Unlocking ESG Value for Startups and Venture Capital: A Practical Guide
Discover how startups and VCs can unlock value through early integration of Environmental, Social,...
By: Johannes Fiegenbaum on 11/18/24 12:42 PM
Learn how to decarbonise Scope 3 emissions through insetting strategies and funding climate hardware startups. Discover innovative approaches to achieve net-zero goals and build resilient, sustainable supply chains.
Defined by the Greenhouse Gas Protocol, Scope 3 emissions encompass all indirect emissions across a company’s value chain, both upstream and downstream. They stem from activities such as purchased goods and services, employee commuting, and product usage. Learn more about Scope 3 emissions.
For most companies, Scope 3 emissions are overwhelmingly complex, making up as much as 93% of their carbon footprint in high-emitting sectors. Engaging with the supply chain to track, reduce, or eliminate these emissions often feels insurmountable. This difficulty arises because:
Despite these challenges, decarbonising Scope 3 is vital:
Insetting involves addressing Scope 3 emissions by implementing reduction projects directly within a company’s value chain. Unlike offsets, which focus on unrelated external activities, insetting creates measurable, supply-chain-specific impact.
SbTI typically endorses insets under the condition that companies incorporate emission reductions or removals from insetting projects that:
Scope 3 insetting can be compared to Scope 2 energy Renewable Energy Certificates (RECs) in terms of their mechanism and intent. Just as RECs enable companies to support renewable energy generation by purchasing the environmental attributes of green electricity, insetting allows businesses to fund and benefit from low-carbon production within their supply chain. Both strategies acknowledge the practical challenges of directly sourcing emissions-free inputs or electricity but provide a scalable way to drive market transformation and support systemic decarbonisation. By targeting key emissions hotspots through insetting, companies can replicate the success seen with RECs in accelerating the energy transition, but now applied to broader supply chain challenges.
Instead of the impossible task of tracing and reducing all upstream and downstream emissions, insetting simplifies the challenge by targeting key commodities or processes. For example:
Aspect | Insetting | Offsetting |
---|---|---|
Definition | Addressing emissions directly within a company's supply chain through targeted projects. | Funding external projects unrelated to the company's operations to neutralise emissions (e.g., reforestation). |
Focus | Reducing emissions in key commodities, processes, or suppliers within the value chain. | Reducing or removing emissions in external, often geographically distant, projects. |
Impact | Creates measurable and supply-chain-specific decarbonisation impact. | Mitigates emissions indirectly but doesn’t address the company’s value chain emissions directly. |
Control | Allows companies to have greater control and accountability over emissions reductions. | Relies on third-party projects, often outside of the company’s operational influence. |
Mechanism | Investments in low-carbon technologies, sustainable materials, or renewable energy specific to operations. | Purchasing carbon credits to offset emissions, without directly changing internal processes or suppliers. |
Relevance to Supply Chain | Directly linked to the company’s supply chain emissions, targeting high-emission commodities or processes. | Not tied to the company’s supply chain; focused on global or regional carbon reduction initiatives. |
Scalability | Promotes systemic change by funding scalable, innovative solutions (e.g., decarbonised steel, sustainable fuels). | Depends on the availability and quality of offset projects, with scalability often limited by land use or resources. |
Criticism | Can be resource-intensive to implement, requiring detailed supply chain collaboration and monitoring. | Often criticised for lack of additionality, double-counting risks, and insufficient focus on systemic change. |
Example | Supporting bio-based composites for construction to replace cement in a company’s supply chain. | Funding a reforestation project to offset emissions from company travel. |
Benefits of insetting include:
To successfully implement insetting strategies and support climate hardware startups, businesses need a structured approach that addresses both practical steps and inherent challenges:
While implementing insetting and supporting climate hardware startups, businesses must navigate several challenges:
Climate hardware startups often aim to disrupt the fossil fuel-dominated status quo, paving the way for systemic change. By designing solutions outside the constraints of the incumbent system, they open up a greenfield of opportunities:
Cement production is one of the most carbon-intensive industries, contributing around 8% of global CO₂ emissions. Traditional approaches focus on reducing the carbon footprint of existing processes, while emerging solutions aim to redefine the industry entirely. This tension between incremental improvements and systemic innovation can be seen in the following examples:
Heidelberg Materials, a global leader in construction materials, is addressing the emissions from cement production with its EvoZero Carbon Captured Net Zero Cement. By integrating carbon capture technology, they aim to significantly reduce the carbon footprint of traditional cement production processes. This approach represents a critical step in lowering emissions within an inherently carbon-intensive sector.
While such solutions are vital for decarbonising existing industries, they depend on technologies like carbon capture, which add complexity and cost. Moreover, these methods may prolong reliance on processes that inherently generate large amounts of CO₂.
In contrast, startups like Strong by Form are pursuing systemic change by rethinking materials entirely. Their bio-based composites offer a sustainable alternative to cement and steel, leveraging natural fibres and innovative design processes to create lightweight, high-strength materials, similar to this example of the tallest timber high-rise in Germany. Rather than improving the carbon footprint of cement, they aim to phase out its use in applications like construction and infrastructure. This greenfield approach aligns with the need to move beyond fossil fuel-intensive industries and opens up opportunities for innovation without the legacy constraints of traditional materials.
Another promising innovation comes from Ecolocked, whose ELM Zero solution combines carbon storage with sustainable alternatives to traditional cement. Their biochar-based additive sequesters carbon while enhancing the material properties of concrete, offering a bridge between incremental improvements and systemic innovation. By embedding carbon directly into building materials, they reduce the overall carbon footprint of construction projects while maintaining compatibility with existing infrastructure.
These examples highlight the diverse approaches to addressing emissions in the cement industry:
For businesses exploring insetting strategies or investments in climate hardware startups, these cases underline the importance of balancing short-term decarbonisation with long-term systemic change. Supporting startups like Strong by Form or Ecolocked through pre-commitments or partnerships can pave the way for transformative solutions that redefine industries and drive meaningful progress toward net-zero goals.
Insetting plays a critical role in supporting these systems-oriented startups by creating demand for their solutions:
Reducing Scope 3 emissions isn’t easy—it’s a monumental task. But insetting and supporting climate hardware startups offer a path forward. By embracing these strategies, companies can:
Through my work with ClimateTech startups and extensive experience in carbon strategy, I’ve witnessed the transformative potential of combining insetting strategies with investments in climate hardware startups. These approaches are not just tools for compliance - they’re enablers of systemic change, resilience, and innovation. By integrating targeted supply chain decarbonisation with greenfield opportunities, companies can lead the way toward a low-carbon economy while driving measurable environmental and business impact.
Now is the time for action. Whether you’re looking to develop a Scope 3 plan of action, identify insetting opportunities, or explore investments in climate hardware startups, taking the first step is crucial. Let’s collaborate to unlock the potential of your value chain, align your goals with science-based targets, and position your business as a leader in sustainability.
Get started today:
Contact me to discuss how we can turn your sustainability vision into measurable results. Together, we can build resilient supply chains, foster innovation, and accelerate the transition to a sustainable, low-carbon future.
A solo consultant supporting companies to shape the future and achieve long-term growth.
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