By Mike Aquino, director, ESG, International Dairy Foods Association
The Greenhouse Gas (GHG) Protocol, which governs the most widely referenced framework for GHG accounting and reporting, has initiated a process to review and update standards. As part of this review period, GHG Protocol announced an opportunity for stakeholders to provide feedback via survey and/or written proposals. On March 14, 2023, IDFA submitted public comment in response to this feedback request. This issue of GHG corporate accounting standards is one that IDFA has been focused on since last summer when we submitted comments to the UN High-Level Expert Group on the Net-Zero Commitments of Non-State Entities after consulting with the newly-established IDFA Sustainability Committee.
Over the past several months, IDFA has worked with members of our Boards, our Sustainability Committee, and several other organizations as we developed our GHG Protocol comments. We truly leveraged the breadth of our membership—engaging with processors and dairy cooperatives operating in both the U.S. and abroad. First, IDFA sought feedback from the 40 dairy food processing companies currently participating in the IDFA Sustainability Committee. Second, we participated in task force meetings with other dairy organizations. Third, IDFA collaborated with a Global Dairy Platform (GDP) working group to analyze and discuss individual standard documents offered by GHG Protocol. We are committed to following our comments to the GHG Protocol with the development of a strategic advocacy campaign—in partnership with other industry leaders—that helps U.S. dairy get a seat at the table with the GHG Protocol if and when this body looks to improve GHG reporting with more accurate, consistent, and transparent standards.
Given increasing global requirements for GHG disclosure, IDFA saw the GHG Protocol’s recent call for feedback as an important opportunity to advocate for the dairy processing industry. IDFA comments focused on:
- Advocating for global dairy industry representation in future dialogues about GHG accounting and reporting standards.
- Encouraging the value of a single, global standard that is sufficiently flexible to facilitate accounting and reporting across all sectors, farms, and jurisdictions.
- Requesting clarification and additional guidance development to help our industry make decisions about Scope 3 or value chain emissions accounting and allocation along complex agricultural supply chains.
In brief, IDFA sees one big current challenge related to our industry’s accounting. The sale of GHG (i.e., carbon) offsets to purchasers outside of dairy offers a welcome source of revenue and financing that helps to stimulate farm-level mitigation activities. However, under current accounting standards, it is not clear how best to account for and report on the real, on-farm GHG reductions along the dairy value chain. Processors may struggle to demonstrate the progress of their collective supplier base. Having identified this significant concern, IDFA and other industry stakeholders are advocating for a clear path to aligning future reporting with the reality of environmental markets.
IDFA’s submission to the GHG Protocol can be found here.
What can we expect next?
Outside of IDFA’s efforts to seek a clear path through the GHG Protocol to align future reporting with the reality of environmental markets, we are watching other developments, too.
One current challenge in accounting for dairy value chain emissions is related to our industry’s attractiveness to environmental market participants. For instance, the California Low Carbon Fuel Standard (LCFS) marketplace has seen increased GHG credits flowing from dairy anaerobic digestors in recent years. In part, this is indicative of dairy’s ability to reduce emissions at a lower marginal cost compared to some other sectors. IDFA’s comments to GHG Protocol are aimed at highlighting the reality of these environmental market activities, and advocating for dairy to be involved as the governing NGOs review current standards.
Globally, our industry is seeing increasing demand for reporting greenhouse gas (GHG) emissions. Later this year, we anticipate finalization of two Securities and Exchange Commission (SEC) rules related to the environmental, social, and governance (ESG) risk management. One of those rules may result in a significant shift from voluntary to required emissions accounting and reporting for publicly traded companies. IDFA analyzed this rule (the Climate Disclosure Rule) in 2022 in a series of blogs beginning here. The second SEC rule we are watching is more pertinent to the investment space. If finalized, this would increase certain disclosure requirements for companies managing ESG-related investment products. Interestingly, the two rules may ultimately be related in cases where managed funds shape their holdings based on ESG factors, especially GHG emissions.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) has recently entered into force. We anticipate that even privately held companies will need to plan for reporting GHG data to their publicly traded customers. In California, yet another push for emissions disclosure has recently been proposed with Senate Bill 253. If adopted, even some privately owned companies would be subject to reporting requirements, depending on the scale of their business within the state.
IDFA is a proponent of transparent reporting practices that acknowledge the unique complexities of dairy, including aggregation of milk from many farms and the ability of dairy operations to—at once—act as both GHG emitters and removers (i.e., sources and sinks). Fortunately, thanks to our industry’s collective leadership, dairy has a positive continuous improvement journey on sustainability to share with the world alongside our nutritious food.
IDFA Staff Expert
Mike Aquino
Director, ESG