Patagonia pilot project shows how to catalyze climate finance across economy
When the sustainability team at the outdoor clothing company Patagonia began developing a science-based target, it knew it faced a formidable challenge.
Upwards of 85 percent of Patagonia’s emissions are generated by suppliers. The company’s goal, validated by the Science Based Targets initiative in 2023, commits it to cutting those emissions by 55 percent by 2030. Yet Patagonia’s supply-chain network contains hundreds of companies, and it can exert only limited influence over each.
Consider a supplier that dyes fabrics. Patagonia might want to help the company replace a fossil fuel boiler with an electric version — a costly project that would take years to complete. But Patagonia’s purchases may account for 1 or 2 percent of the supplier’s business. Why would Patagonia fund the change only to see the large majority of the emissions savings flow to the supplier’s other customers?
The solution was an innovative means of accounting for the benefits of such an intervention. Patagonia began work on the approach internally but soon teamed up with the Advanced and Indirect Mitigation (AIM) Platform, a cross-sector initiative crafting guidelines for what is known as insetting or value-chain intervention. The guidelines — currently being tested by H&M Group, Heidelberg Materials, Netflix and others — entered a second pilot phase last month and are due to be finalized next spring.
Patagonia has in fact signed a contract to replace a boiler used by a supplier in Taiwan. The supplier is currently monitoring its business-as-usual emissions, which will serve as a baseline against which to assess future savings. When the new boiler is in place, Patagonia will receive credits, known as environmental attribute certificates (EACs), that can be netted against emissions from dyeing across its Scope 3 inventory. The company expects to receive credits for 27,500 metric tons of carbon dioxide equivalent from the project this year.
Countless other projects could be catalyzed if the AIM Platform can develop trusted rules for guiding this and other value-chain investments. Pilot testers are using the rules to oversee funding for projects to purchase renewable energy on behalf of suppliers and customers, enable the switch to sustainable maritime fuels and reduce on-farm emissions.
“We see platforms like AIM as essential for scaling high-quality climate solutions across industries,” said Taylor Gries, sustainability manager at REI, another pilot tester.
One area the guidelines will cover is how credits are allocated. Kim Drenner, Patagonia’s head of environmental impact, said each contract has a defined period, ranging from 5 to 15 years, during which the company funding the work would receive credits covering all the emissions savings. Patagonia gauges the value of potential interventions by estimating the cost per ton of avoided carbon dioxide emissions. “That can range from around $90 a ton, all the way up to $300,” said Drenner.
Negotiating agreements with suppliers can be challenging, in part because relationships with other customers can be affected. Because Patagonia is netting all the savings against its emissions inventory, none of the supplier’s other customers can claim similar emissions savings. To guard against such double counting, the contract prohibits the supplier from sharing emissions data in a way that customers have come to expect.
“We’re coming in and saying, ‘We’re going to buy these EACs from you; you can’t send that data,’” said Drenner.
This second pilot phase for AIM will focus on guidelines for assessing the quality of an intervention and how companies should measure the emissions savings. It follows an earlier test of rules for determining whether an intervention is part of a company’s value chain, and hence part of its Scope 3 emissions. The platform is a joint initiative of three non-profits: Gold Standard, the Center for Green Market Activation and the Center for Climate and Energy Solutions.
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