Climate compensation for Arla ® ØKO product portfolio in Denmark in 2020 Glossary 1 Carbon footprint of a product : sum of GHG emissions and GHG removals in a product system, expressed as CO2 equivalents and based on a life cycle assessment using the single impact category of climate change Carbon offsetting : mechanism for compensating for all or a part of the carbon footprint of a product through the prevention of the release of, reduction in, or removal of an amount of GHG emissions in a process outside the product system under study Carbon neutral : refers to a product (as a product system) that has a carbon footprint of zero or a product with a carbon footprint that has been offset Climate compensation : within this report applied with the same definition as carbon offsetting Arla Foods climate ambitions and reporting Arla Foods amba ’s (“Arla”) priority is to reduce greenhouse gas emissions to achieve its 2030 Science Based Targets, while also working to start quantifying, targeting and reporting on carbon sequestration/capture on its owners’ farms, to achieve Arla’s long-term ambition of carbon net- zero in 2050. Arla’s 2030 Science Based Targets are: - Reduce scopes 1 and 2 greenhouse gas (GHG) emissions by 30% in absolute terms from 2015 to 2030 - Reduce scope 3 GHG emissions by 30% per kg of raw milk and whey from 2015 to 2030 As an addition to GHG emissions reduction activities, Arla is using carbon credits to offset remaining GHG emissions for selected brands, sites and corporate air travel. Carbon credits are not used to achieve Arla’s Science Based Targets and are not included in Arla’s corporate reporting, following the rules in the Greenhouse Gas Protocol and Science Based Targets that do not allow for that. Instead, carbon credits are used as a way to offer end-consumers and customers (e.g. retailers and foodservice companies) added value, by compensating remaining emissions with equivalent amount of carbon credits. Carbon credits are from projects verified to industry best-practice standards. Arla’s corporate position on offsetting is to use credits from well- managed projects verified under industry best-practice standards such as the Verified Carbon Standard (VCS) and Gold Standard. Local schemes such as the UK Woodland Carbon Code can also be accepted once the credits have been verified as Woodland Carbon Units (WCUs). In the current corporate offsetting portfolio used for Arla ® ØKO product portfolio in Denmark, Arla has chosen ex post credits 2 from projects that are VCS-verified nature-based solutions. Nature- based solutions chosen by Arla avoid or remove carbon emissions through protecting valuable forest ecosystems in Brazil 3 and Indonesia 4 and removing carbon emissions through reforestation in Uganda 5 . Corporate policy on offsetting Arla’s corporate policy on offsetting using carbon credits governs the process of calculating the total carbon footprint based on sales to customers (e.g. to retailers and foodservice companies) 1 Based on ISO 14067 and 14021 2 Ex post means that the offset has already been achieved, for example carbon credits that are issued based on forestry that has already been grown and has sequestered carbon 3 Natural Capital Partners | Acre Amazonian Rainforest REDD Portfolio,… 4 Natural Capital Partners | Rimba Raya Biodiversity Reserve REDD ,… 5 Natural Capital Partners | Community Reforestation, East Africa 1
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