Account for Scope 3 emissions to trace climate impact in food value chains

Of the roughly USD 600 billion governments direct towards agricultural price supports and subsidies each year, only around 3 to 5 percent contributes to incentives that finance positive environmental change and reduce emissions in the food system, said an expert speaking in a session on the sidelines of the recent UN Climate Change Conference in Egypt (COP27).

Until that amount grows to around 30 percent, we are simply maintaining “business-as-usual” food value chains, which produce about a third of planet-warming greenhouse gas emissions worldwide, said Christopher Brett, lead agribusiness specialist at the World Bank and head of the Food Systems, Land Use and Restoration Impact Program (FOLUR), which hosted the session.

Overhauling the foundations of global food systems to make them more sustainable is a challenge gaining increasing urgency in public discourse. The FOLUR panel highlighted that this can be addressed through means such as public-private cost sharing, encouraging companies to develop collaborative “pre-competitive” relationships, and channeling these efforts toward improving financial incentives for smallholder farmers and small and medium-sized enterprises (SMEs).

Food systems are hobbled by a confluence of variabilities that lead to emissions that are difficult to measure, said panelists at the event, referring to Scope 3 emissions. As defined by the Greenhouse Gas Protocol, Scope 3 emissions are those that have not been produced by a company, organization or other entity itself, but by actors that are not owned or controlled by that company.

The speakers focused their discussion on the value chains of beef, palm oil and soy, three of seven commodities which lead to most tropical deforestation and greenhouse gas emissions, looking particularly at the challenges around Scope 3 that companies face when trying to make their supply chains more sustainable.

An estimated 90 percent of a food and beverage company’s emissions fall under Scope 3, making them an enormous challenge to reduce but a massive opportunity for mitigation as well. But there’s a tough blind spot when it comes to accurately measuring the climate impact of the smaller producers upon which big companies often rely, speakers said.

“Beef, palm oil and soy are very important commodities in the global marketplace, but also in the environmental space, with 26 percent of global tree cover loss between 2001 and 2015 attributed to these sectors,” said Brett, who moderated the session. “Companies want to close the gap between their net zero and zero deforestation commitments,” he said, “but the challenges of reducing these last-mile emissions are extremely complex.”

Three commodities’ Scope 3 challenges

Take palm oil: Almost half of the global supply of palm oil comes from smallholders. However, a recent study by the Carbon Disclosure Project indicated that less than a quarter of palm oil companies are reporting on Scope 3 emissions, said Anne Rosenbarger, co-chair of the Roundtable on Sustainable Palm Oil (RSPO) and Global Engagement Manager, Global Forest Watch Commodities and Finance, at the World Resources Institute.

“Scope 3 emissions are particularly challenging,” she added. “They require companies to trace and collect significant amounts of information and drive behavioral change in operations that are not under their control. For complex supply chains, like palm oil, this can mean needing to influence multiple tiers of dozens, if not hundreds, of suppliers.”

The biggest sources of emissions in the palm oil sector derive from production, including cultivation on peatlands and fertilizer use, she said, as well as from processing fresh palm fruit into oil, which leaves behind ponds of liquid waste. “We can’t talk about reducing Scope 3 in palm oil – and in agribusiness in general – without talking about the importance of deforestation and land-use change overall,” she said.

For Brazil’s beef producers and processors, traceability is one of the main challenges, said Gustavo Oubinha, investment director for Brazil at boutique investment firm SAIL Ventures, which has made substantial investments in that country’s beef-processing sector.

“We have in this value chain the direct suppliers – which are easy to monitor and trace – and the indirect suppliers, farmers who are producing calves on farms that are far away from where the cattle will be fattened and slaughtered,” he said, indicating that emissions from transportation and deforestation were not currently being traced.

Understanding how clients can trace and make sure established targets are monitored throughout the process is where SAIL has been putting its focus, he added.

In soy farming as well, there is a gap between net zero and zero deforestation commitments and what farmers, especially smallholders, are delivering on the ground, said Rodrigo Castro, Brazil country director for international civil society organization Solidaridad. One of the ways Solidaridad seeks to help reduce Scope 3 emissions is by helping educate farmers on the advantages of moving toward low-carbon agriculture – and how not doing so will ultimately impact their farms for the worse.

“Climate resilience is directly dependent on adopting deforestation-free or low-carbon agricultural practices,” he said. “But the big question is always, if we have to adjust, who is going to support me? What kind of technical assistance can I get to – for example – to convert degraded pastureland into soy productive areas and reduce pressure on opening new land?”

Carbon credits can have an impact in the future, said Castro, providing up to 30 percent of gross annual income for smallholders who do not have a lot of land. “So [they are] really relevant in terms of generating additional income streams,” he said.

Large solutions for smallholders

There are also solutions to other issues facing all three commodity sectors, the panelists agreed. SAIL, for example has invested in in Brazil-based Marfrig Global Foods, the world’s second-largest beef producer, with the company agreeing to eliminate deforestation in its supply chain and reach full traceability of Scope 1 and 3 emissions in the Amazon by 2025 and the Cerrado region by 2028. “For each year that this target is advanced on, Marfrig will get a discount on the deal’s interest rate,” said Oubinho.

SAIL has also encouraged the company to take an engagement approach with small cattle ranchers. “Instead of excluding smallholders if they are not compliant,” he said, “what we agreed to with Marfrig is that they will need to identify and engage these smallholders to bring them back to compliance.”

In soy production, said Castro, Brazil’s Forest Code allows farmers to clear a certain percentage of land for cultivation while keeping the rest in a natural state. “A lot of farmers still have a surplus of area where they are entitled to do conversion,” he said. “We look at opportunities to compensate those farmers willing to give up the right to convert new areas. Once you have farmers giving up the right, this is a concrete contribution.”

Smallholders are increasingly feeling the pressure on Scope 3, he added. “New regulations are coming forward in the near future, and the perspective is that the international market is more and more restrictive. They are quite aware that to be competitive and remain in the game, you have to adjust and adapt.”

As for the palm oil sector, said Rosenbarger, “a fully-fledged Scope 3 reporting requirement and methodology for downstream members is not yet in place for the RSPO,” although the organization has recently introduced shared responsibility requirements to have policies in place to reduce greenhouse gas emissions. What’s more, a greenhouse gas protocol is now undergoing an international multi-stakeholder process for best practices around the land sectors and removals guidance. Currently in pilot testing, it will be published next year.

Adding a price premium to commodities that are grown more sustainably would also help show that they have been produced in deforestation- and conversion-free jurisdictions. “Green beef should be priced right,” said Oubinho. “One of the main challenges in any industry is to make the other players, the competitors, move in the same direction, so that every player engages with sustainable practices.” If the market fails to provide support for good practice, sustainable companies “may run a risk of being displaced by others,” he said. “This is where public policy should back and incentivize collective action.”

Premiums for certified palm oil products are already a reality for smallholders who have done the work of getting certification, said Rosenbarger, with the RSPO providing credits to encourage it. “But that current level of premium is not a sufficient basis,” she added. “To make the necessary changes requires that being coupled with additional investments.”

Panel members agreed that the fostering of a pre-competitive environment among commodity producers is key. “If you look at collective engagement and collective investment in a pre-competitive scenario, where there’s a win-win situation for all the players, we can make major advances,” said Castro. “We can accelerate the uptake of low-emissions practices, and the commitments are transformed into reality.” The enormity of the challenges facing the planet are such that actions are needed to speed up and gain scale, he added. “So we have to leave our differences aside and look at what’s common to everyone, and put in efforts and energy in an orchestrated, coordinated way to make the big changes we need to make.”

FOLUR’s global platform supports and scales up the work of 27 country projects to establish sustainable production landscapes for eight commodities, which include the three under discussion at GLF Climate, and in the process, governments have been indicating that they want to come together and help support change, said Brett. “It’s about dialogue with the private sector and bringing governments into the room as well,” he said.

With new regulations coming into the system, he added, “the concern here is costs. Cost has to be shared, and there has got to be a private and public sector cost-share mechanism. That is where we create that level business playing field, that pre-competitiveness.”

After all, he concluded, “If nature could actually invoice for what is being used, it would drive change very quickly. It’s up to a lot of organizations to develop what that bill truly is, and that bill is very high.”