07 December 2022

Agri-food Transi on Principles
Discussion Paper(summary version available at this link)

Prepared by the Climate Bonds Agri-Food Standards Team
Climate Bonds would like to thank members of its Agri-Food Transition Advisory
Group for feedback on the preliminary draft.

Table of Contents
Key Messages

3

1. Introduction

4

2. Background4

3. Review of existing agri-food transition bond finance5

3.1 Sustainability-linked bonds and use of proceeds bonds

5

4. Transition principles and hallmarks for transforming companies

7

4.1 Transition Principles from an agri-food perspective

10

4.2 Five Hallmarks for transitioning companies from an agri-food perspective

15

5. Existing frameworks and initiatives

19

5.1 Ceres Investor Guide to Climate Transition Plans in the U.S. Food Sector

20

5.2 FABLE Consortium Pathways to Sustainable Land-Use and Food System

21

5.3 The Science Based Targets Initiative (SBTi) Guidance for Forestry, Land and Agriculture (FLAG)

21

5.4 EU Platform on Sustainable Finance Recommendations for Significant Contribution to Biodiversity

22

5.5 International Capital Markets Association (ICMA) Principles for Sustainability Linked Bonds

22

5.6 The Accountability Framework Initiative (AFI) Core Principles

23

5.7 Agro-biodiversity Index (ABI)

23

5.8 Global GAP

23

5.9 International Standards Organisation (ISO)24

5.10 Food Loss and Waste Standard (FLW)

24

5.11 SPHERE packing framework24

5.12 Just Rural Transition (JRT)25

6. Conclusions

25

Annex I - Transition categories: example activities and measures

27

References

28

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Key Messages
1. The diversity, fragmentation and context specificity of agri-food systems all create challenges for defining atransition to net zero that encompasses climate, biodiversity, adaptation, resilience and social justice.
2. Agri-food supply chains are complicated, geographically diffuse and often opaque; responsible sourcing can be achallenge and expensive to monitor.
3. The wider Agriculture, Forestry and Land Use (AFOLU) sector is required to reach net zero before 2050 and play animportant long term role in balancing global emissions; there are a range of decarbonisation measures available tothe sector, and these need to be incorporated into transition plans.
4. Technological tools are emerging that have the potential to greatly reduce GHG emissions and support sustainable
practices, as well as attracting investment; they range from controlled production environments, anaerobic
digestion, precision farming and cold chain technologies through to alternative proteins and feed additives.
5. Agri-food transition needs funding; several frameworks exist to guide this transition finance and they demonstrate
the need for innovation, as well as avoiding deforestation and conversion of natural habitats, transition mustenhance biodiversity and ecosystems, conserve water, reduce food loss and waste and ensure a just transition.
6. Transition finance instruments have been issued for agri-food investments, including Sustainability-Linked Bonds(SLBs) and Use of Proceeds Bonds (UoP), but their climate credentials appear unreliable; gaps are observed
between pledges and actual actions and scope 3 emissions coverage is lacking.
7. Transition finance for agri-food is in urgent need of a robust framework to align with 1.5°C climate targets, as wellas the other sectoral sustainability objectives to provide market confidence as well as provide issuers with guidance
as to what “good” looks like.
8. Climate Bonds’ transition framework is built on robust and ambitious Principles, including 1.5-degree alignment,science-based targets, excluding offsets but including scope 3 emissions, based on technological viability andpursuing actions rather than making pledges.
9. Additional Hallmarks for transition have been established to provide guidance for entities to develop robusttransition plans that are both acted on and reported on.
10.This paper uses the Climate Bonds Principles and Hallmarks to create a framework for transition in the agri-foodsystem and address some of the challenges identified, including land use change, biodiversity, water use andquality, food loss and waste, circularity and just transition
11.Further work is under way to develop a robust and comprehensive agrifood transition framework; this will help toshape a dedicated assessment tool for agri-business transition plans and criteria to assess procurement strategies;
additionally, four sets of criteria will be developed, focusing on key areas for agri-food transition finance.

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1. Introduction
Within the context of its Transition Programme, Climate Bonds Initiative (Climate Bonds) aims to build consensus withkey stakeholders on 1.5°C and climate resilient, agri-food transition pathways (and associated standards) that arerooted in science and consistent with other food system transition outcomes. This includes the development ofinvestment guidance for sub sectors to mobilise capital markets to invest in credible transition activities.
As part of the work, this paper provides a critical appraisal of existing agri-food transition finance tools, and introduces
the sector neutral Credible Transition Principles,1 (2020), and Hallmarks for Transforming Companies (2022) developedby Climate Bonds.2 We interpret the Principles and Hallmarks from an agri-food perspective, providing real world
examples of their application and, finally, we examine existing frameworks and pathways for agri-food transition, to
explore how they address decarbonisation and other food system goals. This prepares for the development of areliable agri-food transition framework for investors and issuers.
The paper aims to facilitate engagement of thought leaders, promote the principles across the agri-food investmentcommunity and build consensus on the levels of ambition needed in agri-food transition.

2. Background
Agri-food systems are responsible for 31% of global anthropogenic greenhouse gas (GHG) emissions,3 drive nearly 90%
of global deforestation annually;4 and degrade other important natural habitats such as peatlands and permanent
grassland. Additionally, agriculture uses on average 70% of freshwater withdrawals, creating enormous challenges inwater-scarce countries;5 whilst water pollution from agriculture has important impacts on human health and natural
ecosystems.6 Regarding biodiversity, agriculture has led to steep declines in populations and ranges across all species
groups7 caused by expansion of human colonisation and related soil, water and air pollution, which combine to reduce
habitats and degrade ecosystems.8 In addition only 55% of the world’s agricultural production (calories) go towards
feeding people directly; the rest are fed to livestock (36%) or turned into biofuels and industrial products (9%).9 Of thefood produced, as much as 31% is lost or wasted along the supply chain: around 14% is lost from production before
reaching the retail level10 and a further 17% wasted in households, catering and retail.11 It is within this context thatthe demand for food is projected to double from 2020 to 2050, putting further pressure on use of land and natural
resources and so, innovative and sustainable solutions are in demand across agri-food systems.12, 13
At the same time, agri-food is highly vulnerable to climate change, production depends on predictable temperatures,
rainfall and stable storage conditions. As such, the sector must be at the forefront of a resilient transition to net zerothat both decarbonises the sector but also increases resilience to climate shocks, protects biodiversity and ensures
food security. In addition, global climate change scenarios that plot decarbonisation paths have made it clear that thewider AFOLU sector is required to reach net zero before 2050 to balance GHG emissions through carbon removal(sequestration).14
However, the diversity, fragmentation and context specificity of agri-food systems all create challenges for defining
this transition to net zero. Agri-food supply chains are complicated and geographically diffuse meaning transparency
and responsible sourcing can be a challenge to establish, and expensive to monitor. To support action, a range ofscience-based pathways to net zero are being developed for the sector, these need to be incorporated into thetransition plans being developed by companies to deliver on their net zero commitments.
The European Investment Bank (EIB) argues that research and development (R&D) investment is the top priority forsustainable agri-food growth.15 Innovation examples include development of digital technologies including precision
farming, sustainable packaging, low carbon logistical options through the supply chain and blockchain-based foodtracing.16 This will require positive action and will not happen naturally if left to current market forces due to thedifficulty in financing innovation and the fact that agri-food businesses are interdependent and generally compete
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more on price than on quality, innovation or environmental impact. Price competition, in combination with low
margins and long payback periods, limits the appetite and possibilities for innovation and risk-taking, which reduces
the financing of agri-food modernisation.17
Actions need to address the environmental impact of global agri-food systems if we are to limit the temperature
increase to 1.5°C above pre-industrial levels, as set out in the 2015 Paris Climate Agreement. These actions require
increased financing from multiple actors to help enable transition, alongside regulatory and policy support. There is aneed to shift from the current, business-as-usual agri-food system, to one that significantly reduces its environmental
footprint, respecting the Paris Agreement and international commitments on deforestation and biodiversity.
Despite the positive momentum, the sector remains heavily underfunded relative to other climate-focused sectors.18
Capital is flowing into food and agriculture sustainability transition, but not at the scale necessary to meet both thechallenges and opportunities facing the sector.19 The need for investment will only continue to grow over time, as foodsystem sustainability issues achieve greater recognition. According to Net Zero Financing Roadmaps, investment of atleast USD150bn per year is needed across agriculture, food and land use over coming decades.20

3. Review of existing agri-food transition bond finance
A variety of financial instruments are employed to support agri-food investments, including debt, equity and grants.
As our mission is focused on capital market flows and debt this paper will focus on two types of debt instruments
emerging for transition finance; transition Use of Proceeds and Sustainability Linked Bonds.
The bond market is a key focus of debt issuance in agri-food; large-scale investments have been mobilised, typicallyover USD100m and issued over long periods, usually 5-10 years.21 For non-financial corporate issuers, including supply
chain operators and retailers, bond financing could help support the formation of stable transition strategies toimprove sustainability.22 For investors, financing labelled agri-food bonds signals a commitment to sustainabletransition, diversifies portfolios and offers fixed returns, avoiding traditional equity volatility.23
A small but growing number of bond issuers across all sectors of the economy have used the term ‘transition’, or labels
like ‘climate action bonds’ or ‘sustainable transition bonds’, to describe issuance in hard to abate sectors that don’treach the ambition level of “green” bonds. In the absence of a market-adopted standard for transition bonds, someof these proposals and transactions have raised concerns about inconsistencies across labels and the potential for‘greenwashing’. This has led to calls for a common framework and robust methodologies to provide clarity on thegreen benefits of transition-related bonds and corporate strategies.24
It has also led to hesitancy towards engaging in transition finance, due to concerns over credibility. Transition financeinstruments are often considered inferior to other more established products, like green bonds. Consequently,
investors are seeking reassurance that transition activities, such as technological innovations that decarbonise supply
chains, are credible, follow rigorous standards and are not examples of ‘greenwashing’.

3.1 Sustainability-linked bonds and use of proceeds bonds
SLBs are general purpose finance, characterised as forward-looking, performance-based bond instruments, for which
the issuer is committing to future improvements in sustainability outcomes within a predefined timeline.25
UoP bonds are characterised as investments in specific assets and projects and they may or may not be accompanied
by information on aligned corporate strategies: This instrument encompasses green, social, sustainability andtransition labelled bonds.

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Despite the aforementioned hesitancy over credibility, there has been a rapid growth in sustainable debt finance since2017, with only a slight slowdown in the first half of 2022, as indicated in Figure 1, below.
Figure 1: Growth in sustainable finance instruments 2017-2022 first half (Source: Climate Bonds, 2022)26

Transition finance guidance is also emerging. The International Capital Markets Association (ICMA) transition financehandbook and SLB principles are the most widely used in the market at present. These provide high level generalprinciples for finance instruments and offer illustrative key performance indicators (KPIs) that measure what will betackled.27 However, clear, sector-specific pathways and ambitious performance targets (PTs), which set the goals for
improvement, are beyond the scope of these principles. To date, the market has seen issuances of varying quality andfairly low ambition levels, rarely linked to independent science-based sector decarbonisation pathways that arealigned with a 1.5-degree trajectory.
Illustrative Example
An agri-food processing firm defines a decarbonisation trajectory for its facilities through to 2050, and uses thisto formulate a set of emission reduction performance targets for scope 1 and 2 emissions to issue an SLB.
Analysis:
Concerns relate to the relevance, reliability and ambition of the self-defined transition or decarbonisation
pathway. Unless this is independently created based on global carbon budgets and tailored to the sector the
reductions are difficult to benchmark against peers or to understand in the context of national or global
commitments to keeping within 1.5 degrees of warming. As up to 90% of emissions can fall within upstream
and downstream scope 3, solely addressing scope 1 and 2 emissions within its SLB performance targets may
represent a significant omission and fail to demonstrate meaningful change.

There is concern that such issuances have represented ‘business-as-usual’ by another name. So, while the market has
seen impressive growth, rigorous evaluation of bond impact has been difficult. To date, there is limited evidence that

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agri-food sector SLBs or UoPs have demonstrated the full decarbonisation potential of these transition financeinstruments.
Climate Bonds own market data provides a breakdown of selected SLB issuances, which have been identified in agrifood up to August 2022. It shows that many agri-food bond issuances have been SLBs with a performance linkage intheir design and they have been issued by non-financial corporates. These represent some of the largest multinational
agribusinesses and wholesalers currently operating in the market, including JBS, Tesco, Marfrig, General Mills andWoolworths. The geographical scope of SLBs and UoP is wide, but there are key gaps: no issuances have been recorded
in India or Ukraine, leading players in agri-food. Potentially, they represent major markets for these bonds, if they are
to be used as tools to support large scale decarbonisation.
Climate Bonds have analysed these labelled transition agri-food bond issuances to determine the main current
characteristics. ICMA SLB Principles and/or SBTi frameworks were the most commonly used external principles, andverification of the sustainability claims for these bonds were provided by Second Partner Opinion providers (SPOs)
such as Vigeo Eiris, Sustainalytics, ISS ESG and the Governance Group.
Typically, the performance targets (PTs) used in agri-food finance are linked to GHG emissions reduction commitments
and UN Sustainable Development Goals (SDGs). In the bonds analysed, most issuers set PTs only for scope 1 and 2
emission reductions; with only two companies explicitly setting scope 3 emissions PTs (see Section 4 on Climate Bonds
requirements). The failure to incorporate scope 3 emissions and associated reduction targets means that companies
are failing to account for the full climate impact of their activities along the value chain in their performance targets.
Agri-food has long, complex supply chains and so GHG emissions of many firms are spread upstream and downstream(scope 3). For companies like Tesco, this element accounts for up to 90% of their total emissions; it’s 96% for General
Mills and 98.9% for DLG Group.28 Therefore, to count only scopes 1 and 2 emissions fundamentally undermines thenotion that an agri-food company is reducing its ‘total’ emissions as, in many cases, this would fail to include the vast
majority of emissions.
Overall, the climate credentials of many transition finance issuances in the agri-food sector to date appear unambitious
and are not yet aligning consistently with science based pathways to net zero. Therefore, a robust framework is needed
to support the sector’s alignment with 1.5°C climate targets and agri-food goals to generate market confidence, as
well as providing issuers with guidance as to what ‘good’ looks like.

4. Transition principles and hallmarks for transforming companies‘Good’ transition finance must be credible. To help define this, Climate Bonds has established a set of five Transition
Principles29. They require science-based, 1.5-degree aligned targets, exclude offsets but include scope 3 emissions, arebased on technological viability and depend on action rather than pledges. These are discussed further below.
To support the implementation of the principles, Climate Bonds sets out four transition categories for economic
activities, each one reflecting the potential for alignment with a net zero economy: near zero, pathway to net zero,interim and stranded. This facilitates an inclusive approach, whereby transition finance can be tailored to suit nuanced
objectives. See Figure 3, below, for further explanation. Agri-food examples are shown in Annex 1.
The categorisation is based on: (1) the length of time a product or service delivered by the activity is needed, thisdepends on the availability of low-carbon substitutes, and (2) the possibility of decarbonising the activity, so that italigns with the Paris Agreement.

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Figure 2: Transition categories for economic activities

Source: ‘Financing Credible Transitions’ Climate Bonds Initiative in partnership with Credit Suisse, September 2020

Promoting credible transition financeTo support ambitious transition, in 2020 Climate Bonds established a set of five Transition Principles for economic
activities, set out in Figure 3, below. Importantly, any entity, activity or project meeting these principles is considered
to be substantially contributing to the attainment of the Paris Agreement goals and should therefore be eligible forcapital investment that has a climate or environmental mandate. Whilst the Principles were initially designed toaddress GHG emissions reductions, they can also be adapted to other agri-food system goals.
Figure 3: CBI’s Five Credible Transition Principles

Establishing a framework for credible transition by companies.
Taking this a step further, Climate Bonds has developed a framework dedicated to transition at the entity level, which
offers a more detailed examination of a company’s climate-related ambitions and actions. It is aimed to support
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companies to develop transition plans that can deliver rapid change and align with the global goal to nearly halve
emissions by 2030 and reach net zero by 2050, in line with the Paris Agreement. It is referred to as the Hallmarks for
credible transition (Figure 4).30
The five Hallmarks enable an encompassing view of a company’s transition plan, taking into consideration:a) the level of ambition of the targets set (Hallmark 1 - which itself encompasses the 5 Transition Principles).
b) the willingness and ability to deliver on those targets (Hallmarks 2-4) andc) general reporting robustness and transparency, which is important for the market (Hallmark 5).
The Hallmarks focus on the essentials needed to demonstrate a credible transition, rather than covering all aspects ofrelated components. This is to address concerns from issuers and investors over the burden of information andreporting requirements, while maintaining robustness and credibility. It complements existing ESG frameworks andmethodologies, but also goes beyond them. It emphasises key governance elements that are important indicators ofa company’s willingness and ability to deliver on its decarbonisation targets, but also adds the granularity needed toensure those targets are ambitious and in line with agreed climate goals.
Figure 4: The Hallmarks of a credibly transitioning company

Certifying different performance levels
Within the transition, companies will perform at different levels, according to the sector, local context, degree ofcommitment and technology available. Climate Bonds is inclusive and supports the whole of economy transition within
the new system of certification for non-financial corporates and SLBs (the Standard & Certification Scheme version4.0) available here. It provides guidance to issuers and assurance to investors around the credibility of transition
related financial instruments, both SLBs and UoPs, through setting the requirements of a credible transition plan.
The Hallmarks are the foundation of this certification standard, but the standard goes further to provide the additional
level of detail and granularity required for a robust, transparent and coherent assurance scheme. This is to give clear
guidance to issuers, investors and verifiers alike, and ensure consistent assessment and evaluation across all certified
entities and instruments.
Through certification, Climate Bonds aims to recognise all entities already compatible with a net zero economy, alignedwith 1.5 degree warming limits, or those making a rapid and ambitious transition towards it, whatever their starting
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point. The scheme suggests two different ‘tiers’ of performance. Specifically, certification is available to Assessed
Entities where at least 90% of their revenue or emissions is from activities whose performance either has:
1. Performance targets (PTs) aligned with the relevant entity-level sector-specific criteria of the Climate Bonds
Standard at the time of certification and over the short-, medium- and long term, and the Transition Plan is deemed
to be credible evidence that those future PTs will be met.
2. PTs of the assessed entity currently not aligned with the sector-specific criteria of the Climate Bonds Standard at
the time of certification, but are expected to align by 2030, and the Transition Plan is deemed to be credible
evidence that these PTs for the short-, medium- and long term will be met.

4.1 Transition Principles from an agri-food perspective
Principle 1

In line with 1.5-degree trajectory
All goals and pathways need to align with zero carbon by 2050 and nearly halving emissions by 2030.

The Paris Agreement aims to keep global warming below 2 degrees and ideally 1.5 degrees, equating to global net
zero emissions collectively by 2050 and halving emissions by 2030. This is a challenging goal requiring all sectors tomaximise both emissions reduction and carbon sequestration as early as possible and continuously improve over time,in line with their sector-based pathways.
As a predominantly land-based sector, agri-food is inextricably interconnected with wider land use (encompassed by
AFOLU). Land use change, in the form of deforestation and removal of non-forest natural habitats to create farmland,has been a major contributor to GHG emissions in recent decades, alongside livestock and crop production. In the nearterm, pathways that include concerted mitigation efforts to avoid deforestation, conserve and restore land carbon
stocks and protect natural ecosystems, can contribute to net-zero emissions being reached well ahead of 2050 in the
AFOLU sector (see Figure 5). Moreover, reforestation, afforestation and other land-based sequestration activities,
such as habitat restoration, improved soil management and other decarbonisation measures discussed below, can allserve to create a substantial negative emissions balance for AFOLU well before 2050, helping to reduce global
emissions to net zero. Beyond 2050, AFOLU sequestration will play a vital role in maintaining global net zero.
AFOLU is subject to a variety of competing needs, including food and nutrition security, bioenergy, habitation, carbon
sequestration, biodiversity and a range of other ecosystem services, change will be driven by respective demandchanges, as well as technological advances and policy changes. As we move closer to 2050, transition pathways point
towards an increase in forested land and a reduction in pasture and cropland, enabled by increased crop yields andimproved efficiency of livestock production and shifts in consumption patterns. A key area of contention relates toland use for bioenergy, especially considering the current energy crisis.
Reaching net zero will require efforts to reduce the full range of GHG emissions through better management of
production, including reducing methane and nitrous oxide emissions from rice paddies, manure, livestock feed andfertiliser use, whilst reducing food losses and improving energy use efficiency during food processing. On the demandside, the transition requires dietary to shift to healthier, more sustainable diets, including reduced consumption ofanimal products in the Global North and measures to avoid food waste, embracing the circular economy.

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Figure 5: Break down of global anthropogenic CO2 emissions until 2100 (IPCC, 2019)

Adaptation measures will be vital to ensure adequate nutrition considering the vulnerability of agricultural production
to climate change, especially in the Tropics. Moreover, the increased frequency of extreme climatic events cansignificantly impede the efforts to reaching net zero and disrupt supply chains. Some options provide dual benefits,
for both adaptation and mitigation, including techniques commonly associated with sustainable agriculture, mixed
crop-livestock systems and agroforestry as well as more technological solutions such as biotechnology and agrometeorological services. The feasibility of these alternatives varies between geographies and markets.
Compared to other sectors, AFOLU faces particular challenges for defining common transition pathways due to thehighly fragmented nature of the sector and the high degree of context specificity faced across climate zones, habitats,soil types, cultures and production systems.
To respect net-zero commitments, agri-food entities will be required to pursue transition plans, production methods
and procurement strategies that incorporate, promote or adapt to the aforementioned pathways, as relevant to their
particular activities. Importantly, as well as addressing 1.5-degree climate transition, these actions will need to accountfor biodiversity, water use and quality, food loss and waste, circularity and just transition. In view of the competingneeds mentioned above this will also help to address the wide range of applicable UN SDGs.
Section 5 outlines sectoral pathways, transition standards and definitions developed by a range or organisations forcompanies to utilise. The objectives and target audience of each organisation varies, which means a ‘1.5-degree
trajectory’ or the definition of ‘pathway’ may also vary. It might be the explicit focus (in terms of an emissions pathway
in line with carbon budgets), or it could be addressed through less tangible means such as zero deforestation.
In order to define credible transition-, short-, medium- and long-term targets are required to track progress. A 2050
net zero target with no intermediate targets is insufficient for transition. For GHG targets, all material emissions scopes
should be considered, and targets set based on independent sector-based pathways such as the recent SBTi FLAG
sector guidance.31 Importantly, transition pathways should not be based on offsets, instead focusing on decarbonising
activities to the fullest extent possible (discussed further in principle 3).
Agri-food systems comprise a wide variety of companies engaging in one or a range of activities along the value chain,from production to handling and storage, processing and packaging, distribution and retail, consumption, recovery

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and re-use.32 Therefore, Paris-aligned transition pathways for each of these different value chain activities may varyand activities cannot be assumed to be “pathway to zero”, some may be stranded.
Crop production, for example, can be considered a ‘pathway to zero’ activity, in view of available decarbonisation
measures such as the adoption of regenerative farming practices, agroforestry, precision farming technology and therestoration of degraded land to reverse land use change.
Intensive animal production in its current production and consumption practices may be an example of ‘interim’
activity, phased out after 2050 due to its very high GHG-intensity relative to other food groups. While there iscontinuous innovation to decarbonise production, limited pathways exist to 1.5-degree alignment, compared tomoving to less GHG-intensive substitutes. It should be noted, however, that there are trade-offs beyond just GHG
emissions, as some foods can see large volumes of water usage or require vast tracts of agriculture land to be
cultivated. The challenges of decarbonising animal production have significant ramifications downstream, through thevalue chain, as processors and retailers grapple with the task of reducing their scope 3 supplier footprint (see Principle
3). Meanwhile, it should be noted that animal production can be critical to livelihoods of groups such as pastoralists
and so a nuanced approach is required across regions.
There is potential for animal production to move towards a ‘pathway to zero’ as part of a mixed farming system, in
combination with cropping and silvopasture, in view of the circular synergies than can be achieved within the system.
For handling, storage, processing and distribution activities, positive steps can be taken to improve energy use
efficiency through the value chain, in refrigeration, heating and cooling processes, and low-carbon freight and shippingtransportation options which, at present, have a clearer ‘pathway to net-zero’ by 2050, subject to the screening
indicators identified by Climate Bonds. Examples are outlined in Annex I.
If these activities are pursued effectively, in combination, they have the potential to create a large negative emissionsbalance for AFOLU well before 2050, helping to reduce global emissions to net zero.

Principle 2

Established by ScienceAll goals and pathways must be based on science to remain within global carbon budgets.

This principle enables pathways and activities to remain within the scientifically calculated carbon budget that has
potential to limit global heating to 1.5 degrees above pre-industrial levels. It is intended to allow comparability of
approaches from different actors within a common mitigation pathway based on climate science. As a base, the IPCC
has published several papers on mitigation pathways compatible with 1.5-degree global warming33,34 the FLAG SBTi
guidance was published in 202235 and the GHG Protocol land sector and removals guidance is due to be published2023.
Sustainable finance taxonomies are also available, some of which cover agriculture, including the Climate Bonds
taxonomy, first launched in 2021, and the Colombian Green Taxonomy, published in 2022. The People’s Bank of China(PBoC) has a taxonomy that includes guidance on green agriculture standards and classifications of certified activities.
The EU published its taxonomy in 2020 and, whilst it does not initially cover agriculture, work is under way to prepare
technical criteria for the sector. The responsible Technical Expert Group (TEG)36 has indicated that credible transitional
pathways should be based on science and a consensus over mitigation or adaption effects and wider agri-food system
goals. Various other countries are developing criteria, including India, South Africa, Mexico and Singapore.
Other guidance frameworks are under development and soon to be published, including the GHG Protocol Agriculture
criteria, Transition Pathway Initiative, Task force on Nature based Financial Disclosures (TNFD) and Global Reporting
initiative (GRI) 13.
Whilst there are differences between the focus and categorisation of activities in respective taxonomies andstandards, each help to provide stakeholders with greater clarity on the sustainability of transition activities.

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Principle 3

Offsets alone are not sufficient, and pathways should include scope 3 emissions
Credible transition goals and pathways should not rely on offsets ahead of internal decarbonisation.
Scope 3 emissions should be counted.

First and foremost, entity transition pathways must be based on decarbonisation activities, rather than offsetting.
At the entity level, transition pathways should not consider purchased sequestration offsets from other activities (suchas ‘natural’ carbon capture and storage solutions via agriculture, forestry, natural landscape restoration and ‘artificial’
carbon capture and storage solutions) as sufficient activities to meet a credible transition strategy. Offsetting reducestransparency and diverts attention away from reducing emissions. Only once every technologically feasible
decarbonisation avenue has been exhausted, the balance of remaining emissions may be offset. As an example, a
livestock farming entity would be expected to pursue livestock management decarbonisation measures before
offsetting by planting forestry.
Scope 3 emissions, those stemming from bought and sold products, are highly prevalent in agri-food value chains.
Firms are expected to consider scope 1 and 2 and upstream and downstream scope 3 emissions, based on reasonable
expectations of traceability of upstream scope 3 and for company’s ability to control or influence downstream scope
3. Upstream scope 3 emissions are those related to purchased goods and services (i.e., within the supply chain). Whilst
these are not within direct control by an agri-food entity, they are indirectly controlled by their purchasing decisions.
Although sector fragmentation creates its challenges, not least current difficulties in traceability, sustainable sourcing
is a valid expectation for any credible transition. By including Scope 3 emissions, the transition principles are reinforced
along value chains, and by including the material emissions within the boundary of control scope 3, it offers a morecomprehensive value chain assessment, fundamental for the agri-food sector to truly reach net zero emissions.

In 2021, British supermarket Tesco PLC issued a USD540 million SLB. Tesco chose a framework whereby itcommitted to pay a penalty if it fails to meet what appears to be an ambitious performance target (PT) –reducing its emissions by 60% by 2025 against its 2015 baseline and sourcing all electricity from renewableenergy sources by 2030.
However, the 60% reduction PT includes only scope 1 and 2 emissions, whereas scope 3 emissions account foraround 90% of Tesco’s overall carbon footprint.1 The company has set a reduction target for Scope 3 emissions
but did not include it in the deal.1 In fact, its commitment to switch to 100% renewable power by 2030 merely
follows UK government policy targets.1 In this light, it may not seem quite so ambitious.
In the same way, a food manufacturer purchasing ingredients associated with deforestation would not bemaking a credible transition, even if their manufacturing process gave rise to zero emissions. Whilst sector
fragmentation creates challenges in traceability, sustainable sourcing is a valid expectation for any credible
transition.

Principle 4

Technological viability trumps economic competitivenessPathways must include current and expected technologies. Where a viable technology exists, even if
expensive, it should be used to determine the decarbonization pathway for that economic activity.

This Principle is about setting ambitious, technically feasible transition pathways to maximise opportunities to reduce
emissions and encourage innovation. To be of use, transition pathways must be viable as well as ambitious, or they
will not incentivise change, but they must consider emerging technologies. This assessment of viability should not ruleout technologically feasible options that are already in commercial use, even if they are expensive compared tobusiness-as-usual. Short-term economic barriers to uptake can rapidly be addressed through appropriate incentives
and support, as observed over the last decade in the renewable energy sector.37 This sends a strong signal to all
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stakeholders, including governments and other bodies that can catalyse change by addressing the economics.38 Theseissues are particularly relevant to the agri-food sector, as highlighted in the following examples.
Technological developments are advancing in precision farming, a management approach that focuses on (near realtime) observation, measurement, and responses to variability in crops, fields, and animals.39 Precision farming canhelp increase crop yields and animal performance, reduce labour costs, minimise waste by misallocation of resourcesand optimise process inputs. It can increase worker safety and reduce environmental impacts by reducing fertiliser
and pesticide use, thus contributing to sustainable production and supporting a ‘pathway to zero’. For more intensive
fruit and vegetable production, protected agriculture in controlled environments and vertical farming, show similarpotential. This all helps increase long term profitability and improves the efficiency of agricultural systems. These aregood examples of how viable technologies can have a profound impact on transition, in response to a medium-term
investment cost.
Important progress is being made in the development of feed additives to reduce enteric fermentation, which is a key
source of methane emissions. Fully avoiding enteric methane emissions is not achievable in the short term due to thesignificant growth in the demand for ruminant products, but there are opportunities to substantially reduce emissions
per unit of product, i.e., emission intensity. These opportunities generally consist of improving the efficiency of
production via the implementation of known practices or technologies that result in greater yields per animal and perunit of feed, combined with reduced methane emissions.40 Feed additives provide enormous potential, but research
efforts must be intensified to create more effective compounds that radically reduce enteric fermentation if the
livestock production is ever going to shift towards a ‘pathway to zero’.
Green ammonia, as a substitute for the fossil gas based nitrogenous fertilisers, would be considered as an activity thatwould offer a ‘pathway to zero’. Uptake of which could reduce 17% of food-related GHG emissions by source in theEU, while also reducing globally the reliance on the continued utilisation of fossil gases for fertiliser production.41,42
Specifically, even though green ammonia is currently less used and suffers smaller economies of scale, compared to
traditional nitrogenous fertilizers, these should not be seen as a barrier to implementation, rather the technologicalviability should be the key determinant. The current energy and fertiliser supply crises may well catalyse market
penetration.

Principle 5

Action, not pledges
A credible transition is backed by a clear plan rather than a commitment/pledge to follow a transition
pathway at some point in the future. In other words, this is NOT a transition to a transition.

The essence of this principle is that action matters. Pledges, or even policies, procedures and governance practices,
designed to align with the 1.5°C global warming limit, which influence and guide operating performance in the right
direction, are not sufficient indicators of a credible transition because they can only provide an indication of intent.
The focus needs to be on the actual impact being delivered today, and over the term of the investment, as determinedby alignment with a credible transition pathway that meets transition principles 1-4. Transition plans currently in themarket have shown potential weaknesses and a divergence between pledges and action.
There is a need for practical action to be taken to identify means to rapidly decarbonise activities and increase carbon
sequestration. These should involve steps being taken to engage with suppliers and increase supply chain transparency
and monitoring, clear commitments to due diligence and avoidance of commodities associated with land conversion,and early identification of value chain points where food loss and waste can be addressed for example. The necessary
capital expenditure (CapEx) and operating expenditure (OpEx) investments should be identified, and action taken toear mark or raise the finance.
Linking to the previous principle, some leading agri-food firms have been criticised by market commentators for an
over-dependence on offsetting rather than making credible decarbonisation efforts, or inconsistency around claims
over the role of offsetting in their transition.43 Firms that have publicly distanced themselves from the practice ofoffsetting, have been seen to proactively support their own brands to make use of offsets towards their carbon neutral
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and climate positive claims; Unilever and Nestle plan to use and count such offsets as a method to achieve their longterm net-zero targets.44 Scrutiny should be applied to companies’ overall sustainability claims in the agri-food sector
and to the reliance on offsetting as the main method to achieve performance targets.
Agri-food entities often operate through long value chains, so extra efforts may be needed to verify that stated pledges
are linked to action taken and followed through by themselves and entities under their direct control, from the outset.

4.2 Five Hallmarks for transitioning companies from an agri-food perspective
These principles are the basis for the “Hallmarks” framework, guiding the creation of credible and ambitious transition
plans at the entity level. The Hallmarks aim to encourage companies to plan and deliver a transition that is rapid androbust enough to align with the Paris Agreement climate goal, as set out above in Principle 1, and to enable investors
to identify these companies. The framework comprises five Hallmarks for credible transition (see figure 4 above).
Again, brief examples are provided to illustrate specific relevance for the agri-food sector.

Hallmark 1

Paris aligned targets

Select externally established sector-specific transition pathway aligned with 1.5-degree goal
Set company-specific performance targets (PTs) that align as early as possible with that pathway
In line with the Transition Principles above, the pathway and PTs must be science based, address
all material emissions (scopes 1, 2 and 3) in the short, medium and long term, and restrict offsets
to the ‘last mile’ of residual emissions

Hallmark 1 draws heavily from the five transition principles.
There are two elements to establishing Paris-aligned targets in the agri-food sector. First is through the selection ofa science based sectoral transition pathway, in this case relating to the agri-food sector with the aim of aligning witha 1.5-degree trajectory, as per the Paris Agreement. This pathway does not simply reflect the agri-food sector average,
or best-in-class, but an absolute, forward-looking pathway that is technologically feasible and ensures the agri-foodsector aligns with overall transition goals. The science based nature of the pathway ensures that the emissions
trajectories remain within the global carbon budget as estimated by the latest climate science from the IPCC. Thesepathways for agri food are now emerging from SBTi and will be further developed by Climate Bonds Initiative in 2023.
The second is the company’s selection of specific performance targets (PTs). These describe how and when thecompany will catch up with, follow and outperform the aforementioned sectoral green transition pathway. Crucially,
the PTs and associated performance levels must clearly articulate whether the company is currently on that agri-foodspecific transition pathway. If not, the company should indicate when they will align and continue to follow thatpathway. These performance targets will reflect the commitment, willingness and ability of the company todecarbonise. To collectively achieve the global emissions reductions target, it is critical that decarbonisation is rapid
and front-loaded and, therefore, those performance targets should align with the relevant agri-food green transition
pathway.
The graph below provides an example of pathway alignment for three different companies GHG emissions levels, andtheir different respective starting points to a 1.5 degree aligned pathway for the sector, from 2022 to 2050. Company
Z in the example is very GHG-intensive compared to companies Y and X and is not aligned with a 1.5 degree pathway
in 2022. Therefore, to meet Hallmark 1 Company Z would require a more front-loaded and ambitious decarbonisation
plan and changes to current activities in order to meet the pathway by 2030 (currently the cut off point for alignment
in order to be considered credible). The transition plan would then need to show continuous ambition to stay on
course with the 1.5 degree pathway through to 2050. Whereas Companies Y and X are example of companies that are
already better than the 1.5 degree pathway, though would need to show they can maintain their position over time.
Any corporate strategy would need to demonstrate adequate ambition to maintain this alignment through to 2050.
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Figure 6: Illustrative example of hypothetical company decarbonisation transition pathways from 2022 to 2050,(Climate Bonds, 2022)

For effective performance target formulation, a firm needs to identify activities and measures that are ideallycategorised as ‘near zero’ or on the ‘pathway to net zero.’ While these are still in formulation, consensus is starting toemerge over acceptable positive actions that can be taken in the sector. For example, a food manufacturer’s
performance targets for 2030 could include: 50% of ingredients sourced from holdings practicing regenerative
agriculture, reaching 100% by 2040; food loss and waste are reduced by 50% by 2030; 100% of commodity X shall becertified as sourced from deforestation-free production by 2030.
Performance targets formulation is also relevant for ‘interim’ or ‘stranded’ activities, so long as there are actions totransition away from these activities at a pre-agreed date. As per Principles 1-4 above, these targets and performancetargets must address all material emissions including scopes 1, 2 and 3, ideally with both upstream and downstream
emissions fully covered for the particular company context.
Entity transition is further strengthened by the inclusion of performance targets that consider agrifood system goals
beyond climate, including land use change, biodiversity, water use and quality, food loss and waste, circularity andjust transition. An assessment is conducted in Section 5 below.
Crucially, if a firm follows the correct approach to performance targets formulation, it creates a sound basis for the
pursuance of the following Hallmarks.

Hallmark 2

Robust plans

Set the strategy and plan to deliver on performance targets
Prepare associated financing plan including cost estimates and expected sources of funding
Put in place necessary governance frameworks to enact change.

For agri-food companies, the transition plan details how they will deliver the performance targets established throughHallmark 1. It should clearly state their current position, demonstrating an understanding of the sources of GHG
emissions and the levers that can and will be pulled to address those, alongside other salient sustainability impacts ofTransition Principles Applied to Agri-foodClimate Bonds Initiative

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their operations. For example, these may include impacts on land use change, soil quality, biodiversity, water quantityand quality and support to circular economy measures.
The performance targets of Hallmark 1 will only be credible if supported by a transition strategy and associated action
plan that detail how the company will get from the current situation to where it needs to be. This should describe,
qualitatively and step-by-step, the strategic objectives, orientations and policies, with particular emphasis on how the
short-, medium- and long-term milestones reflected in the selected PTs will be reached. The plan should aim to break
the timeline down into three to five year intervals, recognising that less detail will be possible towards 2050.45 Therealso must be clear, board level commitment and ownership of the transition plan in order to drive forward change.
Furthermore, the plan should include the nature of changes to company activities undertaken to enable it to meet thePTs. For example, for the decarbonisation of activities, it may include progressive sourcing of energy from renewablesources and/or retrofitting existing buildings to improve energy-efficiency. Additionally, land use change performancetargets might demand that supply chain sourcing is free from deforestation or damage to non-forest natural habitats
and commits to cut ties with suppliers who are unable or unwilling to co-operate. To illustrate, a specific commitment
to ‘No deforestation, no (development on) peat and no exploitation’ (NDPE) has been made by 30 leading agri-foodbusinesses including ADM, BASF, Bunge, Cargill, Danone, Nestle, Unilever, Ikea, McDonalds, Mars and General Mills
among others.46 Entities should make clear the nature of the changes they are making to deliver against the selected
PTs. These changes might be to:






Decarbonise ongoing activities (e.g., though technology or efficiency improvements, or alternative inputs)
Diversify activities and product mixes
End activities that cannot be brought in line with net zero emissions goals, ideally via organic tail out or
decommissioning
Actions to address emissions and reduce environmental externalities of the supply chain both up anddownstream of the business
N.B. where options are unclear or none appear to be available, research and development plans should beclearly articulated.

A robust plan will define the actions needed to achieve the selected combination of environmental and/or social
performance targets. Examples of actionable steps companies could undertake to meet these targets include thefollowing:








Technical plan for addressing the performance of sold products
Human Resources plan for ensuring the right provision of skills e.g., changes to staff training
Purchasing plan for supplier engagement e.g., renegotiation of supplier relationships
Marketing and Sales plan for client engagement
Business development plan for new business lines
Supply chain engagement
Comms and PR plan for policy engagement

In addition to the robust action plan for a company’s transition, there should also be a qualitative assessment ofdelivery risks and a description of associated mitigate measures.47
These actions should be accompanied by an associated financing plan because the aforementioned operationalchanges will have financing implications regarding the volume, timing and risk-return profile of finance needed to
implement those changes. A financing plan is a tangible indicator of credibility in intent and ability to conduct theactions highlighted in the transition strategy; it provides assurance to existing financial backers that the company willremain profitable during the transition.

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Hallmark 3

Implementation actionThe sourcing, use and impact of capital expenditure and operating expenditure.
Cover and explain the other actions detailed in the strategy.

For a variety of reasons, there could be a lag between the establishment of the Transition Plan - selection of companyspecific performance targets - and delivery against achieving those performances. It can take time to raise the finance,
deploy it, and then have associated capital expenditure (CapEx) or operational expenditure (Opex) and ‘bed in’
activities sufficiently to deliver on the selected performance targets. For example, it would take time to adopt precision
agriculture technologies and methods into the company’s operations and the time to train and/ or redeploy staff tobe able to operate it. Taking in these practical considerations, interim indictors of performance against the establishedperformance targets can be important to gauge progress in the delivery. Taking in these practical considerations,interim indictors of performance against the established performance targets can be important to gauge progress inthe delivery. These might include a full mapping of suppliers along the value chain as well as end users of goods inorder to establish traceability of agri-food goods along the value chain.48
One example of implementation action and recognising the time taken to achieve full traceability is from Louis Dreyfus
Company, a major global agribusiness that set 100% traceability targets throughout their multiple value chains fordifferent commodities. In 2015, they established an initiative to increase annually the traceability of their palm oil,sourced directly and indirectly from their suppliers up to 2020. From this, they made a year-on-year commitment totake action to ensure the total traceability increased annually which they managed, starting with 88% in 2016 to 97%
in 2020, with the aim of closing this gap to 100% by 2023.49 Through their efforts, they have undertaken that
implementation action towards 100%, despite the initially inadequate capacity and internal infrastructure in 2015.

Hallmark 4Internal monitoringTrack performance against selected performance targets.
Re-evaluate and recalibrate performance targets as needed

There are two components for companies to consider. The first is the ongoing re-evaluation and recalibration ofheadline targets. Selected targets should be regularly reviewed and recalibrated to reflect changing operating
conditions and market developments such as new technologies coming online sooner than expected. Processes should
be in place for such recalibration to tighten stringency where possible and to ensure continuous improvement
overall.50
It is particularly relevant to firms investing in emerging technologies to continually examine the latest climate impact
innovations and regularly monitor whether they can increase the ambition of the performance targets in line withtechnological feasibility offered in the sector. For example, a food distribution company may include a re-evaluationof technological developments in low-carbon transport used in their logistics, which may include the adoption ofhydrogen powered shipping and/or the use of electric powertrains for the transportation along the supply chain. One
example of a first mover in low carbon transport and distribution in the agri-food sector is Kuehne+Nagel, a foodlogistics company who utilise innovation and technology through the use of alternative fuels, increased use of big dataand predictive analysis and digitisation of booking system to increase productivity and efficiency of their operations
to minimise waste and opportunity costs on the environment of their operations.51
The second aspect is through tracking performance against selected performance targets. The company should haveprocesses in place to track performance against the selected performance targets, and to track delivery of theunderlying actions to deliver those performance targets. This should include selection of appropriate tracking andestimation tools, including but not limited to GHG performance tools, and any equivalents for performance targets
which are not expressed in terms of GHG emissions. This process acts as a feedback loop to Hallmarks 2 and 3.

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Hallmark 5

External reporting

External reporting and independent verification on the KPIs and strategy to deliver (perHallmarks 1 and 2)
Annual reporting of independently verified progress in terms of action taken and performanceagainst targets (per Hallmarks 3 and 4).

Agri-food firms should publicly disclose their performance targets, their rationale, method of calculation and tools for
performance tracking, as well as a narrative transition strategy, detailing changes that will be undertaken to deliver
those targets. Up-to-date reporting is needed, at least annually, covering factors that drive performance. This ispertinent in agri-food due to production seasonality.
The requirements for external reporting require that agri-food companies publicly disclose the following information
up-front:●●●

Selected target performance targets and the rationale for those performance targets, in line with the principles
established e.g., relevance and materiality, scientific basis
How those performance targets will be calculated (e.g., what emissions will be included) and the tools andmechanisms by which performance against those performance targets will be tracked
The narrative transition strategy, detailing the changes the company will make to deliver the target performancetargets

If disclosure is in connection to the raising of fixed-term finance, e.g., issuing an SLB, then particular emphasis shouldbe placed on the performance targets and strategy over that term and also the long-term intent and forward
momentum to achieve fully climate-aligned targets, particularly for agri-food companies with long-life assets or longterm transitions to make.52
Furthermore, on an ongoing basis, entities should publicly disclose up-to-date information on performance against
the selected performance targets, reporting at least annually, and including an explanation of the contribution of themain factors driving that performance, referencing the actions noted in the transition plan (Hallmark 2). If performancefalls behind what is projected in the transition plan, information on corrective/ mitigating actions should be reported,along with plan revisions.
There is a final requirement for independent verification. The publicly disclosed information should be supported bya verification assurance report from an independent, external verifier with relevant expertise, such as an auditor orenvironmental consultancy. Currently, for agri-food SLBs, Second Partner Opinion Providers (SPOs) have been relied
upon to date as the classifiers of sustainability for these bonds, as noted above. Certification from Climate Bonds
Initiative approved verifiers are due to be developed in upcoming years.

5. Existing frameworks and initiatives
The Principles and Hallmarks provide a solid foundation for agri-food transition, centred on decarbonisation. However,the sector is deeply intertwined with the wider natural and social space and highly dependent on functioning
ecosystems and regular weather patterns; it also provides incomes and livelihoods to billions of people.
As such, the Transition Plan framework we have presented above needs to be expanded to address agri-food’s otherkey environmental and social challenges identified above: land use change, biodiversity, water use and quality, foodloss and waste, circularity and just transition. This will help to shape a dedicated assessment tool for agri-business
transition plans and criteria to assess procurement strategies; additionally, four sets of criteria with transition
pathways will be developed, focusing on key subsectors where transition finance can have a crucial impact on agrifood transition.
Other initiatives are also working on defining ambitious agri-food transition system goals. In this section, we identify
a selection of frameworks and consider commonalities with the Principles and Hallmarks discussed above to offer
investors, policy makers and companies a clear vision of the necessary 1.5oC-aligned pathway(s) for the sector.
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Some of the identified frameworks below also cover land use change, biodiversity, water use and quality, food loss
and waste, and just transition; the latter incorporates human rights and labour standards, addressing social risks andopportunities and ensuring meaningful participation and partnership. There is emerging consensus that these
additional goals are vital for agri-food systems transition. Table 2 provides an overview of the how various initiatives
and frameworks align with Climate Bonds Principles and Hallmarks, as well as the additional agri-food system goals.

5.1 Ceres Investor Guide to Climate Transition Plans in the U.S. Food Sector53
This report responds to the growing calls from investors for companies to provide credible transition plans in addition
to their decarbonisation commitments. It is intended as a tool for investors to engage with companies in the food andagriculture sector to develop and disclose robust and ambitious climate transition plans. The consensus on what
constitutes a credible transition plan is still emerging, but the report offers insights into the necessary components ofsuch plans for the agri-food sector.
The report stresses that all three emission scopes (1, 2 and 3) must be disclosed by the company and contribute tomeeting their science-based targets. It further discusses the varying spread of emissions across the various sub-sectors,
for example hypermarkets. Science-based targets are presumed to reference the SBTi FLAG tool, discussed below. It
does not explicitly rule out offsets or carbon credits for a company to disclose, but offsets should not be used to meetcompany targets. Rather, they should be used to account for residual emissions, or emissions beyond the company’svalue chain. This would align with Climate Bonds’ principle of no offsets as this refers specifically to meet thresholds
or targets for certification. It references the GHG Protocol, including for Land-Use Change (LUC) and deforestation, as
well as corporate strategies to reduce or eliminate food loss and waste.
Unlike Climate Bonds, it does not explicitly recommend ‘medium-term’ targets, only short- and long-term. This could
simply be an interpretation of the same requirements (i.e., long means medium). In any case, robust targets would
cover regular time intervals between now and 2050 and beyond.
One further question that might be asked when reviewing existing frameworks is whether certain commodities are
excluded or disappear towards 2050, as per the ‘interim’ activities mentioned in section 4. The Ceres report does not
explicitly recommend the phasing out of commodities such as beef. However it suggests that such commodities may
be at risk of becoming stranded asset classes. These commodities may thus fall under the category of interim or
stranded economic activities captured in Figure 2.
Furthermore, companies with plans to increase production of these commodities should disclose how they intend to
reduce the emissions profile of those products or shift investments to low-emission alternatives.
This report discusses regenerative agriculture. Various definitions of this practice exist, but the report refers to‘practices with potential to capture and store carbon in agricultural soils as a natural climate solution.’ However, it
further cites Roe et al. (2019) on the complexities determining this potential:‘the estimated soil carbon sequestration potential in croplands around the world ranges from 0.25 to 6.78GT CO2 peryear. To achieve the high estimate, farmers must double soil carbon on croplands from 0.27% to 0.54% through at least
20 years of continued soil management practices, including cover cropping, mulching, reducing tillage, agroforestry,rotational livestock grazing and others.’
This raises the question of whether a transition plan should include a pathway for improving soil sequestration. The
high variability across a wide range of soils and conditions likely means a single pathway cannot be set. However, it
could be explored how this can partner with or support other pathways.

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5.2 FABLE Consortium Pathways to Sustainable Land-Use and Food System54
The Food, Agriculture, Biodiversity, Land-Use, and Energy (FABLE) Consortium is a collaborative initiative tounderstand how countries can transition towards sustainable land-use and food systems. It is convened as part of theFood and Land Use Coalition (FOLU).
This report is targeted at higher-level strategies for individual countries, along with global targets. It therefore does
not have the exact same scope of activity as Climate Bonds but provides many useful milestones and components that
may be necessary parts of an agri-food company’s transition targets and plans. For example, biodiversity and water
use and quality targets are laid out in the report and there are frequent references to food loss and waste.
Furthermore, a separate paper lays out pathways for biodiversity in greater detail.55
These targets are global and take policy considerations strongly into account. The targets set out may therefore needinterpretating in a different manner to accommodate Climate Bonds’ principle of technological viability trumping
economic viability. For Climate Bonds, if the solution exists to achieve the level of decarbonisation needed, policy or
economic considerations should not act as a barrier to that. As such, while the level of ambition of the pathways aligns
with a 1.5oC warming scenario, the speed of change to reaching a company’s short-, medium- and long-term goals
should reflect technological viability above all else.

5.3 The Science Based Targets Initiative (SBTi) Guidance for Forestry, Land and Agriculture (FLAG)56
SBTi has provided guidance for company decarbonisation target setting for a range of sectors. As it is company-focusedand is directed not only at FLAG but also commodity specific pathways, it has high relevance to Climate Bonds’ workon agri-food systems. The FLAG guidance is now fully available for use by companies.
In terms of the scope of emissions addressed, there is strong (but imperfect) alignment with what Climate Bonds would
want to see in emissions reduction targets. Scope 1 and 2 emissions must be included but scope 3 emissions need
only be counted if they emissions represent 40% or more of a company’s total emissions. However, it is expected that
scope 3 emissions would form the largest proportion for most companies in the agri-food sector.57 Nonetheless, eventhen only 67% of those scope 3 emissions must be counted under the guidance.
The SBTi guidance is aligned with a 1.5oC warming scenario and requires short-, medium- and long-term targets. At
the FLAG sector level, it employs an absolute contraction approach, but, at the level of specific commodities, it uses aphysical intensity convergence approach. The former provides challenges for Climate Bonds in the certification ofwhole companies, as it could penalise them for expanding their operations through mergers and/ or acquisitions,commonplace in any sector. For this reason, Climate Bonds has, until now, favoured physical emissions intensity
pathways; this may need reconsideration for the agri-food sector due the breadth and variety of interlinked activities
and associated variance of GHG-intensity involved throughout the respective value chains.
SBTi does not accept offsets as a means for a company meeting its targets.58 Like Ceres, however, it allows forcompanies wanting to finance additional emission reductions beyond their science-based target (SBT) or net-zerotarget, like Climate Bonds. Unlike offsetting, which accounts for carbon sequestration outside the value chain or
avoided emissions (which are also not accepted), a company may meet its targets through carbon removals within its
value chain. This has been challenging until recently, without standardised methodologies for accounting a highlyvariable source of emissions reductions. However, the Greenhouse Gas Protocol Land Sector and Removals Guidanceis expected early 2023 which will support SBTi’s own methodology for accounting for carbon removals. This may also
bring clarity for investors as companies will not be able to exaggerate their emissions reductions by pointing to carbon
removals.
Importantly, SBTi has a component which requires a company to commit to zero deforestation along its value chain.
However, it only recommends that companies meet this commitment ‘as soon as possible.’ Climate Bonds criteria mayneed to go further. SBTi recommends alignment of deforestation targets with the Accountability Framework initiative(AFi) guidance which reflects current best practice (discussed below). As for zero peatland and natural land conversion,
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again, there are no strict requirements but SBTi recommends that companies set similar commitments to
deforestation. It also notes that companies would be unlikely to meet their targets without meeting such objectives.
The guidance requires emissions from Direct Land Use Change (dLUC) to be counted. This is relevant to therecommendations of zero deforestation and conversion of other land uses. For example, peatland conversion would
contribute to a company’s emissions in this way. The inclusion of such emissions is crucial to capturing a company’s
full scope of emissions. As for Indirect Land Use Change (iLUC), these emissions are not required, only recommended.
This is due to the high uncertainty in their estimation. Climate Bonds may consider ways to account for these emissions
through other practices or criteria. Detailed guidance for the associated Science Based Targets for Nature (SBTN) is
under development and expected to be published in 2023. This will provide companies with methodologies to assess
and prioritise their impacts on nature and enable them to progress to setting targets on freshwater quantity andquality in the first instance59.

5.4 EU Platform on Sustainable Finance Recommendations for Significant Contribution to
Biodiversity60
The EU Platform on Sustainable Finance (hereafter referred to as the EU Platform) has proposed green definitions for
economic activities which substantially contribute to biodiversity. Previously, this has addressed climate mitigationand climate adaptation, respectively. However, these latest recommendations contain extensive considerations forcrop production and animal production to have a positive effect on biodiversity.
A consensus view is building that, for agri-food systems to become fully aligned with the Paris Targets and reaching
net zero, biodiversity should be considered in conjunction, not in isolation. The latest recommendations containextensive requirements ranging from water use to diversified crop rotation and soil management for crop production,
to grazing regime and supplementary feed for animal production. Within the realms of circular economy, food loss
and waste are also referenced.
These definitions are targeted at specific economic activities rather than at the scale of a whole company or sector.
Scaling up to requiring these practices across a company’s whole operations adds considerable complexity toverification. However, with approximately 100 pages of criteria for biodiversity-positive production, it represents an
obvious source for minimum or best practice safeguards for an agri-food transition framework. Despite being an EU
initiative, the criteria are intended to be globally applicable.

5.5 International Capital Markets Association (ICMA) Principles for Sustainability Linked Bonds
ICMA does not deal directly with sectoral decarbonisation. However, as Climate Bonds is due to produce entity-leveltransition criteria, the credentials of both Sustainability Linked Bonds (SLBs) and green bonds will be addressed. Two
separate ICMA documents are relevant for this criteria development:
ICMA Climate Transition Finance Handbook (2020)61
Cutting across both green bonds and SLBs, ICMA provides guidance for bond issuers in the nascent ‘transition finance’
space. This guidance recommends key indicators and information for issuers to include in their climate transition
strategies. This includes:
 Relevant Paris-aligned, interim targets on the trajectory towards the long-term goal; Disclosure on the issuer’s levers towards decarbonisation, and strategic planning towards a long-term target toalign with the goals of the Paris Agreement; Clear oversight and governance of transition strategy; and,
 Evidence of a broader sustainability strategy to mitigate relevant environmental and social externalities andcontribute to the UN Sustainable Development Goals.

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It is important to note the distinction between Paris alignment and strictly 1.5oC alignment for the purposes of setting
pathways. ICMA recommends that issuers set targets aligned with at least a 2oC warming scenario and ideally a 1.5oC
warming scenario. This is Paris-aligned. However, the ambition of Climate Bonds criteria (as of 2021) is strictly 1.5oCalignment. There is therefore a risk that transition finance aligned with ICMA’s principles quantitatively do not alignwith the level of ambition required by Climate Bonds.
ICMA Principles for SLBs62
Similar to the precursor Green Bond Principles, which are based on the Use-of-Proceeds model, ICMA has developed
high-level, overarching principles which are recommended for all SLBs, which are based on the General Corporate
Purpose model. ICMA does not address sector-specific principles. However, these Principles address the corecomponents in the Hallmarks such as internal monitoring and external reporting and verification. Short-, medium-,and long-term targets (‘relevant interim targets’) are also advocated here, but as it specifies ‘ideally to 1.5°C and, atthe very least, to well below 2°C’, this must be interpreted as not aligning with this hallmark.
Taken together, these sets of guidance will be relevant for Climate Bonds criteria. As for transition plans and actions
on how the SLB’s Sustainability Performance targets (SPTs) will be reached, ICMA only recommend ‘where possible’
disclosure on these. This is less strict than what is proposed by Climate Bonds. They do not require the SPTs to be
based on 1.5oC or be science-based.

5.6 The Accountability Framework Initiative (AFI) Core Principles63
The AFI Principles set zero deforestation commitments and zero conversion of peatlands and any other naturallandscape. These principles could potentially form the basis for similar criteria for companies. This extends to company
supply chain compliance, as well as key monitoring and verification requirements. It also is one of the few frameworks
which also addresses to some extent a Just Transition in the sector. This is done through principles for human andworkers’ rights. Further to this, the AFI provides more detailed guidance on supply chain traceability for smallholders.

5.7 Agro-biodiversity Index (ABI)
Agricultural biodiversity is the diversity of crops and their wild relatives, trees, animals, microbes and other species
that contribute to agricultural production; it results from millennia of interactions among people and the environment
and it is a key component of healthy diets and human health. It is fundamentally interlinked with food biodiversity,
which is crucial to fight malnutrition and diet-related diseases.
The Agrobiodiversity Index is tool that has been developed by Biodiversity International, part of the Consultative Groupfor International Agricultural Research (CGIAR).64 It brings together data about the agrobiodiversity that people selland eat, grow and conserve, and provides insights into food system functioning. The Agrobiodiversity Index measuresbiodiversity across three domains usually disconnected: nutrition, agriculture and genetic resources. It is an actionoriented tool that identifies policy and business levers, good practices and areas for improvements, risks andopportunities, to increase use and conservation of agrobiodiversity for sustainable food systems. Beyond biodiversity,
it captures water use efficiency in agriculture.

5.8 Global GAP
The international standards certifier for good agricultural practice, GlobalGAP,65 collaborates with producers, retailers,and other stakeholders from across the food industry to set standards for safe, socially and environmentally
responsible farming practices. Their standards are predominantly aimed at Integrated Farm Assurance (IFA), applicablefor fruit and vegetables, aquaculture, floriculture, livestock, and more. It offers what are referred to as ‘add-ons’ forsustainable irrigation and groundwater use, under its ‘SPRING’ programme, and for biodiversity in conventional
agriculture.
Transition Principles Applied to Agri-foodClimate Bonds Initiative23

5.9 International Standards Organisation (ISO)ISO has a dedicated standard for water efficiency management systems, ISO 46001:2019,66 which is applicable to arange of water use activities, including irrigation, heating, cooling and manufacturing. Its purpose is to assess andaccount for water use, and to identify, plan and implement measures to achieve water savings through the systematicmanagement of water. Successful implementation depends on commitment from all levels and functions within theorganisation, especially commitment by senior management.
ISO provides organisations with a framework to develop and implement a water efficiency policy through theestablishment of objectives, targets, action plans, monitoring, benchmarking, and review programmes; these should
consider any requirements related to significant water use.
ISO is also developing a standard on food loss and waste, ISO/TC34/SC20, which is due for publication in 2024.

5.10 Food Loss and Waste Standard (FLW)The Food Loss and Waste Protocol67 is a multi-stakeholder partnership, which has the mission of ensuring wide
adoption of its Food Loss and Waste Accounting and Reporting Standard (or FLW Standard), so that operators andstakeholders are better informed about food loss and waste and motivated to curb this inefficiency. This is a global
standard that provides requirements and guidance for quantifying and reporting on the weight of food and/or
associated inedible parts removed from the food supply chain. Use of the standard enables countries, cities,
companies, and other entities to develop inventories of how much FLW is generated and where it goes; these canunderpin, inform, and focus strategies for minimizing FLW.
Minimizing FLW can provide economic benefits, enhance food security, improve natural resource use efficiency, andreduce environmental impacts. The purpose of the FLW Standard is to facilitate the quantification of FLW (what tomeasure and how to measure it) and encourage consistency and transparency of the reported data. The standard
enables consistent quantification of baselines and tracking of progress toward Target 12.31 of SDGs and other targets.

5.11 SPHERE packing framework
The WBCSD’s Sustainability in Packaging Holistic Evaluation for Decision-Making (SPHERE) framework68 was created in
response to the recognition of the environmental impact of packaging globally, going beyond purely life-cycle
assessment (LCA) of GHG emissions to consider further issues such as plastic pollution and circularity issues. It is led
by the World Business Council for Sustainable Development (WBCSD). The framework aims to support decision-making
for packaging strategies spanning company departments. SPHERE aims to establish a balance between complexity andsimplicity. By nesting all aspects of environmental packaging sustainability under a common framework, theframework looks to allow packaging designers, product portfolio managers and sustainability managers, among
others, to utilise the framework to guide sustainability packaging design according to their own specific context.
The framework consolidates all the relevant and available information in one place, informing priorities for action andallowing for monitoring of performance and progress over time. SPHERE defines sustainability in packaging as
maximum circularity and minimum environmental footprint, while avoiding the presence of harmful substances. There
are six guiding principles to support this definition:
1. Minimise the drivers of climate change relates to the importance of minimizing the climate impacts of packaging.
2. Optimize efficiency considers product protection (meaning avoiding product damage, losses and waste).
3. Optimize circularity addresses the need to promote the use of recycled content and renewable content.
4. Optimize end of life designs for recyclability, taking into consideration effective end-of-life management schemes.
5. Avoid harmful substances limits present and future human health impacts due to leakage, ingestion andbioaccumulation.
6. Minimize the drivers of biodiversity loss currently accounts for water and land use; in the future, it can address
measurements related to biodiversity impacts due to leakage.
Transition Principles Applied to Agri-foodClimate Bonds Initiative

24

The framework uses existing metrics and methodologies applicable to each guiding principle as its foundation.
Although they acknowledge that there are some areas where metrics are missing or in development, the structure of
the SPHERE framework allows for the integration of future methodologies where needed.

5.12 Just Rural Transition (JRT)
Just Rural Transition69 provides a policy action agenda that sets out ‘pathways and actions that countries can take torepurpose public policies and support to food and agriculture, to deliver these outcomes and enable a just ruraltransition’. It aims to strengthen governance to manage trade-offs across different land uses, support indigenous andcommunity land tenure, and deliver national economic, social, rights, health, and environmental goals which enhancelong-term resilience of economies, communities, and ecosystems. JRT plans to announce core principles in late 2022.

6. Conclusions
Agri-food systems play a pivotal role in the transition to net zero, both in terms of climate change mitigation andadaptation. Sustainable finance can help facilitate the measures that need to be taken, but action is needed to ensurethat investments are credible and avoid ‘greenwashing’.
Climate Bonds has developed a set of Principles and Hallmarks, which provide a robust framework for an ambitious
and inclusive approach to transition. This is fully applicable to agri-food activities, whatever their position on thepathway to net zero, and it offers sound guidance for corporate transition planning.
Agri-food also delivers on several other vitally important environmental and social goals and so, a dedicatedframework needs to be developed to provide comprehensive coverage. Therefore, as well as acting as the basis for
initial engagement with agri-food transition finance stakeholders, the above analysis helps prepare subsequent
activities in the Climate Bonds Agri-food systems transition programme.
Follow-up actions include: Drawing on the above findings, work will be conducted (in 2022/23) to form a robust and comprehensive sectoral
framework, encompassing agri-food system goals beyond climate: land use change, biodiversity, water use andquality, food loss and waste, circularity in packaging, and just transition,
 This framework will be available for use by market actors to guide the creation of transition plans and assess thecontent and coverage of transition plans,
 The development of an assessment tool (2023) for agri food commodity supply chain sustainability, The development of four sets of Climate Bonds sector criteria (through 2023/24), focusing on key areas for agrifood transition finance.

Transition Principles Applied to Agri-foodClimate Bonds Initiative25

Principles

Table 2 – Preliminary assessment of how existing frameworks cover transition principles, hallmarks and agri-food system goals (CB internal analysis, 2022)
Criteria

Ceres

FABL

SBTi

In line with 1.5°C trajectory- short/med/long-term targets
Established by science







Offsets don’t count







Technological viability trumps economic competitivenessAction, not pledges








Hallmarks

Paris-aligned targets
Robust plans
Implementation actionInternal monitoring
External verification and reporting

Other agrifood system goals

Land Use Change (LUC) Emissions included within scope
Zero deforestation across whole supply chain
Zero peatland conversion across whole supply chain
Zero natural land conversion across whole supply chain






Biodiversity
Water (use, quality)
Food loss and waste








EU














AFI

ABI

GAP

ISO

FLW

SPH

JRT























*








*
*
*











*




Circular EconomyJust transition



*



*



*



 explicitly incorporated into the framework;  partially or implicitly covered in the framework (e.g. AFI targets zero deforestation across supply chains without
mentioning 1.5oC alignment); * under review in the Climate Bonds Agrifood Transition Programme.

Transition Principles Applied to Agri-foodClimate Bonds Initiative

CBI





















ICMA

26

*

Annex I - Transition categories: example activities and measures
Category

Near zero

Economic activity

Measures to decarbonise economic
activity

Bioenergy generation fromagricultural waste

Measures to transition
away fromunsustainable activities
n/aLandscape restoration (ofdeforested areas)
Pathway to net zero

Crop production

Climate-smart crop management(regenerative farming, agroforestry,
precision tech, controlled environments)

Mixed farming systems

Post-harvest tech to reduce losses

Feed manufacture
Food, drink and ingredients
manufacture
Logistics, supply/ cold chain

Supply chain transparency, traceability,
responsible sourcing, due diligence
Installation/ retrofit of energy efficient
cold chain and processing facilities,
eliminating HFCs / CFCs

Move away frommonocropping
Avoid expansion ofagricultural land
Reduce the use of fossil
fuel fertilisers andagrochemicals

Reduce, recycle, re-use packaging

Food retail/ grocery

Switch to renewable energy use

Catering

Food waste reduction and processing
Promotion of healthy diets
InterimIntensive Livestock
breeding/ production

Climate-smart livestock management(regenerative, organic farming, agroforestry, precision farming)

Switch to mixed farming
systems with cropping
and/or silvopasture

Anaerobic digestion
Stranded

Biofuel production

Phase out biofuel
production

Fossil fuel fertiliser
manufacture

Enabling

Early decommission offossil fuel fertiliser
manufacture

Farm advisory and extension
services

Remote delivery through IT solutions

n/a

NB: The activities and measures shown are non-exhaustive and are not intended to convey ranking, significance or priority.

Transition Principles Applied to Agri-foodClimate Bonds Initiative27

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35

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Transition Principles Applied to Agri-foodClimate Bonds Initiative28

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