Making Sense of Scope 3 Emissions Targets and Guidance

    June 1, 2023

    To date, Indigo has delivered more than 10 million bushels of sustainably grown crops, reducing GHG emissions by more than 15,000 metric tons and saving 6.7 billion gallons of water – enough water to sustain 31 million people for a year. An additional 13 million bushels have been contracted to be delivered in 2024.

    These efforts are helping multibillion-dollar companies make meaningful progress towards their Scope 3 emissions targets. Over 2,200 companies across 70 countries and 15 industries are developing Scope 3 emissions targets under the framework set up by the Science Based Targets initiative (SBTi). Setting and achieving science-based targets is complex and evolving. Until recently, there was no roadmap for determining how to set the targets, what guidance to follow, and what technology will provide the transparency needed to effectively track environmental footprints. We sat down with Alice Chang, Associate Manager of Sustainability Standards at Indigo Ag, to bring clarity around the latest SBTi guidelines and the kinds of technologies that can help companies achieve their commitments.

    Let’s start with the basics: What are science-based targets?

    Alice Chang: Science-based targets are targets that are set in line with what the latest climate science tells us is necessary to meet the goals of the Paris Agreement, which is to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

    When we talk about science-based targets, we tend to specifically be talking about targets that were set with the Science-Based Targets initiative (SBTi), which is a partnership between a few nonprofits, the World Resources Institute, Worldwide Fund for Nature, CDP, and the United Nations Global Compact. SBTi has established best practices for target setting, and has developed a framework for companies to set, validate, and make progress against targets. This framework is generally recognized as the highest standard for science-based targets.

    Why are companies choosing to set science-based targets?

    Companies are voluntarily choosing to set science-based targets for a number of reasons. First, it's becoming table stakes for companies that want to demonstrate that they are committed to sustainability. More than 5,000 companies now have committed to setting science-based targets with SBTi, and SBTi companies represent more than a third of global market capitalization as of 2021.

    Another reason is that customers are increasingly interested in companies that demonstrate they are generating their products in an ethical and sustainable way. Downstream retailers and consumer goods companies are starting to ask their suppliers to set targets so that their inputs are more sustainable as well, and increasingly investors are also interested in targets and in seeing companies commit to sustainability.

    How are companies setting these science-based targets?

    Companies start by committing to a science-based target. Once they've made that public commitment, they have two years to establish their targets and share documentation with the SBTi, which can validate their target.

    There are different types of science-based targets that companies can set. They can set near-term targets, which are set on a time horizon of about five to ten years. An example would be, "Company X will reduce their Scopes 1, 2, and 3 emissions by 30% by 2030, as compared to their base year." There are also long-term targets that companies can set, which are net-zero targets with a target date of 2050 or sooner, and should be the accumulation of near-term targets that lead up to a net-zero state.

    Who holds companies accountable for their science-based targets?

    Right now, there are a few ways in which companies are held accountable to their commitments. Partly it’s consumers (minor), investors (some are active, some are not), NGOs (more significant) and the press (based on the findings of the NGOs). In some cases, such as the proposed SEC climate disclosure rules, there may be regulation of GHG targets and reporting by corporations.

    This seems kind of daunting from an outsider's perspective. Where should a company start with these targets?

    Companies should start by determining what their base year is going to be. So when you set a target like, "we're going to reduce our emissions by 30%," that needs to be compared to a base. Companies should choose a base that is representative of their typical operations. In recent history, COVID years may not have been an accurate representation of a company’s typical operations. They might have had to look further back to 2018 as a more representative base year. Once a company decides what their base year is, then they should measure their footprint for that year, and make sure that the footprint is calculated in line with the Greenhouse Gas Protocol (GHGP), which is complementary accounting guidance that SBTi requires companies to be aligned to.

    From there, they can determine the boundaries of their targets, and decide what's in and what’s out of the assessment. They can then determine their level of ambition. For Scopes 1 and 2 – which include a company's direct emissions and its emissions from purchased electricity – the targets should be aligned to a 1.5 degree Celsius pathway. But for Scope 3, companies have a bit more flexibility to choose the level of ambition for their target. They can choose to be aligned to 1.5 degrees Celsius pathways, which would be the most ambitious type of target, or a well below two degrees pathway. Within that, there are also some options: Is that an absolute target, or is that an intensity target?

    So the first step is really to understand what your base year is, and what your base year emissions are, and from there you can start to decide what exactly your target is going to be and what level of the emission you want to be aligned to.

    Once companies have established these baselines, what kind of tools and avenues can they choose to reach their goals?

    The SBTi  is really clear in establishing a hierarchy of action that companies should take. Companies should strive to reduce their emissions within their own operations and their own value chain. Carbon credits (sometimes known as “offsets”) play a supplementary role in that journey, and I'll talk about that in a moment. But for these near-term targets, for example, “company X will reduce their emissions by 30% over their base year by 2030,” those reductions must come from their own operations and value chain.

    So companies should start by establishing that footprint, and identifying hotspots within their Scopes 1 and 2, and then within their Scope 3. These would be areas that are really material, maybe in that they dominate the footprint, or they're material to the business in some other way, and start to identify potential reduction actions that they can take to address both their direct emissions and their indirect emissions.

    Complementary to that, carbon credits can be used in the meantime. They don't count towards progress against near-term targets, but SBTi does encourage companies to invest in projects beyond their value chain as they're making progress within it. That could be investment in carbon credits or other types of projects, and that's just to make sure that companies are taking as much action as they can. Sometimes reduction projects within your own operations and supply chain can take years to establish, so it's important to continue to funnel investment towards climate action in the meantime.

    There's also a role for offsets in long-term science-based targets. Companies pursuing net zero science-based goals should make progress against their near-term targets by making those internal reductions in their operations and value chain. On the cross-sectoral pathway (for calculating emissions reductions that don’t include carbon removal), companies need to reduce their Scopes 1, 2, and 3 emissions by 90% by their net zero year. When they've achieved those reductions and reduced as much as they can, then carbon credits can be used to neutralize any residual emissions in their net zero state. SBTi specifies that carbon credits would have to represent high-quality removals specifically, which is based on climate science that tells us we need to achieve those drastic decarbonization measures to keep temperatures from rising more than 1.5 degrees Celsius. We then want to address any emissions that remain using removals.

    Can you summarize the new SBTi FLAG guidance? What does this new guidance mean for companies?

    In September 2022, SBTi published its FLAG (Forest, Land, and Agriculture) guidance. It had been recognized for a while that there's a gap in sector-specific guidance for the land sector, and this new FLAG guidance fills that gap. Companies that are in an SBTi-designated FLAG sector like food, staples retailing, or food production, as well as companies that have FLAG-related emissions totalling 20% or more of their total footprint, will be required to set a FLAG target in addition to their classic energy and industry target. The FLAG target would cover all land-related emissions that a company is responsible for. That would include areas like land use change and land management emissions, whereas the energy industry target covers all other emissions.

    The FLAG sector pathway is different from the energy sector pathway in a couple of ways. The required pace of mitigation is a little bit different. It's built on the specific contributions of FLAG to climate change and the mitigation levers that are available in the land sector. As I mentioned, on the cross-sectoral pathway, companies have to reduce their emissions by at least 90% (without using carbon credits) to reach the net-zero state, whereas on the FLAG pathway, they only need to reduce their emissions by 72% before they can use carbon credits to offset residual emissions.

    Another big difference is that on the FLAG target pathway, companies can use removals (not just emission reduction) to count towards progress on FLAG targets, which is a really big deal for land companies with agriculture in their value chains. Previously, removals – which would be actions like sequestration in biomass, in trees, or in the soil – couldn't be counted as progress towards science-based targets. SBTI actually expects about a third of mitigation to come from removals for companies on these pathways. That doesn't mean that removals are a requirement; it's just that the ambition level was built on that expectation that removals will play a significant role in companies' mitigation efforts. Companies were required to set FLAG targets as soon as April 30 of this year, and as late as December 31, 2024.

    How is Indigo helping companies meet and achieve these goals, and gain the confidence to set ambitious targets?

    Indigo works with companies on two fronts here. In our Market+ Source program, we work with companies in their Scope 3 value chains to identify and capture opportunities to reduce upstream emissions. We partner with food, beverage, and apparel companies, and our agribusiness partners throughout their supply sheds, to work with the farmers producing their crops and guide those farmers on the practices that can reduce emissions. We then perform rigorous measurement, reporting, and verification (MRV) to make sure that practice changes are happening on field, and quantify the impact of those projects.

    What kind of capabilities does Indigo have to help us achieve this? What kind of technologies are we using to help companies measure, report, and verify their emissions?

    With Market+ Source, Indigo is deeply interconnected with players across the agricultural ecosystem to help companies connect with farmers within their supply chain. That can be a pretty complex process in itself. Second, we have a robust tech stack that enables us to conduct field-level measurement, reporting, and verification (MRV) at scale. We have tools to capture and verify farming practice data—easy-to-use software for farmers, satellite and field sensor data collection capabilities, and integrations with equipment and farm management systems. We then use our proprietary biogeochemical and empirical models to calculate the changing levels of greenhouse gasses via the natural cycles (carbon, nitrogen, methane) and field-level emissions outside of the natural cycles (fertilizer, tractor, and irrigation pump emissions).

    Our MRV system provides very accurate insights into a field's full carbon footprint. The quality, efficiency, and scale at which we're able to do this is crucial to helping companies trace and reduce their footprints. (You can learn more about Indigo’s MRV capabilities here.)

    If people want to learn more about SBTi FLAG guidance and the Greenhouse Gas Protocol, where can they go to find out more information?

    Both Science-Based Targets initiative and Greenhouse Gas Protocol have newsletters that you can subscribe to keep up to date with the latest news and information. There are also webinars that you can attend, and Indigo will continue to publish blogs, webinars, and other resources so that you can stay up-to-date with and hear the latest from us on what you need to know about these standards. We also have a quarterly newsletter, The Farming We Need, which reports on the progress we’re making toward more sustainable agriculture with our partners.

    Learn more about Indigo’s sustainable crop program.

    Read more about Scope 3 emissions in our related blog post.

    Sources cited:
    1 - Companies committed to cut emissions in line with climate science now represent $38 trillion of global economy, SBTi