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Decarbonising Scope 3 Emissions: A Guide to Insetting Strategies and Funding Climate Hardware Startups

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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.

Understanding Scope 3 Emissions and Why They Matter

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What Are Scope 3 Emissions?

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.

Why Are Scope 3 Emissions Challenging?

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:

  • Supply chains are fragmented, involving countless suppliers across industries.
  • Tracking emissions upstream (e.g., identifying the bauxite mine that produced the aluminum in a laptop) is almost impossible.
  • Downstream emissions depend on customer behaviour, beyond the company’s control.

Why Decarbonising Scope 3 Is Still Crucial

Despite these challenges, decarbonising Scope 3 is vital:

Insetting: A Transformative Strategy for Scope 3 Decarbonisation

What Is Insetting?

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:

  • Employ a corporate accounting method and are entirely within their supply chains, or
  • Only include the segment of a "partially-included" project that is within their supply chain and directly connected to sourcing.

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.

The Benefits of Insetting

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:

  • Purchasing decarbonised aluminum or sustainable aviation fuel ensures emissions reductions where they matter most.
  • Insetting aggregates corporate demand to fund lighthouse projects, proving the viability of scalable, low-carbon solutions.
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:

  • Direct Impact: Companies gain control over emissions reduction without the impossible task of mapping entire supply chains.
  • Resilience: Investing in decarbonised processes strengthens supply chain stability in the face of climate risks.
  • Brand Leadership: Taking direct action enhances credibility and stakeholder trust.

Steps to Implement Insetting and Support Climate Hardware

To successfully implement insetting strategies and support climate hardware startups, businesses need a structured approach that addresses both practical steps and inherent challenges:

1. Identify Key Scope 3 Emissions

  • Conduct Life Cycle Assessments (LCA): Use LCAs to pinpoint the most significant emissions hotspots in your value chain, such as high-emission commodities (e.g., steel, cement) or energy-intensive production stages. LCAs offer actionable insights to prioritize impactful interventions. Learn more about Life Cycle Assessments.
  • Engage with Suppliers: Collaborate with your supply chain partners to gather data, understand emissions sources, and explore opportunities for decarbonisation projects. Frameworks like Project FRAME can provide a forward-looking perspective to complement traditional LCAs, enabling businesses to identify technologies that align with future decarbonisation needs.

2. Set Ambitious Targets

  • Align with Science-Based Targets: Set insetting goals that contribute to your long-term net-zero objectives. Focus on high-impact areas, such as decarbonising materials like cement, steel, or logistics, which represent significant Scope 3 emissions.
  • Prioritise Feasibility and Scalability: Ensure that chosen insetting projects align with market demand and scalability potential to avoid funding solutions that lack industry alignment.

3. Collaborate and Co-Invest

  • Partner with Startups and Suppliers: Work with climate hardware startups and suppliers to co-develop and fund decarbonisation projects. For instance, supporting bio-based materials, sustainable fuels, or low-carbon processes can simultaneously address Scope 3 emissions and promote innovation.
  • Share Risks and Accelerate Innovation: Recognise that many startups face challenges like high CAPEX and late-stage funding gaps. Co-investing in lighthouse projects can help de-risk these ventures and foster systemic change. Project FRAME offers a structured framework for identifying impactful projects that balance innovation with risk management.

4. Secure Offtake Agreements

  • Commit to Purchasing Low-Carbon Outputs: Pre-commit to buying decarbonised materials or products, such as low-carbon steel or sustainable fuels. These agreements provide startups with market certainty, reducing financial risks and enabling them to scale effectively.
  • Address Investor Concerns: Offtake agreements signal market traction, making projects more attractive to investors. Businesses can help bridge the funding gap many startups face by prioritising credible and scalable solutions.
  • Leverage Offtake Metrics: Similar to how annual recurring revenue (ARR) drives software investments, robust offtake agreements are increasingly becoming a key metric for hardware startups to attract growth funding.

5. Track and Communicate Impact

  • Implement Robust Monitoring Systems: Use data-driven tools to track the success of your insetting initiatives, measuring emissions reductions and broader environmental impacts.
  • Ensure Long-Term Credibility: Advocate for clear certification and verification frameworks to validate the impact of insetting projects and ensure emissions reductions are measurable and durable.
  • Communicate Progress Transparently: Regularly report on the outcomes of your insetting projects, showcasing reductions in your Scope 3 emissions, alignment with science-based targets, and contributions to systemic decarbonisation.

Addressing Common Challenges Along the Way

While implementing insetting and supporting climate hardware startups, businesses must navigate several challenges:

  • High CAPEX and Funding Gaps: Collaborate with startups to share risks and ensure access to late-stage funding through offtake agreements and co-investment.
  • Industry Alignment: Ensure decarbonisation projects address real industry needs and align with supply chain requirements.
  • Long-Term Impact Verification: Advocate for regulatory standards and certifications to enhance accountability and prove the sustainability of your initiatives.

Funding Climate Hardware Startups: Unlocking Systemic Change

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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:

  • Transforming Industrial Processes: Startups are rethinking production systems to adapt to low-carbon inputs, such as bio-based materials or renewable energy.
  • Challenging Fossil Fuel Dependency: By circumventing infrastructure built around fossil fuels, they create entirely new pathways for decarbonisation, such as scalable energy storage or hydrogen alternatives.
  • Enabling Corporate Action: These innovations provide corporates with actionable tools to achieve Scope 3 reductions, accelerating their transition to sustainability. See how insetting supports these startups.

Case Example: Cement Decarbonisation – Systemic Change vs. Incremental Improvements

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: Reducing Carbon in Cement Production

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.

Strong by Form: Systemic Change Through Bio-Based Composites

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.

Ecolocked: Carbon-Storing Alternatives for Cement

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.


Balancing Incremental and Systemic Approaches

These examples highlight the diverse approaches to addressing emissions in the cement industry:

  • Incremental Improvements (Heidelberg Materials): Work within the constraints of existing systems to reduce emissions while maintaining current supply chains.
  • Systemic Change (Strong by Form): Transform the industry by introducing entirely new materials that eliminate the need for carbon-intensive cement.
  • Hybrid Solutions (Ecolocked): Provide alternatives that integrate with existing processes while actively removing CO₂ from the atmosphere.

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.

Integrating Insetting and Hardware Investments

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Insetting plays a critical role in supporting these systems-oriented startups by creating demand for their solutions:

  • De-Risking Innovations: By pre-committing to purchase outputs from climate hardware projects, corporates reduce the market risk for these startups, enabling them to focus on scaling systemic innovations.
  • Enabling Long-Term Partnerships: Insetting allows businesses to become part of the systems change process, ensuring that their supply chains evolve toward sustainability alongside their investments. Explore how insetting works.

Conclusion: A Holistic Path to Net-Zero

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:

  • Make meaningful progress on decarbonisation.
  • Build resilience in their supply chains.
  • Lead the transition to a sustainable, low-carbon economy.

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:

  • Reach out to explore investment opportunities in groundbreaking startups redefining industries with systemic innovation.
  • Schedule a consultation to create a Scope 3 decarbonisation strategy tailored to your business.

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.

Johannes Fiegenbaum

Johannes Fiegenbaum

A solo consultant supporting companies to shape the future and achieve long-term growth.

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