Addressing emissions across the entire value chain has become a central priority for organisations as global focus on climate change intensifies. Regulators, investors, and customers increasingly expect companies to take responsibility not only for emissions from their direct operations but also for those embedded in their products and services throughout the supply chain from raw material extraction to product use and disposal. Managing these emissions presents both challenges and opportunities, requiring a holistic approach to sustainability.
For many companies, value chain or Scope 3 emissions represent the largest share of their carbon footprint often many times greater than direct operational emissions (Scopes 1 and 2). In some industries, such as manufacturing and retail, these emissions can be up to 26 times higher. For instance, over 90% of IKEA’s total emissions come from its extended value chain, highlighting the urgent need for companies to adopt comprehensive decarbonisation strategies that extend beyond their immediate operations. In emerging markets and developing economies (EMDEs), participation in global manufacturing value chains has also led to rising domestic and foreign emissions, underscoring the interconnected nature of global supply networks and shared climate responsibilities.
Building green value chains enables businesses to manage climate risks, enhance resilience and align with stakeholder expectations. However, scaling decarbonisation especially, among SMEs and suppliers in developing economies requires innovative financing solutions. Despite the industry sector accounting for around 25-30% of global emissions, it receives less than 5% of tracked climate finance flows, creating a major funding shortfall. Blended finance, corporate investment, and supply chain finance programs linked to sustainability goals can help bridge this gap. Coordinated action combining robust measurement, stakeholder engagement, and targeted financing is essential to drive low-carbon transformation across global supply networks.
Decoding supply chain emissions
Understanding and addressing emissions across the entire value chain is critical for companies aiming to meet their climate goals. Emission sources are typically classified into three scopes i.e. Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy) and Scope 3 (all other indirect emissions across upstream and downstream activities).
For many organisations, Scope 3 emissions account for the majority of their carbon footprint, highlighting the need for a broader approach to climate strategy. The proportion of these emissions differs significantly across sectors, reflecting variations in operational models and supply chain structures. In sectors such as manufacturing, retail and consumer goods, Scope 3 emissions can make up 90% or more of total emissions, primarily driven by upstream processes like raw material extraction and production, as well as downstream impacts from product use and end-of-life disposal. Likewise, in high-emission industries such as oil, gas, and mining, Scope 3 emissions typically range from 80% to over 95% of total emissions due to energy-intensive activities such as fuel extraction, refining, transportation, and end use. This variation highlights the critical importance of integrating green value chain principles into sustainability strategies. By identifying and prioritising these value chain emissions, companies can align their decarbonisation efforts with the most material climate-related risks and opportunities. This shift from operational focus to value chain-wide action supports more effective decision-making and demonstrates a deeper commitment to long-term sustainability.
Financing plays a critical role in advancing green value chains, as effective decarbonisation depends on substantial capital investments across multiple areas, ranging from renewable energy adoption and logistics electrification to product redesign and improved carbon tracking. These measures often entail high upfront costs, long payback periods and increased financial risks, particularly in emerging markets. For smaller suppliers and lower-margin segments, transitioning to low-carbon operations can be challenging without targeted financial assistance and supportive mechanisms.
A significant financing gap continues to limit the pace and scale of value chain decarbonisation. For instance, although food and agriculture value chains account for nearly one-third of global greenhouse gas emissions, they receive less than 5% of total climate finance, leaving an annual shortfall estimated in the range of hundreds of billions to over a trillion dollars. Embedding targeted green finance solutions within supply chain strategies is therefore essential to accelerate progress. Such approaches help overcome investment barriers, align corporate actions with global climate goals, and demonstrate a strong commitment to sustainable and inclusive value chain transformation. Innovative instruments including sustainability-linked loans, blended finance structures and green supply chain finance programs are emerging as effective tools to mobilise capital and drive low-carbon practices across value chains.
Financing challenges
Financing value chain decarbonisation is challenged by a range of complex factors that extend beyond high capital requirements and long payback periods. A key constraint is the high perceived risk among investors, particularly in emerging markets, driven by uncertain regulatory frameworks, limited emissions data, and technological uncertainties surrounding new low-carbon solutions. The fragmented nature of supply chains often involving numerous small and informal suppliers further limits transparency, increases due diligence costs, and discourages participation from mainstream financial institutions. Many smaller suppliers also lack awareness of green finance instruments or the capacity to meet environmental, social, and governance (ESG) standards, restricting their access to funding. In addition, currency fluctuations and macroeconomic instability in developing economies heighten risk perceptions, raising the overall cost of capital.
Traditional financing approaches tend to prioritise direct emission reductions within large corporations, often overlooking Scope 3 emissions linked to suppliers and product use where the majority of climate impacts occur. This disconnect results in underinvestment in critical segments of the value chain. Furthermore, the absence of standardised ESG metrics and the fragmented landscape of green finance products continue to constrain the scaling of finance required for effective and inclusive decarbonisation.
Accelerating action: Key enablers and lessons learned
- Collaboration is essential: No single company can transform an entire value chain on its own. Public-private partnerships, sector-wide voluntary agreements, and industry initiatives such as the Science Based Targets initiative (SBTi) enhance impact and allow resources to be shared effectively
- Support over enforcement: Engaging suppliers through knowledge-sharing, technical support, and access to finance rather than relying on penalties builds trust and encourages active participation, particularly among small and medium-sized enterprises (SMEs)
- Data and digitalisation as key enablers: Transparent and auditable carbon data opens the door to innovative financial solutions. Artificial intelligence and digital tools make it easier to track emissions across supply chains and connect high emitters with potential financiers
- Incentivising verified outcomes: Linking payments and incentives to independently verified results increases confidence, strengthens accountability, and reduces the risk of greenwashing
- Regulation as a positive force: As climate reporting and carbon border regulations become stricter, businesses that act early to decarbonise their supply chains will be better placed competitively. The cost of compliance must be weighed against the strategic opportunities it brings
Emerging models of financing decarbonisation
To illustrate the practical impact of emerging financing models for decarbonising value chains, several corporate case studies highlight how these innovative instruments are being deployed:
PepsiCo Europe and Yara have partnered to decarbonise the European potato supply chain, a major source of emissions for both companies. PepsiCo provides farmers with digital tools, field data, and access to low-carbon fertilisers produced using renewable ammonia and carbon capture technologies, while Yara contributes technical expertise to enhance nutrient efficiency. Launched in 2024, the initiative covers around 1,000 farms and targets an 80% reduction in emissions from fertiliser production and up to a 20% cut in field-level emissions by 2030, all while maintaining or improving crop yields. Progress is independently audited against defined KPIs, and the model is designed for replication across the agri-food sector.
Indonesia’s National Action Plan for Sustainable Palm Oil represents a government-led, multi-stakeholder effort to promote responsible palm oil production. The initiative brings together major global companies such as Unilever, IKEA, Mondelez, and Musim Mas, alongside farmers, NGOs, and public agencies to strengthen legal frameworks, enforcement mechanisms, and sustainable farming practices. More than 500 companies are now certified under the Indonesian Sustainable Palm Oil (ISPO) scheme, with subnational implementation strategies active across multiple provinces.
The plan improves policy incentives, fosters collaboration, and mobilises shared funding from both public and private actors to drive sustainability and attract long-term investment in the sector.
Henkel has restructured its €1 billion supply chain finance programme into a sustainability-linked model in partnership with Deutsche Bank. Under this approach, suppliers with strong ESG ratings from EcoVadis gain access to preferential financing rates, directly linking financial benefits to sustainability performance. Nearly all participating suppliers have joined the initiative, which creates clear, scalable incentives for improving ESG practices and advancing supply chain decarbonisation. The programme demonstrates how integrating sustainability metrics into finance mechanisms can strengthen accountability and accelerate progress toward broader environmental goals.
The road ahead: Scaling green value chain finance
Decarbonising supply chains takes more than funding alone; it depends on coordinated action, shared accountability, and incentives that align every stakeholder across the value chain . The momentum for action is accelerating, driven by climate risks, evolving regulations, and increasing stakeholder expectations. Companies that invest early in building green value chains will be better positioned to thrive in a net-zero future.
Investing in value chain decarbonisation delivers multiple benefits, including reduced risk, enhanced operational efficiency, improved resilience, stronger reputation, and better regulatory alignment. Scaling these efforts will rely heavily on blended finance approaches that combine corporate, private, banking, and public capital particularly in high-impact sectors such as agriculture, automotive, and heavy industry. Moreover, targeted supplier support, digital tools, and transparent data systems are emerging as critical enablers of progress. By moving beyond compliance and adopting a proactive, strategic approach, businesses can unlock both climate and commercial value while strengthening their long-term competitiveness.
Bibliography
https://www.circularise.com/blogs/green-incentives-part-1
https://www.wbcsd.org/resources/value-chain-co-financing-mechanisms/
https://www.folur.org/sites/default/files/2023-10/GGP-casestudies-FA.pdf
https://flow.db.com/case-studies/greening-henkels-supply-chain