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Understanding supply shed + value chain interventions

A lack of traceability shouldn’t deter companies from efforts to drive progress. Harnessing the supply shed concept, companies can track the impact of sustainability interventions when supplier information is limited.

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Chapter Overview

The complex structure of value chains can make tracking the impact of sustainability-related interventions a challenge. Supplier-specific information is often lacking and/or hard to come by. However, a lack of traceability shouldn’t deter companies from efforts to drive progress. The Value Change Initiative introduced the supply shed concept to help organizations overcome this barrier and mitigate their supply chain emissions in line with their Science-Based Targets even when supplier information is limited.

In this chapter, we’ll examine the concept of supply sheds and how to track interventions effectively and accurately.

Defining the supply shed concept + value chain interventions

As defined by the Value Chain Interventions Guidance, a supply shed is “a group of suppliers in a specifically defined geography and/or market (e.g., at a national or sub-national level) providing similar goods and services that can be demonstrated to be associated with the company’s value chain.” 

 

For companies with complex value chains, it may not be feasible to identify the specific suppliers providing their goods and services; however, it is possible to pinpoint the region (max. national level) in which their suppliers are located. For example, if you supply wheat in the US and want to understand what your supply shed is, you’ll need to determine which variety and type of wheat you source, as well as its quality and function in the value chain. From there, you can define your supply shed by identifying the suppliers providing wheat of similar enough type and quality to be serving the same market segment. 

 

A value chain intervention is “any action that introduces a change to a scope 3 activity,” such as a new technology, practice or supply change to reduce or remove emissions. Interventions drive sustainability and reduce impacts throughout the value chain. They can occur within markets, supply sheds or direct suppliers in a company’s supply chain. 

 

The term “insetting” is sometimes used to describe interventions; however, it lacks a clear definition and doesn’t always guarantee that the reduction is taking place within the value chain. Often, insetting is used incorrectly in a way that refers more to offsets. This is where the “value chain interventions” approach from VCI brings clarity in terms of reduction claims. Since its introduction by the VCI, many key initiatives and companies have recognized the supply shed concept, including the SBTi, which looks to the VCI to improve the clarity around the tracking of supply chain interventions.

Learn more about VCI

KEY takeways

• Clarify the boundaries of your supply shed.
• Define interventions and anticipate tracking.
• Collaborate actively with suppliers.
• Find shared value.
• Monitor, report and verify interventions in the supply shed.

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Accurately tracking emissions over time

While the supply shed concept can help companies track progress when they’re unable to trace back to their end suppliers, there are situations that may complicate the process and will have implications for how progress is tracked.

Changes to the supplier base

Companies may undergo changes in their supplier base if they a) deliberately switch their direct sourcing, or b) if the trader or cooperative they purchase goods from changes its suppliers.  While these shifts will show up as reductions in a company’s footprint, we strongly recommend working with existing suppliers to reduce emissions before switching suppliers. Let’s look at why.

Say your company or the trader/cooperative you source from has cut ties with a certain supplier. Though you no longer do business with that supplier, it still exists and will likely find another company to work with in your stead. So, while the emissions generated by this supplier are no longer associated with your company, they haven’t disappeared — they’ve simply been shifted elsewhere.

Working with suppliers to improve their environmental performance is the best way to ensure that progress is truly being made, and companies should explore this route before considering a supply shift. However, if, after a few discussions or attempts, a supplier shows no interest in improving their footprint, a supply shift becomes the best option to send a strong signal about your commitment. Including information about this situation in reporting is vital for enhancing transparency with stakeholders.

Changes in weather patterns or other external factors

The impact of weather patterns or other external factors out of your control on supplier performance/emissions can make it appear as though progress has occurred when in fact nothing has changed. Similar to the case above, it’s important to understand what the source of the reduction is in order to determine how best to report it.

The supply shed concept can be a significant help to companies with a lack of traceability in the supply chain, allowing them to take meaningful action in the value chain by enabling them to set a clearer supply base with which they can develop and deploy interventions. That said, working closely with suppliers within that supply shed is critical for guaranteeing the credibility of calculations and maintaining a physical connection to the intervention. It’s essential for companies to pay close attention to how and why changes take place in order to understand what may have caused a reduction. Complying with a set of verification requirements helps ensure that real progress is taking place and making the accounting process easier.

Determining who can account for what interventions

Guidance from VCI and the Greenhouse Gas Protocol outline multiple avenues for influencing activities within supply sheds and different rules for tracking the effectiveness of value chain interventions for reducing emissions. Here we investigate these considerations through three scenarios:

Interventions initiated by:

1. A customer for a supplier within its own supply chain.
2. A customer for a supplier within a relevant supply shed.
3. A company outside the supplier’s value chain.

Case 1: Interventions initiated by a customer for a supplier within its own supply chain.

In this situation, buyers are able to trace their suppliers and their supply base tends to remain constant; incidentally, they have more direct and long-standing relationships with their suppliers. This means that  investment, collaboration and tracking may be more streamlined and straightforward. If an emissions reduction occurs within the customer’s supply chain, and the reduction has not been monetized and sold as a credit, the customer can track it within its scope 3 inventory and targets. They do this by creating an updated emission factor for the years in which the intervention was successfully implemented. To avoid any risks of double counting if two companies are sourcing from the same supplier, having clear traceability on who accounts for that reduction is critical.

Case 2: Interventions initiated by a customer for a supplier within a relevant supply shed.

In certain instances, a company may not have full visibility over its supply chain but is able to define a clear supply shed and decides to invest in that supply shed. While these interventions might not occur in their exact supply chain, the supply shed concept enables companies to act despite the lack of full traceability. Interventions in the supply shed could count towards a company’s scope 3 reductions if the supplier doesn’t sell the reduction to someone else and if other companies in its direct supply chain are unable to account for it. To avoid double counting, clear documentation is needed about where the reduced emissions factor is being used.

Case 3: Interventions initiated by a company outside the supplier’s value chain. 

In this case, neither the supplier, customer or final retailer in the value chain may account for the reductions if they are already being claimed by the external company that invested in or initiated the intervention. This is what the SBTi refers to as beyond value chain mitigation. However, if the investor doesn’t claim the reduction, then the supplier, customer and retailer may all claim it in their relevant scope.

 

In no instance can voluntary carbon credits be generated based on the interventions if they are to be claimed as reductions in the value chain. When emissions reductions are sold to entities other than the value chain buyers in question, the intervention cannot be accounted for in the value chain, as they become offset credits and would lead to double counting (see more information in the chapter on Double Counting).

Recommendations

To track interventions effectively and accurately within supply sheds, it’s important to consider the following recommendations.

Recommendation 1

Clarify the boundaries of your supply shed.

Define which suppliers within your supply shed will enable your company to claim progress.  If the farmers you are working with fall outside of the supply chain and supply shed, the intervention will be considered a “beyond the value chain” mitigation and you won’t be able to count the reduction as progress towards science-based targets.

Recommendation 2

Define interventions and anticipate tracking.

There are a few important things to consider when choosing an intervention to pursue:

• which supply shed the intervention targets
• how the intervention will be implemented
• how you will ensure that causality is clearly presented
• the total volume of commodities/goods and services that the intervention will affect
• the tier of suppliers targeted
• the baseline status of the intervention
• how you will quantify the intervention’s baseline
• the verifiability and pertinence of the intervention

Having clarity around these questions and implementing tracking systems in advance will ease long term progress claims.

Recommendation 3

Collaborate actively with suppliers.

Invest directly within your supply chain by working closely with key suppliers before shifting to alternative suppliers. While shifting to alternative supply sheds, markets, or commodities may result in GHG reductions in your corporate inventory, it won’t drive global transformation like helping existing suppliers improve. Successful collaboration requires setting clear expectations. Communicate corporate targets to suppliers and establish key sourcing criteria with them (e.g., quality, environmental metrics, certification requirements). This will ensure all entities are moving in the same direction.

Recommendation 4

Find shared value.

When partnering with suppliers, find additional financial and environmental benefits for suppliers to incentivize them to embark on a common sustainability journey. Identifying and communicating this shared value will help ensure long-term change.

Recommendation 5

Monitor, report and verify interventions in the supply shed.

During and after the intervention, it’s vital to monitor and report annually on the total volume of goods and services impacted and the benefits achieved, while being transparent about any challenges. Monitoring and verifying that the intervention is well implemented is critical to ensure adequate progress reporting.

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