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There are two approaches to corporate greenhouse gas (GHG) emissions reporting: voluntary and mandatory. One example of mandatory reporting would be for the U.S. Securities and Exchange Commission (SEC) to require corporations to include GHG emissions reporting within disclosures of climate related financial risk. Last June, IATP responded to SEC questions to inform a proposed rule on mandatory climate risk disclosure by all companies regulated by the SEC. Corporate resistance to and threats of litigation against the proposed rule have delayed its release for public comment and could prevent the rule’s implementation. This article focuses on IATP comments about one important voluntary reporting regime, the Science Based Targets Initiative (SBTi) corporate net zero emissions standard, particularly for agriculture and forestry companies. First, however, some context.

In the runup to the Paris Agreement climate change negotiations last November in Glasgow, Scotland, two words figured into many commitments made by corporations and some public entities: “net zero.” For example, a Net Zero Financial Service Providers Alliance, announced in September, committed to reaching net zero emissions in their own operations and the companies that Alliance members finance by 2050. (For an introduction to “net zero” related issues, see the Net Zero Files, to which IATP contributed.) In theory, any increase in GHG emissions could be offset by either a direct reduction in emissions and/or by buying credits from projects that claimed to offset emissions to the point of “carbon neutrality.” In 2021, about 5%  of all carbon credits were bought to purportedly offset emissions from fossil fuel shipments.

Most companies do not report emissions with common rules and metrics to claim transparent and credible progress towards net zero achievement or even to reduce emissions. According to a 2021 survey of 1,290 companies with 1,000 or more employees, “only 11% have cut their emissions in line with their ambitions over the past five years.” As important as the low percentage of emissions cutting companies in the survey is the phrase “in line with their ambitions.” What is the credibility of emissions reporting if each corporation has its own private “ambition?” IATP recently analyzed the net zero pledge of JBS, the largest meat packing company in the world, and concluded that the pledge lacked integrity, e.g., by failing to report emissions from livestock under its control prior to slaughter and processing.  

In general, the corporate targets for cutting emissions and the baselines from which emissions are cut are inconsistent. Inconsistent reporting with no uniform requirements makes it impossible for corporations to provide investors and the public credible estimates of their contribution to overall emissions reduction. The lack of credible reporting makes it exceedingly difficult for any corporation or economic sector to plan investments on a scale and in a timeframe to avoid the increasingly alarming consensus on the physical, economic and human impacts of climate change. (The latest Intergovernmental Panel on Climate Change (IPCC) report on climate vulnerability and the consequences of not adapting to climate change estimated that adaptation spending accounted for only 4-8% of all climate finance.) Inaccurate corporate marketing claims to investor funds that the corporations are progressing towards net zero likely will face investor litigation for deceptive marketing, if not for willful fraud.

SBTi, a multistakeholder initiative founded in 2015, has developed a basic emissions accounting and reporting standard to set a corporate net zero emissions target and then report on progress to achieve it. SBTi subsequently developed corporate sectoral net zero standards, the latest of which is for the Forestry Land and Agriculture Group (FLAG) of companies. The standards are developed in concert with representative companies from a sector, and corporate commitment to them is voluntary.

However, adherence to the accounting requirements is mandatory if a company wishes to advertise itself as SBTi committed, as more than 1,000 companies have. SBTi’s 10 validators review annually, on a staggered basis, each company’s compliance with the accounting and reporting requirements to reach the emissions target the company sets, from a baseline it sets, for a 5-10-year commitment. The science-based part of the target setting derives from the 2030 interim target of the IPCC’s pathway projection to achieve a no more than a 1.5⁰ C increase by 2050 in global temperature above a pre-industrial baseline.

Because SBTi is funded by fees paid by the net zero committing companies, it has been accused of a conflict of interest that one critic characterized as being the “judge and jury” of its own standards and methodologies. In IATP’s comment on the draft FLAG standard, we advised that to allay such accusations, “SBTi should recommend that net zero committing companies obtain a second opinion to verify the credibility of the targets submitted to SBTi and each company’s capacity to realize the short-term (pre-2030) targets.” The most robust verification would be in an audited financial statement that would include emissions reduction targets and investments to realize the targets. Absent a well-documented third-party review of a company’s SBTi net zero claims, they could be subject to the reputational risk of “climate washing,” as has occurred to 25 major corporations whose climate action claims were analyzed and found wanting by the New Climate Institute.

Because the proposed FLAG standard “applies to a company’s direct emissions and supply chain” emissions, we recommended that SBTi clarify that “supply chain emissions” for food and agriculture companies “include all emissions with contracted suppliers (e.g., from poultry, dairy and hog Concentrated Animal Feed Operations) and emissions for commodities over which a company exercises market power (e.g., through “captive supply” arrangements for beef cattle).” SBTi proposes that FLAG companies include at least 67% of their supply chain (“scope 3” in the language of the Paris Agreement) emissions in their net zero targets. We noted that if FLAG companies reported and reduced their supply chain emissions by 67%, that would be a great advance over the current FLAG emissions reporting situation. IATP’s Emissions Impossible Europe concluded that only four of 20 major European dairy and meat processing companies reported their scope 3 emissions.

According to the draft FLAG standard, “Biogenic removals may be accounted for to meet FLAG targets.” These removals include both the purportedly permanent removals of greenhouse gases in Carbon Capture and Storage (CCS) technologies and soil carbon sequestration projects to reduce emissions temporarily. Both kinds of removals are verified by organizations that then issue tradeable emissions offset credits that can be used to claim progress towards meeting net zero targets. However, as we advised SBTi, a Carbon Plan review of 14 major soil carbon credit protocols concluded that “none of the protocols is doing enough to guarantee good outcomes” for the climate.

For FLAG companies relying on purchase of credits verified by these protocols, there is well-documented reason to doubt the claims made for the climate performance of Verified Credit Units (VCUs). Case studies of the conversion of individual offset projects into VCUs, e.g., of a forest project in Brazil, provide detailed evidence of the weakness of the Verra protocol for admissions avoidance credits. (SBTi does not allow emission avoidance projects to be included in its basic corporate net zero standard because such projects cannot credibly demonstrate emissions reductions. However, companies may use avoidance offset credits outside of their SBTi commitments.)  

Furthermore, we reminded SBTi that the IPCC 6th Assessment report (Chapter 5) concluded with “medium confidence” that biogenic removals do not offset the climate impacts of fossil fuel emissions on a one-to-one ratio. (p. 105) As a result, any net zero claims made using even the highest quality offset project must compensate for the asymmetry between biogenic removals and fossil fuel related emissions. SBTi will have to revise the science basis of its standard.

SBTi offers FLAG companies two accounting methodologies to set net zero targets and report progress towards reaching those targets. Pathways for nine agricultural commodities and one for forestry products allow FLAG companies to design net zero targets and report progress in “emissions intensity” terms, i.e., CO₂ equivalent emissions reductions per unit of production or procured production, e.g., per pound of pork. “Emissions intensity” net zero designed targets allow a company to increase its absolute emissions while claiming “emissions intensity” reductions that will not reduce emissions on the 1.5⁰ C pathway.

The calculation of the FLAG Sector methodology for setting a net zero target and reporting on the progress to realize it is more straightforward: a company’s annual land-based emissions minus its land-based removals, whether in the form of operational emissions reductions, offset credit purchases or emissions removals from the direct financing of offset projects. According to SBTi, “The science-based rate of mitigation in the FLAG Sector pathway is 3.5%/yr.” (p. 28) If all FLAG net zero committed companies follow the SBTi target setting and reporting requirements over the 2020-2030 period, and there are no reversals of emissions reductions (e.g., from floods or forest fires), the overall mitigation effect would be a 35% reduction. That’s a lot of ifs for a lot of FLAG companies, not counting the many ifs of aggregating and then subtracting a company’s land-based emissions removals, however they are generated.  

This FLAG 35% mitigation projection is comparable to this IPCC report headline statement to policy makers: “In model pathways with no or limited overshoot of 1.5°C, global net anthropogenic CO2 emissions decline by about 45% from 2010 levels by 2030.” We concluded our comments by noting that corporate decision-making follows an economic pathway at least as much as a science-based pathway to reduce emissions. The rate of return on direct climate mitigation and adaptation investment should attract investors if transparently and comprehensively presented.

There is no lack of corporate capital for such investments. Standard and Poor’s 500 indexed companies alone spent $5.3 trillion on equity share buybacks from 2010 to 2019 to boost the share price that benefited, above all, corporate officers and shareholder insiders. In 2018, only 43% of S&P 500 companies reported any research and development expenses. SBTi should require that FLAG companies report annually their direct financing of mitigation and adaptation, and R&D expenses for mitigation of and adaption to climate change. 

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