A Sector Transition Acceleration Contract (or STAC) is a structured finance instrument that pools finance around forward-looking KPIs, relative to independent standards using verified data and metrics that are focused on decarbonization, resilience and nature positive outcomes.
The Scope 3 Market Mechanism (or S3MM) is the term used to describe a STAC that is applied to drive transition solutions within a value chain. In this context, the value chain is defined as any set of business activities that are connected within the global economy – as determined based on transparency of publicly disclosed data from CDP.
A ‘Transition Solution’ fits within the definition of ‘transition finance’ from GFANZ, ‘nature positive’ based on metrics within the TNFD, ‘climate solutions’ from the University of Oxford’s Net Zero initiative, and ‘resilience’ from the University of Oxford’s Resilience Finance Lab.
https://exponentialroadmap.org/defining-and-qualifying-climate-solutions-new-discussion-paper-out
From a carbon accounting perspective, where it is possible to use a sector threshold as the baseline for measuring performance, then it will be. Within the STAC, the standards used must be referenced (for example, a party to a STAC would disclose the sector decarbonization approach it is using, such as the EU Taxonomy ESRS. This means that within a specific business activity, outperformance relative to what is acknowledged as sector-aligned will be possible.
Where a sector threshold is not available to use as the baseline, then the sector average for that business activity – based on CDP’s reporting universe – can be used. In the case of agricultural projects, it makes sense to use monitoring baselines that are measured relative to the condition of a habitat or ecosystem prior to the financed intervention.
A STAC is a forward-looking instrument that sets performance milestones, which are used as the basis for releasing performance based payments based on the contractual agreement. Measurement and reporting on performance relative to contractually agreed KPIs must be independently audited.
The certificates from a STAC indicate what is the affiliation and type of participation of a company in a STAC. So, it may be a solution provider, direct buyer, linked buyer, or co-investor. Using CDP data, it is possible to determine how many tiers of a supply chain there are associated with reported emissions. In other words, it is possible to know how many times emissions are counted on the balance sheet of the financial institution that is invested in that company.
Get in touch at contact@impactdelta.com, or via the Contact Us section of this website. Please share some details about the solution you have developed, or the kind of solution you are looking for, to make a given project (or type of project) transition-aligned.
Scope 3 Impact Delta (S3ID) is a collaboration between Scope 3 Climate Capital, a UK-based Community Interest Company (CIC), and Impact Delta, a US-based consulting firm. Three bodies guide the day-to-day activities S3ID:
Select members of the Steering Committee attend and co-ordinate Advisory Council meetings, and may also engage with individual Advisory Council members outside formal meetings. The Review Group operates on a broadly independent basis, and its function is to judge whether proposed STACs are aligned with credible standards and data sources.
One of the conditions associated with the approval of a STAC is that the delivery of environmental attributes linked to any given STAC is verified by independent auditor.
There are several key distinctions between the Scope 3 Market Mechanism (S3MM) and the voluntary carbon markets (VCMs). A key principle is that they are not intended to compete with each other, as each approach can have a role in accelerating the transition. That said, the intention is that the S3MM is considered by any company seeking to reduce Scope 3 emissions before carbon credits/offsets are considered as a solution.
The S3MM seeks to use a company’s buying power as an driver to accelerate the transition inside that company’s value chain. The company will be interested to pay the green premium on a transition-aligned choice (e.g., green steel, as opposed to regular steel) if, in exchange, it is able to prove and claim positive environmental attributes in its sustainability reporting, and bring down its Scope 3 emissions to help it hit science-based targets.
A key concept is that the environmental attribute of a decision (e.g., lower emissions from the decision to specify green steel in a building project) are linked to the company’s activities. With carbon credits/offsets, a company does not need to change its business practices (i.e., it can continue to buy regular steel) and can seek to reduce its reported emissions simply by buying the relevant number of offsets. While this may allow a single company arithmetically to claim it is on track to reach net zero by a certain date, this approach will not transition the global economy. There are simply not enough offsets, and especially nature-positive offsets, to allow this to happen. Hence the imperative to accelerate transition in the value chains of companies, and not outside them.
Yes. A purchase order STAC can be used to reduce reportable upstream emissions. We are seeking to position the substantial contributions made by pre-funded STACs to be used to report negative Scope 3 category 15 emissions in the future version of the GHG Protocol. We are also seeking to position the Impact Delta Certificates issued during the STAC lifecycle to be recognised by initiatives such as the Science Based Targets Initiative (SBTI) as credible effort towards net zero, and as a Transition Plan best practice method by relevant initiatives.
A STAC-related project has the following stages:
A STAC is relevant for:
The Impact Delta refers to the substantial positive contribution that is being delivered by the solution, and expanded or delivered at a higher level of ambition as a result of the STAC.
The transition is a global transition. While the initiative is global,and solutions from any geography can be selected, S3ID seeks to identify and promote developing country opportunities that can also attract development finance support. Priority sectors include industry, transport and food, as they link to construction, medical devices, consumer goods and technology.
A pre-funded STAC can engage users that have exposure to the business activity area in which the STAC is seeking to drive and support better performance. Co-investors can be from any sector and simply wish to add their support to the solution. A combined or purchase-order STAC must deliver goods to an entity for whom it is their main business, avoiding any unintended consequences or market distortions.
A solution proposed by a supplier must be demonstrably accelerating transition within its sector. To meet the credibility thresholds required, the solution must reference bona fide standards or frameworks, as well as use quantifiable metrics and independently verified data both for baseline definition and the forwards looking performance milestones. KPIs focus on climate, nature and resilience, and are ‘substantial’ contributions beyond a transition baseline/threshold defined as either significantly beyond the Paris Aligned Pathway (hard-to-abate sectors covered by Sector Decarbonization Approach), a 50% improvement beyond sector average based on broad market coverage (sectors not covered by Sector Decarbonization Approach), or the ecosystem conditions that existed within the site boundaries prior to intervention (for agriculture, fisheries and livestock). An Review Group reviews proposed solutions at the review & registration stage, and will reject any opportunities that fail to meet these requirements or are deemed to cause significant harm in any way.
The Advisory Council consists of individuals with the relevant expertise and experience to shape the approach taken by S3ID to maximise impact, relevance, and technical rigor. Initially, this Advisory Council is not compensated, however as the initiative becomes more established, an annual stipend in recognition of the time required, which is around 20 hours per year, will be offered.
S3ID is connecting up an ecosystem that is seeking to accelerate the transition. On the supply side, solution providers are developing technologies and business models to facilitate a net zero, nature positive, and resilient future. On the demand side, entities bring demand signals, capital, and long term offtake commitments. S3ID provides expert review, a platform to connect the market, and a contractual framework for catalytic capital. To defray the costs of running this system, a reasonable closing cost for a transaction is assessed and an annual user fee for active participants. Once the platform reaches scale, S3ID is expected to be fully financially self-sufficient. As an initiative driven by a UK Community Interest Company that aims for substantial positive impact, S3ID also seeks philanthropic support to help it achieve scale quickly.
