How ‘insetting’ helps food companies cut Scope 3 emissions red tape

An emerging approach for funding and taking credit for cuts to supply-chain emissions is gaining momentum in the food and agriculture sector. 

“Insetting” enables companies to claim Scope 3 reductions by investing in projects that help suppliers cut emissions. Accounting challenges have slowed the spread of the idea, which has been explored by industry groups for several years. But multiple organizations are issuing Scope 3 credits to projects backed by General Mills, Mars and other food giants.

“They’re highly motivated to make systemic change within the supply chain, which is the crux of insetting,” said Paul Myer, CEO of Athian, a startup that facilitates Scope 3 interventions.

One of the earliest organizations to explore the approach was SustainCERT, a non-profit that verifies carbon projects. SustainCERT approved its first value-chain intervention in 2019 and later co-founded the Value Change Initiative (VCI), a coalition designed to scale the approach. 

The VCI now includes more than 100 businesses that, together with other non-profits, focuses on apparel and food systems. The coalition has rubber-stamped 32 interventions, said Thomas Blackburn, vice president for sales and business development. Others are entering the space, too. Athian, founded in 2022, issued its first credits last year and has contracts to distribute $9 million to producers. Proba, a Dutch agriculture insetting startup, announced a $1.09 million investment round last month.

Traceability challenges

Companies turn to insetting to reign in Scope 3 emissions, and agriculture is a particularly active area due to the sector’s complex supply chains. Insetting rules clarify how companies can measure the emissions savings associated with an on-farm project, trace the resulting goods through the supply chain and make an appropriate reduction to their Scope 3 accounts. 

SustainCERT’s registry of verified insetting credits includes a project in which the agriculture giant Nutrient paid farmers to plant cover crops and implement other regenerative practices. At Athian, funding for Bovaer, a feed additive that reduces bovine emissions, has been one area of focus. Unlike some regenerative practices, which can cut fertilizer use and offer other cost savings if implemented over multiple seasons, Bovaer and other additives increase costs for producers. In an industry where margins are tight, insetting could be a critical means for scaling such solutions.

The rules are designed to allow companies to claim credit even when full traceability is challenging. Consider a producer of breakfast cereal that pays a wheat farmer to implement regenerative practices. After harvesting, the crop will likely be mixed with that of other regional producers. It may also be processed by an intermediary before reaching the breakfast cereal producer. Value-chain intervention rules accommodate this by describing how the company can estimate the fraction of its product that was made from wheat from the regenerative farm, and the size of the Scope 3 reduction it can claim.

Under current rules, funders do not need to trace a direct line between farm and factory if the intervention takes place within their “supply shed.” That is defined by the VCI as a group of suppliers, usually located in the same region, that provides similar goods. This is in contract to the book-and-claim schemes in maritime shipping and aviation, which allow buyers to invest and claim Scope 3 reductions for purchasing low-carbon fuels that could be used on any ship or aircraft.

Banking on collaboration

Insetting also allows multiple companies in the same value chain to partner to fund a single intervention. In the breakfast cereal example, a supermarket could join with the cereal manufacturer to fund the farmer, with each taking a Scope 3 reduction determined by the insetting guidelines. Myer said that his buyers — governed by non-disclosure agreements — are mainly food companies, but earlier this month Athian finalized its first joint intervention, funded by a consumer packaged goods (CPG) company and a dairy co-op.

“We’re banking on that and, frankly, so are the CPGs,” he added. “CPGs cover all the costs of these credits and there’s no way that scales over the long term.”

Despite the progress made in recent years, insetting remains a niche mechanism. “Insetting is in what I call the ‘teenage sex moment,’” said Jeffrey Yorzyk, senior director for sustainability at the meal kit company HelloFresh. “There’s so much talk but there isn’t a whole lot of action.”

Yorzyk is interested in using insetting to cut his company’s Scope 3 emissions, but the challenges he faces illustrate why the practice is not more widely used. “I’ve got over 400 different products and our SKU list is really staggering,” he said, referring to the acronym for stock-keeping unit. Those 400 products come from 1,500 suppliers. Which ones should he target for intervention? “You can call up your suppliers and they will all happily take money from you,” he said. “But how do you qualify those investments properly and vet them?”

Carbon accounting concerns

Like everyone who spoke to Trellis for this article, Yorzyk also noted uncertainties around Scope 3 accounting. The guidelines have progressed to the point where major companies are willing to invest in projects and make Scope 3 claims, but some details of how key industry players, notable the Greenhouse Gas Protocol and the Science Based Targets Initiative, will treat Scope 3 credits remain unclear. 

“It’s a huge concern,” said Yorzyk, working with the consultancy ClimeCo to develop an insetting plan for HelloFresh. The situation was not helped by the protocol’s decision, announced last month, to delay finalizing key guidance on land-use accounting until the fourth quarter of this year.

Progress looks set to continue, however. Alongside the VCI and other groups, the Advanced and Indirect Mitigation Platform, which is being tested by Amazon, ClimeCo and others, began piloting parts of what it hopes will become over-arching insetting rules that can work across multiple sectors. “Companies are tired of waiting and they want to start taking action,” said Emma Cox, executive vice president of commercial at ClimeCo.

The post How ‘insetting’ helps food companies cut Scope 3 emissions red tape appeared first on Trellis.