Value Chain Carbon Transparency Pathfinder Enabling Decarbonization Through Scope 3 Emissions Transparency Executive Summary

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Value Chain Carbon Transparency Pathfinder Enabling decarbonization through Scope 3 emissions transparency Executive summary

End-to-end value chain transparency on greenhouse gas (GHG) emissions data will likely become a license to operate for organizations in the future. The Carbon Transparency Pathfinder brings together committed stakeholders from across the value chain, independent industry bodies such as the GHG Protocol and leading technology companies to develop the methodological and technical infrastructure required to create such transparency.

Through the sharing and exchange of comparable and verified product-level primary emissions data, companies will be able to improve and accelerate decarbonization efforts, playing their part in ensuring there is a real chance to meet the Paris Agreement targets.

Join the Pathfinder now to drive emissions transparency for a net zero future.

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 2 The Value Chain Carbon Transparency Pathfinder Accelerate decarbonization by increasing Scope 3 greenhouse gas (GHG) VISION emissions transparency across value chains

CHALLENGE No reliable information base for targeted and comprehensive decarbonization

With intensifying pressure on businesses to decrease Scope 3 GHG emissions, granular tracking and abatement of such emissions across the value chain is becoming a license to operate.

Increasing consumer demand for Stronger regulatory pressure to meet Growing investor expectations for transparency on environmental footprint targets in line with Paris Agreement significant Scope 3 reduction efforts

• Accurately Lack of accurate, granular, and verified primary emissions data • understanding, No consistent methodology for the calculation and allocation of carbon validating and tracking emissions at a product level • value chain emissions Limited exchange of emissions data in already complex, multi-tier value is difficult chains

APPROACH A carbon exchange network based on consistent methodology and open tech infrastructure

The Value Chain Carbon Transparency Pathfinder convenes businesses from across entire industry value chains to resolve this challenge, by

Building a consistent methodology that Developing open technology Reaching to a wide ecosystem – enables generation of comparable, standards that allow for secure data piloting in the Fast-Moving Consumer verified product-level primary exchange across different technology Goods sector and scaling to multiple emissions data solutions industry value chains

OUTCOME More accurate emissions tracking using primary, product-level data

Companies can move from estimating Scope 3 emissions based on industry averages to tracking real emissions based on verified primary, product-level data. This will strengthen their Scope 3 emission management and enable different new, high-value use cases. Example case: large FMCG company in 5-10 years’ time

1-2% 1-3% €2-5 mn of revenue of revenue cost savings p.a. p.a. p.a.

Avoided offsetting spend Top-line growth Next-level emissions accounting and reporting

For details on calculation approach see endnotes, Page 11

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 3 Granular tracking and abatement of end-to-end GHG emissions is becoming a license to operate

Regulators It is widely recognized that current are setting policy agendas Recognizing the need for change efforts to reduce GHG emissions are aligned with the targets of the Paris and equally understanding the insufficient to ensure the 1.5°C or even Agreement, introducing legislation, opportunities of a transition to net the 2.0°C target of the Paris Agreement such as the European Green Deal, zero, major businesses are stepping can be met by 2050.1 Not surprisingly and targeted measures, such as the up to the challenge. By the end – given the crucial role of the business EU Product Environmental Footprint. of 2020, more than 1,000 large community in changing this trajectory Countries and regions - most recently corporations had signed up for the by accelerating decarbonization – China and the EU – are also making Science Based Targets initiative, and external and internal pressures are net zero commitments that will require many more have made other voluntary intensifying for stakeholders across significant shifts in governmental public commitments to large-scale the value chain. strategies, for example in relation to decarbonization.5 energy, to be attainable.3 Consumers are increasingly As these companies advance along Shareholders and investors demanding sustainable products and are the decarbonization journey, all will, information on the environmental using their financial muscle to force however, face a common challenge: impact of their purchases, especially internal changes, adjusting capital accurately understanding the Scope 3 with regard to CO2 emissions. allocation and returns to account for emissions that occur along their value Products marked with sustainability climate risk. In his 2021 letter to CEOs, chain and typically constitute the lion’s claims on the packaging accounted BlackRock CEO Larry Fink warned share of their emissions.6 for 55% of growth in the US consumer that “companies that are not quickly packaged goods market between preparing themselves [with a well- 2015 and 2019, even though they articulated long-term strategy, and a only represented a 16% share of this clear plan to address the transition to market in 2019.2 Business customers net zero] will see their businesses and are likewise increasingly driven by such valuations suffer, as stakeholders lose concerns and for example include confidence that those companies can sustainability criteria in their sourcing adapt their business models to the standards to address these. dramatic changes that are coming.”4

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 4 Today’s carbon accounting methods do not enable accurate and consistent calculation, tracking or validation of emissions, making targeted decarbonization action almost impossible

Companies attempting to tackle their emissions face three significant hurdles in identifying feasible and cost-effective options to reduce emissions:

No consistent methodology for Companies therefore typically use Reporting standards vary across calculating and allocating carbon averages (e.g., carbon emissions of self-reporting companies, and it is emissions at the product level 7 1.8 tons/ton of steel ) or data proxies common to base disclosures on and secondary emissions data from secondary rather than primary data. Standards and protocols for carbon databases such as ecoinvent. Complex value chains that only accounting and reporting, including To put this into perspective, in the support limited exchange of Scope 3 emissions, enjoy wide world of financial accounting this emissions data across organizations adoption (e.g., ISO standards, GHG would be the equivalent of companies protocols and sector guidelines using only average industry costs and like the Product Category Rules). revenues to prepare their annual US The intrinsic complexity of today’s At the same time, they either leave GAAP financial statements. value chains further hinders any significant room for interpretation or attempt to resolve the issues of the require considerable data collection On the other hand, having access to status quo. Tracking carbon emissions and calculation efforts. Diverging accurate and comparable emissions and adequately allocating the impact reporting standards and guidelines data equips stakeholders across of emissions mitigation to those (and therefore the lack of a consistent the value chain to make informed actors involved up to tier-n levels set of rules to calculate and report decisions about the most effective requires many suppliers to collect product impact) impedes the steps towards decarbonization and and share data. Even for simple value comparability of the results for both to encourage suppliers to get on chains, this is not easy and requires businesses and the final consumer. board with those efforts. Information close collaboration. Companies is power. involved in multiple sector value Lack of accurate, granular, and chains face an almost insurmountable verified primary data Existing emissions data disclosure task. platforms like CDP provide an Accurate upstream and downstream important start in creating emissions primary data that is specific to the transparency, but accuracy and underlying processes is in short consistency issues remain. supply.

Figure 1: Pathfinder approach

The pathfinder will help companies move from ... To ...

Limited and inconsistent calculation and reporting Consistent and comparable calculation and of Scope 3 emissions based on the application of reporting using a too much of reliable Scope 3 emissions relevant protocols and standards that leave defined methodology room for interpretation for the application of relevant protocols and standards No reporting, or reporting based on non-specific verified primary data secondary data Reporting based on that is e.g., industry averages, proxies or product specific model data Tedious and costly life-cycle analyses looking Simplified product footprint calculations based on secure exchange of data , upstream and downstream across the value chain on a small set of improving the process and precision of life-cycle

products for a selection of suppliers analyses

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 5 A group of around 20 major stakeholders from across the Fast-Moving Consumer Goods (FMCG) value chain has joined forces in the Value Chain Carbon Transparency Pathfinder project to address this

In addition, any exchange of emissions Collaboration and agreement will be Priorities include: data requires significant trust – among critical to easing the exchange of • Developing a systematic stakeholders and in any technological comparable, granular, and verified approach for the consistent system used – as well as a standard primary emissions data across application of calculation and for verifying the data is correct. organizations. As the convener of the allocation rules GHG Protocol and with its member Acknowledging the fact that base of more than 200 leading • Agreeing on data input and decarbonization success depends businesses striving to move towards output elements, formats, and heavily on close collaboration across net zero by 2050, WBCSD provides granularity the value chain, approximately 20 the ideal platform for this effort. • Integrating central emissions data members of the World Business The Pathfinder seeks to build a sources (including user guidance) Council for Sustainable Development network of networks for carbon to supplement primary data, (WBCSD) have come together to data exchange by defining and where necessary. tackle this topic. This group seeks to establishing: build a solution for product-specific • The Pathfinder will also make carbon accounting and data exchange The methodology for consistent supporting technology infrastructure along tier-n value chains. collection, calculation, and available. This will include leveraging allocation of primary emissions proven industry technology protocols The ultimate aim is to create an data by value chain actors and data-sharing policies to ensure emissions transparency ecosystem • The open-access technological interoperability with existing company- that covers many different infrastructure for confidential or industry-level solutions. Pathfinder interconnected sectors while and verified data exchange along participants will work closely with maintaining confidentiality for all tier-n value chains. experienced technology providers actors involved. To this end, the group to build user interfaces that enable includes major actors from all parts The Pathfinder methodology builds interaction with the data exchange of the FMCG value chain – among on existing standards and will sharpen network. them packaging, chemicals and them, where needed, to increase petrochemicals companies, as well as consistency and incorporate industry- experienced technology providers. and material-specific nuances.

Figure 2: Cornerstones of the Pathfinder

The pathfinder focuses on ...

Product-level Primary data from the Carbon emissions, Different greenhouse gas production supply with a potential connected and emissions rather chain rather than for additional independent value than organization- database averages dimensions at chains (FMCG as a level emissions a later stage starting point)

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 6 The Pathfinder solution will enable companies to advance from estimating Scope 3 emissions based on industry averages to generating a more accurate understanding of emissions using primary data. This will strengthen internal decision-making and enable new, high-value use cases

The ability of the Pathfinder solution Therefore, the reduction of any Valorizing these opportunities to account for carbon emissions actor’s Scope 1 emissions could be can benefit different users within along tier-n value chains will create reflected in all respective upstream companies and generate tangible data inputs that improve business- and downstream actors’ Scope 3 profit and loss benefits for all actors in decision-making. In particular, the emissions. Beyond this, companies the value chain. infrastructure will increase access to can use more accurate carbon Taking the example of a large FMCG primary carbon emissions data at the accounting data to drive specific company on a five to ten year product level for network actors who use cases that contribute towards horizon (depending on legislative have received permission from their achieving decarbonization goals as developments, this timeline could be suppliers, i.e., the data providers. This well as generating additional value. shorter), there is an opportunity for (i) can enable the creation of validated avoided offsetting spend of 1 to 2% of footprints for a large number of Examples include at-shelf consumer revenue per annum, (ii) top-line growth products across various value chains, emission information, better sourcing of 1 to 3% of revenue per annum, and considerably facilitating, e.g. the decision-making, more targeted (iii) cost savings of €2 to 5 million per process and precision of life-cycle supplier decarbonization, informed annum based on more accurate and analyses (LCAs). In the long run, such investment and divestment activities efficient emissions accounting and an infrastructure can also serve as a and carbon offset management based reporting. (Figure 3) basis for more accurate accounting of on de-averaged, primary emission emission mitigation activities across data (Figure 3). the entire value chain.

Figure 3: Example of value opportunities

POTENTIAL USE CASES

Consumer Sustainability Procurement Mergers & Acquisitions /End-of-life /Supply Chain

Primary emissions data creates Product carbon footprint Transparency on supplier Transparency on decarbonization transparency on real performance, transparency allows for performance and access to potential and actors’ position in highlights gaps/opportunities to incentivization of purchasing and new supply chain relationships the value chain allows for more meet decarbonization targets and usage decisions that support reduces supply chain inefficiency informed investments/divestment increases accountability (e.g. for decarbonization, and enables and risks decisions organizational claims) improved end-of-life treatment

HR/Employee Marketing & Sales R&D/Innovation Corporate Reporting Engagement*

Product labeling based on Improved insights into opportunities/ Availability of consistent and Measurable action towards carbon transparency creates gaps in products and technologies comparable primary emissions decarbonization versus stronger brand differentiation to meet customers’ decarbonization data allows for more accurate and greenwashing claims creates e.g sustainability-marketed needs allow for more informed streamlined reporting processes, employee engagement, retention consumer packaged goods portfolio decisions reduced need for cost-intensive and attraction (purpose-driven grow up to 7.1x faster LCAs, simpler auditing process etc organization)

Avoided offsetting spend Top-line growth Next-level emissions accounting reporting

*Additional, not part of benefits calculation

POTENTIAL PROFIT & LOSS BENEFITS8

(example: large FMCG in 5-10 years’ time)

of revenue p.a of revenue p.a cost of 1-2% 1-3% €2-5msavings p.a

Next-level emissions Avoided offsetting spend Top-line growth accounting reporting For details on calculation approach see endnotes, Page 11

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 7 To achieve the ultimate aim of creating a large-scale carbon transparency ecosystem, the Pathfinder seeks to engage with additional members and new industries. We invite all companies, initiatives, alliances and sector stakeholders wrestling with similar challenges to join us and tackle this systemic challenge together

We believe that establishing global standards, methods, and technologies for tier-n value chain accounting of greenhouse gases is hard and requires interconnected stakeholders agreeing on the same vision and plan – much like the task of tackling climate change. Based on this belief, the Pathfinder will adhere to the following principles:

Any organization aligned with the Pathfinder cornerstones and willing to contribute INCLUSIVITY is welcome to join. The Pathfinder is shaped expertise, resources, data and jointly by all members, who provide active participation in dedicated working groups.

reflect the different ambitions The Pathfinder will of its members. EQUALITY No single member on its own will be able to direct the initiative down a particular path.

Information and data exchanged within the context of the used as agreed between WBCSD and CONFIDENTIALITY Pathfinder will only be Pathfinder members . No company will collect and use data with direct value chain partners or competitors.

OPENNESS Methodological and technological solutions will be designed to interconnectivity, interoperability and integration. allow for

network of networks The Pathfinder will create a compatible SCALABILITY across sectors and supply chains, serving multiple business needs.

Synergies with other initiatives REACH focused on similar topics will be leveraged as much as possible.

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 8 We encourage diverse stakeholders who embrace these principles to join the Pathfinder

Companies across the Industry standard-setting Industry stakeholders Technology providers FMCG value chain bodies and initiatives facing similar challenges If you are a provider of If you are an FMCG If you represent an industry- If you are in an industry technologies relevant company, a supplier or specific or CEO-led other than FMCG but to carbon accounting or sub-supplier or a customer, standard-setting body or face similar challenges in supply chain tracking, please reach out to explore initiative that shares our improving tier-n emission start-up or incumbent, whether the Pathfinder vision, please reach out so accounting, please reach please reach out to solution can support your we can compare notes and out, as we want to expand discuss how we can make decarbonization goals. work together to build a into additional industries, technologies compatible Teaming with companies consistent methodological building on Pathfinder and able to speak to across the value chain may framework. All stakeholders, methods and systems while each other. Our vision is unlock significant value for and the planet, will benefit accommodating industry- a network of networks for your operations and offer from globally applicable specific circumstances. emission data exchange new options for sourcing standards, methods We will help rally other that enables diverse and sales. You are welcome and solutions for carbon leaders in your industry stakeholders to participate to join us now or later, as accounting. One company’s to form an ecosystem in an open, interoperable the platform and its reach customer is another that addresses the issues environment using a variety mature. company’s supplier. together. of technology solutions. We believe that working

together across initiatives

is key to having joint and

individual positive impact.

We have an aspirational timeline for the Pathfinder, with the objective of showcasing a carbon-tracking solution during COP26 to further step-up radiation and momentum

Given the urgency surrounding decarbonization, we have set an ambitious agenda for 2021. We will drive the methodological and technological components to create a first solution demonstrating how emissions transparency can work in practice. We will use this solution to engage a broader audience to become part of the conversation at COP 26. In addition, throughout the year, we will expand our effort to additional industries to kick-start the creation of an integrated, transparent ecosystem.

BE PART OF OUR VISION AND JOIN US ON THIS JOURNEY!

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 9 Companies already joined up to the Pathfinder

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 10 Endnotes

1 UN Environment Programme 4 Larry Fink’s letter to CEOs 2021 a. The typical Scope 1 and 2 Emissions Gap Report, https://www. https://www.blackrock.com/corporate/ emissions intensity in FMCG is unep.org/emissions-gap-report-2020 investor-relations/larry-fink-ceo-letter ~0.1 kg CO2eq/EUR. 95% of FMCG actors’ carbon footprints are Scope 2 NYU Stern Center for Sustainable 5 Science Based Targets initiative, 3 (upstream and downstream) Business, Randi Kronthal-Sacco and https://sciencebasedtargets.org/ according to self-reported CDP Tensie Whelan, Sustainable Market companies-taking-action data from 2018 (CDP 2018). With Share Index, Research on 2015- increased supply chain transparency, 2020 IRI, “Purchasing Data Reveals 6 McKinsey analysis of CDP 2018 self- up to 25% of emissions can be saved Sustainability Drives Growth, Survives reported emissions data for 50 major according to expert interviews the Pandemic” B2B and B2C stakeholders across https://www.stern.nyu.edu/sites/ different industries, including (but b. Based on forecasts by BNEF, default/files/assets/documents/ not limited to) oil and gas, chemicals, Commerzbank, Energy Aspects, MOL, NYU%20Stern%2CSB%20 FMCG, retail and automotive Nomisma, Thompson Reuters, Vertis, Sustainable%20Market%20 Virtuse and Wattsight Share%20Index%202020.pdf 7 Average for 2019, World Steel Association, https://www.worldsteel. c. Sustainability-marketed FMCG 3 European Commission, https:// org/steel-by-topic/sustainability/ products allow for a price premium ec.europa.eu/clima/policies/ sustainability-indicators.html of 39.5% versus conventionally- strategies/2050_en; UN General marketed products. Based on the Assembly, 22 September 8 Figure 3 calculation basis: assumption that up to one quarter of 2020, https://news.un.org/en/ Avoided offset: Scope 3 emissions this premium can be realized due to story/2020/09/1073052 intensity of 1.9kg CO2eq/EUR GHG emissions transparency at point- revenuea; 25% CO2 emissions of-sale According to the latest UNFCCC reduction potential through increased Nationally Determined Contributions supply chain transparencya; offsetting d. Unilever’s 28 Sustainable Living synthesis report (covering 75 Parties costs of ~30 EUR/t CO2eq in 2030b; Brands are growing 69% faster than representing 40% of the Signatories top-line growth: 5-10% increase the rest of the business and delivering of the Paris Agreement and 30% in consumer willingness to pay 75% of the company’s growth - 2.9% of global emissions), NDCs made due to emissions transparency of sales growth in annual report (Unilever so far only amount to a reduction sustainable productc; 20-30% future press release dated 11 June 2019, of 1% in total emissions by 2030 share of sustainable products in https://www.unilever.com/news/ in comparison to 2010 levels. As a entire portfoliod; next-level reporting: press-releases/2019/unilevers- result, ambition will likely increase ~40 FTE in sustainability teams of purpose-led-brands-outperform. going forward. See https://unfccc. large FMCGe; assumed cost per html); 4.5% growth for sustainable int/news/climate-commitments-not- FTE of €200,000e; 50% efficiency products in CPG companies’ on-track-to-meet-paris-agreement- gains through large-scale primary portfolios expected (NYU Stern goals-as-ndc-synthesis-report-is- emissions sharinge Center for Sustainable Business - see published Endnote 2 for reference)

e. Based on expert interviews and industry averages

Additional source: McKinsey & Company Sustainability Practice

Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 11 DISCLAIMER ABOUT WBCSD

This paper is released by WBCSD, which WBCSD is a global, CEO-led company is responsible for final conclusions and of over 200 leading businesses working recommendations. Like other WBCSD- together to accelerate the transition authored papers, it incorporates to a sustainable world. We help contributions from WBCSD staff and make our member companies more experts from member companies. successful and sustainable by focusing McKinsey & Company, the global on the maximum positive impact for management consulting firm, provided shareholders, the environment and analytical insights and support to the societies. Pathfinder effort. Our member companies come from all business sectors and all major ACKNOWLEDGEMENTS economies, representing a combined revenue of more than $8.5 trillion and 19 WBCSD would like to thank all Pathfinder million employees. Our Global Network member companies and individuals who of almost 70 national business councils shared their detailed and thoughtful gives our members unparalleled reach input in preparation of this paper. across the globe. WBCSD is uniquely positioned to work with member companies along and across value CONTACT DETAILS chains to deliver impactful business solutions to the most challenging If you would like to find out more about sustainability issues. the Pathfinder, please contact: Together, we are the leading voice of Anna Stanley, Manager, Value Chain business for sustainability: united by our Carbon Transparency Pathfinder vision of a world where more than nine [email protected] billion people are all living well and within the boundaries of our planet, by 2050.

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Value Chain Carbon Transparency PathfinderEnabling decarbonization through Scope 3 emissions transparency 12 World Business Council for Sustainable Development

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