Patagonia pilot project shows how to catalyze climate finance across economy – Trellis Group

Report on Corporate Value Chain Interventions for Sustainable Development Goals

Introduction: Aligning Corporate Strategy with SDG 13 (Climate Action)

A case study of the outdoor apparel company Patagonia illustrates a significant corporate challenge in achieving Sustainable Development Goal 13 (Climate Action): addressing Scope 3 emissions. With over 85 percent of its carbon emissions originating from its supply chain, the company has committed to a science-based target of reducing these emissions by 55 percent by 2030. This report details the innovative strategies being developed to meet this goal, which have broad implications for corporate climate action.

Fostering SDG 12 (Responsible Consumption and Production) Through Insetting

The Challenge of Decarbonizing the Supply Chain

Achieving targets for responsible production under SDG 12 is complicated by the nature of modern supply chains. Key challenges include:

• Distributed Emissions: The vast majority of emissions are generated by hundreds of independent suppliers.
• Limited Influence: A single company may represent a small fraction (e.g., 1-2 percent) of a supplier’s total business, limiting its leverage to compel capital-intensive changes.
• Investment Disparity: A company funding a major decarbonization project, such as replacing a fossil fuel boiler, would see the majority of the emissions savings benefit other customers of that supplier.

A Solution: Value Chain Intervention and Environmental Attribute Certificates (EACs)

To overcome these barriers, Patagonia has pioneered a value-chain intervention, or “insetting,” project. This approach directly supports the transition to sustainable production patterns as outlined in SDG 12.

1. Project Implementation: The company contracted to replace a fossil fuel boiler with an electric version for a supplier in Taiwan.
2. Baseline Measurement: The supplier is monitoring its business-as-usual emissions to establish a baseline for measuring reductions.
3. Credit Allocation: Upon project completion, Patagonia will receive Environmental Attribute Certificates (EACs) corresponding to the emissions savings, which can be netted against its Scope 3 inventory. The company anticipates receiving credits for 27,500 metric tons of CO2 equivalent in the first year.

Driving SDG 9 (Industry, Innovation, and Infrastructure) via Collaborative Platforms

The Advanced and Indirect Mitigation (AIM) Platform

The development of resilient infrastructure and sustainable industrialization, central to SDG 9, is being accelerated by the AIM Platform. This initiative is creating standardized guidelines for value-chain interventions. The platform’s pilot phase is testing rules to guide investments in projects that:

• Procure renewable energy for suppliers and customers.
• Facilitate a switch to sustainable maritime fuels.
• Reduce on-farm agricultural emissions.

Financial and Contractual Innovations

The insetting model relies on innovative financial and contractual frameworks to upgrade industrial infrastructure. Patagonia assesses potential interventions based on the cost per ton of avoided CO2, which ranges from $90 to $300. Contracts define a period, typically 5 to 15 years, during which the funding company receives all EACs generated by the project. This innovative accounting ensures that investment in sustainable infrastructure is properly credited.

Strengthening SDG 17 (Partnerships for the Goals)

Cross-Sector Collaboration for Scalable Solutions

The success of this model is fundamentally dependent on multi-stakeholder partnerships, a core principle of SDG 17. The AIM Platform itself is a joint initiative of three non-profits: Gold Standard, the Center for Green Market Activation, and the Center for Climate and Energy Solutions. Corporate pilot testers include a diverse group of industry leaders such as H&M Group, Heidelberg Materials, Netflix, and REI, demonstrating a cross-sector commitment to scaling climate solutions.

Addressing Implementation Hurdles Through Partnership

This collaborative framework is essential for resolving complex implementation challenges, including:

1. Preventing Double Counting: Contracts explicitly prohibit suppliers from sharing emissions data with other customers in a way that would allow them to also claim the reductions. This ensures the integrity of the EACs.
2. Standardizing Quality: The second pilot phase for AIM is focused on creating robust guidelines for assessing the quality of an intervention and standardizing the measurement of emissions savings.
3. Defining Value Chain Boundaries: An earlier pilot phase established rules for determining whether an intervention is legitimately part of a company’s value chain and its Scope 3 emissions.

Analysis of SDGs, Targets, and Indicators

1. Which SDGs are addressed or connected to the issues highlighted in the article?

   • SDG 9: Industry, Innovation and Infrastructure

     The article focuses on industrial processes within Patagonia’s supply chain, such as fabric dyeing. It highlights innovation in emissions accounting (insetting, AIM Platform guidelines) and the upgrading of industrial infrastructure (replacing a fossil fuel boiler with an electric version).

   • SDG 12: Responsible Consumption and Production

     The core theme is corporate responsibility for production patterns. Patagonia is actively working to reduce the environmental impact of its supply chain (Scope 3 emissions), encouraging its suppliers to adopt more sustainable practices, which is a key aspect of responsible production.

   • SDG 13: Climate Action

     The entire initiative described is a direct form of climate action. Patagonia’s commitment to a science-based target of cutting emissions by 55% by 2030 and its specific projects, like the boiler replacement, are aimed at mitigating climate change by reducing greenhouse gas emissions.

   • SDG 17: Partnerships for the Goals

     The article emphasizes collaboration. Patagonia is not acting alone but has teamed up with the Advanced and Indirect Mitigation (AIM) Platform, a cross-sector initiative involving other major companies (H&M Group, Netflix, REI) and non-profits to develop and scale climate solutions across industries.

2. What specific targets under those SDGs can be identified based on the article’s content?

   • Target 9.4: Upgrade infrastructure and retrofit industries to make them sustainable

     This target is directly addressed by Patagonia’s project to fund the replacement of a fossil fuel boiler with a more efficient and cleaner electric version at a supplier’s facility in Taiwan. This is a clear example of retrofitting an industry for sustainability.

   • Target 12.6: Encourage companies to adopt sustainable practices and integrate sustainability information into their reporting

     Patagonia, a large transnational company, is adopting sustainable practices by tackling its Scope 3 emissions. The development of new accounting rules and Environmental Attribute Certificates (EACs) through the AIM platform is an innovative way to integrate sustainability information into corporate reporting.

   • Target 13.2: Integrate climate change measures into policies, strategies and planning

     The article details how Patagonia has integrated climate change measures into its corporate strategy. Its goal, “validated by the Science Based Targets initiative in 2023,” and its commitment to “cutting those emissions by 55 percent by 2030” are concrete examples of this integration.

   • Target 17.17: Encourage and promote effective public-private and civil society partnerships

     The AIM Platform is a prime example of a multi-stakeholder partnership. It is a “cross-sector initiative” and a “joint initiative of three non-profits” working with private companies like Patagonia, H&M Group, and REI to create trusted rules and scale climate solutions, demonstrating a partnership between the private sector and civil society.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

   • Indicator 9.4.1: CO2 emission per unit of value added

     The article provides specific quantitative data related to this indicator. It mentions that Patagonia expects to receive credits for “27,500 metric tons of carbon dioxide equivalent” from a single project. Furthermore, it quantifies the cost of this reduction, stating it can “range from around $90 a ton, all the way up to $300,” which is a direct measure of the efficiency of emissions reduction efforts.

   • Indicator for Target 12.6 (Implied): Number of companies publishing sustainability reports

     While not a formal indicator number, the article implies the importance of reporting. The entire mechanism of insetting and EACs is designed to allow companies to account for and report on their value-chain emission reductions. The fact that Patagonia’s goal was “validated by the Science Based Targets initiative” is a form of public reporting on its sustainability commitments.

   • Indicator 13.2.2: Total greenhouse gas emissions per year

     The article is centered on measuring and reducing total greenhouse gas emissions. Patagonia’s commitment to “cutting those emissions by 55 percent by 2030” and the specific project yielding “27,500 metric tons of carbon dioxide equivalent” in savings are direct measurements related to this indicator.

   • Indicator for Target 17.17 (Implied): Existence and effectiveness of multi-stakeholder partnerships

     The article describes the AIM Platform, a partnership involving multiple corporations (Patagonia, H&M Group, Netflix, REI) and non-profits. Its activities, such as creating guidelines, running pilot phases, and scaling solutions, serve as a qualitative indicator of an effective partnership working towards sustainable development.

SDG Analysis Summary Table

Source: trellis.net