The hardest emissions to cut, and the legal framework trying to cut them

This article was written by Elena Askew-Renaut, a second-year Politics & Philosophy student at the LSE and Head of Communications for the Website & Blog of the LSESU Pro Bono Division of the Law Society.

On 4 March 2025, Imogen Ormerod and Trisha Dasgupta, managing associates in Linklaters' Energy and Infrastructure group, visited LSE to speak to the Law Society's Pro Bono Division about a project that sits at the frontier of both climate finance and legal innovation.

There is a number that haunts most corporate climate strategies: 70%. That, roughly, is the share of a typical company's greenhouse gas emissions that lies not in its own operations or the electricity it consumes, but in its supply chain - upstream in the factories that make its components, the farms that grow its inputs, the freight networks that move its goods. These are what climate accounting calls Scope 3 emissions. They are also, by a wide margin, the hardest to measure, the hardest to verify, and the hardest to finance. It is this problem that Linklaters chose to tackle on a pro bono basis, working with climate finance organisation Scope 3 Climate Capital to develop the Sector Transition Acceleration Contract, or STAC.

Why Scope 3 is different

To understand why the STAC matters, it helps to understand why Scope 3 emissions have proved so resistant to the mechanisms that have made progress on Scopes 1 and 2 relatively tractable. Scope 1 covers a company's direct emissions: the gas it burns, the fuel its vehicles consume. Scope 2 covers the emissions from the electricity it buys. Both are amenable to straightforward corporate action: switch to renewables, electrify the fleet, upgrade the building. The market for financing these transitions is well developed. Green bonds, sustainability-linked loans, and power purchase agreements have channelled hundreds of billions of dollars toward exactly this kind of project. Scope 3 is different in almost every respect. A company does not control its suppliers. It cannot mandate that a steelmaker decarbonise its furnaces or that a smallholder farmer adopt lower-emission practices. It can ask, encourage, or set targets, but the financial cost of the transition falls on entities that are often smaller, less creditworthy, and less able to access capital markets than the multinational at the top of the value chain. The result is a structural financing gap: the companies that need to decarbonise cannot afford to, and the companies that want their suppliers to decarbonise have no reliable mechanism to make it happen. Regulatory pressure is beginning to close that gap. The EU's Corporate Sustainability Reporting Directive now requires large companies to disclose Scope 3 emissions across their value chains. The Science Based Targets initiative has pushed leading multinationals to set supplier emissions targets. But disclosure and aspiration are not the same as finance, and no established instrument had yet bridged the two, or until frameworks like the STAC began to emerge.

What the STAC does

The Sector Transition Acceleration Contract is, at its core, a new legal structure designed to turn a company's climate commitments into a financeable instrument for its suppliers. The underlying insight is straightforward: large corporations and institutional investors already hold climate and offsetting budgets; funds earmarked for emissions reduction that are often underdeployed or directed toward blunt offsetting instruments rather than genuine transition activity. The Scope 3 Market Mechanism, which the STAC operationalises, allows those budgets to be redirected into structured agreements with suppliers, creating what Scope 3 Climate Capital describes as "bankable investment instruments" - contracts that are sufficiently standardised, risk-allocated, and legally robust to attract private capital and blended finance from governments and multilateral development banks.

The legal innovation here is not incidental. Blended finance structures (where public or concessional capital absorbs first-loss risk to crowd in private investment) are well understood in development finance. What has been missing for supply chain decarbonisation is the contractual architecture to make them work: standardised terms that can operate across sectors and jurisdictions, clear risk allocation between the multinational, the supplier, and the financier, and mechanisms for verifying and reporting on the emissions reductions achieved. This is precisely where lawyers add value that no financial model alone can provide, and where Linklaters' pro bono contribution was most substantive.

From a legal perspective, the challenges are considerable. Supply chains cross jurisdictions with divergent regulatory regimes, contract law traditions, and enforcement mechanisms. A framework designed to work in one market must be adaptable enough to function in another without losing the standardisation that makes it bankable - a challenge sharpened here by the novelty of the instrument and the absence of established precedent.

Pro Bono at the frontier

The STAC engagement sits within a broader shift in how commercial law firms conceptualise pro bono work - one that Linklaters has been at the forefront of. The traditional model of law firm pro bono - individual lawyers advising charities, appearing in immigration tribunals, staffing legal clinics - remains important and continues at scale. But a newer model is emerging alongside it: one where firms deploy their most specialist commercial expertise toward systemic challenges, working not with individual clients in crisis but with organisations trying to build new infrastructure for the public good. The STAC is a clear example of this. It required not general legal competence but specific expertise in energy and infrastructure finance, blended capital structures, and cross-border contract design. That expertise sits in a relatively small number of firms globally. Making it available on a pro bono basis to an organisation like Scope 3 Climate Capital (which would otherwise face prohibitive transaction costs in developing a novel legal framework) is a meaningful contribution that a legal aid clinic cannot replicate.

The broader stakes

The question the STAC is designed to answer, “how do you finance the decarbonisation of the parts of the economy that capital markets cannot easily reach?” is one of the defining problems of the climate transition. The International Energy Agency estimates that reaching net zero by 2050 will require $4 trillion in annual clean energy investment by the end of this decade, much of it in sectors and geographies that existing finance mechanisms were not built to serve. Legal frameworks will not solve that problem alone. But the history of sustainable finance suggests that the absence of the right contractual architecture is itself a barrier to capital deployment, and that removing it, through careful, expert drafting, can unlock investment at scale. Green bonds were, before 2007, a theoretical idea. They are now a $650 billion annual market. The orange bond, discussed on this blog, began as an $8.5 million experiment and has since mobilised $288 million across seven issuances. The STAC represents the same spirit of legal innovation applied to one of the climate transition's most stubborn problems. That Linklaters chose to develop it on a pro bono basis - committing specialist energy and infrastructure expertise to a framework designed for the public good - is precisely the kind of contribution that makes the difference between an idea and an instrument the market can actually use.