Earlier this month, the Science Based Targets initiative (SBTi) made headlines by proposing that companies be allowed to purchase carbon credits to offset emissions from their supply chain.

Up to this point, SBTi, the leading certification organisation for corporate Net Zero plans, has ruled out use of offsets to count as reductions in their supply chain emissions (referred to as ‘Scope 3’).

The announcement from the Board of Trustees saying that “the use of environmental attribute certificates for abatement purposes on Scope 3 emissions could function as an additional tool to tackle climate change,” sparked a public protest letter from SBTi employees.

While the announcement is merely a proposal for changes that could be put in place come July 2024, for Palladium’s Tom Gegg, it’s prompting an important conversation. “Ultimately, we want to see companies decarbonise their supply chains by working with their suppliers and customers to reduce their emissions as much as possible.”

“Only when companies have done as much as they can, do we see a case for compensating what’s left by supporting high quality nature based solutions that deliver impact, or investments into technology that removes carbon at scale,” Gegg explains. This is in line with both the SBTi’s guidance and Palladium’s own stance for reducing emissions to meet the 1.5 degree target.

When it’s officially published, the guidance should be clear and strong, adds Jose Maria Ortiz, Palladium Executive Officer. “Companies must decarbonise – that’s the highest priority. At the same time, voluntary carbon markets are a valid and meaningful way to channel investment into nature restoration and other crucial climate projects – investment we need more of, urgently and at scale.”

Ortiz says he supports guidance that helps get that capital flowing, providing that carbon credits are high quality and only a final step in a company’s decarbonisation journey.

“Companies should not be able to pay away their Scope 3 emissions or have an excuse to not look into how to best decarbonise their supply chains,” he confirms, “because it really only ends up doing harm to their suppliers, and the small business and farmers in the value chain as it doesn’t give them an opportunity to meet their own targets.”

Ortiz concedes that transforming and decarbonising supply chains is incredibly difficult and that SBTi will play a critical role in the coming months and years to ensure that only once all possible reductions have been made, can credits be introduced. “Otherwise, companies will prefer to buy carbon credits than do the hard work of reinventing value chains that have been largely extractives for the last 50 or more years.”

New reports show that the gap of unabated Scope 3 emissions is threatening to grow to over 7 gigatons of carbon dioxide by 2030, which will fall well short of the targets set by existing SBTi net zero guidelines. But controversy, says Gegg, could ultimately make things more difficult for the already besieged carbon markets.

“Though demand is still unclear, standard setters are helping to drive quality and integrity in the market.”

“The Voluntary Carbon Markets Integrity Initiative provides companies with clear guidance on how to make voluntary use of carbon credits as part of a credible, science-aligned net-zero decarbonisation pathway. On the supply side, the Integrity Council for the Voluntary Carbon Market, are helping to set a high bar for the quality of carbon projects, which will in turn improve the quality of credits those projects produce.”

These frameworks are critical for providing clarity and creating the conditions for a stronger marketplace.

It’s important to note, adds Gegg, that SBTi has been supportive of companies wishing to support projects that produce carbon credits – as long as they are framed as a contribution towards climate mitigation beyond their own value chains, rather than claiming that emissions have necessarily been ‘offset’.

Ultimately, Scope 3 emissions are incredibly complex, both for corporates and their suppliers to tackle, especially small supply chain partners who might not have the means to do so. “When you’re working with global clients and suppliers, offsets can play a role, especially if it’s the only way to deal with those emissions,” concedes Ortiz. “But this can’t be an excuse for big emitters to continue with business as usual.”

Because SBTi’s announcement didn’t include details around the types of credits they will count or any other requirements, the debate is bound to continue. What remains clear is that more mechanisms for unlocking climate finance are necessary if corporates are to properly contribute to our global goals towards net zero.

For more, read 'Three Years of Revere: Lessons from a Groundbreaking Partnership' or contact info@thepalladiumgroup.com.