June 23, 2023

FLAG: Business Case or Business Dilemma?

June 23, 2023

FLAG: Business Case or Business Dilemma?

June 23, 2023

FLAG: Business Case or Business Dilemma?

June 2023

FLAG: Business Case or Business Dilemma?

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FLAG guidance is set to have a significant impact on emission inventories for companies that engage in land sector activities. FLAG will mandate these businesses to measure their land-based emissions across three core activity areas:

  • Land Management (LM)
  • Land Use Change (LUC)
  • Removals

As organisations rush to meet FLAG requirements, we expect the following positive shifts:

1. More Granular Measurement & Accurate Calculation

Current state: Scope 3 is estimated with Spend based calculations.

A customer needs to get Scope 3 data. They can typically estimate it using secondary emission factors and spend-based data, they don't necessarily need to know who their suppliers are. However, the lack of granularity has seen customers looking for supplier-specific emission factors as a way to break down their purchases emissions, an initial driver of supplier engagement.

Shift: Spend Based will be replaced with Weight-Based data coverage. The bar for the bare minimum of information is rising. Businesses will no longer be able to use secondary models to fill their gaps.

Businesses will need to not only know who their suppliers are but:

  • how much land do they own
  • what type of land it is
  • what crops they're building on this land etc

2. Better Data Accessibility & Analysis

Current state: Detailed analytics and abatement planning are primarily focused on Scope 1 & 2, with limited or no potential to include Scope 3 (Purchases).

~ Scope 1 & 2 analytics is prioritised simply due to more accessible data. Running meaningful analytics on Scope 3 data is challenging given most companies are only halfway through measuring their full-scope carbon inventory. The infrequency at which emission inventories are completed (quarterly at best) reduces the possibility of scenario modelling or performance tracking.

Shift: Scope 3 data will become more shareable and accessible

  • With increased access to supply chain data, extensive modelling becomes possible across Scope 3
  • Product-level sustainability R&D will be accelerated through differentiated data

Businesses will have more access to specific supplier data. Using richer supply data sets enables extensive modelling across all three scopes. For example, achieving product-level data breakdowns enables a more nuanced comparison between different materials and how each supplier manages the land.

3. Scaled Budgets & Impact Reduction for Scope 3

Current state: Reduction interventions for Scope 1&2 are increasingly granular and budget supported. Reduction interventions for Scope 3 (Purchases) are more randomised and focused on pilot initiatives.

Shift: Scope 3 intervention budgets will be easier to unlock

  • A more granular data view will enable a clearer idea of supply chain intervention costs and predict Return on Sustainability Investment (ROSI).
  • Interventions can create complex new revenue streams for business, creating opportunities but also steep learning curves.

New revenue streams generally fall into two buckets: 1. Opportunity cost base stream e.g., the amount you would otherwise spend on offsets, taxation or internal interventions. You can identify cheaper alternatives within the supply chain because you have an element of certainty of what that would cost to activate or substitute. 2. Net positive/ additional monetary stream: monetise potential in the supply chain and help suppliers bring to market. Most businesses that have the most at stake from FLAG sell physical products.

The solution space is evolving to support these changes. Advancements in estimation and modelling techniques, coupled with the capture and sharing of farm-level data, will play an important role in realising the positive externalities of these shifts.

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Source: State of Sustainability | FLAG Business Case or Business Dilemma Live Event.

Industry Insight

Despite the best sustainability intentions, your suppliers don’t actually want you to know everything about their business…

Sharing activity-level data that allows your customer to derive an accurate assessment of the emissions profile of what you’re selling them means providing a full cross-sectional view of your operations.

Suppliers are particularly nervous about this because the procurement teams they sell into are mostly not in sync with the sustainability agenda. This has two implications:

  1. There is no upside. No matter how much we talk about sustainability performance incentives, most procurement teams still do not factor this into price negotiations.
  2. Loss of leverage. In the event that procurement teams do start to look closely at activity level data, there is a (small) risk that this data is used to back calculate assumed margins.

Addressing this challenge is not going to be simple. We’re going to need a combination of:

  • Industry-led standards that define appropriate levels of expectation on data sharing.
  • Technology that allows companies more control over the exchange and use of their data.
  • Much better alignment between teams across sustainability, procurement, and commercial.

Policy Pulse | The Latest Sustainability Developments

A breakdown of the key policy updates that you and your company need to know about from the last fortnight.

  1. SBTi launches guidance for supplier engagement - The Science Based Targets Initiative (SBTi) has released a new guide to help business engage with suppliers for Scope 3 emissions reductions. The guidance is focussed for businesses setting scope 3 targets for supplier engagement.

It also gives general advice for businesses on how to engage targets reductions in scope 3 emissions, with key stages on the journey being:

  • Selecting the Right Suppliers for the Right Target
  • Securing Internal Buy-In
  • Target Implementation
  • Enabling and Tracking Supplier Performance
  • Monitoring and Reporting Target Progress

2. Global climate talks in Bonn make limited progress ahead of COP28 - The annual climate talks in Bonn are a chance for countries to develop negotiations ahead of the larger COP summits. Discussions moved in 2 key areas:

  • Global stock take (GST) - the first GST on the Paris Agreement and need to ratchet up will take place at COP28, with the draft structure agreed at Bonn. This will involve a synthesis of country progress on Paris, yet also includes more contentious elements on finance and historical responsibility.
  • Loss and damage - a new fund for loss and damage was the key outcome from COP27, which would compensate developing countries for climate damage. Whilst this remains unfunded, progress was made in deciding how to prioritise finance to affected countries.

Most of the agenda now gets pushed to the COP later this year in UAE.

3. UK Labour party unveils Green Prosperity Plan - Keir Starmer launched his party’s clean energy strategy in Scotland, with a package of proposals that aims to create clean energy security and increase UK green jobs.

Specific proposals include:

  • Achieve zero-carbon electricity by 2030 with a target annual spend £28bn on green industry
  • Establish a new publicly owned energy company, GB Energy.
  • Upgrade 19 million homes to make them more energy efficient.

However, as part of this Starmer stated that existing oil and gas licences before the election would be honoured, all but confirming that the large controversial Rosebank field would get to go ahead.

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SBTi guide for supplier engagement

Sustainability Trailblazers | LUSH Cosmetics' Journey to a Regenerative Supply Chain

LUSH Cosmetics are pioneers at integrating regeneration into supply chains, forming partnerships over the past 13 years with communities and organisations around the world that apply a more holistic approach to agriculture. These collaborations have yielded invaluable insights for businesses looking to build regenerative supply chains. Here are three key learnings from LUSH's journey:

  • Diversify funding streams: Businesses are best placed to enable the flow of money from banks to projects. Funding these projects through blended finance. Apply for government subsidies and investments from financial institutions to support private sector regenerative initiatives. Validate progress with robust data measurement.
  • Drive community support: Don’t just measure carbon. Look for the positive externalities. Engage farmers through technical assistance, training programs, long-term contracts, and price premiums for regeneratively produced commodities.
  • Establish deep and durable supplier partnerships: Back up suppliers with long-term partnerships, guaranteed payment and access to a market beyond that of your own to allow for supply and demand adjustments. LUSH guarantees to buy cotton two years ahead of production, ensuring a revenue stream for the farmer as well as securing the supply for LUSH. This is increasingly beneficial as supply and markets fluctuate with geopolitical crises.

A story of LUSH regeneration… regrowing the Gola Rainforest in Sierra Leone

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Source: LUSH Cosmetics website

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