Hoisting the FLAG: the SBTi’s target-setting approach to land-intensive sectors goes live

Momentum towards a net zero future was bolstered again by the launch of the FLAG sector guidance on corporate climate target setting, released by the Science Based Targets initiative (SBTi). This guidance will play a crucial role in the accounting of land-related emissions and removals, so we've put together our digest of its key implications and the anticipated challenges for FLAG companies – but also why it will pay off to invest time and resources to align with these new requirements.

Redefining 'best-in-class' climate action for FLAG companies

The FLAG sector generates roughly 25% of annual greenhouse gas (GHG) emissions globally, with around half coming from agricultural production and half stemming from other land use activities, deforestation and forestry . Yet, only few companies currently account for these emissions in their baseline and related targets, which the Greenhouse Gas Protocol largely attributes to a lack of available standards, data and methods.

The release of the guidance thus marks a significant moment for companies with direct or indirect links to land-intensive activities: they now have clear recommendations on the annual reductions they need to make to align with the goals of the 2015 Paris Agreement and to limit average global temperature rise to 1.5ºC above pre-industrial levels .(“pre-industrial" meaning the period 1850–1900 on which scientists base comparisons).*

So, if you're within the FLAG sector, what do you need to know? We've handpicked the most noteworthy requirements:

• Sectoral decarbonisation goals are gaining ground: From September 2022, companies planning to set science-based targets (SBTs) will be required to set a 'FLAG science-based target' (or FLAG target) if they belong to a FLAG-designated sector (e.g. food and staples retailing) or to any other sector where more than 20% of the revenue or total emissions across scopes 1, 2 and 3 are attributable to FLAG. A company may be required to set both a FLAG target, which covers all forests, land and agriculture related emissions, and a so-called “non-FLAG" target, which covers all of the company's other fossil-based emissions.
• There will be two approaches to account for emissions: Companies can take either a sector or a commodity approach to calculating their emissions. What does this mean and what's the difference? A sector approach best serves companies with a diversified set of FLAG emissions, where individual products or sources dominate the emissions footprint. In such circumstances, companies need an overarching reduction target which is what the sector approach offers. A commodity approach makes more sense when the bulk of a company's emissions come from specific products or commodities, such as any of the 10 land-intensive commodities: beef, chicken, dairy, corn/maize, palm oil, pork, rice, soy, wheat and timber and wood fibre. Each one of these 10 commodities has a tailored emissions reduction pathway, giving companies specific guidance on their reduction strategy compared to the sector approach.
• The GHG Protocol will soon offer a better accounting framework: The SBTi recommends that all companies align the accounting of their FLAG emissions with the guidance that will be set out in the upcoming GHG Protocol's Land Sector and Removals Guidance.
• A push for more ambition in addressing emission scopes: When setting targets to reduce emissions, FLAG-sector companies must make sure they address 95% of their direct and indirect scope 1 and 2 emissions and 67% of their scope 3 emissions. Across all scopes, FLAG and non-FLAG emissions may arise, which includes emissions from agriculture and downstream processing (such as waste disposal, consumer use of products, etc.).
• New ways to meet reduction targets: Activities that help remove GHG emissions and that take place on production areas within a company's supply chain can be counted towards a company's emission reduction target.
• Public commitment to zero deforestation: FLAG companies setting science-based reduction targets must also publicly commit to zero deforestation across all scopes. When doing so, the SBTi highly recommends that companies align their deforestation commitments with the Accountability Framework initiative guidance.

What about the challenges? We've also identified the problems you might face:

• The guidance requires you to clearly differentiate between FLAG emissions and non-FLAG emissions. This will be tricky, given existing corporate GHG inventories have not been developed on this principle, and the emission factors used for accounting emissions are not always split to address these two different categories. But there are ways around this: emissions generated by activities in category 1 (purchased goods and services) relating to land use change and agricultural production can be separated out using the breakdown of emission factors provided in emission factor databases. For example, an emission factor for a litre of palm oil can be broken down to distinguish between FLAG emissions, such as land-use change and on-farm activities to grow palm oil fruit, and non-FLAG emissions, such as the processing of palm oil fruit into oil.
• Working to mitigate the source of FLAG emissions will be difficult, particularly when the FLAG emissions fall under a company's scope 3 inventory. Companies often do not know the impact of FLAG on their scope 3 footprint, so embedding activities to reduce them at the rates required will demand traceability, collaboration across the supply chain and innovative solutions.
• FLAG now requires companies to account for land use change occurring in supply chains, which will add to the complexity of carbon accounting. However, this is also a positive: assigning a carbon value to land use change will encourage companies to act against deforestation and support habitat conversion.

Our team in the Agricultural Value Chain practice is sensitive to these challenges. We've even begun working with our existing clients to build scope 3 GHG inventories that distinguish between FLAG and non-FLAG emissions and account for land use change and carbon removals within supply chains. We're also helping our customers navigate the issue of upstream emissions, which we recommend they address by using supplier engagement strategies and capacity building workshops.

Why is SBTi's FLAG guidance big news for companies?

Until now, if you're a company with a footprint in the FLAG sector you'll have struggled to measure the impact of your footprint. That also means you'll have found it hard to address these emissions through activities that drive reductions.

Fortunately, the new FLAG guidance makes this easier, allowing companies like yours to go beyond measures that only reduce emissions: if you have activities within your supply chain that help permanently remove emissions from the atmosphere, you will, for the first time, be able to count these towards your overall corporate GHG emission reduction target – but only if these carbon removals happen within your supply chain and provided that they are not sold as certified carbon removals on the carbon market.

There are multiple actions that companies can already start taking to slash their overall carbon emissions, for example:

• Working on how we feed livestock: globally, livestock farming and associated land use change are responsible for approximately 46% of food emissions. You can drive impact in this area by identifying alternative feed proteins (altering the rumen activity of cows and so reducing methane emissions), finding ways to combat deforestation (by looking at the feed supply chain, where demand for soya production is proving devastating for forests) and introducing regenerative agricultural practices.

• Optimising the use of inputs in arable crop farming for human consumption and livestock feed, as well as related land use change accounts for roughly 35% of food emissions, and fertiliser and pesticides are the major source of emissions on farms. You can change this by optimising the use of fertilisers and adopting innovative solutions like nitrification inhibitors. Reducing your use of pesticides will also save you fuel (as they'll be applied less often) which is good for the planet and your pocket.

• Improving farmland management: increasing your soil's organic carbon is a failsafe way to cut down emissions because you're tapping into the soil's carbon sequestration potential. You can achieve this by improving grassland management practices: optimising the distribution of manure or using nitrification inhibitors to reduce nitrate leaching.
• Increasing productivity using agroforestry principles: The deliberate inclusion of shade trees in cocoa or coffee production systems in combination with other good agricultural practices like pruning and farmer training can result in multiple environmental benefits, such as improved soil fertility, reduced soil erosion, increased carbon sequestration and improved yields. Better yields, reduced need for fertiliser and the provision of fuel wood and timber through agroforestry systems can reduce the pressure of deforestation on surrounding forests while improving the resilience of cocoa farming livelihoods.

How can South Pole help?

Does your company belong to the FLAG sector? If you're in the process of building your GHG inventory or have already defined a baseline, we recommend that you start differentiating between FLAG and non-FLAG emissions so that you are ready to set FLAG targets as the SBTi guidance is refined.