Engaging the Value Chain for Decarbonization: Building Solutions

This blog is the final in our series on Engaging the Value Chain for Decarbonization. Missed the previous installments? Catch up on Building Capacity, Building Alliances, and Building Incentives.

Systemic emission reductions are no easy feat; they require truly transformative and collaborative change between companies, suppliers, financiers, stakeholders, and customers. G&A’s fourth value chain decarbonization engagement principle—building solutions—discusses how co-creating solutions supports tangible emission reduction efforts at scale to drive industry closer toward meaningful decarbonization.

Below are a few of the hurdles that industries face as they seek to scale low-carbon solutions, and ways that collaboration to co-create solutions can scale innovations and markets beyond a company’s four walls.

Common Hurdle #1: “Decarbonization requires leaps in innovation – but technological advancements made within a single company are often siloed due to the protection of intellectual property. How can companies share and harness emission-reducing innovations so that the proper markets and supporting systems can flourish for mutual benefit?”

The Solution: Collaborative intellectual property (IP) mechanisms may allow innovation to scale faster than within one company alone, while also generating revenue for companies that license the IP – allowing them to recoup at least some of their investment.

Patent cross-licensing and patent pools can significantly lessen both financial and legal risk while accelerating progress. While patent cross-licensing provides a collaborative mechanism for entities to share technology protected by a single patent, patent pools consolidate several patents into a “bundle” that can make multiple, co-dependent technologies readily accessible at once. Tools like these can reduce the investment risk of the initial developer by generating licensing revenue, while speeding up systems-level innovation to support the greater infrastructure of new products and processes. Other IP arrangements, such as the Low Carbon Patent Pledge, facilitate the sharing of low-carbon tech-focused patents free of charge, with the intent to spur adoption of these technologies to expedite decarbonization.

For companies interested in leveraging collaborative IP mechanisms to mitigate the financial hurdle of innovation, G&A suggests identifying collaborative partners who may be developing such technology or may benefit from yours. Find guiding questions and potential collaborative forums in our blog on Building Alliances for Value Chain Decarbonization here.

Sustainability & ESG

Strategic ESG Planning

Explore Now

Common Hurdle #2: “The regulatory and sociopolitical landscape is evolving so quickly that we can’t commit to a huge investment in a lower-carbon technology; demand may not be there tomorrow.”

The Solution: Long-term demand signals from their customers are generally required to provide confidence to companies making investments in new decarbonized processes or products. Advance market commitments can provide a way for customers to demonstrate their long-term support for suppliers’ investments, often before the technology is commercially viable. Multi-year purchase agreements may even be coupled with additional investment to get new technologies off the ground, providing the supplier with security that its investment in low-carbon solutions will pay off. A company looking to make a significant and transformative investment, such as a facility that will provide a first-of-its-kind low-carbon product, can seek like-minded companies that may be interested in co-investment, joint ventures, partnerships, or long-term purchase commitments that will finance the initiative while moving all parties closer to shared emission reduction goals.

A relevant example from last year is Microsoft’s advance market commitment with Massachusetts-based Sublime Systems to purchase over 600,000 metric tons of low-carbon cement over a binding six- to nine- year period. By providing demand certainty in a sector that otherwise rarely employs long-term purchase commitments, this advance market commitment enables Microsoft to build and scale clean construction operations at a much faster pace, while providing Sublime Systems a streamlined pathway towards effective scaling.

Common Hurdle #3: “We’re excited about decarbonization, but the only low-carbon material supplier is too far away — shipping costs would negate the environmental benefits.”

The Solution: The book and claim model is an approach used by companies to assert sustainability claims when attaining the actual low-carbon resource is not physically possible. Many companies are familiar with this concept, as it is now common to purchase renewable electricity certificates (RECs) that were generated in another location in order to claim their benefits in a company’s Scope 2 emissions footprint. This model decouples the physical product from its low-carbon attributes, and it is now growing in popularity for other physical materials with low-carbon properties.

Book and claim systems are especially effective when they help to create the demand needed to scale the supply and adoption of new products, such as in the example of certificates for sustainable aviation fuel (SAF), a low-carbon alternative to traditional jet fuel. Companies are able to purchase SAF certificates and claim the environmental attributes of the corresponding SAF that was produced, even if it was used by another entity.

This can be an effective strategy for companies facing hurdles associated with mismatched locations of resource supply and demand, as it allows companies to claim environmental benefits that suppliers have registered to the market. The value of book and claim systems reaches far beyond individual entities, however—these models promote the scale-up of low-carbon technologies, which sends a powerful market signal to drive increasing supply to meet growing demand.

Related

What Tier 1 Pharma Suppliers Need to Know

How G&A Can Help

The path to value chain decarbonization is not a solo journey — it’s a collective one that requires collaboration across industries. This series, Engaging the Value Chain for Decarbonization, has covered a lot of ground: building capacity for internal and external teams, building alliances for amplifying impact, building incentives for increased participation, and building collaborative solutions to foster market scalability—and we hope it has kickstarted conversations within your organization and beyond to minimize Scope 3 emissions, especially those in Category 1.

The immense scale of decarbonizing value chains means that no single company, no matter how resourceful or committed, can move the needle alone. Meaningful emission reductions occur instead when organizations build toward shared infrastructure, pool their influence, and design incentive structures that bring suppliers and partners along rather than leaving them behind. If the solutions presented in this series resonate, we encourage you to reach out.

Set up a call with G&A to discuss opportunities to think creatively about your value chain engagement today.

Neil Bradley

Neil Bradley is a Sustainability Analyst at Governance & Accountability Institute. His role is primarily focused on sustainability report development, ESG news research and analysis, and supporting a variety of additional client projects ranging from nature-related risk assessment to ESG datapoint gap analyses.