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Why is Beyond the Value Chain Mitigation (BVCM) important?

Environmental laws currently in force around the world would limit global warming to only 2.7°C if fully implemented. A climate we had last 5 million years ago. This puts us miles away from the politically agreed limit of 1.5°C. This “Emissions Gap” is closely tied to the “Climate Finance Gap”: The Climate Policy Initiative estimates that annual mitigation finance needs to surpass USD 8.4 trillion per year between 2023 and 2030, and to rise to USD 10.4 trillion per year in the following two decades. Today we are stuck at just USD 1.2 trillion annually.

These alarming discrepancies from the required thresholds can only be addressed through holistic approaches. SBTi's Beyond Value Chain Mitigation allows the private market to make decisive contributions to bridging these cavernous financial and emission gaps.

What is BVCM?

The BVCM report constitutes a framework that enables companies to broaden their view beyond their own supply and value chain and to recognise themselves as an embedded part of our natural environment.

When the Science based Target initiative (SBTi) launched their Corporate Net-Zero Standard in 2021, they focused on developing a methodology that helps companies set short- and long-term goals on decarbonising their supply and value chain. However, since we all witness the global climate-nature multi-crisis, we must take an even broader view to capture its interconnectivity.

It is for this purpose that the SBTi now takes one step further with publishing detailed guidelines for companies on how to implement climate change mitigation strategies that reach beyond their own value chain.

Illustration taken from SBTi's BVCM report

How does it bring clarity and incentives for BVCM investments

SBTi’s BVCM Framework brings clarity to the “how”, as it developed a straightforward methodology to develop company tailored BVCM strategies. As well as to the “why”, as it provides various business cases – stress-tested through a large number of conducted surveys.

The “How”

Set and work to deliver a net-zero target

To effectively tackle greenhouse gas (GHG) emissions, companies start by creating and sharing a comprehensive emissions inventory, covering all relevant sources of emissions within their operations. They then use the SBTi methodology to set science-based net-zero targets, which undergo validation and public disclosure to ensure transparency and accountability. Finally, companies develop a climate transition plan aligned with their net-zero goal, which is also made public, outlining specific strategies and actions to reduce emissions and mitigate climate impacts across their operations and value chains.

Establish a BVCM pledge

Companies are guided to establish a BVCM pledge by first identifying the strategic benefits of BVCM in terms of opportunity, risk mitigation and business value. They then define a commitment period of five years or more, ensuring regular reviews and reporting. The scale of the pledge is determined by applying a science-based carbon price to the company's unabated emissions, funding both immediate and long-term mitigation efforts with at least 50% of their unabated emissions value.

Take action to deliver BVCM

When developing a BVCM investment portfolio, environmental risks are to be considered. For example, a company might want to invest in the maintenance of a forest ecosystem adjacent to its agricultural facilities to mitigate the risk of cost increases or loss of revenue linked to climate change induced droughts or landslides.

Report BVCM activities and outcomes

SBTI’s suggested approach highlights the need for investments that deliver genuine and additional mitigation at prices reflecting the social and environmental cost of carbon. BVCM is presented to catalyze financing for just transitions and investments in countries most affected by climate change. ‍

The “Why”

There are different business cases, why companies across industries should consider investments into mitigation measures beyond their value chain.

‍Mitigate physical Risks: BVCM Investments mitigate physical climate risks and enable resilience in times of climate change and ecosystem collapse. Through enabling the restoration of forest ecosystems adjacent to a company’s production facility, the risk of revenue loss linked to erosion, storm floods or droughts damaging those production facilities diminishes.

“We invest in landscapes adjacent to our sourcing areas to support the health of those landscapes to secure future access to commodities.”

‍Mitigate transitional Risks: Engagement in BVCM signals stake- and shareholders that the enterprise is ahead of the curve. Supranational Policy development (e.g. under EU Green deal) building on international treaties (Rio, Paris, Montreal) is becoming a stringent forcing device to implement environmental legislation. Pollution and emission taxes or charges, as well as cap-and-trade systems might well augment in future to integrate Rio’s 16^th “polluter-pays” principle on an even broader scope. By going beyond the scope 1 to 3 activities, companies signal to every legislator that they are committed to climate change adaptation in a holistic sense. ‍

Enable access to capital: Early 2024, the WEF released its global risks report outlining that the top four risks in the next 10 years will be climate related. (1. Extreme weather events, 2. Critical change to earth systems, 3. Biodiversity loss and ecosystem collapse, 4. Natural resource shortages) These science-based concerns also underline the fact that climate change has been cited as the most common reason for financial groups to exclude companies from their portfolios. As a result, financial companies increasingly require environmental and climate-related data when granting loans and accessing capital.

Companies that incorporate BVCM into their corporate strategy position themselves as trailblazers which take the risks described above as serious and account for them by pricing them in. This increasingly facilitates their access to fresh capital.

There are more reasons and business cases to engage with BVCM such as societal expectations, first mover advantages, talent acquisition or retention.

Where TLG fits in

With the BVCM report, SBTi is embracing the climate challenge in a more holistic way. The failure of ecosystems is endangering supply chains, namely food supplies at global scale and accelerating the climate crisis. Hence, looking beyond the narrow value chain is crucial, but still not done comprehensively.

Since The Landbanking Group follows a holistic approach to value the natural capital in all its four dimensions of hydrosphere, pedosphere, atmosphere and biosphere it goes well beyond carbon and CDR. TLG thus can be a well-placed partner to drive BVCM that anticipates the entire range of natural capital.

If companies are deciding what activities to support when implementing BVCM they should consider the following four Principles. These are linked to The Landbanking Group’s ambition in making nature conservation and restoration outcomes investible and with that creating a new asset class: Nature Equity.

BVCM Portfolio design principles	Principle-aligned mitigation opportunities include those that:	Addressed by TLG
1 Scale: Maximize mitigation outcomes	Have lower abatement costs – e.g., reduced conversion of natural ecosystems and energy efficiency.	The Landbanking Group’s approach of making measured nature conservation and restoration investable by integrating them as assets on the balance sheet of companies as a financial asset, enables fast, scalable financial flows into nature-based solutions that address both BVCM goals equally.
2 Financing need: Focus on underfinanced mitigation	Mitigation opportunities that are underfinanced due to limited return on investment (ROI) e.g. forest restoration and conservation of natural ecosystems	Investments in restoration or conservation of natural ecosystems as critical infrastructure can be assetised through "Nature Equity". This climate mitigating effort contributes to solving the problem of project underfinance. This is because of the ROI the investors receive, once their payments have been assetised and the risk mitigating efforts bear fruit over the long term.
3 Co-benefits: Support the SDGs	Deliver co-benefits – e.g. such as adaptation, resilience, livelihoods, water security, biodiversity.	An integral part of Nature Equity is the correlation of impact (visibility of so-called co-benefits), i.e. Investment in soil carbon also increases water holding capacity and thus, drought resilience and improved flooding mitigation. By giving the local population and land managers a financial stake in the natural capital they manage on-site (e.g. increase in biodiversity as a further co-benefit) their livelihoods are improving. such cumulative actions directly and indirectly address SDG 15, 13, 8 and 2.
4 Climate justice: Address inequality	Deliver mitigation in lower income, more vulnerable countries.	Investment into nature-positive agricultural and land use practices via Nature Equity assets, that do not touch the land use rights of local land stewards offer a direct reward to the custodians of the most precious ecosystems. They receive financial participation for every measured biophysical outcome of their nature-positive land use decisions.

Credits vs BVCM vs Nature Equity

SBTI’s report states that the most important reason for turning away from credit-based BVCM funding was a lack of trust. The trust that carbon credits are delivering the aspired results increasingly diminished, followed by concerns about the supply-side quality of carbon credits. This is underlined by the reported numbers in late 2023 showing that the volume of the VCM halved from 516 MtCO2 traded in 2021 to 254 MtCO2 in 2022. The lack of trust within the VCM is unlikely to fade away in the near term.

A challenge of credit schemes is their design as offset for CO₂ emissions. A ton of CO₂ emitted against a ton of CO₂ credited. The ambition was to create an equivalent credit to the emissions in Scope 1, 2 and the hard-to-abate scope 3. On the one hand, this is not as easy to compare and commoditize as it might seem and, on the other, often companies just surpass the mitigation hierarchy and take the offset shortcut. In contrast to this direct linkage, BVCM, in close alignment to the Voluntary Carbon Markets Initiative, demands mitigation efforts beyond the defined budget. The VCMI emphasises in its November 2023 report that the purchase and retirement of carbon credits should go beyond the company’s 1,5° aligned efforts to reduce their direct and indirect emissions. In other words: Their claims code of practice only gives their blessing to carbon credits that go beyond the climate targets that the respective company has already set itself and measurably progressed on.

The Landbanking Group does not pursue this compensation logic, but rather enables outcome-based investments in restoration and conservation of natural capital as our most critical infrastructure. This links to the concept of BVCM because nature as our baseline infrastructure for all economical and societal interactions goes beyond the third scope of a company. This infrastructure also delivers beyond climate mitigation and CDR.