Innovate fast, but do it sustainably. 41 Getting It Done Olam Food Ingredients: Pioneering a New Financial Model for Sustainability CFO Rishi Kalra has finance and sustainability speaking a common language, valuing comprehensive impact, and reporting results investors can count on . By Sachin Shah As a global food and ingredients company involved in cocoa, coffee, dairy, nuts, and spices, Olam Food Ingredients (ofi) is on the front line, helping farmers and communities respond to a changing world. The company has developed innovative ways to effectively communicate its value as a sustainable enterprise to investors and regulators. By taking a pioneering approach to accounting that includes not only financial capital but also natural, social, and human capital, ofi aims to create consistent long-term value that, in turn, builds resilience for the business and its stakeholders. To learn more about how ofi is tackling some of the thorniest issues facing companies today, we spoke to executive director and group chief financial officer Rishi Kalra about his work. From accounting that properly reflects the costs and benefits of sustainability, to translating sustainability into language any executive, regulator, or investor can understand, Kalra offers valuable insight into the critical role CFOs play today. Following are edited excerpts from our conversation. Bain: Rishi, you have been working at the intersection of finance and sustainability for many years, both at Olam and as the co-chair of the Asia-Pacific chapter of the CFO Leadership Network for Accounting for Sustainability. How would you describe the role of the CFO in sustainability today, and how has that evolved over time? 42 The Visionary CEO’s Guide to Sustainability 2024 Rishi Kalra: Traditionally, sustainability was never part of the CFO’s role; it was always in the CEO’s domain. The challenge was that sustainability wasn’t speaking the language of business leaders. It was becoming very theoretical, and the only language that business leaders understood was dollars and cents, and in a form that they’d always seen: profit and loss statements and balance sheets. Today, sustainability is at the heart of the role of a CFO from a governance, commercial, and regulatory standpoint. Regulators expect it. Investors are seeking it. Regulators are now mandating sustainability reporting, and the same rigor that you apply to financial numbers has to be applied to sustainability numbers. If you don’t have the same data governance, and the same processes and systems to track it, the potential for missteps increases; that can be a big risk to any organization. CFOs can bring the same rigor they apply to accounting and financial numbers to sustainability numbers—asking, for example, whether the data is not only relevant but also good enough to be reported outside the organization. Today, sustainability is at the heart of the role of a CFO from a governance, commercial, and regulatory standpoint. Regulators expect it. Investors are seeking it. Bain: Meeting sustainability goals requires a lot of external collaboration. Olam has a history of working across the supply chain to support sustainable food. How did you start doing that? Kalra: In our industry it was all about “who paid the most got the most.” That was not the business model we wanted to run with. We knew that if we worked with these communities, if we worked with the farmers, if we showed them a better way of improving their livelihoods, we would get a better product and strengthen our networks. There was a commercial rationale: The farmers and communities benefit as much as we do. This is a journey we have been on for years. Much later, the world started picking up on some of these things, but by then we were entrenched in the communities and networks we had built and were doing this as an integral part of our business, not as a buzzword. By following this path, we took an important step toward becoming a purpose-led organization. Bain: What is the value proposition of sustainability for ofi? 43 The Visionary CEO’s Guide to Sustainability 2024 Kalra: Unless we can demonstrate a commercial angle to delivering sustainability and see the value from it, it’s only a budget to spend. In that scenario, it would only be about being a good corporate citizen, and there would be no real change. The work we continue at ofi ensures that sustainability remains at the heart of our operations. This effort is led by our Finance for Sustainability team that tracks our actions and impact through our Integrated Impact Statement (IIS), which we started developing way back in 2017. Bain: To understand this value, you have to measure the benefits of sustainability. That’s also something you focus on, correct? Kalra: We’ve been tracking key metrics for a very long period. We launched AtSource some years back to provide customers all the metrics that matter to them. Whatever sustainability data matters to a company—water usage or carbon impact, for example—it already exists with us. This service, which we provide to our customers, creates value both for our customers and for us, in addition to having a real impact on the ground. I’m a strong advocate for the idea that the future of accounting is in multi-capital accounting, which goes beyond financial capital. Financial capital only looks at the past, at history. It doesn’t account in a way that lets you invest for the future. In financial accounting, there was no common measure of sustainability numbers to help investors or lenders see what was happening. So, we were one of the first companies in the world to report beyond financial capital through our IIS. We started measuring and reporting the impact of our actions in dollars and cents across natural, social, and human capital—things that are not covered in conventional financial statements. In doing so, we ensure our sustainability and finance teams speak a common numerical language that everyone can understand, evaluate, and articulate. That has driven real change internally but also helps us explain it effectively externally. Investors are looking to invest in companies that are not only saying what they are doing but actually doing it and can prove it. The role of finance is to allocate capital to projects that matter. You might have heard our story about bees? Bain: Please tell it. Kalra: There are certain food products that can only be pollinated by bees. As one of the largest almond growers in the world, we were seeing productivity on our farms decline because the bees were not in their natural habitat. Every year, we spent millions of dollars for beehive owners to bring bees to our farms to pollinate the almonds. Yet, over the years, productivity continued to decrease. So, we worked with partners to create natural habitats for bees on our farms. What we saw was that productivity steadily increased. 44 The Visionary CEO’s Guide to Sustainability 2024 That is where the link starts to be made. There is a cost to doing this, and in a financial statement that money you are spending is an expense, but the value is long-term productivity. So how do you allocate capital to a project like that? It’s by looking at expenses not in the conventional way but by looking at the impact on natural capital and then measuring that in dollars and cents. It’s a mindset. I see it as a very big mindset shift. Bain: With this mindset, what is your ambition for sustainability at ofi? Kalra: Our commitments are 2030 targets in our new sustainability strategy, “Choices for Change.” We applied the concept of double materiality. We want to double down on topics that are both important to the world and that we can make an impact on. It’s not everything for everybody. For us, it’s about regenerating the living world, prosperous farmers, thriving communities, and climate action. And we want to hold ourselves to making the biggest impact on these topics. Bain: What advice would you give to other companies earlier on this journey? How can they shift their mindset? We started measuring and reporting the impact of our actions in dollars and cents across natural, social, and human capital— things that are not covered in conventional financial statements. Kalra: Everybody has to be clear that sustainability is no longer optional. The sooner they can make sustainability a value proposition, the quicker it will be embedded. There’s never a right or wrong time. It’s about your starting point and improving from there. If everyone is improving, the world is benefiting. 45 Transitions Winning in the Energy Transition, One Step at a Time . . . . . . . . . . . . . . . . . . . . . . . .48 All Together Now: Partnerships Are Key to Circularity . . . . . . . . . . . . . . . . . . . . . . . .54 Faster by Design: New Models for Financing the Food Transition . . . . . . . . . . . . . 60 Transitions Winning in the Energy Transition, One Step at a Time Forget 2050 . The next 5 to 15 years will make or break the race to net zero . By Peter Guarraia, Emily Emmett, Cate Hight, Valeria Sterpos, Brian Murphy, and James Baird At a Glance Surging demand for data center power, rising capital costs, and other factors are intensifying the challenges of the energy transition . Although they remain committed to decarbonization, many companies are focusing on investments with clearer paths to a return . Rather than targeting 2050, emerging energy transition leaders are developing strategies for “203X”—the next 5 to 15 years . To start, they’re evaluating what they know (and don’t) about 203X, identifying their competitive advantages, and assessing their organizational capabilities . As businesses encounter the practical realities of delivering on long-term decarbonization commitments, executives are realizing that success in the energy transition will require a pragmatic, urgent focus on moving from one stepping-stone to the next on the path to net zero. It will take change at an unprecedented scale and pace to solve the dual challenge of the energy transition—increasing the world’s energy supply to meet growing demand while curbing carbon 48 The Visionary CEO’s Guide to Sustainability 2024 emissions. This challenge was daunting even before artificial intelligence began to grow at an explosive rate in late 2022. The resulting surge in demand for data center power, combined with the ongoing effort to “electrify everything,” will put immense pressure on electrical grids in the coming years while complicating decarbonization efforts. At the same time, rising capital costs, geopolitical tensions, supply chain constraints, and regulatory complexity are only exacerbating the challenge. As energy transition initiatives accelerated in recent years, many investors and companies anchored their efforts around the distant-future goal of achieving net-zero carbon emissions by 2050, operating on the assumption that immediate steps were needed in order to achieve that end goal. However, as they’ve ramped up decarbonization investments, many companies have found out the hard way that it’s possible to lose a lot of money between now and 2050. Although most remain committed to decarbonization, companies are increasingly focusing on transition-related investments with clearer paths to generating a return. Still, it remains unclear what the mix of energy generation sources and emissions abatement technologies will look like in a net-zero end state, with a range of potential combinations (see Figure 1). The pace and roadmap for reaching that end state are even more opaque. It’s understandable that executives would have reservations about making investment and business decisions based on an uncertain future that’s more than 25 years away, possibly long after their tenures Figure 1: The mix of energy generation sources to achieve net-zero emissions could vary Primary energy dem a nd (quadrillion BTU) 800 Net-zero scenarios Other Solar 600 Hydropower Natural gas 400 Coal Wind Nuclear 200 Biomass Liquids 0 2022 IEA Net Shell Sky 2050 EnerGreen Zero Emissions by 2050 Notes: Primary energy demand projections vary across scenarios due to differences in assumptions about the combination of renewables- and electrification-induced eiciency gains as well as technical eiciency gains and behavioral changes; EnerGreen liquids category only includes oil; all net-zero scenarios reflect projections as of 2023 Sources: Resources for the Future; IEA; Shell; Enerdata; Bain analysis 49 The Visionary CEO’s Guide to Sustainability 2024 have ended. But a better way is emerging. Some companies are refocusing on strategic and financial fundamentals that explicitly recognize the dual challenge imperative but prioritize practical execution in the near term. Rather than taking a 2050 lens, they’re developing an energy transition strategy geared toward winning in the next 5 to 15 years—a less rigid, but more pressing and actionable, time horizon that we’re calling “203X.” These companies are discovering that focusing on 203X is powerful and pragmatic. It inspires them to imagine what’s possible while holding them accountable for what’s practical. It doesn’t downplay the urgency to act; it highlights it. Success in a very different future demands having the conviction to make bold moves now to secure advantages—geographic, technological, competitive—that will be meaningful in 203X and beyond. Going forward, navigating the energy transition will require continually forecasting 5 to 15 years ahead, mapping key stepping-stones, and dynamically adjusting strategy in a thoughtful, balanced way. This approach can mitigate uncertainties that paralyze action, highlight potential disruptions to guard against, and empower resilient decision making. Developing a stepping-stone strategy Even when companies recognize the benefits of a stepping-stone approach to the energy transition, many aren’t sure how to start. Emerging leaders are forming their strategy by focusing on three things. 1. Get clear on what you know and what you don’t. Anchoring on 203X instead of 2050 helps narrow strategic considerations to a more manageable number and focus the conversation. Leading companies contemplate the industry variables likely to remain relatively steady between now and 203X, as well as the “known unknowns” that they’ll need to develop resilience against. By identifying the external factors that could affect their strategy and grouping these factors by their degree of predictability, organizations can develop a plan that prioritizes investments based on a range of possible outcomes. This can illuminate potential pathways to capitalize—and their trade-offs. Executives may be surprised by how much they can project with reasonable confidence within the 203X window, such as the relatively predictable development speed of energy technology (constrained by physics) and the relatively defined speed and scale limitations of infrastructure construction. Essentially, this means companies will be operating within today’s parameters for much of 203X. That should feel freeing for executives’ energy transition decision making. Although they can’t ignore long-term technology trends, some things that might be possible by 2050 are off the table (for now). Meanwhile, identifying unknowns, such as the future cost of capital, can make the strategy adaptable to less predictable external disruptions. It also helps avoid irreversible commitments that depend on a worldview that may change. As part of a durable and resilient strategy, companies should continuously consider and plan for uncertainties, including extreme-but-plausible scenarios where the range of outcomes can be estimated. 50 The Visionary CEO’s Guide to Sustainability 2024 History has shown that certain disruptive events will happen, even if executives don’t know when or how significant they’ll be (think weather or wars that hobble energy supply chains). Once the range of plausible scenarios is understood, companies can define and track key signposts that would trigger strategic adjustments. Maersk, the global shipping and logistics company, has launched the first vessels in a planned fleet of around 25 container ships that can sail on green methanol in addition to biodiesel and conventional bunker fuel. Maersk has also begun retrofitting existing ships with the same dual-fuel engines. This move gives the company optionality as green methanol technology matures, plus resilience against the pace of its production, while helping fulfill the company’s 2030 carbon-reduction goals on the path to its 2040 net-zero emissions target. 2. Identify the most relevant ways to win. Succeeding in the energy transition will likely require a portfolio of strategic advantages that, together, will allow companies to navigate even the most dramatic shifts in the landscape. Emerging leaders are evaluating their companies against 12 potential competitive levers and leaning into the ones that are most relevant or important to their business model (see Figure 2). These companies are also trying to anticipate which approaches their competitors are pursuing, or are most likely to pursue, and how those choices may affect them. Figure 2: Succeeding in the energy transition requires identifying your company’s strongest competitive levers among 12 potential ways to win 12 1 Switching costs Existing capabilities 11 2 Network effects Self-reinforcing revenue loops 10 3 Branding Flexible strategy 9 4 Serve new customer needs Scale economics 8 5 Policy Innovative tech or processes 7 6 Access to coveted resources Market counter-positioning Company X’s relevant ways to win Source: Bain & Company 51 The Visionary CEO’s Guide to Sustainability 2024 A prudent portfolio of competitive levers focuses on a few priority areas while recognizing crucial interdependencies. For example, innovative technology may be relevant, but if the technology requires resources that are constrained, securing coveted access will also be critical to the company’s success. 3. Assess performance and capabilities across key levers. Leading companies conduct an honest assessment of their current performance across the chosen strategic areas of focus. It’s crucial to be realistic about which capability gaps to close and how. Thoughtful investment of scarce internal resources will be essential, and acquisitions and partnerships may be an important part of succeeding in the energy transition. By marrying the short list of competitive levers with an assessment of performance and capabilities in those areas, companies can build a robust execution roadmap (see Figure 3). With electric vehicle sales rising, a chemical manufacturer looked to capitalize on surging demand for critical battery materials. The company assessed technology and market trends, and it ran potential scenarios to help identify its key strategic choices. For example, what’s the right mix for its portfolio of product types and battery chemistries, as well as resource types and locations? Where should it locate its resource base and processing operations? Which customers and value chain intermediaries should it focus on, and how would that differ from its current customer base? Figure 3: Assessing performance across potential competitive levers can guide a company’s energy transition roadmap 12 1 Switching costs Existing capabilities 11 2 Network effects Self-reinforcing revenue loops 10 3 Branding Flexible strategy Lower performance 9 4 Serve new customer needs Scale economics 8 Higher performance 5 Policy Innovative tech or processes 7 6 Access to coveted resources Market counter-positioning Company X’s relevant ways to win Company X’s performance level Source: Bain & Company 52 The Visionary CEO’s Guide to Sustainability 2024 The assessment helped the company develop a 10-year growth strategy with clear short-term priorities (e.g., supplier relationships, production expansion, technology roadmaps) and a set of signposts to monitor that would prompt updates to the strategy (e.g., technology advances, government incentives for EVs). Despite the variability in material prices and fluctuations in near-term EV demand, the company’s flexible long-term strategy enables it to adapt nimbly to such headwinds. Or consider how one retail energy firm is transforming itself into a consumer-centric services company. Faced with diminished growth prospects in its core business, customer demand for sustainability, and competition from residential solar and other new energy products, the firm needed to evolve. The leadership team recognized this, but some members were skeptical the company could execute such a pivot, given the organization’s limited success entering new markets in the past. To succeed this time, the company developed a long-term growth strategy with a clear roadmap. It conducted detailed market assessments for potential new businesses, defined the uncertainties most likely to affect the company’s strategy, and stress-tested the organization’s capabilities by simulating potential disruption scenarios. The company also ran a series of “micro-battles”: discrete, time-boxed initiatives that rapidly bring strategic choices to action and formulate ways to scale the results. Through this effort, the company established a repeatable, structured model for evaluating and scaling new businesses. Ultimately, the company projects its new strategy could deliver hundreds of millions of dollars in EBITDA in the coming years. Seizing the moment We’re in an unprecedented moment in history, facing tremendous challenges but also incredible opportunities. Emerging leaders know that success in the energy transition requires preparedness and durability. They’re developing strategies that capitalize on known factors or those they can reasonably constrain, while becoming adaptable to those they cannot. Above all, they’re moving quickly to capture advantages that will define their strategic position in 203X and beyond. 53 Transitions All Together Now: Partnerships Are Key to Circularity Broad alliances help circular businesses increase revenues and gain new customers . By Hernan Saenz, Joshua Hinkel, Tessa Bysong, Xavier Houot, and Simone Doms At a Glance Circular partnerships speed access to market knowledge and sources of circular feedstocks . More than 90% of companies with a circularity initiative have at least one partnership, according to a Bain survey . Artificial intelligence can help extend a product’s useful life by determining when it needs repair or service . Many businesses recognize the power of circularity to shape the next economic era. Circular business models will enhance operational resilience, give rise to new markets, and offer a competitive edge in a world of limited resources. But most leadership teams are still uncertain about how to deliver on that promise. Partnerships are vital to a successful circular strategy. They provide the knowledge and materials to design a circular business model. They can also lower production costs, create economies of scale, and enhance consumer loyalty. In a 2022 Bain & Company survey, 94% of respondents who said their company had a circularity initiative had at least one circular partnership. 54 The Visionary CEO’s Guide to Sustainability 2024 Companies can develop in-house capabilities to manage a circular business model, but partnerships may offer a faster and more cost-effective approach. They speed access to market knowledge, lower the cost of circular materials, and help guide the policies and standards needed for a mass market in circular goods and services. Partnerships will need to evolve quickly to include a wider range of stakeholders and companies beyond linear value chains. These alliances may comprise companies from diverse industries and even competitors. Cross-industry coalitions can help businesses agree on how to share the revenues, costs, and risks of circular business models. As more companies go circular, partnerships will expand into multi-stakeholder coalitions or circular ecosystems. Sources of value Companies can create value from circular processes in three different ways. The first involves reducing virgin material consumption by using recycled feedstock or redesigning products to reduce material needs. The second source of value is based on increasing a product’s useful life span through repair, refurbishing, and remanufacturing services. And the third focuses on transforming high-value products to services to increase capacity utilization. Leadership teams may forge a circular business model around one or more of these sources of circular value. Each industry will use the model that is best adapted to its needs. Partnerships will differ depending on the type of circular value sought. Companies may collaborate in seeking access to circular feedstocks, for example, or to refurbish products and extend their life. Others may partner to reinvent products as services that reduce resource consumption. In our experience, companies start with vertical partnerships and industry coalitions since they help pave the way for industry standards. An important step in building a circular business model is identifying the control points in the value chain and inflection points (see Figure 1). Control points include both material flows, such as access to circular feedstocks, and information flows, such as how to identify goods for repair or disposal. In the chemicals industry, for example, where recycled feedstock is in short supply, collection and sorting facilities for plastic waste are a vital control point. Inflection points include the factors that can make circular goods cost-competitive, increase consumer confidence in refurbished products, and create demand for new circular offerings. Successful partnerships help companies gain access to control points and understand how circular products can best compete with linear equivalents. Circular feedstocks The challenge with circular feedstocks is that demand often rapidly outstrips supply. Firms seeking circular feedstocks for plastics, textiles, or metals, for example, have already encountered those 55 The Visionary CEO’s Guide to Sustainability 2024 Figure 1: Control points and inflection points help companies manage the transition to circular business models Who will control vital parts of the future value chain? When will my value chain shift toward circularity? 1 3 Information flows Experience curve • Traceability and origin, • Capabilities authentication • Volumes and scale • Materials content • Technical specifications (i.e., for repair) Control Inflection 2 points points 4 Material flows Adoption curve • Take back • Regulation • End-of-life management • Standards • Circular feedstocks • Commercial push Control points identify the stakeholders Inflection points help determine in a value chain with proprietary access the best time to transition to to critical resources and capabilities a circular business model Source: Bain & Company limits. One reason for feedstock scarcity is the lack of recycling technologies that are economically viable at scale. Another is the lack of affordable and accessible waste that can be used as feedstock. To develop large quantities of sustainable inputs, leading companies are partnering with those who have access to end-of-life material and the ability to generate value from reusing it. Partners can recycle materials either through traditional mechanical means or via emerging advanced chemical recycling capabilities that process hard-to-recycle plastics such as flexible films or thermoplastics. Dow Chemical and Freepoint Eco-Systems, for example, recently teamed up to increase the supply of circular feedstock for Dow. Under their agreement, Freepoint will build an advanced plastics recycling facility in Arizona that can provide Dow with approximately 65,000 metric tons of pyrolysis oil per year. Dow will use the pyrolysis oil to produce new virgin-grade equivalent plastics suitable for food packaging as well as medical and pharmaceutical packaging. Extending product life span Partnerships are also key to extending the useful life of products. Maintenance and service providers, for instance, have knowledge about common failure points and how to design products for easier upgrades. A partner may also supply critical data flows, including traceability of products and components, telemetrics (enabled by the Internet of Things), and predictive maintenance to determine when a 56 The Visionary CEO’s Guide to Sustainability 2024 product needs repair, upgrade, or refurbishment. Companies may connect products to their own cloud service or that of a partner and use artificial intelligence to improve performance and uptime. The data generated can increase customer confidence in refurbished products, accelerating adoption. Take the case of Apple, which extends the lifetime of its iPhones and other devices by offering certified refurbished products with Apple replacement parts and a one-year limited warranty. In China, Apple has two partners for recycling devices: Foxconn subsidiary iFengPai and ATRenew, the country’s largest secondhand consumer electronics service company. Since Apple launched its trade-in program in 2013, the secondary market for refurbished products has become a major source of profit and an environmental win (see Figure 2). Apple’s share of the global market for refurbished phones in 2022 rose to 49%, and the company sent 12.2 million devices and accessories to new owners for reuse in 2021, extending their lifetime and reducing the need for new virgin material. That strategy has helped Apple gain access to a larger customer base, particularly in countries and regions where lower-priced competitors are the market leaders. Transforming products into services Partnerships play a similarly important role in reinventing business models and transforming products into shared services. Companies that move to service-based business models often forge collaborations Figure 2: Used smartphones outpace new smartphones in unit sales growth Smartphone units shipped, year-over-year growth Forecast 12% 9% 9% 9% 9% 8% 4% 2% 2% 2% –3% –11% 2022 2023 2024 2025 2026 2027 New smartphones Used smartphones Notes: Sales for used smartphones in 2023 is a forecast based on Q1–Q3 data; the figure for new smartphone sales in 2023 is actual full-year sales Sources: IDC Worldwide Smartphone Forecast Update, June 2024; IDC Worldwide Used Smartphone Forecast, December 2023 57 The Visionary CEO’s Guide to Sustainability 2024 with financial partners and use software and AI solutions to maintain products at their optimum performance level for the longest possible time. In 2023, mobility company Lynk & Co partnered with used car auctioneer BCA Europe to increase the life span of Lynk’s cars by reselling them in the used car market. Lynk offers its members easy access to a car as a flexible, month-to-month service. After customers return their vehicles, Lynk inspects and reconditions them before BCA Europe seeks a buyer. The partnership, which covers seven European markets, helps increase the lifetime of each vehicle. Companies that move to service-based business models often forge collaborations with financial partners and use software and AI solutions to maintain products at their optimum performance level for the longest possible time. The shift to shared services can create new markets. German machinery maker The Trumpf Group and insurer Munich Re partnered in 2020 to develop an innovative business model for laser-cutting machine services. Instead of having to buy or lease laser equipment, Trumpf customers pay an agreed price for each cut sheet metal part, so the expenditure on equipment is tied directly to business need. The pay-per-part model offers customers financial flexibility, allowing them to avoid significant capital expenditures on machinery and react faster to market changes. Trumpf remains the legal owner of the machine and takes care of all maintenance, repairs, production planning, and programming. Munich Re finances the machine and bears the investment risk. Though pay-per-part contracts represent less than 1% of Trumpf’s total business today, they are a win-win for the company and its customers. Under pay-per-part contracts, Trumpf sends its own engineers and mechanics to customers, who, in turn, can focus on their core business. The arrangement provides Trumpf with valuable data on the performance of its machines. Overall, the pay-per-part contracts enable Trumpf engineers to manage material use more efficiently, reducing carbon dioxide emissions by up to 65%. After 8 to 10 years, Trumpf takes back the machines and refurbishes them or reuses selected parts. Circular ecosystems Over time, industry partnerships are likely to evolve into broad ecosystems that stretch beyond a company’s value chain. These alliances will bring together all the parties needed to ensure that those 58 The Visionary CEO’s Guide to Sustainability 2024 who have access to feedstocks connect efficiently with those who can recycle them. They also will help shape industry standards and accelerate cost reduction over time. Already, companies are joining together in industry coalitions to lay the precompetitive foundation for circular business models. The Global Battery Alliance, for example, is working to scale a sustainable battery value chain and has more than 160 member organizations, including Tesla, BASF, Microsoft, and Volkswagen. The alliance has created a “battery passport” as a standard to increase transparency and accountability along the battery value chain. The passport, a digital twin of the physical battery, provides standardized data on the provenance of raw materials, manufacturing history, sustainability performance (such as carbon footprint), and recycling. The aim of the passport is to increase consumer confidence in electric batteries with trusted data on sustainability and performance. Companies in every industry are working together in new and more interconnected ways to lay the foundations for circular business models. Partnerships will exist both within a business’s value chain and outside of it. Leadership teams that start forging these vital alliances now will be best positioned to prosper as the transition to a more sustainable economy accelerates. 59 Transitions Faster by Design: New Models for Financing the Food Transition We know how to build more resilient, climate-smart, and nature-positive food systems, but we must move faster . New models can help . By John Blasberg, Sasha Duchnowski, Andrew Keech, Jenny Davis-Peccoud, and Vikki Tam At a Glance Emerging financing and collaboration models can help agriculture clear long-standing barriers to sustainability . These models can accelerate farmer adoption of the necessary production changes by distributing risk and monetizing ecosystem benefits . Many companies stand to benefit from more sustainable food systems . Asking five key questions will help them jump-start their efforts . This article is excerpted from the World Economic Forum report 100 Million Farmers: Breakthrough Models for Financing a Sustainability Transition. Our global food system has a significant impact on the environment. It accounted for more than 30% of global greenhouse gas (GHG) emissions in 2020, over 80% of tropical deforestation and biodiversity loss, and 70% of global freshwater withdrawals. It also has the potential to sequester substantial amounts of carbon. 60 The Visionary CEO’s Guide to Sustainability 2024 We know the practices, technologies, and inputs that could begin to reduce—and ultimately reverse— the food system’s impact on climate and nature while at the same time building resilience, boosting productivity, and enhancing the nutrient density of crops. Yet we struggle to deploy these solutions at the scale and pace required. Currently, an estimated 15% of global cropland is farmed using regenerative practices. Transforming the global food system demands greater investment: at least $300 billion in additional capital annually through 2030, according to the Food and Land Use Coalition. Without new approaches, it will be hard to raise that much capital. Regenerative agriculture, one part of that transformation, illustrates the challenge. Its potential benefits are well understood, but farmer adoption has not scaled quickly enough due to economic, technical, and social barriers. Even though longer-term returns can be positive, the economic risks farmers face in the early transition years—up-front investments required, uncertainty in yields as soils are reconditioned—can pose a major barrier to getting started at all (see Figure 1). To date, few actors, including those that stand to benefit from the many advantages of regenerative agriculture, have stepped up to share that risk. However, innovative financing and collaboration models are now emerging that use up-front payments or guarantees to defray the risks for farmers Figure 1: Regenerative agriculture typically increases farmer cash flows—but only over time and after significant up-front investment Net cash impact from adopting regenerative practices, farmer owner-operator model (US dollars/acre) $100 0 –100 –200 Year 0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Before After adoption adoption (includes upfront investment) Notes: Cash-flow impacts are not adjusted for inflation and do not reflect noncash costs, cover crop sales, grazing (hay savings), additional yield benefits in drought years, sustainability-linked incentives/payments/discounts, or proceeds from the sale of credits for carbon or other ecosystem services; cash impact of adoption is calculated relative to a baseline scenario in which crop prices are held fixed throughout the transition period at their Year 0 level; in the modeled scenario, a 500-acre farm in Illinois, USA, growing corn and soy in rotation transitions from conventional practices to no-till and cover crops Source: Bain & Company 61 The Visionary CEO’s Guide to Sustainability 2024 and in some cases offer other supports, like affordable working capital loans, equipment and input financing, and technical assistance. Monetizing the benefits of regenerative agriculture Regenerative agriculture can deliver many valuable outcomes to a wide set of participants in today’s food system, but so far, few are paying for them. The benefits include a lower carbon footprint for food production; reduced water use, runoff, and pollution; improved biodiversity; higher nutrient density in food; and more resilient farming operations. These outcomes are highly valuable to downstream agri-food companies that need reliable and resilient supply chains, aim to produce nutritious foods, and want to deliver on Scope 3 carbon commitments. Farm lenders and insurers of farms could lower risk in their agricultural portfolios, while local water companies would benefit from cleaner water. Transforming the global food system demands greater investment: at least $300 billion in additional capital annually through 2030, according to the Food and Land Use Coalition. Monetization of these outcomes could occur in several ways. For example, a wide range of actors could pay for verified environmental outcomes like GHG emission reduction and removal or lower freshwater pollution. Agri-food companies could pay premiums for commodities produced in a way that delivers the desired outcomes or agree to longer-term offtake contracts that reflect the more reliable supply they expect to receive. Monetization of resilience could take the form of more favorable lending and insurance terms for farmers to reflect lower portfolio risk. Today, only one ecosystem outcome market is relatively developed: the monetization of carbon outcomes through carbon offsets and Scope 3 reduction programs, called “insets.” Markets for water quality, water conservation, farmland resilience, enhanced biodiversity, and higher nutrient density of food have been slow to develop, in part because of a lack of agreement on how to measure things like biodiversity. Another factor is insufficient data on the precise relationship between regenerative practices (such as reduced or no tillage, cover cropping, and nutrient management) and better environmental and economic outcomes. Before the many benefits of regenerative agriculture can be fully monetized, a blend of catalytic, concessional, and commercial investment capital will be needed to kick-start programs that provide farmers with the requisite financial and nonfinancial support. This investment capital can be recouped over time as food system actors recognize and increasingly value the benefits delivered by regenerative practices. 62 The Visionary CEO’s Guide to Sustainability 2024 Emerging financing and collaboration models Coordinating these capital sources and channeling their investment efficiently require backbone entities. So does coordinating support and services for farmers. Entities that take on this coordination role must have a strong understanding of a number of factors, including the optimal deployment of regenerative practices, the expected economic and environmental outcomes for the farms they assist, and the financial and nonfinancial support that is most likely to incentivize farmers. Their ability to accurately forecast farms’ agronomic and environmental performance under regenerative management will be key to structuring robust financing vehicles. A range of models are being tried today. No one program yet incorporates all the essential elements to accelerate and scale up farmers’ transition to sustainable practices, but two “farmer-allied” models do show promise. The first builds on grower associations and the inherent trust they have with farmers, who often face a bewildering array of offers and programs, not always tailored to their needs and mostly inconsistent with one another. One example of this type of model is the Soil and Water Outcomes Fund (SWOF), a program affiliated with the Iowa Soybean Association. Despite evidence that using conservation tillage and cover cropping could bring both soil health and financial benefits to US corn, soy, and wheat farmers, more than 90% of them surveyed in 2022 cited uncertain return on investment as a barrier to adoption. We estimate that $25 billion to $80 billion in financing—or more—will be needed to help US farmers reach an agronomically optimal level of low- or no-till farming and cover crops. SWOF is beginning to address that need by providing participating farmers across 19 states with up-front payments, along with technical assistance to support their transition. SWOF’s financing comes in part from monetizing and selling environmental credits to corporate buyers, like PepsiCo, Cargill, and Target, who benefit from a more sustainable supply chain. It has also raised catalytic capital from government sources, including the USDA’s Partnerships for Climate-Smart Commodities. SWOF serves as a coordinator between farmers and other parties, quantifying environmental outcomes from individual farms with robust data and modeling, negotiating purchases from multiple buyers simultaneously, and optimizing financing flows. It’s a model that is now being emulated in different crops, including cotton, and in other regions of the US. But even leading programs such as SWOF need greater financial services involvement in order to provide farmers with a full suite of solutions to support their transition. The second model, in which financial services providers with the necessary advanced analytical capabilities catalyze progress, is exemplified by Crédit Agricole. Through a partnership with Canadian multinational McCain Foods and GAPPI, the bank is offering up to €40 million of new debt on attractive terms to 800 potato farmers adopting regenerative methods. With McCain making the interest payments and Crédit Agricole providing the loans, the partnership shows how aggregating capital from a variety of sources can help unlock more financial support for growers. In partnership with France Carbon Agri, 63 The Visionary CEO’s Guide to Sustainability 2024 the bank launched a platform to monetize agricultural carbon outcomes. And at the same time, it is building its own internal capabilities. For example, relationship managers can use its Trajectoires RSE Agri tool to discuss regenerative agriculture more effectively with farmers. Steps to accelerate change Such innovative models show promise but need to be built out, scaled up, and replicated much more quickly. Financial services companies will play an important part, improving the financial health of their clients while building new revenue streams and progressing on their own environmental commitments and regulatory obligations. But with less than 4% of overall climate finance going to the agriculture, forestry, and other land use sector today, far more engagement is necessary. Of more than 50 regenerative agriculture pilot programs studied in the US, only 15% include a financial institution of any size. Yet these players have a lot to gain from a more resilient portfolio and can bring valuable advanced analytical, risk management, and financial engineering capabilities to partnerships with others in the value chain. Indeed, every company that benefits from regenerative agriculture must contribute. Efforts like the World Economic Forum’s First Movers Coalition for Food aim to leverage the procurement power of member companies to give growers confidence and speed the adoption of sustainable farming for high-GHG agri-food commodities. Downstream agri-food companies, including processors, consumer products companies, and retailers, will benefit from greater certainty of supply and delivery on climate and nature commitments. All food system actors must develop the capabilities to effectively participate in the kind of collaboration critical to sustainable agriculture. Companies keen to accelerate the transition to sustainable food systems will benefit from considering five questions: 1. How much value can our company create by ramping up our commitment to transitioning to sustainable food production while continuing to meet our commercial ambitions? 2. What investments, products, services, and procurement strategies will help us reach our targets? 3. How can we help farmers obtain the financing and other support they need? 4. Do we have the right partners, in the right models, to provide the support needed? 5. What operating model changes will we have to make? 64 Bold ideas. Bold teams. Extraordinary results. Bain & Company is a global consultancy that helps the world’s most ambitious change makers define the future. Across 65 cities in 40 countries, we work alongside our clients as one team with a shared ambition to achieve extraordinary results, outperform the competition, and redefine industries. We complement our tailored, integrated expertise with a vibrant ecosystem of digital innovators to deliver better, faster, and more enduring outcomes. Our 10-year commitment to invest more than $1 billion in pro bono services brings our talent, expertise, and insight to organizations tackling today’s urgent challenges in education, racial equity, social justice, economic development, and the environment. We earned a platinum rating from EcoVadis, the leading platform for environmental, social, and ethical performance ratings for global supply chains, putting us in the top 1% of all companies. Since our founding in 1973, we have measured our success by the success of our clients, and we proudly maintain the highest level of client advocacy in the industry. For more information, visit www.bain.com, 2024) This is also support by broader wide-ranging analysis.

4. For scope 3 emissions gap data analysis see MSCI Carbon MarketsUsing carbon credits to meet corporate climate targets 24 November 2023 Table of contents Executive Summary 5. Impact of lowering the minimum threshold of carbon credit use to make an 1. Introduction enterprise-wide VCMI Claim 5.1 VCMI’s current claims code tier 2. Extent of on/off-track in relation to climate performance 5.2 Effect of lowering the credit use threshold for VCMI “silver” tier 2.1 Methodology 2.2 Summary of emissions gap - all scenarios 6. Conclusions and recommendations 2.3 Scope 1 & 2 - current performance 2.4 Scope 1 & 2 - projected performance in 2030 Appendices 2.5 Scope 3 only - current performance A.1 Number of companies - Current Performance: Scope 1 & 2 only 2.6 Scope 3 only - projected performance in 2030 A.2 Number of companies - Projected performance in 2030: Scope 1 & 2 only A.3 Number of companies - Current Performance: Scope 3 only 3. Cost of abatement vs climate outcomes A.4 Number of companies - Projected performance in 2030: Scope 3 only 3.1 Data and methodology A.5 Corporate climate commitment definitions 3.2 Cost of abatement methodology 3.3 Proportion of companies with SBTi targets vs. cost of abatement Bibliography 3.4 Proportion of SBTi targets using market cap-weighted vs. cost of abatement 3.5 Implied Temperature Rise (ITR)1 vs. cost of abatement 3.6 Potential climate outcomes of allowing use of carbon credits 4. Flexibility analysis - allowing carbon credits to bridge Scope 3 emissions for SBTi targets 4.1 Current off-track emissions gap for Scope 3 SBTi targets 4.2 Finance deployed to close current off-track emissions gap for Scope 3 SBTi targets 4.3 Off-track emissions gap for Scope 3 SBTi targets in 2030 4.4 Finance deployed to close off-track emissions gap for Scope 3 SBTi targets in 2030 4.5 Limiting the use of carbon credits to bridge Scope 3 emissions gap for SBTi targets 4.6 Effect on worst performers 1. Trove Research’s calculated Implied Temperature Rise model was created independently by Trove Research before the merger with MSCI . The model uses a different methodology to MSCI and therefore outputs are not comparable. 27 November 2023 Information Classification: GENERAL 2 Executive Summary This report has been conducted for the VCMI by MSCI Carbon Markets (formerly Trove Research) Incentivising more climate action with support from Rockefeller Philanthropy Advisors. The report presents a detailed analysis of The above figures are based only on the number of companies that have how the use of carbon credits could close the emissions gaps for companies with science-based declared emissions targets today. Allowing companies to use carbon credits to targets, deploy additional finance in mitigating beyond value chain emissions and how this could meet their emissions targets should encourage more companies to set ambitious affect the number of companies setting climate commitments and the strength of those targets. climate targets as it will lower the costs of reducing emissions. Emissions gap The analysis in this report estimates that if companies are allowed to use carbon Across all firms with climate targets the gap between current emissions and targets is c.400 credits to meet 50% of their total emissions gap (Scope 1, 2 and 3) we could MtCO2e for Scope 1 & 2. This increases to c.2 GtCO2e in 2030. The gap in Scope 3 emissions expect to see around 1,000 more companies setting ambitious climate targets targets is even larger, at around 1.4 GtCO2e today and over 7 GtCO2e by 2030. representing some $10 trillion in market capital. 400 of these new firms would be expected to set SBTi approved targets. If these new targets are achieved the Closing the Scope 3 gap with carbon credits average Implied Temperature Rise of companies with climate targets would Assuming only firms that are on-track to achieve SBTi approved Scope 1 & 2 emissions targets are reduce by 0.5°C from 2.5°C to 2.0°C. eligible to use carbon credits to close the gap in Scope 3 emissions, this could create a demand for carbon credits of 640 Mt today and 2.2 GtCO2e in 2030, if no limitations were put in place Recommendations with regards to the maximum amount of carbon credits used. On the assumption that carbon credits cost $30/tCO2e, this demand could generate an additional expenditure on carbon credits Thousands of companies have made public declarations to dramatically reduce of $19bn today and $65bn in 2030. If the use of carbon credits is limited to 50% of Scope 3 their carbon emissions. Many of these are significantly behind in meeting their emissions today, and 25% in 2030, the finance required would be $19bn and $3bn respectively. near-term targets, and many other companies are reluctant to set science-based targets because of the difficulty in achieving them. Reducing the minimum threshold for the lower VCMI claim tier (“silver”) The use of carbon credits could significantly support the climate ambition and Reducing the minimum threshold for the lower VCMI tier “Silver” from 20% to 10% would impact of corporates. High-quality carbon credits with strong benefits for the increase the number of companies eligible for “Silver” by around 30% (6 firms with 2Mt of climate, society and nature, are often several times cheaper than the cost of emissions), based on the firms currently on-track for Scope 1, 2 and 3 under SBTi targets and reducing corporate emissions, especially in hard to abate sectors. Allowing using carbon credits. Currently, SBTi firms that are on-track for Scope 1, 2 and 3 targets cover companies to use these high-quality credits against their targets would only 0.6% of their emissions with carbon credits – equivalent to an expenditure of $0.2bn at encourage more firms to adopt ambitious climate targets and deliver better $30/t. If, however, all on-track firms used carbon credits up to a maximum of 10% of their total outcomes for the climate, broader environment and society. emissions footprint, this would require $10bn in finance (at $30/t) and mitigate some 320 MtCO2e of beyond value chain emissions. 27 November 2023 Information Classification: GENERAL 3 1. Introduction Information Classification: GENERAL 1. Introduction 1. Introduction Context This report This report presents an analysis of the potential impact of allowing companies to use Two main lines of analysis are explored in this report. The first assesses the extent to which carbon credits as part of their climate mitigation efforts. The report forms part of a companies are on or off-track in relation to their climate targets, either under the Science broader set of research supported by the Voluntary Carbon Market Integrity initiative Based Targets initiative (SBTi) or self-declared (Section 2). This provides a measure of the scale (VMCI) on barriers to companies committing to and achieving ambitious climate targets. of the opportunity for carbon credits to help in align company performance with their stated targets. This is a static analysis based on companies with climate targets today. 1 The use of carbon credits as part of corporate climate mitigation efforts is hotly debated. For some it provides a cost-effective means to achieve better climate outcomes at lower Section 3 takes a dynamic approach looking at how the inclusion of carbon credits could costs. For others it is a way to avoid making the fundamental (and costly) changes encourage more firms to set ambitious climate targets. The analysis compares the level of necessary to reduce emissions. climate ambition in different sectors with estimates of the cost of abatement in each sector. Climate ambition is measured in three ways: (i) number of companies signed up to SBTi net The Voluntary Carbon Market Integrity Initiative’s (VCMI) provisional guidance in June zero targets as a proportion of all companies with climate targets, by sector, (ii) market 2022 encouraged firms to use carbon credits but only in addition to mitigation actions in capitalisation of companies signed up to SBTi as a proportion of world corporate market line with science-based targets (“gold” and “silver” tiers). For many firms, however, capital, by sector. 2 (3) strength of the targets from all companies with climate targets as achieving science-based targets for Scopes 1, 2 and 3 is prohibitively expensive. To captured through the Trove Research’s metric of “Implied Temperature Rise (ITR)”. Sections 4 ensure these companies remained engaged with the decarbonisation journey, the VCMI and 5 show the potential impact on emissions and additional finance required by allowing created an additional tier (“bronze”). This would allow firms to use carbon credits as companies to use carbon credits in their mitigation efforts. part of the mitigation for Scope 3 emissions, but only up to 2030. About MSCI Carbon Markets and Trove Research Until now there has been little research on how the use of carbon credits would impact the ambition of firms and the effect on the climate. Several research papers have This project was conducted by Trove Research using Trove Research data, models and explored the benefits of trading emission rights at the national and international level classifications. Trove Research was acquired by MSCI on 1 November 2023 and is now known and for the forestry sector (Piris-Cabezas et al., 2023, Pietracci et al., 2023, Yu et al., as MSCI Carbon Markets. The approach and methods in this work differ from that taken by 2021, Hof et al., 2017), but not in relation to voluntary corporate climate action. MSCI ESG Research. Acknowledgements The purpose of this report is to provide quantified analysis of the effect of firms using carbon credits in their near-term climate strategies. The underlying hypothesis is that by We are grateful for the support provided by VCMI to help fund this work. We also providing access to the global carbon credit market companies will be willing to set more acknowledge the kind support of colleagues in MSCI and Enerdata who assisted with cost of ambitious targets and go further in achieving them. abatement and global market capitalisation data. 1. Trove Research’s climate commitments database as of September 2023. 2. Market capitalisation of a company is calculated by multiplying its total shares outstanding by the market value per share. 27 November 2023 Information Classification: GENERAL 5 2. Extent of on/off-track in relation to climate performance Information Classification: GENERAL 2.1 Methodology 2. On / off-track analysis Overview This section assesses the extent to which companies are on or off-track to achieve their stated Companies are assessed on the degree to which they are on-track or off- emissions targets. Company emissions data and climate targets are taken from Trove Research’s track relative to their target. A company that has emissions higher than their database of over 10,000 companies, although not all companies have emission targets. Both target is off-track, and one with emissions lower than their target is on-track. emissions and targets relate to absolute emissions, not emissions intensity, and cover only The extent of on or off-track is presented as percentage. The calculation is near-term targets up to 2035. We have not attempted to assess performance against intensity as follows: targets as part of this report. Intensity targets cover a relatively small proportion of all 𝑇𝑎𝑟𝑔𝑒𝑡 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑖𝑜𝑛 gap (%) = company climate targets. In our dataset some 15% of companies have intensity-based commitments, but over 95% of these also have absolute targets. Dragomir et al. (2023) show 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 − 𝑟𝑒𝑝𝑜𝑟𝑡𝑖𝑛𝑔 𝑦𝑒𝑎𝑟 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 that absolute targets are preferred in the short, medium, and long term and that intensity 1 − 𝑥 100 targets are much less ambitious than absolute targets. Therefore, we focus on absolute targets 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 − 𝑡𝑎𝑟𝑔𝑒𝑡 𝑦𝑒𝑎𝑟 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠 as a measure of performance against a clearly defined start- and end-point. Off- and on-track performance gap has been calculated separately for Scopes 1 & 2 and for Carbon credit prices Scope 3 emissions and targets. Using emissions corresponding to baseline years for each target, we calculate the expected emission for each target at the most recently captured emissions The modelling assumes that high-quality carbon credits cost $30/tCO2e. This year. This calculation uses a linear annual reduction from baseline to target year. estimate is based on an analysis of carbon credit prices over the last 3 years using Trove Research’s database of over 20,000 transaction datapoints. Where multiple targets exist within the timeframe (e.g. Scope 1 by 2025 and a combined Scope 1 & 2 by 2030), the strongest effective target is used to evaluate performance. When a This price assumption is considerably higher than the volume weighted average combined target is for Scopes 1, 2 & 3, we assume that Scope 3 will be reduced by the specified market price of $5-8/tCO2e seen over the last 6 months. This is because the target (since usually the dominant effect). For firms with a 1.5°C aligned target line a 4.2% volume weighted average price includes a mix of project types, vintages and annual reduction for Scopes 1 & 2 from 2019 was assumed, and 2.5% annual reduction for quality. Within this mix high-quality projects with strong co-benefits, for Scope 3. 1 We assume that when a company meets its own target, it maintains emissions from example nature-restoration projects have traded in the region of $30/t. New, that point. We also assume that in absence of targets, emissions will similarly persist at the high-quality, nature-restoration projects can also have breakeven prices in most recent year’s level. excess of these price levels. 1. SBTi Corporate Net-Zero Standard, Version 1.1, April 2023, https://sciencebasedtargets.org/resources/files/Net-Zero-Standard.pdf 27 November 2023 Information Classification: GENERAL 7 2.1 Methodology (cont’d) 2. On / off-track analysis The examples below illustrate how the degree of on or off-track is calculated. Two types of off-track are shown and one on-track. The summary statistics for on-track / off- track for all firms in the database are show on the following page. Example Off-track Example Off-track Example On-track A company with a 50% absolute reduction target, base A company with a 50% absolute reduction target, A company with a 50% absolute reduction target, year emissions of 1,000 tCO2e and reporting year base year emissions of 1,000 tCO2e and a reporting base year emissions of 1,000 tCO2e and reporting emissions of 800 tCO2e would be off-track. The year emissions of 1,100 tCO2e would be off-track. The year emissions of 400 tCO2e would on-track. The percentage gap to target completion would be 1 – percentage gap to target completion would be 1 – percentage gap to target completion would be 1 – (1,000 - 800) / (1,000 - 500) = 60%. (1,000 – 1,100) / (1,000 - 500) = 120%. (1,000 - 400) / (1,000 - 500) = - 20%. Emissions Emissions Emissions 1,100 -100 1,000 200 1,000 1,000 500 500 500 800 600 500 500 500 400 Base year Target Actual Base year Base year emissions Target Actual Target Actual emissions emissions 1. SBTi Corporate Net-Zero Standard, Version 1.1, April 2023, https://sciencebasedtargets.org/resources/files/Net-Zero-Standard.pdf 27 November 2023 Information Classification: GENERAL 8 2.1 Methodology (cont’d) 2. On / off-track analysis The table and figure below show the gap for Scope 1 & 2 emissions for current performance against a company’s own targets. Emissions gap for Scope 1 & 2 by sector - current performance (MtCO2e/yr) Emissions gap for Scope 1 & 2 by sector - current performance (MtCO2e/yr) TOTAL Off-track On-track TOTAL Sector Off- > 50 - 25 - 10 - 0 - 0 - 10 - 25 - 50 – > On- track 100% 100% 50% 25% 10% 10% 25% 50% 100% 100% track Materials -125 13 Materials -125 -110 -13 -1 -1 -0 0 0 1 6 5 13 Power generation -67 -61 -4 0 -2 -0 0 0 1 0 30 31 Power generation -67 31 Transportation services -61 -59 -2 -0 0 -0 0 0 0 0 7 8 Transportation services -61 8 Infrastructure -51 -48 -3 -0 -0 -0 0 0 0 20 11 31 Infrastructure -51 31 Fossil Fuels -32 -29 -0 -3 -0 0 0 0 0 0 2 2 Fossil Fuels -32 2 Manufacturing -18 -15 -3 -0 -0 -0 0 0 0 2 26 29 Manufacturing -18 29 Services -13 -10 -2 -1 -0 0 0 0 0 1 5 7 Services -13 7 Food, beverage -12 -11 -1 -0 -0 -0 0 0 0 1 8 9 & agriculture -125 Food, beverage & agriculture -12 9 Retail -10 -8 -1 -0 -0 -0 0 0 0 1 4 5 Retail -10 5 Financial services -7 -7 -0 -0 -0 -0 0 0 0 0 1 1 Financial services -7 1 Hospitality -4 -3 -1 -0 -0 -0 0 0 0 1 0 1 Biotech, health care & Hospitality -4 1 -2 -1 -0 -0 -0 -0 0 0 0 0 1 1 pharma Biotech, health care & pharma -2 1 Apparel -1 -1 -0 -0 -0 -0 0 0 0 0 6 6 Apparel -1 6 TOTAL -403 -364 -30 -6 -3 -0 0 1 3 33 108 144 -140 -120 -100 -80 -60 -40 -20 0 20 40 Source: Trove Research database of corporate climate commitments 27 November 2023 Information Classification: GENERAL 9 2.2 Summary of emissions gap - all scenarios 2. On / off-track analysis The table below summarises the performance gap for eight different scenarios. The following four pages show the gaps by sector for the four main scenarios of Scope 1 & 2 vs Scope 3, and current vs projected performance. These scenarios vary in three ways: (i) Scopes 1 & 2 vs Scope 3; (ii) current vs projected performance in 2030; and (iii) companies’ own targets vs SBTi’s 1.5°C aligned near-term targets.1 The table shows the significant gap when Scope 3 emissions are considered, amounting to 1.4Gt on current performance and reaching over 7Gt/yr in 2030. Summary of emissions performance gap Off-track On-track Scope Coverage Scenarios Emissions gap Emissions gap # of Companies # of Companies (MtCO2e/yr) (MtCO2e/yr) Scenarios shown in following pages Companies’ own targets 1,337 - 403 1,055 144 Current performance 1.5°C aligned targets 1,285 - 378 1,059 171 Scope 1 & 2 Companies’ own targets 1,684 - 1,953 569 0 Projected performance in 2030 1.5°C aligned targets 1,729 - 2,052 524 51 Companies’ own targets 931 - 1,410 625 1,351 Current performance 1.5°C aligned targets 912 - 1,416 615 1,055 Scope 3 Companies’ own targets 849 - 7,394 606 0 Projected performance in 2030 1.5°C aligned targets 857 - 7,514 598 246 1. The 1.5°C aligned near-term targets scenario assumes that all companies in the analysis that have self-declared targets will seek SBTi validation and as a result their targets will be aligned to SBTi’s cross sector 1.5° C pathway. 27 November 2023 Information Classification: GENERAL 10 2.3 Scope 1 & 2 – current performance 2. On / off-track analysis The charts below show the current emissions performance, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 1 & 2. The figure on the left shows that the sector with the largest off-track emissions performance gap is the Materials sector, which is currently 125 MtCO2e away from meeting its targets for Scope 1 & 2. The best performing sector is Infrastructure (total on-track performance of 31 MtCO2e), with 87 companies in this sector going beyond their Scope 1 & 2 targets (see Appendix A.1). When sector-based targets are compared to the 1.5°C aligned targets, the Materials sector would still have the largest performance deficit at 113 MtCO2e, and the Infrastructure sector would remain the best performing (51 MtCO2e). Current performance against own targets for Scope 1 & 2 (MtCO2e) Current performance against 1.5°C aligned targets for Scope 1 & 2 (MtCO2e) Materials -125 13 Materials -113 14 Power generation -67 31 Transportation services -61 10 Transportation services -61 8 Power generation -57 36 Infrastructure -51 31 Infrastructure -49 51 Fossil Fuels -32 2 Fossil Fuels -32 3 Manufacturing -18 29 Manufacturing -22 25 Services -13 7 Services -12 7 Food, beverage & agriculture -12 9 Food, beverage & agriculture -12 9 Retail -10 5 Retail -10 5 Financial services -7 1 Hospitality -4 1 Hospitality -4 1 Financial services -3 1 Biotech, health care & pharma -2 1 Biotech, health care & pharma -1 2 Apparel -1 6 Apparel -1 6 -650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0 50 100 -650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0 50 100 Total Off-track: Total On-track: Total Off-track: Total On-track: - 403 MtCO2e 144 MtCO2e - 378 MtCO2e 171 MtCO2e 27 November 2023 Information Classification: GENERAL 2.4 Scope 1 & 2 - projected performance in 2030 2. On / off-track analysis The charts below show the projected emissions performance in 2030 against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 1 & 2 at different levels of being off-and on-track. The patterns are similar as for current emissions but amplified. Emissions gap is zero as companies that are projected to be on-track in 2030 have met their targets. The sector with the largest projected off-track emissions gap is Materials, which would be expected to be 579 MtCO2e away from meeting its targets for Scope 1 & 2 in 2030 if current trends continue. Biotech is expected to be the sector with the lowest gap by 2030, represented by 76 companies being off-track and 18 companies meeting their targets (Appendix A.2). When sector-based targets are compared to the 1.5°C aligned targets through to 2030, Materials would still have the largest performance deficit at 621 MtCO2e (see figure on the right), and Infrastructure would be the best performing (35 MtCO2e), as their targets are stronger compared to 1.5°C trajectory. Projected performance in 2030 against own targets for Scope 1 & 2 (MtCO2e) Projected performance in 2030 against 1.5°C aligned targets for Scope 1 & 2 (MtCO2e) Materials -579 Materials -621 2 Transportation services -421 Transportation services -414 0 Infrastructure -240 Power generation -242 3 Power generation -223 Infrastructure -236 35 Manufacturing -145 Manufacturing -145 2 Services -99 Services -97 4 Retail -77 Fossil Fuels -86 2 Food, beverage & agriculture -68 Retail -77 1 Fossil Fuels -39 Food, beverage & agriculture -68 0 Hospitality -23 Hospitality -24 0 Financial services -18 Financial services -20 0 Apparel -12 Apparel -12 0 Biotech, health care & pharma -8 Biotech, health care & pharma -8 0 -650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0 50 100 -650 -600 -550 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0 50 100 Total Off-track: Total On-track: Total Off-track: Total On-track: - 1,953 MtCO2e 0 MtCO2e - 2,052 MtCO2e 51 MtCO2e 27 November 2023 Information Classification: GENERAL 12 2.5 Scope 3 only - current performance 2. On / off-track analysis The charts below show the current emissions performance, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 3 only at different levels of being off-and on-track. Again, the sector with the largest off-track emissions gap is Manufacturing, which is currently 821 MtCO2e away from meeting its targets for Scope 3. However, Manufacturing also has the largest on-track performance of 671 MtCO2e, with 89 companies in this sector going beyond their Scope 3 targets (Appendix A.3). When we project the sector-based targets to the 1.5°C aligned targets, instead of each sector’s own Scope 3 targets, the Manufacturing sector would still have the largest performance deficit at 827 MtCO2e, and the same sector would also have the largest on-track performance (565 MtCO2e). Current Performance against own targets for Scope 3 (MtCO2e) Current Performance against 1.5°C aligned targets for Scope 3 (MtCO2e) Manufacturing -821 671 Manufacturing -827 565 Materials -193 124 Materials -193 84 Food, beverage & agriculture -88 12 Food, beverage & agriculture -88 13 Retail -88 76 Retail -84 76 Infrastructure -63 136 Infrastructure -62 145 Services -39 53 Services -37 47 Transportation services -36 11 Transportation services -36 10 Biotech, health care & pharma -23 8 Biotech, health care & pharma -26 8 Power generation -21 168 Power generation -23 18 Fossil Fuels -14 36 Fossil Fuels -17 38 Hospitality -10 20 Financial services -9 22 Financial services -9 22 Hospitality -8 20 Apparel -6 15 Apparel -6 7 -5,000 -4,000 -3,000 -2,000 -1,000 0 1,000 -5,000 -4,000 -3,000 -2,000 -1,000 0 1,000 Total Off-track: Total On-track: Total Off-track: Total On-track: - 1,410 MtCO2e 1,351 MtCO2e - 1,416 MtCO2e 1,055 MtCO2e 27 November 2023 Information Classification: GENERAL 13 2.6 Scope 3 only - projected performance in 2030 2. On / off-track analysis The charts below show the projected emissions performance in 2030, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 3 at different levels of being off-and on-track. The figure on the left shows that the sector with the largest projected off-track emissions performance gap is Manufacturing, which is projected to be c. 4,400 MtCO2e away from meeting its targets for Scope 3 in 2030 if current trends continue. Financial Services and Hospitality are expected to have the smallest projected performance gaps in 2030 at 42 MtCO2e each, with 78 and 14 companies in the two sectors respectively projected to meet their Scope 3 targets (see Appendix A.4). When projected to the 1.5°C aligned targets through to 2030, Manufacturing would still have the largest performance deficit at 4,380 MtCO2e (see figure on the right), with Hospitality having the smallest performance gap (37 MtCO2e). Projected performance in 2030 against own targets for Scope 3 (MtCO2e) Projected performance in 2030 against 1.5°C aligned targets for Scope 3 (MtCO2e) Manufacturing -4,372 0 Manufacturing -4,380 158 Materials -1,204 0 Materials -1,306 5 Retail -458 0 Retail -447 3 Services -271 0 Food, beverage & agriculture -259 4 Food, beverage & agriculture -262 0 Services -257 12 Transportation services -214 0 Transportation services -214 2 Infrastructure -206 0 Infrastructure -204 29 Biotech, health care & pharma -131 0 Biotech, health care & pharma -131 0 Power generation -94 0 Power generation -98 5 Fossil Fuels -53 0 Fossil Fuels -92 26 Apparel -45 0 Apparel -45 0 Financial services -42 0 Financial services -43 0 Hospitality -42 0 Hospitality -37 0 -5,000 -4,000 -3,000 -2,000 -1,000 0 1,000 -5,000 -4,000 -3,000 -2,000 -1,000 0 1,000 Total Off-track: Total On-track: Total Off-track: Total On-track: - 7,394 MtCO2e 0 MtCO2e - 7,514 MtCO2e 246 MtCO2e 27 November 2023 Information Classification: GENERAL 14 3. Cost of abatement vs climate outcomes Information Classification: GENERAL 3.1 Data and methodology 3. Cost of abatement Methodology The purpose of this section is to compare the cost of reducing emissions in different sectors with their climate ambition. From this it is possible to infer how corporate climate ambition could change if access to lower cost forms of abatement (i.e., carbon credits) were permitted as part of decarbonisation efforts. Defining abatement costs Different sectors face different costs of abatement. Hard-to-abate sectors are often seen as comprising energy intensive processes such as steel, cement and petrochemicals, and these tend to face the steepest abatement costs. Other sectors such as shipping or buildings have more alternatives to choose lower carbon sources of energy. In each sector the costs of abatement vary depending on how much abatement is being considered, and the analysis needs to assess sectors on a comparable basis. We do this by taking the same point on the abatement cost curves for each sector – a 40% reduction. This is based on the IPCC’s estimate that to keep within the 1.5°C limit, global emissions need to be reduced by at least 43% by 2030 compared to 2019 levels, and at least 60% by 2035. 1 Measuring climate ambition Our analysis uses three measures of climate ambition in each sector: a) the number of companies setting SBTi targets and committing to do so within two years (compared to the Trove Research’s universe of corporate climate commitments database), b) the percentage of global market cap of companies setting SBTi targets (compared to global market cap), and c) the Trove Research’s calculated Implied Temperature Rise (ITR) of targets. These climate outcomes are represented by the y-axis of each chart in the following slides and correlated with the cost of abatement. A line of best fit is created through the data points using a natural exponential function. For the first two charts showing the percentage of companies setting targets, the functions fix the Y intercept at 100%. This is because it is assumed that if the cost of abatement were zero, all companies would set SBTi NZ targets and have a 1.5°C ITR. In the SBTi framework, companies set climate targets aligned to science-based emission reduction pathways aimed at limiting global warming to meet the goals of the Paris Agreement. As of end of September 2023, over 6,000 companies have set or have committed to set SBTi targets. However, the number of companies signed up to SBTi is a crude measure of climate intent as firms vary hugely in size. We therefore assess the proportion of companies with SBTi targets by market capitalisation with reference to the MSCI ACWI Investable Market Index (IMI). Measuring and comparing climate ambition is a complex task, which also needs to account for a company’s emissions so that the baseline years of targets can be accounted for, and targeted reductions put into context. As a result, Trove Research has developed an ITR tool that synthesises a company’s emissions and targets data into a single comparable metric. The Trove Research’s calculated ITR score for a company estimates the temperature the planet would warm to above pre-industrial levels if every other company behaved in the same way and hit their climate targets. Only companies where an ITR score has been calculated have been modelled and analysed and this would include SBTi and self-declared climate targets. 1. IPCC, 2023: Summary for Policymakers. In: Climate Change 2023: Synthesis Report. Contribution of Working Groups I, II and III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, H. Lee and J. Romero (eds.)]. IPCC, Geneva, Switzerland, pp. 1-34, doi: 10.59327/IPCC/AR6-9789291691647.001 27 November 2023 Information Classification: GENERAL 16 3.1 Data and methodology (cont'd) 3. Cost of abatement Data sources The primary data source analysis of corporate emissions is Trove Research’s database of corporate emissions and climate commitments covering over 10,000 firms. The database contains extensive corporate climate commitments for company-level climate targets. Climate targets are drawn from company annual and sustainability reports, combined with data from the Science Based Targets initiative (SBTi). The Trove Research database categorises these targets into five key target types: SBTi net zero, self-declared net zero, SBTi validated emission reduction, self-declared emission reduction and commitment to SBTi with the intention to set a target in the next two years (see Appendix A.5 for definitions and groupings). Data on the cost of abatement in different sectors was drawn from multiple sources including models and published research. Key sources included: • Enerdata’s long-term Marginal Abatement Cost Curves (MACC) generated by the globally recognised POLES Energy Forecasting Model (global 2030 for all available economic sectors MAC curves for EnerBlue scenario – based on the successful achievement of NDCs and other national pledges)1. • Goldman Sachs Global Investment Research – Carbonomics 2022 MAC Curves. • Mission Possible Partnership’s (MPP). MPP’s work focuses on industrial decarbonisation in seven hard-to-abate resources and mobility sectors; namely industry (aluminium, cement and concrete - not published yet), chemicals (ammonia), steel and transportation (aviation, shipping and trucking). Academic and grey research papers were also consulted. This includes work done by the International Energy Agency’s (IEA) Energy Technology perspectives publications, Network for Greening the Financial System’s (NGFS) publications, as well as other peer reviewed academic papers on the cost of abatement in different sectors. Considerable efforts were made to aggregate and standardise the data from each source to enable a comparison across sectors at a broadly similar level of abatement. This involved excluding some data sources that estimated abatement costs at very low or high levels of abatement. The electricity generation sector was also excluded from analysis. This is because in many countries power generation sector is governed by national regulations and policies, and hence utility companies do not have the opportunity to set climate targets independently. 1. https://www.enerdata.net/research/marginal-abatement-cost-curves-MACCs-forecast.html . 27 November 2023 Information Classification: GENERAL 17 3.2 Cost of abatement methodology 3. Cost of abatement The table below summarises the range for each sectors’ cost of abatement at approximately a 40% reduction in emissions. Summary of sectors and cost of abatement at 40% abatement Estimated cost of abatement Sectors Sector definition (USD/tCO2e) Range Average Aviation Transportation of goods and passengers in planes 200 - 600 400 Chemicals and chemical processes (inc. Includes all chemicals and petrochemicals, but excludes petrochemical feedstocks (ISIC Divisions 20 and 21) 250 - 650 450 Ammonia) Power generation (electric utilities and independent power producers and energy traders – inc. fossil, Electricity generation 50 - 300 175 alternative and nuclear energy) Non-ferrous metals and processes (inc. Includes aluminium, copper, other non-ferrous metals (lead, nickel, tin, titanium, zinc, copper 450 - 660 555 Aluminium) alloys) and precious metals Non-metallic minerals and processes Includes the production of glass, ceramic and cement (ISIC Division 23) 100 - 580 340 Other energy transformation (Fossil Includes all other energy transformation processes, including refining, oil/gas/coal/biomass processing, 440 - 600 520 fuels) hydrogen production Other transport (Rail) Transportation of goods and passengers via railway 200 - 300 250 Residential Buildings - Households 180 - 400 290 Road Transport Transportation of goods and passengers in cars, motorcycles, buses and trucks 200 - 800 500 Services Buildings - tertiary sector (all economic activities outside industry and agriculture) 180 - 460 320 Shipping Transportation of goods and passengers via seaways 130 – 200 165 Iron & Steel and processes Manufacture and casting of iron and steel (ISIC Group 241 and Class 2431) 350 - 640 495 27 November 2023 Information Classification: GENERAL 18 3.3 Proportion of companies with SBTi targets vs. cost of abatement 3. Cost of abatement The chart below shows the correlation between sectors’ average cost of abatement and proportion of companies that have set or committed to set Science-based Targets (SBT). 1 The trendline indicates that for all three SBTi target types, more companies have been setting or committed to set SBTi targets in sectors that have, on average, a lower cost of abatement. 2 The number of firms setting SBTi targets has steadily increased with just over 6,000 companies as of end of September having an SBTi approved target or having committed to setting one in the following two years. These companies are shown as a proportion of all companies in Trove Research’s database setting climate targets within each sector. 3 For example, c.39% of companies in “Road Transport” sector in Trove Research’s database have set / committed to SBTi targets. The analysis shows that, on average, sectors with lower abatement costs have a higher proportion of companies signed up to SBTi. Proportion of companies with SBTi targets vs cost of abatement Proportion of companies with SBTi targets 100% Average cost of SBTi 90% Sectors abatement SBTi NZ SBTi ER Total Committed USD/tCO2e 80% Non-ferrous metals 555 1% 1% 1% 3% 70% Other energy transformation 520 n/a 0% 1% 1% y = e-0.007x R² = 0.9371 Road Transport 500 6% 21% 12% 39% 60% Steel 495 2% 2% n/a 4% 50% Chemicals and Chemical 450 5% 21% 11% 37% processes (inc. Ammonia) y = e-0.006x 40% y = e-0.007x Aviation 400 10% 8% 8% 26% Non-metallic minerals 340 9% 41% 16% 63% 30% Services 320 9% 28% 9% 46% 20% Residential 290 24% 32% 5% 61% Other Transport (Rail) 250 11% 32% 27% 70% 10% Shipping 225 2% 18% 2% 22% 0% Electricity generation 175 10% 16% 6% 32% 0 50 100 150 200 250 300 350 400 450 500 550 600 Cost of abatement ($/tCO2e) SBTi NZ – Companies with SBTi Net Zero targets SBTi ER – Companies with SBTi Emission Reduction targets SBTi Committed – Companies with a commitment to set SBTi targets within two years 1. The proportion (%) of companies setting SBTi targets in this analysis, is in relation to all companies with climate targets in the Trove Research’s database, over 9,000 companies (Appendix A.5). 2. Assumption is made that if cost of abatement is zero, all companies would set SBTi net zero targets. The highlighted part of the curve is interpolated using this assumption. 3. We refer to climate targets that are not submitted and validated to SBTi as self-declared climate targets. 27 November 2023 Information Classification: GENERAL 19 3.4 Proportion of SBTi targets using market cap-weighted vs. cost of abatement 3. Cost of abatement The chart below shows the correlation between sectors’ average cost of abatement and market cap-weighted proportion of companies that have set or committed to set Science-based Targets (SBT). 1 The trendline indicates that for lower cost of abatement, companies with SBTs or commitments would represent a higher proportion of the global market cap. 2 According to SBTi’s 2022 report examining progress in science-based targets globally, at the end of 2022 companies with SBTs or commitments represented 34% of the global economy by market cap. 3 Our analysis, using MSCI AWCI IMI to represent the global economy, shows that at the end of May 2023, companies with SBTi targets or SBTi commitments represented 45% of the global economy. For example, c.29% of global aviation companies by market cap have set / committed to SBTi targets. The analysis shows that sectors with higher abatement costs, such as non-ferrous metals and other energy transformation, have a lower share of companies (measured as % of global market capitalisation) with SBTi targets, than sectors with lower abatement costs. % of global market cap with SBTs or commitments vs Cost of abatement Proportion of global market cap with SBTs or commitments 100% Average % of global market cap in 90% Sectors cost of abatement SBTi USD/tCO2e 80% y = e-0.003x Non-ferrous metals 555 22% 70% R² = 0.6932 Other energy transformation (Fossil fuels) 520 2% Road Transport 500 34% 60% Steel 495 17% 50% Chemicals and Chemical processes (inc. 450 47% Ammonia) 40% Aviation 400 29% 30% Non-metallic minerals 340 48% Services 320 36% 20% Residential 290 28% 10% Other Transport (Rail) 250 85% Shipping 225 57% 0% Electricity generation 175 28% 0 50 100 150 200 250 300 350 400 450 500 550 600 Cost of abatement ($/tCO2e) 1. The market-cap weighted proportion of companies signed up to SBTi (either via having targets validated by SBTi or commitment to do so within two years) in the MSCI ACWI IMI, the investment universe of large/mid and small cap companies across developed and emerging market countries covering approximately 99% of the global equity investment opportunity by free float-adjusted market capitalization. 2. Assumption is made that if cost of abatement is zero, SBTi would cover the whole global market cap companies represented by the MSCI ACWI IMI. The highlighted part of the curve is interpolated using this assumption. 3. SBTi Monitoring Report 2022 27 November 2023 Information Classification: GENERAL 20 3.5 Implied Temperature Rise (ITR)1 vs. cost of abatement 3. Cost of abatement The chart below shows the correlation between sectors’ average cost of abatement and Trove Research’s calculated Implied Temperature Rise (ITR)1. ITR is a recognised indicator that compares the climate effectiveness of company climate targets on a consistent basis.1 The trendline indicates that sectors with lower average cost of abatement, have on average a lower ITR. 2 The Trove Research ITR model combines all types of corporate climate targets (not just SBTi targets). It also includes current and expected purchases of carbon credits, e.g., under a (current or future) carbon neutral or net zero target. This enables a more complete comparison of corporate climate ambition via this ITR score. The ITR shows what the expected global temperature rise would be if every company behaved like the one in question and allows comparison of company targets across sectors. For example, average ITR for chemical companies is 2.6°C vs that of fossil fuels which is 4.4°C. Our analysis shows that cost of abatement ”elasticity” of average ITR is positive, assuming a natural exponential trendline intercepting the y-axis at 1.5°C, implying that a reduction of abatement cost infers that companies would on average reduce their ITR. Trove Research’s calculated ITR (°C) vs Cost of abatement 1 Trove Research’s calculated ITR (°C) vs Cost of abatement 1 5.0 Average cost of 4.5 Other energy transformation Sectors Mean ITR 1 abatement (°C) USD/tCO2e 4.0 Residential Non-ferrous metals 555 2.5 3.5 y = 1.5e0.0013x Other energy transformation (Fossil fuels) 520 4.4 R² = 0.3222 3.0 Road Transport 500 2.5 Steel 495 2.3 2.5 Chemicals and Chemical processes (inc. Ammonia) 450 2.6 2.0 Aviation 400 2.6 Non-metallic minerals 340 2.0 1.5 Services 320 2.5 1.0 Residential 290 3.2 0.5 Other Transport (Rail) 250 1.8 Shipping 225 2.1 0.0 Electricity generation 175 2.6 0 50 100 150 200 250 300 350 400 450 500 550 600 Cost of abatement ($/tCO2e) Mean ITR – arithmetic average of known ITR’s in each industry. 1. Trove Research’s calculated Implied Temperature Rise model was created independently by Trove Research before the merger with MSCI. The model uses a different methodology to MSCI and outputs are not directly comparable. 2. Assumes that if cost of abatement is zero, all companies would have a 1.5°C ITR as they would have set the most ambitious net zero targets to limit global warming to meet the goals of the Paris Agreement. The highlighted part of the curve is interpolated using this assumption. 27 November 2023 Information Classification: GENERAL 21 3.6 Potential climate outcomes of allowing use of carbon credits 3. Cost of abatement The analysis below shows the potential effect of allowing companies to use carbon credits as part of their mitigation activities, on the basis that carbon credits provide lower cost abatement options. This is modelled through a blended cost of abatement, assuming a split between carbon credits and internal abatement. The analysis suggests that if firms are allowed to use carbon credits to meet 50% of their shortfall some 1,000 new firms could sign up to SBTi targets (set targets and commit to set targets) – an increase of nearly 20% on the number of firms committing today. These firms could represent a market cap of $10 trillion. The left-hand table below shows the blended cost of abatement based on each sectors’ average cost of abatement and assuming an average high-quality carbon credit price of 30 USD/tCO2e. The blended cost is run for three different scenarios assuming 25%, 50% and 75% share of carbon credits. The estimated impact on all three climate outcomes is show in the following section and summarised below in the table to the right. Blended cost of abatement Potential impact of allowing use of carbon credits on different climate outcomes Blended abatement cost Increase in no. of companies setting SBTi targets or Increase in global Average price Average cost assuming % use of carbon commitments market cap of Sectors of high-quality Decrease in average of abatement credits (USD/tCO2e) Scenarios - (compared to Trove Research’s database)1 companies setting carbon credit Implied Temperature (USD/tCO2e) % use of SBTi targets (USD/tCO2e) Rise (ITR) of targets3 (compared to 25% 50% 75% carbon credits global market cap) 2 Non-ferrous metals 555 30 424 293 161 SBTi % SBTi NZ SBTi ER Committed Other energy transformation 520 30 398 275 153 USD % % °C Road Transport 500 30 383 265 148 Trillions Steel 495 30 379 263 146 Chemicals and Chemical 450 30 345 240 135 25% 5% 46 131 126 9% 3.9 - 10% - 0.25 processes (inc. Ammonia) Aviation 400 30 308 215 123 Non-metallic minerals 340 30 263 185 108 Services 320 30 248 175 103 50% 16% 146 419 403 23% 9.9 - 20% - 0.5 Residential 290 30 225 160 95 Other Transport (Rail) 250 30 195 140 85 Shipping 225 30 176 128 79 Electricity generation 175 30 139 103 66 75% 35% 320 916 882 40% 21.2 - 28% - 0.7 Average 395 30 304 213 121 1. Number of companies setting SBTi NZ targets as of Trove Research’s latest Corporate Climate Commitment monthly report. 2. Market cap of all companies in the MSCI ACWI IMI that have signed up to SBTi. 3. The overall average ITR for all companies in Trove Research’s current dataset is 2.5°C, and this assumes that all of the companies succeed in achieving their targets. 27 November 2023 Information Classification: GENERAL 22 4. Flexibility analysis - allowing carbon credits to bridge Scope 3 emissions gap for SBTi targets Information Classification: GENERAL 4. Flexibility analysis 4.1 Current off-track emissions gap for Scope 3 SBTi targets Section 2 showed the degree to which different sectors were on or off-track relative to their targets. The new VCMI claims codes are likely to focus on allowing carbon credits to be used only for Scope 3 emissions, with companies needing to achieve their Scope 1 & 2 emissions targets. The table below shows the current estimated emissions performance gap for Scope 3 in each region and sector for companies with targets approved by SBTi (including 1.5°C, 2°C and committed to set targets), subject to Scope 1 & 2 emissions being on-track. According to this analysis, some 295 companies are currently off-track relative to their science-based Scope 3 targets (whilst being on-track for Scope 1 & 2 targets), with a total estimated emissions performance gap of 644 MtCO2e. The sector with the largest emissions gap is manufacturing (544 MtCO2e), with 62 companies being off-track to meet Scope 3 SBTi targets. The largest emissions gap for Scope 3 is in North America, where 59 companies are off-track with an emissions gap of 455 MtCO2e. While 174 companies in Europe are off-track to meet Scope 3 SBTi targets, the region has a smaller emissions gap of 75 MtCO2e. Current off-track emissions performance gap for Scope 3 SBTi targets by sector and region (on-track for Scope 1 & 2) Asia Europe Latin America Middle East & Africa North America Total Total Emissions Emissions Emissions Emissions Emissions Emissions Sector Number of Number of Number of Number of Number of Number of Gap Gap Gap Gap Gap Gap Companies Companies Companies Companies Companies Companies MtCO2e MtCO2e MtCO2e MtCO2e MtCO2e MtCO2e Apparel 0 0 0 7 0 0 0 0 1 3 2 10 Biotech, health care & pharma 0 3 2 3 0 0 0 0 3 2 5 8 Financial services 0 4 2 20 0 0 0 0 0 4 2 28 Food, beverage & agriculture 1 2 2 16 5 4 0 0 3 5 11 27 Fossil Fuels 0 0 0 0 0 0 0 0 0 0 0 0 Hospitality 0 0 0 5 0 0 0 0 1 3 1 8 Infrastructure 1 3 20 18 0 0 0 0 0 2 21 23 Manufacturing 95 19 26 33 0 0 0 0 424 10 544 62 Materials 1 2 7 12 1 2 0 0 1 1 9 17 Power generation 0 0 6 4 0 2 0 0 0 0 6 6 Retail 6 7 5 10 0 1 0 0 3 7 15 25 Services 3 10 3 39 0 0 1 2 19 19 26 70 Transportation services 0 1 2 7 0 0 0 0 0 3 2 11 Total 108 51 75 174 6 9 1 2 455 59 644 295 27 November 2023 Information Classification: GENERAL 24 4.2 Finance deployed to close current off-track emissions gap for 4. Flexibility analysis Scope 3 SBTi targets The table below summarises the financial implications for each sector and region1 of using high-quality carbon credits to close 100% of the current emissions gap for Scope 3 targets. This assumes an average carbon credit price of 30 USD/tCO2e and requires firms to meet their Scope 1 & 2 emissions targets to be eligible to use credits for meeting Scope 3 targets. Our analysis estimates that allowing companies to use carbon credits to close the emissions gap for these firms would require an annual expenditure of around $19 bn. The sector with the largest finance deployed is manufacturing ($16 bn), with 62 companies being off-track to meet Scope 3 SBTi targets. Most of the additional finance deployed would be in North America ($13.6 bn), followed by Asia ($3.2 bn) and Europe ($2.3 bn). Expenditure requirement for closing 100% of current off-track SBTi Scope 3 emissions performance gap with carbon credits (on-track for Scope 1 & 2) (USD Million) (2) Sector Asia Europe Latin America Middle East & Africa North America Total Apparel 0 14 0 0 33 47 Biotech, health care & pharma 13 59 0 0 87 159 Financial services 0 62 0 0 3 65 Food, beverage & agriculture 32 56 146 0 96 329 Fossil Fuels 0 0 0 0 0 0 Hospitality 0 8 0 0 16 25 Infrastructure 27 610 0 0 5 642 Manufacturing 2,848 765 0 0 12,712 16,325 Materials 19 225 18 0 21 283 Power generation 0 171 6 0 0 178 Retail 194 153 2 0 88 437 Services 103 88 0 17 576 785 Transportation services 0 53 0 0 6 59 Total 3,237 2,265 172 17 13,643 19,333 1. ‘Region’ assigned to a company corresponds to where the company is headquartered, not the region in which emissions are generated. 2. Assumes $30/tCO2 carbon credit price 27 November 2023 Information Classification: GENERAL 25 4. Flexibility analysis 4.3 Off-track emissions gap for Scope 3 SBTi targets in 2030 The table below shows the estimated emissions gap in 2030 for Scope 3 in each region and sector for companies with SBTi targets or commitments, subject to Scope 1 & 2 emissions performance is on-track. The analysis estimates that, in 2030, 150 companies will be off-track relative to their science-based Scope 3 targets, with a total estimated emissions performance gap of 2.2 GtCO2e . The sector with the largest emissions gap in 2030 is still expected to be manufacturing (1.9 GtCO2e), with 31 companies off-track to meet Scope 3 SBTi targets. The largest emissions gap for Scope 3 in 2030 is again observed in North America, where 31 companies are off-track with an emissions gap of 1.8 GtCO2e. In Asia, 26 companies are off-track to meet Scope 3 SBTi targets but with a smaller emissions gap of 151 MtCO2e. Off-track emissions performance gap for Scope 3 SBTi targets in 2030 by sector and region (on-track for Scope 1 & 2) Asia Europe Latin America Middle East & Africa North America Total Total Sector Emissions Emissions Emissions Emissions Emissions Emissions Number of Number of Number of Number of Number of Number of Gap Gap Gap Gap Gap Gap Companies Companies Companies Companies Companies Companies MtCO2e MtCO2e MtCO2e MtCO2e MtCO2e MtCO2e Apparel 0 0 2 6 0 0 0 0 4 1 6 7 Biotech, health care & pharma 0 1 10 2 0 0 0 0 29 2 39 5 Financial services 0 3 1 10 0 0 0 0 1 4 2 17 Food, beverage & agriculture 1 1 4 9 8 1 0 0 3 2 16 13 Fossil Fuels 0 0 0 0 0 0 0 0 0 0 0 0 Hospitality 0 0 1 3 0 0 0 0 1 1 1 4 Infrastructure 5 3 16 8 0 0 0 0 0 1 21 12 Manufacturing 143 11 59 14 0 0 0 0 1,714 6 1,916 31 Materials 0 0 35 7 0 0 0 0 64 2 98 9 Power generation 0 0 26 3 0 0 0 0 0 0 26 3 Retail 1 2 25 7 0 0 0 0 1 3 27 12 Services 0 4 12 20 0 0 5 2 5 9 22 35 Transportation services 0 1 0 1 0 0 0 0 0 0 0 2 Total 151 26 189 90 8 1 5 2 1,821 31 2,174 150 27 November 2023 Information Classification: GENERAL 26 4.4 Finance deployed to close off-track emissions gap for Scope 3 SBTi targets in 4. Flexibility analysis 2030 The table below summarises the financial impact for each sector and region, of closing 100% of the estimated emissions performance gap in 2030 for Scope 3 with carbon credits, assuming an average high-quality carbon credit price of 30 USD/tCO2e. On the basis that only firms that are on-track for meeting Scope 1 & 2 emissions targets are eligible to use carbon credits, closing the Scope 3 emissions gap in 2030 would require an annual expenditure of some $65 bn in 2030. The sector with the largest need for finance is manufacturing ($57 bn), with 31 companies being off-track to meet Scope 3 SBTi targets. Most of the additional finance deployed would be in North America ($55 bn), followed by Europe ($5.7 bn) and Asia ($4.5 bn). Expenditure requirement for closing Scope 3 off-track emissions performance gap in 2030 with carbon credits (on-track for Scope 1 & 2) (USD Million) (1) Sector Asia Europe Latin America Middle East & Africa North America Total Apparel 0 62 0 0 105 168 Biotech, health care & pharma 3 297 0 0 857 1,158 Financial services 4 31 0 0 23 59 Food, beverage & agriculture 21 107 236 0 103 467 Fossil Fuels 0 0 0 0 0 0 Hospitality 0 18 0 0 21 40 Infrastructure 148 477 0 0 14 640 Manufacturing 4,300 1,777 0 0 51,417 57,495 Materials 0 1,036 0 0 1,910 2,947 Power generation 0 767 0 0 0 767 Retail 40 744 0 0 37 821 Services 10 361 0 149 136 655 Transportation services 0 3 0 0 0 4 Total 4,527 5,680 236 149 54,626 65,218 1. Assumes $30/tCO2 carbon credit price 27 November 2023 Information Classification: GENERAL 27 4.5 Limiting the use of carbon credits to bridge Scope 3 emissions gap for 4. Flexibility analysis SBTi targets VCMI “bronze” tier illustration The analysis on the previous pages assumes 100% of the Scope 3 emissions gap is Scope 3 emissions Sufficient credits allowed Insufficient credits allowed to meet closed by use of carbon credits. To ensure that companies that face challenges in to meet shortfall shortfall without abatement meeting their interim Scope 3 targets remain engaged with the decarbonisation Emissions journey, VCMI created an additional tier (“bronze”) in its June 2022 draft claims code. 100% (assume flat) This would allow firms to use carbon credits as part of the mitigation for Scope 3 10% emissions, but only for a period of time (up to 2030), and up to a maximum of 50% of More abatement 20% needed to meet target the Scope 3 footprint, declining over time. 30% 40% Target Our analysis of companies that are on-track for Scope 1 & 2 emissions, shows that 50% applying this cap on the use of credits to meet Scope 3 emissions would not be Maximum quantity of credits to be able to constraining. In other words, all companies’ Scope 3 emissions gap are less than 50% of meet shortfall (50% of Scope 3 emissions their Scope 3 most recent year’s emissions. This is illustrated in the top figure right. In declining over time to zero in 2035) this example emissions are assumed to remain flat, and the maximum volume of credits that could be used starts at 50% and declines over time to zero by 2035. Because target Base Most 2035 year recent year Year trajectories start from very recent years, the current gap is less than 50% of emissions in all cases. Firms would therefore not be constrained in their use of credits until several years into the future. Over time however, as the threshold use of carbon credits Emissions trajectory to meet Scope 3 target Scope 3 emissions declines, abatement of Scope 3 emissions needs to increase to meet the Scope 3 target. with maximum use of carbon credits 100% Adopting a 50% Scope 3 emissions threshold, would therefore deliver the same 10% outcomes as presented on the previous pages. All 295 companies that are currently off- 20% 30% track relative to their science-based Scope 3 targets (whilst being on-track for Scope 1 & 40% 2 targets) today, would be able to bridge their total estimated emissions performance 50% gap of 644 MtCO2e at an estimated cost of around $19bn. Maximum quantity of credits to be able to Target meet shortfall (50% of Scope 3 emissions declining over time to zero in 2035) Base Most 2035 year recent year Year 27 November 2023 Information Classification: GENERAL 28 4.5 Limiting the use of carbon credits to bridge Scope 3 emissions gap for SBTi 4. Flexibility analysis targets (cont’d) The figures below illustrate the effect of changing the quantity of carbon credits eligible for use against Scope 3 targets. Examples of an initial allocation of 50%, 30% and 20% are shown with thresholds declining linearly to zero by 2035. The examples also assume the target reduces linearly from the base year and emissions remain flat. As the threshold reduces fewer credits are allowed to be used in the initial years and the date at which the gap exceeds the carbon credit threshold gets nearer. VCMI “bronze” tier illustration - differing credit use thresholds Limit - 50% of Scope 3 emissions in initial year Limit - 30% of Scope 3 emissions in initial year Limit - 20% of Scope 3 emissions in initial year Scope 3 emissions Scope 3 emissions Scope 3 emissions 100% Emissions 100% Emissions 100% Emissions (assume flat) (assume flat) (assume flat) 5% 10% 5% 10% 10% 15% 15% 20% More abatement 20% More abatement More abatement 20% needed to meet target needed to meet target needed to meet target 25% 30% 30% 40% target target Max credits to be able to close target 50% gap (50% of Scope 3 emissions declining over time) Max credits to be able to close Max credits to be able to close gap (50% of Scope 3 emissions gap (50% of Scope 3 emissions declining over time) declining over time) Base Most Base Most Base Most 5 yea recent 2035 r year recent 203 recent 2035 year year Year year Year year Year 27 November 2023 Information Classification: GENERAL 29 4.5 Limiting the use of carbon credits to bridge Scope 3 emissions gap for 4. Flexibility analysis SBTi targets (cont’d) The analysis below shows sensitivities for different thresholds for the use of carbon credits to meet Scope 3 emissions targets (for firms that are on-track for Scope 1 & 2 emissions). The left-hand table shows outcomes for most recent year’s emissions, the right-hand table for outcomes in 2030. Thresholds are lower in 2030 because of the principle of declining credit use cap over time. For most recent emissions, reducing the threshold from 50% to, say, 30% of Scope 3 emissions would reduce the number of companies that could make use of credits by around 20%, but reduce the emissions gap covered by credits and the additional finance created by around 75%. In 2030, starting at a threshold of 25%, only 106 out of 150 companies would be able to bridge their total projected emissions performance gap of 29 MtCO2e (out of 2.2 GtCO2e) and deploy $3.2bn (out of $65bn) in additional finance. Reducing the threshold to, say, 15% would reduce the number of companies that could make use of credits by 55% to 13, and the volume of emissions that could make of credits and additional finance by 70% to just under $1bn. Effect of credit use threshold on outcomes – recent year’s emissions Effect of credit use threshold on outcomes - 2030 Emissions Gap Number of Companies Credit use Additional Emissions Gap Number of Companies Credit use Additional threshold - % of Finance threshold - % of Finance Scope 3 emissions % of emissions % of all USD Million (1) MtCO2e Number Scope 3 emissions % of emissions % of all USD Million (1) gap companies MtCO2e Number gap companies 50% 644 100% 295 100% 19,333 25% 106 100% 29 100% 3,193 40% 602 93% 277 94% 18,055 20% 32 30% 15 52% 963 30% 181 28% 242 82% 5,431 15% 32 30% 13 45% 957 20% 155 24% 194 66% 4,645 10% 32 30% 11 38% 957 10% 52 8% 112 38% 1,555 5% 1 1% 4 14% 27 1. Assumes $30/tCO2 carbon credit price 27 November 2023 Information Classification: GENERAL 30 4. Flexibility analysis 4.6 Effect on worst performers The MSCI ACWI IMI annual % change in Scope 3 emissions intensity 1 The tables on the previous page show the effect of excluding the worst performing companies as measured by the gap between emissions and the target, today and Number of Performance percentile in 2030. Using MSCI data we are also able to show the emissions performance of 50% 20% 10% 5% 2.5% companies companies in terms of emissions intensity – i.e. tonnes of emissions per $1m % change in annual intensity 0% 1% 6% 16% 36% revenue. The chart left shows the distribution of the annual change in Scope 3 emissions intensity for all companies in the MSCI ACWI IMI. Excluding the worst 10% of performers (which would be achieved by a carbon credit use threshold of 40% of Scope 3 emissions) would exclude all firms with an increase in emissions intensity of over 6% per year. Put another way, this threshold would still include all firms with an increase in emissions intensity of under 6% per year. If the threshold was set at the worst 20% of performers (equivalent to a carbon credit use threshold of around 30% Scope 3 emissions), this would exclude firms with increases in emissions intensity of greater than around 1% per year. Note these figures are for all companies in the ACWI-IMI database, irrespective of whether they are on- or off-track for Scope 1 & 2 emission targets. Annual % change in emissions intensity (2019-2021) 1. Scope 3 emissions intensity is calculated per $1m revenue 27 November 2023 Information Classification: GENERAL 31 5. Impact of lowering the minimum threshold of carbon credit use to make an enterprise-wide VCMI claim Information Classification: GENERAL 5.1 VCMI’s current claims code tiers 5. Impact analysis The preceding sections have looked at how carbon credits could be used as part of company mitigation actions for Scope 3 emissions, under the provisional VCMI “Bronze” claim category. This section assesses the implications of lowering the threshold for firms to claim the main tiers under the draft VCMI claims guidance. The VCMI Silver, Gold and Platinum claims relate to the proportion of Scope 1, 2 and 3 emissions that are offset/compensated by the use of carbon credits. To achieve these claims firms must first achieve the “Foundational Criteria” (summarised below). For all claim tiers companies can only use credits aligned with the ICVCM’s CCPs (1) and those that are eligible for CORSIA (2) - although these can only be used until the ICVCM completes project type assessments. Assuming Foundational Criteria are met, the Platinum tier assumes 100% of residual emissions are covered by high-quality carbon credits, Gold between 60 and 100%, and Silver between 20 and 60%. Additional guidance from the VCMI is expected to be published later in November which will include among other updates, details on more flexible and accessible tiers levels. This is may reduce the threshold for Silver claim from a minimum of 20% to 10%. The rest of this section looks at the impact of such a change. Current “Claims Code of Practice” Current “Claims Code of Practice” 1 Must meet ‘foundational criteria’: Reductions for Scope 1, 2 and 3 are ‘on-track’ a) Disclose emissions, including Scope 3 with science-based target b) Set science-based emission reduction target, and long-term net zero target of ≤2050 c) Demonstrate ‘on-track’ to hit targets d) Demonstrate public advocacy supports Paris Min 20% 2 Select a claim – either Silver, Gold or Platinum 3 Retire an annually increasing proportion (for Silver and Gold) of CCP-eligible reduction or Min 60% Max 60% Silver removal credits (CORSIA-eligible credits can be used in lieu of CCP credits in the period until a credit category has been reviewed by the ICVCM). Min 100% Max 100% Platinum Gold 4 Report credit use and get third-party verification 1. The Integrity Council for the Voluntary Carbon Market. CCP = ICVCM’s Core Carbon Principles. 2. The Carbon Offsetting and Reduction Scheme for International Aviation 27 November 2023 Information Classification: GENERAL 33 Retirements Total GHG emissions Base year Claim year 5.2 Effect of lowering the credit use threshold for VCMI “silver” tier 5. Impact analysis We have assessed the effect of lowering the tier for VCMI silver claims from 20% to 10% by looking at how many firms are making use of carbon credits and what proportion of their Scope 1, 2 and 3 these credits cover. Currently there are some 1,286 firms with SBTi 1.5°C targets. Of these some 293 (23%), representing total GHG emissions of 3.2 GtCO2e are on-track for both Scope 1, 2 and 3. Of these, 68 firms have bought carbon credits. Around a third of these firms have covered more than 20% of the emissions, on average covering 77% of their emissions. If the threshold for a silver claim was reduced to 10% this would have a relatively modest effect on the number of firms that would be included, covering six firms and credit purchases of 0.3Mt. The majority of firms that are on-track for Scope 1, 2 and 3 1.5°C targets use carbon credits to cover less than 10% of their total carbon footprint with an average of 0.4%. Their total carbon footprint is over 1 GtCO2e. A much more significant opportunity would arise if these firms used more carbon credits, or firms not using carbon credits did so under a silver claim (see following page). Carbon credit use for firms on-track for SBTi Scope 1, 2 and 3 targets Carbon credit use for firms on-track for SBTi Scope 1, 2 and 3 targets Proportion of Scope 1, 2 & 3 emissions covered Credits purchased with carbon credit purchases in 2021 Number of firms 0 -10% 10 – 20% > 20% Total Number of companies 39 6 23 68 Scope 1, 2 & 3 emissions 1,109 1.9 2.6 1,113 (MtCO2e) 39 4.9Mt Effect of lowering silver Credits purchased (MtCO2e) (1) 4.9 0.3 2.0 7.2 threshold 23 (% of Scope 1, 2 & 3 emissions) (0.4%) (15%) (77%) (0.6%) 2.0Mt 6 Value ($m) (@ $30/tCO2e) 147 9 60 216 0.3Mt 0-10% 10 – 20% > 20% Effect of lowering silver threshold from 20% to 10% Current credit use as % of Scope 1, 2 & 3 emissions 1. Trove Research combines credit activity information from multiple sources in order to build an accurate credit activity database. Trove Research’s carbon credits database tracks 11 registries (ACR, CAR, Gold Standard, Verra, Biocarbon, Ecoregistry, CDM (both NDC eligible and not), Plan Vivo, PuroEarth, UK Woodland Carbon Code, Pacific Carbon Standard), CDP questionnaires and corporates’ annual and sustainability reports. 27 November 2023 Information Classification: GENERAL 34 5.2 Effect of lowering the credit use threshold for VCMI “silver” tier (cont’d) 5. Impact analysis A change in threshold for the silver tier would allow more firms to claim silver status based on their current use of carbon credits. More importantly these firms could also use more credits or more firms could use carbon credits to make a new claim. Potential finance from carbon credit purchase for different silver tiers from all current SBTi approved firms ($bn) Currently some 225 firms are on-track with Scope 1, 2 and 3 but not using any carbon credits. These firms have a total emissions footprint of around 14 2.1GtCO2e. If they purchased credits to cover 10% of these emissions at $30/t 12.8 this would generate $6.4bn of additional finance. If these used up to 20% of 12 credits this could generate some $12-13bn of additional finance. 10 Firms on-track with Scope 1, 2 and 3 emissions and currently using carbon credits have an emissions footprint of around 1.1GtCO2e. If these firms 8 6.4 6.7 purchased credits to cover 10% of these emissions at $30/t this would 6 generate $3.3bn of additional finance. If these used up to 20% of credits this could generate some $6-7bn of additional finance. 4 3.3 Together, all firms that are on-track for Scope 1, 2 and 3 emissions - those 2 using carbon credits and those not using credits – have an emissions footprint of 3.2GtCO2e. If all firms purchased credits to cover 10% of these emissions at 0 $30/t the total finance required would be around $10bn and mitigate some Companies not using carbon credits Companies using carbon credits 320MtCO2 of emissions. 10% 20% Note – these estimates do not take into account the ability of companies to pay for these credits. Mechanisms would need to be in place to encourage firms to take on these targets and secure the finance required. 27 November 2023 Information Classification: GENERAL 35 6. Conclusions and Recommendations Information Classification: GENERAL 6. Conclusions and recommendations 6. Conclusions and Recommendations Conclusions This report presents a detailed analysis of how the use of carbon credits could close the Incentivising more climate action emissions gaps for companies with science-based targets, deploy additional finance in mitigating The above figures are based solely on the number of companies that have beyond value chain emissions and how this could affect the number of companies setting climate declared emissions targets today. Allowing companies to use carbon credits to commitments and the strength of those targets. meet their emissions targets should encourage more companies to set ambitious climate targets as it will lower the costs of reducing emissions. Emissions gap If companies are allowed to use carbon credits to meet 50% of their total Across all firms with climate targets the gap between current emissions and targets is c.400 emissions gap (Scope 1, 2 and 3) we could expect to see around 1,000 more MtCO2e for Scope 1 & 2. This increases to c.2 GtCO2e in 2030. The gap in Scope 3 emissions companies setting ambitious climate targets representing some $10 trillion in targets is even larger, at around 1.4 GtCO2e today and over 7 GtCO2e by 2030. market capital. 400 of these new firms would be expected to set SBTi approved Closing the Scope 3 gap with carbon credits targets. If these new targets are achieved the average Implied Temperature Rise Assuming only firms that are on-track to achieve SBTi approved Scope 1 & 2 emissions targets are of companies with climate targets would reduce by 0.5°C from 2.5°C to 2.0°C. eligible to use carbon credits to close the gap in Scope 3 emissions, this could create a demand for carbon credits of 640 Mt today and 2.2 GtCO2e in 2030, if no limitations were put in place Recommendations with regards to the maximum amount of carbon credits used. On the assumption that carbon Thousands of companies have made public declarations to dramatically reduce credits cost $30/tCO2e, this demand could generate an additional expenditure on carbon credits their carbon emissions. Many of these are significantly behind in meeting their of $19bn today and $65bn in 2030. If the use of carbon credits is limited to 50% of Scope 3 near-term targets, and many other companies are reluctant to set science- emissions today, and 25% in 2030, the finance required would be $19bn and $3bn respectively. based targets because of the difficulty in achieving them. Reducing the minimum threshold for the lower VCMI claim tier (“Silver”) The use of carbon credits could significantly support the climate ambition and Reducing the minimum threshold for the lower VCMI tier “Silver” from 20% to 10% would impact of corporates. High-quality carbon credits with strong benefits for the increase the number of companies eligible for “Silver” by around 30% (6 firms with 2Mt of climate, society and nature, are often several times cheaper than the cost of emissions), based on the firms currently on-track for Scope 1, 2 and 3 under SBTi targets and reducing corporate emissions, especially in hard to abate sectors. Allowing using carbon credits. Currently, SBTi firms that are on-track for Scope 1, 2 and 3 targets cover companies to use these high-quality credits against their targets would only 0.6% of their emissions with carbon credits – equivalent to an expenditure of $0.2bn at encourage more firms to adopt ambitious climate targets and deliver better $30/t. If, however, all on-track firms used carbon credits up to a maximum of 10% of their total outcomes for the climate, broader environment and society. emissions footprint, this would require $10bn in finance (at $30/t) and mitigate some 320 MtCO2e of beyond value chain emissions. 27 November 2023 Information Classification: GENERAL 37 Appendices Information Classification: GENERAL Appendix A.1 Number of companies - Current Performance: Scope 1 & 2 only Charts below show the current emissions performance, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 1 & 2 at different levels of being off-and on-track by number of companies. Current Performance against own targets for Scope 1 & 2 Current Performance against 1.5°C aligned targets for Scope 1 & 2 Manufacturing -287 207 Manufacturing -288 196 Services -234 253 Services -216 256 Materials -169 66 Materials -163 70 Infrastructure -122 87 Infrastructure -114 91 Retail -116 103 Retail -113 102 Food, beverage & agriculture -90 75 Food, beverage & agriculture -86 75 Financial services -85 115 Financial services -79 118 Biotech, health care & pharma -63 39 Biotech, health care & pharma -60 41 Transportation services -63 32 Transportation services -61 32 Apparel -45 38 Apparel -43 38 Hospitality -29 20 Hospitality -29 19 Fossil Fuels -22 8 Fossil Fuels -23 7 Power generation -12 12 Power generation -10 14 -450 -350 -250 -150 -50 50 150 250 350 450 -450 -350 -250 -150 -50 50 150 250 350 450 Total Off-track: Total On-track: Total Off-track: Total On-track: 1,337 1,055 1,285 1,059 27 November 2023 Information Classification: GENERAL 39 Appendix A.2 Number of companies - Projected performance in 2030: Scope 1 & 2 only Charts below show the projected emissions performance in 2030, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 1 & 2 at different levels of being off-and on-track by number of companies. Projected performance in 2030 Projected performance in 2030 against own targets for Scope 1 & 2 against 1.5°C aligned targets for Scope 1 & 2 Manufacturing -356 106 Manufacturing -377 85 Services -326 141 Services -325 142 Materials -184 38 Materials -189 33 Retail -160 50 Retail -158 52 Infrastructure -151 46 Infrastructure -150 47 Financial services -112 72 Financial services -123 61 Food, beverage & agriculture -111 41 Food, beverage & agriculture -117 35 Transportation services -79 11 Transportation services -81 9 Biotech, health care & pharma -76 18 Biotech, health care & pharma -76 18 Apparel -59 22 Apparel -59 22 Hospitality -39 10 Hospitality -37 12 Fossil Fuels -17 7 Fossil Fuels -20 4 Power generation -14 7 Power generation -17 4 -450 -350 -250 -150 -50 50 150 250 350 450 -450 -350 -250 -150 -50 50 150 250 350 450 Total Off-track: Total On-track: Total Off-track: Total On-track: 1,684 569 1,729 524 27 November 2023 Information Classification: GENERAL 40 Appendix A.3 Number of companies - Current Performance: Scope 3 only Charts below show the current emissions performance, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 3 only at different levels of being off- and on-track by number of companies. Current Performance against own targets for Scope 3 Current Performance against 1.5°C aligned targets for Scope 3 Manufacturing -198 89 Manufacturing -197 84 Services -179 162 Services -170 163 Materials -102 54 Materials -103 52 Retail -88 54 Retail -88 54 Infrastructure -78 59 Infrastructure -73 63 Food, beverage & agriculture -75 24 Food, beverage & agriculture -73 26 Financial services -69 79 Financial services -69 76 Transportation services -42 27 Transportation services -41 24 Biotech, health care & pharma -32 27 Biotech, health care & pharma -32 25 Apparel -31 23 Apparel -29 24 Hospitality -24 14 Hospitality -24 12 Power generation -11 9 Power generation -11 8 Fossil Fuels -2 4 Fossil Fuels -2 4 -450 -350 -250 -150 -50 50 150 250 350 450 -450 -350 -250 -150 -50 50 150 250 350 450 Total Off-track: Total On-track: Total Off-track: Total On-track: 931 625 912 615 27 November 2023 Information Classification: GENERAL 41 Appendix A.4 Number of companies – Projected performance in 2030: Scope 3 only Charts below show the projected emissions performance in 2030, against achieving companies’ own near-term targets vs. 1.5°C aligned targets for Scope 3 at different levels of being off-and on-track by number of companies. Projected performance in 2030 against own targets for Scope 3 Projected performance in 2030 against 1.5°C aligned targets for Scope 3 Manufacturing -185 85 Manufacturing -185 85 Services -158 160 Services -156 162 Materials -97 52 Materials -99 50 Retail -81 51 Retail -83 49 Food, beverage & agriculture -73 24 Food, beverage & agriculture -71 26 Infrastructure -72 55 Infrastructure -67 60 Financial services -53 78 Financial services -61 70 Transportation services -38 26 Transportation services -37 27 Biotech, health care & pharma -30 26 Biotech, health care & pharma -33 23 Apparel -29 22 Apparel -30 21 Hospitality -22 14 Hospitality -22 14 Power generation -9 9 Power generation -9 9 Fossil Fuels -2 4 Fossil Fuels -4 2 -450 -350 -250 -150 -50 50 150 250 350 450 -450 -350 -250 -150 -50 50 150 250 350 450 Total Off-track: Total On-track: Total Off-track: Total On-track: 849 606 857 598 27 November 2023 Information Classification: GENERAL 42 Appendix A.5 Corporate climate commitment definitions Corporate climate commitments are grouped into the categories described in the table below. Where a company has multiple targets, which qualify for several of the categories, they are included in the higher of the possible category. Trove Research’s climate commitment groupings and their definitions Commitment type Description No of companies1 Includes all companies that have had: (i) an emissions reduction target validated by the SBTi, and (ii) are committed to SBTi’s net 913 1. SBTi net zero target zero standard. Of which Validated Companies from the above group who have had their commitment to SBTi's net zero standard validated by the SBTi. 434 2. Self-declared net zero target Includes companies who have made a net zero commitment but have not committed to SBTi’s net zero standard. 2,390 Of which Oil & Gas majors Companies from the above group who are classified by Trove Research as Oil & Gas majors. 30 Includes all companies that had their emission reduction target validated by the SBTi as consistent with a 1.5°C, Well-below 2°C 3. SBTi validated emission reduction target or a 2°C 2,252 warming scenario, but which have not (yet) committed to SBTi's net zero standard. Includes all companies known to Trove Research who have announced an emission reduction target, where this reduction target 4. Self-declared emission reduction target is neither part of a net 2,714 zero target nor been validated by the SBTi. Companies that have not yet made a public climate target but have publicly stated their intention to set one in future. This 5. Announced an intention to set a target includes companies who have 'committed' to having the SBTi verify their target in the next 2 years and have not set any other 1,396 in the next 2 years. target. Total 9,665 1. Number of companies with climate commitments as of Trove Research’s latest Corporate Climate Commitment monthly report. 27 November 2023 Information Classification: GENERAL 43 Bibliography Information Classification: GENERAL Bibliography Buchuk, D., Larrain, B., Muñoz, F., and Urzúa, F. I., The internal capital markets of business groups: Evidence from intra-group loans, Journal of Financial Economics, 2014, https://doi.org/10.1016/j.jfineco.2014.01.003 Doda, B., and Taschini, L., Carbon Dating: When Is It Beneficial to Link ETSs?, Journal of the Association of Environmental and Resource Economists, 2017, https://doi.org/10.1086/691975 Dragomir, V. D., Dumitru, M., and Perevoznic, F. M., Carbon reduction and energy transition targets of the largest European companies: An empirical study based on institutional theory, Cleaner Production Letters, 2023, https://doi.org/10.1016/j.clpl.2023.100039 Enerdata, Marginal Abatement Cost Curves (MACC): Emissions reduction potentials and costs across sectors up to 2050, 2023, https://www.enerdata.net/research/marginal-abatement-cost-curves-MACCs- forecast.html Farooq, U., Tabash, M. I., Anagreh, S., and Khudoykulov, K., How do market capitalization and intellectual capital determine industrial investment?, Borsa Istanbul Review, 2022, https://doi.org/10.1016/j.bir.2022.05.002 Goldman Sachs, Carbonomics: Affordability, Security and Innovation, 2022, https://www.goldmansachs.com/intelligence/pages/gs-research/carbonomics-affordability/report.pdf Goldman Sachs, Carbonomics: The Economics of Net Zero (Infographics), 2022, https://www.goldmansachs.com/intelligence/pages/infographics/carbonomics.html Heitmann, N., and Peterson, S., The potential contribution of the shipping sector to an efficient reduction of global carbon dioxide emissions, Environmental Science & Policy, 2014, https://doi.org/10.1016/j.envsci.2014.05.001 Hof, A. F., den Elzen, M.G. J., Admiraal, A., Roelfsema, M., Gernaat, D. E. H. J., and D.P. van Vuuren, Global and regional abatement costs of nationally determined contributions (NDCs) and of enhanced action to levels well below 2°C and 1.5°C, Environmental Science & Policy, 2017, https://doi.org/10.1016/j.envsci.2017.02.008 Intergovernmental Panel on Climate Change, 'Summary for Policymakers' in Climate Change 2023: Synthesis Report, 2023, https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_SPM.pdf International Energy Agency, Energy Technology Perspectives: Scenarios & Strategies to 2050, 2008, https://iea.blob.core.windows.net/assets/0e190efb-daec-4116-9ff7-ea097f649a77/etp2008.pdf Kesicki, F., and Paul, E., Marginal Abatement Cost Curves: A Call for Caution, Climate Policy, 2012, https://www.researchgate.net/publication/233042964_Marginal_Abatement_Cost_Curves_A_Call_for_Caution Kesicki, F., Intertemporal issues and marginal abatement costs in the UK transport sector, Transport and Environment, 2012, https://doi.org/10.1016/j.trd.2012.04.002 Mission Possible Partnership, Making Net-Zero Aluminium Possible: An industry-backed, 1.5°C-aligned transition strategy, 2023, https://missionpossiblepartnership.org/wp- content/uploads/2023/04/Making-1.5-Aligned-Aluminium-possible.pdf Mission Possible Partnership, Making Net-Zero Ammonia Possible: An industry-backed, 1.5°C-aligned transition strategy, 2022, https://missionpossiblepartnership.org/wp- content/uploads/2022/09/Making-1.5-Aligned-Ammonia-possible.pdf Mission Possible Partnership, Making Net-Zero Aviation Possible: An industry-backed, 1.5°C-aligned transition strategy, 2022, https://missionpossiblepartnership.org/wp- content/uploads/2023/01/Making-Net-Zero-Aviation-possible.pdf 27 November 2023 Information Classification: GENERAL 45 Bibliography (cont’d) Mission Possible Partnership, Making Net-Zero Steel Possible: An industry-backed, 1.5°C-aligned transition strategy, 2022, https://missionpossiblepartnership.org/wp-content/uploads/2022/09/Making- Net-Zero-Steel-possible.pdf Mission Possible Partnership, Making Net-Zero Trucking Possible: An industry-backed, 1.5°C-aligned transition strategy, 2022, https://missionpossiblepartnership.org/wp- content/uploads/2022/11/Making-Zero-Emissions-Trucking-Possible.pdf MSCI, ACWI IMI Index Factsheet, 2023, https://www.msci.com/documents/10199/4211cc4b-453d-4b0a-a6a7-51d36472a703 Parsa, M., Nookabadi, A. S., Flapper, S. D., and Atan, Z., Green hub-and-spoke network design for aviation industry, Journal of Cleaner Production, 2019, https://doi.org/10.1016/j.jclepro.2019.04.188 Pietracci, B., Bull, G., Zerriffi, H., and Kerr, S., Editorial: Forest carbon credits as a nature-based solution to climate change? Frontiers, 2023, https://doi.org/10.3389/ffgc.2023.1243380 Piris-Cabezas, P., Ruben, N., Lubowski, G. L., Estimating the potential of international carbon markets to increase global climate ambition, World Development, 2023, https://doi.org/10.1016/j.worlddev.2023.106257 SBTi, Corporate Net-Zero Standard, Version 1.1, 2023, https://sciencebasedtargets.org/resources/files/Net-Zero-Standard.pdf SBTi, Monitoring Report, 2022, https://sciencebasedtargets.org/reports/sbti-monitoring-report-2022 Schäfer, A. W., Evans, A. D., Reynolds, T. G., and Dray, L., Costs of mitigating CO2 emissions from passenger aircraft, Nature Climate Change, 2016, https://doi.org/10.1038/nclimate2865 Sharmina, M., Edelenbosch, O. Y., Wilson, C., Freeman, R., Gernaat, D. E. H. J., Gilbert, P., Larkin, A., Littleton, E. W., Traut, M., van Vuuren, D. P., Vaughan, N. E., Wood, F. R., and Le Quéré, C., Decarbonising the critical sectors of aviation, shipping, road freight and industry to limit warming to 1.5–2°C, Climate Policy, 2021, https://doi.org/10.1080/14693062.2020.1831430 UMAS (on behalf of the Getting to Zero Coalition), A Strategy for the Transition to Zero-Emission Shipping: An analysis of transition pathways, scenarios, and levers for change, 2021, https://www.globalmaritimeforum.org/content/2021/10/A-Strategy-for-the-Transition-to-Zero-Emission-Shipping.pdf Yu, S., Edmonds, J., Forrister, D., Munnings, C., Hoekstra, J., and Steponaviciute, I., et al, The Potential Role of Article 6 Compatible Carbon Markets in Reaching Net-Zero, 2021, https://www.ieta.org/resources/Resources/Net-Zero/Final_Net-zero_A6_working_paper.pdf Yuan, J., Ng, S. H., and Sou, W. S., Uncertainty quantification of CO2 emission reduction for maritime shipping, Energy Policy, 2016, https://doi.org/10.1016/j.enpol.2015.10.020 27 November 2023 Information Classification: GENERAL 46 Notice and Disclaimer This document and all of the information contained in it, including without limitation all text, data, graphs, charts (collectively, the “Information”) is the property of MSCI Inc. or its subsidiaries (collectively, “MSCI”), or MSCI’s licensors, direct or indirect suppliers or any third party involved in making or compiling any Information (collectively, with MSCI, the “Information Providers”) and is provided for informational purposes only. The Information may not be modified, reverse-engineered, reproduced or redisseminated in whole or in part without prior written permission from MSCI. All rights in the Information are reserved by MSCI and/or its Information Providers. The Information may not be used to create derivative works or to verify or correct other data or information. For example (but without limitation), the Information may not be used to create indexes, databases, risk models, analytics, software, or in connection with the issuing, offering, sponsoring, managing or marketing of any securities, portfolios, financial products or other investment vehicles utilizing or based on, linked to, tracking or otherwise derived from the Information or any other MSCI data, information, products or services. The user of the Information assumes the entire risk of any use it may make or permit to be made of the Information. NONE OF THE INFORMATION PROVIDERS MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH INFORMATION PROVIDER EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION. Without limiting any of the foregoing and to the maximum extent permitted by applicable law, in no event shall any Information Provider have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential (including lost profits) or any other damages even if notified of the possibility of such damages. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited, including without limitation (as applicable), any liability for death or personal injury to the extent that such injury results from the negligence or willful default of itself, its servants, agents or sub-contractors. Information containing any historical information, data or analysis should not be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Past performance does not guarantee future results. The Information may include “Signals,” defined as quantitative attributes or the product of methods or formulas that describe or are derived from calculations using historical data. Neither these Signals nor any description of historical data are intended to provide investment advice or a recommendation to make (or refrain from making) any investment decision or asset allocation and should not be relied upon as such. Signals are inherently backward-looking because of their use of historical data, and they are not intended to predict the future. The relevance, correlations and accuracy of Signals frequently will change materially. The Information should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. All Information is impersonal and not tailored to the needs of any person, entity or group of persons. None of the Information constitutes an offer to sell (or a solicitation of an offer to buy), any security, financial product or other investment vehicle or any trading strategy. It is not possible to invest directly in an index. Exposure to an asset class or trading strategy or other category represented by an index is only available through third party investable instruments (if any) based on that index. MSCI does not issue, sponsor, endorse, market, offer, review or otherwise express any opinion regarding any fund, ETF, derivative or other security, investment, financial product or trading strategy that is based on, linked to or seeks to provide an investment return related to the performance of any MSCI index (collectively, “Index Linked Investments”). MSCI makes no assurance that any Index Linked Investments will accurately track index performance or provide positive investment returns. MSCI Inc. is not an investment adviser or fiduciary and MSCI makes no representation regarding the advisability of investing in any Index Linked Investments. Index returns do not represent the results of actual trading of investible assets/securities. MSCI maintains and calculates indexes, but does not manage actual assets. The calculation of indexes and index returns may deviate from the stated methodology. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the index or Index Linked Investments. The imposition of these fees and charges would cause the performance of an Index Linked Investment to be different than the MSCI index performance. The Information may contain back tested data. Back-tested performance is not actual performance, but is hypothetical. There are frequently material differences between back tested performance results and actual results subsequently achieved by any investment strategy. Constituents of MSCI equity indexes are listed companies, which are included in or excluded from the indexes according to the application of the relevant index methodologies. Accordingly, constituents in MSCI equity indexes may include MSCI Inc., clients of MSCI or suppliers to MSCI. Inclusion of a security within an MSCI index is not a recommendation by MSCI to buy, sell, or hold such security, nor is it considered to be investment advice. Data and information produced by various affiliates of MSCI Inc., including MSCI ESG Research LLC and Barra LLC, may be used in calculating certain MSCI indexes. More information can be found in the relevant index methodologies on www.msci.com. MSCI receives compensation in connection with licensing its indexes to third parties. MSCI Inc.’s revenue includes fees based on assets in Index Linked Investments. Information can be found in MSCI Inc.’s company filings on the Investor Relations section of msci.com. MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. Neither MSCI nor any of its products or services recommends, endorses, approves or otherwise expresses any opinion regarding any issuer, securities, financial products or instruments or trading strategies and MSCI’s products or services are not a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such, provided that applicable products or services from MSCI ESG Research may constitute investment advice. MSCI ESG Research materials, including materials utilized in any MSCI ESG Indexes or other products, have not been submitted to, nor received approval from, the United States Securities and Exchange Commission or any other regulatory body. MSCI ESG and climate ratings, research and data are produced by MSCI ESG Research LLC, a subsidiary of MSCI Inc. MSCI ESG Indexes, Analytics and Real Estate are products of MSCI Inc. that utilize information from MSCI ESG Research LLC. MSCI Indexes are administered by MSCI Limited (UK). Please note that the issuers mentioned in MSCI ESG Research materials sometimes have commercial relationships with MSCI ESG Research and/or MSCI Inc. (collectively, “MSCI”) and that these relationships create potential conflicts of interest. In some cases, the issuers or their affiliates purchase research or other products or services from one or more MSCI affiliates. In other cases, MSCI ESG Research rates financial products such as mutual funds or ETFs that are managed by MSCI’s clients or their affiliates, or are based on MSCI Inc. Indexes. In addition, constituents in MSCI Inc. equity indexes include companies that subscribe to MSCI products or services. In some cases, MSCI clients pay fees based in whole or part on the assets they manage. MSCI ESG Research has taken a number of steps to mitigate potential conflicts of interest and safeguard the integrity and independence of its research and ratings. More information about these conflict mitigation measures is available in our Form ADV, available at https://adviserinfo.sec.gov/firm/summary/169222. Any use of or access to products, services or information of MSCI requires a license from MSCI. MSCI, Barra, RiskMetrics, IPD and other MSCI brands and product names are the trademarks, service marks, or registered trademarks of MSCI or its subsidiaries in the United States and other jurisdictions. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P Global Market Intelligence. “Global Industry Classification Standard (GICS)” is a service mark of MSCI and S&P Global Market Intelligence. MIFID2/MIFIR notice: MSCI ESG Research LLC does not distribute or act as an intermediary for financial instruments or structured deposits, nor does it deal on its own account, provide execution services for others or manage client accounts. No MSCI ESG Research product or service supports, promotes or is intended to support or promote any such activity. MSCI ESG Research is an independent provider of ESG data. Privacy notice: For information about how MSCI collects and uses personal data, please refer to our Privacy Notice at https://www.msci.com/privacy-pledge. Information Classification: GENERAL 47 About MSCI: ESG About MSCI ESG Research Products and Services MSCI ESG Research products and services are provided by MSCI ESG Research LLC, and are designed to provide in-depth research, ratings and analysis of environmental, social and governance-related business practices to companies worldwide. ESG ratings, data and analysis from MSCI ESG Research LLC. are also used in the construction of the MSCI ESG Indexes. MSCI ESG Research LLC is a Registered Investment Adviser under the Investment Advisers Act of 1940 and a subsidiary of MSCI Inc. About MSCI Inc. MSCI is a leading provider of critical decision support tools and services for the global investment community. With over 50 years of expertise in research, data and technology, we power better investment decisions by enabling clients to understand and analyze key drivers of risk and return and confidently build more effective portfolios. We create industry-leading research-enhanced solutions that clients use to gain insight into and improve transparency across the investment process. To learn more, please visit www.msci.com. Information Classification: GENERAL 48 Contact Us AMERICAS EUROPE, MIDDLE EAST & AFRICA ASIA PACIFIC United States +1 888 588 4567 * South Africa + 27 21 673 0103 China + 86 21 61326611 Canada + 1 416 687 6270 Germany + 49 69 133 859 00 Hong Kong + 852 2844 9333 Brazil + 55 11 4040 7830 Switzerland + 41 22 817 9777 India + 91 22 6784 9160 Mexico + 52 81 1253 4020 United Kingdom + 44 20 7618 2222 Malaysia 1800818185 * Italy + 39 02 5849 0415 South Korea +82 70 4769 4231 France + 33 17 6769 810 Singapore +65 67011177 Australia +612 9033 9333 Taiwan 008 0112 7513* Thailand 0018 0015 6207 7181* * = toll free Japan +81 3 4579 0333 msci.com/contact-us The process for submitting a formal index complaint can be found on the index regulation page of MSCI’s website at: https://www.msci.com/index-regulation. 49 Information Classification: GENERAL (2023) for VCMI and for national GHG emissions data see European Commission’s the EDGAR (2024).

5. Detail on specific revisions to the Foundation Criteria can be found https:/vcmintegrity.org/vcmi-claims-code-of practice/#changes%20to%20foundational%20criteria

About VCMI

The Voluntary Carbon Markets Integrity Initiative (VCMI) is an international non-profit committed to realizing the full potential of high-integrity voluntary carbon markets (VCMs). Our mission is to empower companies, governments, and non-state actors to maximize the impact of their climate actions through the use of high-quality carbon credits.

VCMI’s Codes of Practice provide rigorous, science-aligned guidance for organizations to take credible and transparent climate action using high-quality carbon credits, enabling them to align their climate transition plans with accelerating progress to global net zero.

Through our Access Strategies Program, VCMI supports host-country governments in creating robust policies and frameworks that ensure the effective integration and governance of high-integrity VCMs within national climate plans. This program is instrumental in building the necessary infrastructure for countries to participate meaningfully and benefit from the global carbon market.