Gigaton

To appreciate the challenges facing large firms sourcing from global value chains, it is useful to understand the basics of carbon reporting. As discussed earlier, emissions are categorized in three groups: scope 1, scope 2, and scope 3. Scope 1 and scope 2 emissions are relatively easy for a firm to report (and easier to affect because they are under the firm’s direct control). Scope 3 emissions are more challenging, both for reporting and achieving emissions reductions. The longer and more complex the value chain, the more difficult it is to identify and calculate scope 3 emissions.15 The issues that Walmart faced with implementation of its Project Gigaton provide valuable insights in this context (box 5.3).

The experience of large firms such as Walmart and Unilever suggests that business carbon management programs need to address two important issues: first, gaining a better understanding of emissions along complex value chains and implementing appropriate solutions; and second, convincing the public that they are implementing credible measures to solve environmental problems. To address these challenges, firms have joined forces, sometimes with nongovernmental organizations, to pool resources and allow independent bodies to contribute to the design and implementation of

BOX 5.3 Implementation Challenges for Business Carbon management: walmart’s Project gigaton

For large and diversified companies such as Walmart, most carbon emissions are probably scope 3 emissions. These emissions originate not in Walmart’s distribution centers and stores but during the production, transporting, and consumption of the many products destined for Walmart’s shelves. Working with nongovernmental organizations, Walmart has identified six areas with the greatest opportunities for reducing emissions: energy use, sustainable agriculture, waste management, deforestation, packaging, and product use. Walmart reports that it has worked with the World Wildlife Fund on the overall concept and design of Project Gigaton and with other nongovernmental organizations—including the Environmental Defense Fund, Conservation International, the Nature Conservancy, the Sustainable Packaging Coalition, and the Carbon Disclosure Projecta—to connect suppliers to measurement methodologies, guidance, and practical tools to help them to reduce emissions. Walmart has specified accounting methodologies for each area.b

Connecting with suppliers is key to the success of Project Gigaton in terms of emissions reduction. Suppliers set up an account within the project and report their progress each year according to established measurement methodologies. They then receive guidance from Walmart and its partners. More than 1,000 suppliers have signed on to Project Gigaton; in the first two years of the project, they have reported a total reduction of 94 million tons of CO2 emissions.

Walmart reports that, while it plans to enlarge the scope of areas for reduction, it faces difficulties. Nearly 80 percent of reported reductions are in energy use, while progress on deforestation and sustainable agriculture requires “influencing a disparate set of actors far upstream in the supply chain, addressing interdependencies and barriers in complex social and economic systems, and gaining alignment with others regarding methodologies for measurement and action.” Walmart is working with suppliers and nongovernmental organizations to support the development of tools to enable some improvement in these areas. In its environmental reports, Walmart does not identify the extent to which it is seeking to reduce emissions in its global supply chains compared to its US sources.

a. A not-for-profit organization that runs a leading global disclosure system. b. For information on walmart’s Project gigaton, see https://www.walmartsustainabilityhub.com/climate/project-gigaton.

instruments, hoping to convince the public of the sincerity of their efforts.16 Multistakeholder initiatives are voluntary in nature (as opposed to governmentenforced regulation) but may establish de facto mandatory market requirements because of the influence of large retailers or brands. Thus, when such initiatives adopt standards and codes, these standards often end up dominating certain market segments, and suppliers in low- and middle-income countries may only gain access to these segments by complying with the requirements of the initiative.17

The difference between carbon-labeling initiatives and business carbon management is the scope of the initiatives and how the results of carbon accounting are used. Carbon labeling requires all carbon emissions to be analyzed and results to be displayed on individual products. Business carbon management rarely includes a full overview of a firm’s carbon emissions but instead focuses on selected segments for which the firm sets emissions targets. The analytical results are used to verify progress in complying with reduction targets and are communicated through corporate materials. Both approaches rely on globally accepted measurement standards and methodologies. Walmart’s supply chain work, for instance, is based on identifying hotspots, especially for energy use, and on reducing hotspot emissions, rather than on determining the carbon footprint of products. Carbon accounting is used as a research tool to identify where savings can be made.

How firms in industrial countries endeavor to reduce scope 3 emissions may determine future market access for low-income and other countries. There is very little empirical evidence on the consequences of industrial-country firms, such as retailers and big global brands, putting pressure on their suppliers to reduce carbon emissions. But it is very likely that the resulting impact on suppliers, including low-income-country producers, will be significant. The ability to reduce carbon emissions in a verifiable way may become a major source of competitiveness in market segments catering to climate-conscious buyers.18

The standards and methodologies used for carbon footprinting in these business carbon management initiatives have been developed primarily by actors from industrial countries working for firms in these countries.19 Even development of the scope 3 standard has been influenced heavily by industrial countries, despite the fact that value chains often reach into low- and middle-income countries and the cheapest options for reducing carbon emissions could be found in their segments of these chains.

Complex value chains in low- and middle-income countries, especially in lowincome countries, often lack traceability and relevant data. Some industrial-country firms involved in these value chains have recognized this issue and have joined initiatives to incentivize other firms in these value chains to reduce their emissions. For example, the Value Change Program seeks to allow firms to get credit for emissions reductions, even if poor traceability and conventional methods of carbon footprinting make it impossible to determine the exact volume of emissions reductions associated with the products being purchased through the value chain (Gold Standard 2018; SBTi, Navigant, and Gold Standard 2018).20

Business carbon management was not developed with a development perspective. Documents describing methodologies refer only to development issues in generic terms. Key issues, such as land-use change and carbon sequestration, can be critical sources of emissions reduction, but current standards do not allow companies to get credit for savings in these areas. Recognizing the development dimension should be a fundamental part of understanding the nature of business operations in low-income countries and thus in making the right business and climate change mitigation decisions.