Driving Impact through FLAG Guidance

It's no surprise that companies aren't ready to set FLAG targets in the next few months - but we didn't realise that even the next few years feel like a stretch. 

FLAG stands for Forestry, Land Use, and Agriculture. It is a standard for companies to measure their emissions from land. Impacted companies are any companies with a substantial share of FLAG based materials in the value chain (e.g., Food, Apparel, Personal Care). 

What does FLAG entail?
The new standard governs how you account for:

1. Land Use Change (e.g., did stuff you’re buying come from land that used to be forested);
2. Land Management (e.g., how is the farm you’re buying from tilled);
3. Land based removals (e.g., is a supplier sequestering carbon on their land).

To account for the above, you’re going to need to move from ‘spend-based’ Scope 3 to capturing weights and activities (i.e., you’ll need to know your supply chain a lot better). Businesses will need to not only know who their suppliers are but:

• How much land they own;
• What type of land it is;
• What crops they're growing on this land, etc.

Very few companies account for these emissions, for four main reasons:

1. What is FLAG anyway? - many haven’t even heard or started thinking about setting FLAG targets.
2. Unclear and changing guidance - the existing guidance for FLAG emissions accounting is open to interpretation. The GHG Protocol has pushed back the publication of its accounting guidance to 2024. So, companies are hesitant to start calculating FLAG if final guidance is about to change.
3. It’s an SBTi thing - the main driver for FLAG is to comply with SBTi’s requirement that food companies setting an SBT must also set a FLAG target. This means companies are holding off on FLAG if they already have SBTs or have de-prioritised setting an SBT target.
4. It’s a big data collection time sink - FLAG has deeper data requirements than normal corporate accounting, which goes right to farm-level. For a lot of sustainability professionals, this is just another work stream that consumes resources.

So why should you care? 

• Because you have to: SBTi and GHG Protocol will both have full recommendations by mid 2024. The regulatory agenda is moving towards requiring impacted businesses to have have a complete FLAG inventory to remain compliant. 
• Overlap with other sustainability goals: All targets for nature, regenerative agriculture, and deforestation require better land use data. Investing in FLAG accounting now will be beneficial across all these targets. 
• Improved supplier engagement: FLAG provides a conduit for direct engagement and longer-term support for farmers.
• Access to intervention budgets will be easier to unlock. A more granular data view will enable a clearer idea of supply chain intervention spots and predict Return on Sustainability Investment (ROSI). 

Moreover, it makes commercial sense. 

• Reductions governed by FLAG are likely to be the cheapest methods to executing your targets. 
• New revenue stream opportunities. These 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.
   
   

How to approach FLAG data gathering:  

• Bottom-up (supplier-specific): Gather accurate supplier data at the farm level. 
• Top down: Use assumptions to get a holistic and perhaps more scalable view of your impact. 
• Our recommendation- Hybrid: Combines good supplier data (weights, agricultural practices with meta, qualitative data), filling the gaps with good data modelling. 

Industry insight: we see an overreliance from regulators on the bottom up approach. In reality, most suppliers will not have the resources or expertise to fill out data surveys. There will be a massive data capture gap to fill if we only adopt this approach. 

The hybrid approach, on the other hand, grounds your findings in specific data whilst making it more scalable. Don’t be a purist. Work with what you’ve got.

FLAG in practice: A multinational milk supplier operates a Sustainability Incentive model to support and reward farmers in their efforts to reduce their climate footprint. The model is a points-based system that rewards past and future climate and environmental sustainability actions, and for each activity, the farmer can collect points if they meet specific criteria. These points trigger a higher price for the milk they deliver to the company.

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