Nearly 25% of global GHG emissions come from agriculture, forestry and other land use, yet there has historically been little guidance to support businesses in accounting for Forest, Land and Agriculture (FLAG) emissions or removals in targets or disclosures. The Science Based Target Initiative (SBTi) released their draft FLAG guidance earlier in 2022, with the final version due to be released later in the year . The guidance sets out to plug this gap and support companies to plot the necessary reduction pathways needed to limit warming to 1.5 degrees against pre-industrial levels.

What does the guidance say?

  • Not only businesses with agriculture or land holdings will need to set FLAG specific targets. Any business that derives more than 20% of revenue or emissions (although this is still to be confirmed in the final guidance) from FLAG-derived products will have to set these targets – for example, a fashion business utilising cotton, or a manufacturing business using wood, palm oil or other bio-based materials.
  • Any business setting an SBTi Net Zero target or in the process of recalculating their existing SBT must use this new target approach. Setting FLAG targets becomes mandatory in September 2022, a very short while after the final guidance is intended to be released. Businesses may end up with multiple targets: the standard approach (Scope 1 & 2, and Scope 3) and the FLAG approach (Scope 1 & 2, and potentially Scope 3)
  • Land use change and management, in addition to carbon removals and storage, will now need to be measured and reported. Reporting on these aspects will be new for many businesses, particularly for those further down the supply chain who procure FLAG derived products
  • Carbon removals from owned or supplier-owned FLAG activities can only be used to meet the FLAG target and cannot be used to meet the standard non-FLAG target. This means that non-FLAG targets will require separate neutralisation and any FLAG removals can net FLAG emissions only.

The dangers of climate change are now more apparent and urgent than ever. Investors, customers, and regulators have raised their expectations for companies, demanding that they set targets for reducing net emissions of greenhouse gases (GHGs) to zero and offer clear plans for achieving them. It is therefore essential for companies in the Forest, Land and Agriculture sectors, as well as companies whose business model relies on or includes the use of products from these sectors, to understand the exact scale of the associated emissions and build robust targets to decarbonize.

The development of the SBTi FLAG guidance is a good step forward for this overlooked sector

The draft guidance from the SBTi is a good step forward, previously there was no consistent guidance on setting FLAG targets. But the guidance is not good enough in its current form. There are key gaps around exactly how businesses are supposed to account consistently for these new emission sources. While this should be addressed by the GHG Protocol on Land Sector and Removals, this release of this protocol has been repeatedly delayed and is currently due in draft format in summer 2022. It therefore feels premature for the SBTi to have made setting FLAG targets mandatory for businesses in certain circumstances from now without the necessary calculation guidance in place. It may result in many businesses spending time and effort to submit a target, just to re-do the exercise six months later once the calculation standard is released. Given the timelines involved, right now businesses should be focused on establishing whether they will need to set FLAG targets, and factor setting FLAG targets into their budget.

Is the output of the SBTi FLAG guidance going to justify the effort required to submit targets?

A great deal of time and resource will be required for businesses to set a FLAG target, yet with many open questions around how emissions will be accounted for, businesses may wonder why they should dedicate such resource to setting a FLAG target now.

It’s important to recognise at this stage that the new FLAG target mechanism is a shift in reporting, where businesses will report FLAG emissions separately from non-FLAG emissions, and it will take time to get right. Starting the foundational work now enables businesses to understand where their gaps are, where additional data may be required and where it is necessary to upskill their team. This ensures that by the time the guidance is finalised and the new target approach is mandated, the business is in a good position to report a good quality and accurate disclosure.

Understanding the FLAG guidance will be like learning a new language for many businesses

The guidance sets a high bar for companies at all levels of the FLAG supply chain, with its myriad of terminology and complex concepts to digest. However, there will be a particularly steep learning curve for businesses further down the value chain who may not be immediately familiar with these concepts. Such businesses, who have previously approached carbon accounting through energy, travel or supplier engagement, will need to completely rewire their approach. Whilst it’s essential for FLAG carbon accounting to understand concepts such as carbon flux, direct vs indirect land use change and the permanence of carbon removal, it’s a tall order for businesses to navigate these complexities within the short timeframes set out by SBTi.

Is the SBTi FLAG Guidance going to hinder global efforts to reach a zero-carbon economy?

In its current form, there is a risk that the guidance may negate the positive changes that the SBTi is attempting to achieve. The complexity of the guidance and the additional burden of having to track multiple targets may act as a deterrent for businesses who are planning to set an SBT. As of today, many businesses will not yet have a full understanding of their FLAG emissions. Getting to a level of understanding where businesses can set meaningful targets could require considerable additional resource, distracting them from making progress towards their current targets.

In addition, the complexities involved in setting FLAG targets may discourage a business from transitioning towards bio-based procurement and could, in fact, encourage the use of fossil fuel-based materials, clashing with the core goal of SBTi to reduce global emissions.

Based on the current draft guidance, companies whose business model includes the use of FLAG products are required to set targets. A business on the cusp of the qualification criteria for the FLAG SBT may choose not to transition its procurement of raw materials towards bio-based sources to avoid being captured, and therefore avoid the extra time and resource required.

The guidance does not provide answers to questions surrounding biogenic CO2 removals

How to set targets for biogenic CO2 removals has until now been an unknown. The guidance shines some light on this, however many open questions remain which will await the release of the GHG Protocol on Land Sector and Removals Guidance for further clarity. As the guidance requires companies to set separate FLAG targets and non-FLAG targets, any carbon sequestration within the company’s FLAG activities cannot count towards the non-FLAG target. Consequently, companies expecting to use FLAG removals for all their emissions will now need to consider how to neutralise their residual emissions for their non-FLAG target through the purchase of carbon credits.

The guidance specifies that only biogenic removals within a company’s supply chain can contribute to a FLAG target. Any company looking to use their own, unverified removal initiatives sitting outside of their supply chain will need to review their approach to neutralising their residual emissions. It’s possible that these kinds of removal initiatives will need to be verified by a voluntary standard such as VCS or Gold Standard.

So what can we do?

Although there any many uncertainties around what the final guidance will look like, its impending arrival is certain. As such, businesses should start reviewing if they are likely to be captured. This is no mean feat and will likely require significant time and resource to work through exactly what the new target requirement means for their business. It is essential for emissions from FLAG to be assessed and reduced as soon as possible, so the groundwork should begin now.

What does this all mean for carbon accounting and target setting for the land sector?

This new guidance is an essential start in addressing FLAG emissions, but we mustn’t fall into the trap of thinking that this is a silver bullet. Just because target setting guidance exists does not mean it will be used. Properly reporting FLAG emissions requires a huge amount of effort from businesses. It is our job to make this as streamlined and accessible as possible, to reduce the burden and integrate within existing business and reporting practices. We need to remove the barrier to entry, and make sure this doesn’t just become an academic exercise but one that actually does give us the reductions we need.

How Avieco can help?

As we progress towards the final release of the SBTi FLAG guidance, your business will need to understand whether it will be captured by the guidance threshold and the potential implications of this. Avieco can help you not only understand whether you are likely to be captured, but develop an approach to setting a SBTi FLAG guidance.

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