Scope 3 Action Code and market impact
While the Code intends to send a strong demand signal by enabling the use of high-quality credits toward interim Scope 3 targets, uptake of the broader VCMI’s Carbon Integrity Claims remains limited. Only two companies – Bain & Company and Natura & Co. – have pledged the ‘Platinum’ claim – the Code’s highest level of ambition – requiring companies to retire high-quality carbon credits equal to or exceeding 100% of remaining emissions after internal reductions.
Additionally, the Scope 3 Code shows potential conflicts with other guidance and standards, such as the EU Green Claims Directive and the Science Based Targets initiative (SBTi) – see next section.
The Scope 3 Code offers a four-step process, closely mirroring the broader Claims Code of Practice – see our previous analysis here.
1. Foundational criteria
- Disclose annual GHG inventory,
- Set near-term, science-aligned targets,
- Show progress on finance/governance/climate strategy,
- Align policy engagement with the Paris Agreement.
2. Quantify and close the Scope 3 emissions gap
- Year-on-year: Calculate and limit annual emissions gaps.
- or
- Carbon budget: Use cumulative targets over the target period. In both cases, companies must retire high-quality carbon credits at least equal to the calculated gap.
3. Use high-quality credits*
4. Transparency and public disclosure:
- Scope 3 gap,
- Actions taken and planned to overcome reduction barriers,
- Quantity and quality of credits retired.
The VCMI defines high-quality carbon credits* as those labelled under the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles (CCPs) –or Article 6.4 credits when they become available – to meet interim mitigation targets. Alternatively, when a specific carbon credit methodology has not yet been assessed by the ICVCM, companies may retire CORSIA Eligible Emission Units approved for either the 2021–2023 Compliance Period (Pilot Phase) or the 2024–2026 Compliance Period (First Phase) – allowed only until 1 January 2026.
The Code also sets some guardrails to prevent misuse or greenwashing, including an emissions gap capped at 25% of the Scope 3 trajectory, limits on yearly usage under the budget approach (e.g. 40% of the gap), and a time-bound approach with no eligibility for the Code after 2040.
Standards and guidance on Scope 3
However, the Code has already faced criticism. Carbon Market Watch and the NewClimate Institute have raised concerns that it risks legitimising continued reliance on carbon offsets in place of actual emissions reductions. They also question the assumption that all companies face Scope 3 barriers, warning that this could lead to systemic loopholes and delay urgently needed decarbonisation.
The SBTi’s original Net-Zero Standard (Version 1.2) required companies to set Scope 3 targets if these emissions made up 40% or more of their total emissions, with minimum coverage thresholds of 67% for near-term and 90% for long-term targets.
The new Version 2.0 draft replaces this boundary, requiring companies to prioritise the most emissions-intensive Scope 3 activities and suppliers over which they have the greatest influence. SBTi’s updated framework excludes the use of carbon removal credits for Scope 2 and 3 emissions, allowing the use of these credits only to neutralise Scope 1 residual emissions.
In both versions, SBTi maintains a clear stance that carbon credits cannot be used to meet science-based targets. While the original standard limited credits to neutralising residual emissions at the net-zero year, the draft standard introduces an optional recognition of “Beyond Value Chain Mitigation” (BVCM) for companies that voluntarily finance high-quality mitigation activities – see our analysis here.
The EU Green Claims Directive (GCD) also reinforces this position. It mandates that companies substantiate environmental claims — including those related to Scope 3 — with comprehensive evidence. While it offers exemptions for small and medium-sized enterprises (SMEs), the directive restricts carbon credit use to cover only residual emissions, i.e. after companies have achieved deep direct emissions reductions (typically 90–95%) – see our analysis here.
| Organisation | Type | Approach to Scope 3 |
|---|
| Science-based targets initiative (SBTi)’s – Corporate Net-Zero Standards (version 1.2) | Voluntary framework | Requires Scope 3 targets if emissions ≥40% of total; must cover ≥67% near-term, ≥90% long-term |
| Science-based targets initiative (SBTi)’s – Corporate Net-Zero Standards (draft version 2.0) | Voluntary framework | Removes percentage thresholds; requires prioritisation of high-impact activities and influence in value chain |
| Climate Action 100+ | Disclosure | Expects companies to disclose Scope 3 emissions and develop credible reduction targets |
| EU’s Green Claims Directive | Regulatory framework | Requires substantiation of environmental claims, including Scope 3 emissions; SMEs may be exempted |
| International Organization for Standarization – IWA 42:2022 (Net Zero Guidelines) | Guidelines | Recommends inclusion of Scope 3 in GHG inventories and strategies; follows GHG Protocol principles |
Scope 3 barriers
Measuring and reducing Scope 3 emissions remains a major challenge. Disclosure standards like the Greenhouse Gas Protocol’s Scope 3 Accounting the International Sustainability Standards Board (ISSB), part of the IFRS Foundation, attempt to tackle this.
The GHG Protocol provides comprehensive standards for measuring and reporting Scope 3 emissions across 15 categories, while the ISSB requires companies to disclose Scope 3 emissions when material, under IFRS S2 Climate-related Disclosures.
Due to this complexity, the ISSB has recently proposed easing Scope 3 reporting requirements for the financial sector, allowing institutions to exclude certain categories such as derivatives and insurance-related emissions. This exemplifies the broader industry struggle with Scope 3.
Looking ahead
Market participants will be watching closely to see how companies adopt the new Scope 3 Action Code. Important developments to monitor are the finalisation of SBTi’s Net-Zero Standard Version 2.0 and the regulatory momentum of the EU Green Claims Directive.
Regardless of how policy and standard-setting evolve, the concept of high-integrity carbon credits is here to stay, likely deepening the bifurcation between low- and high-quality credits. Competition among buyers to access the most credible credits at the lowest cost is expected to intensify.
