Forward-thinking companies are leading the way to a low-carbon future by setting targets aligned with climate science. A guide to get started.
A sea change is underway.
More than 75 percent of large companies that responded to a recent CDP survey said they have carbon dioxide (CO2)–reduction targets in place. However, most of the goals aren’t ambitious enough to help keep temperature increases below 2 degrees Celsius (2○C) compared to pre-industrial temperatures — a threshold that almost all experts agree is critical.
But corporate targets are becoming more robust as company commitments, global accords and climate science merge. Increasingly, organizations that set out to reduce greenhouse gas (GHG) emissions are setting sustainability goals that align with the 2○C maximum.
What started as a trend has evolved into a broad-based initiative — Science Based Targets (SBTs) — launched by CDP, UN Global Compact, World Resources Institute and World Wildlife Fund. And it’s connecting the objectives of the Paris Agreement with consistent emission reductions.
Companies that join the initiative can take up to 24 months to establish their reporting process and set targets. After the target is announced, the commitment period must be at least five years.
There is no doubt that momentum is building. More than 200 companies have joined the SBTs initiative. The majority are still in the commitment phase, however, many have submitted goals for review and more than 25 have approved targets.
An average of two companies join the initiative every week, including industry titans such as Coca-Cola and Sony, and there are currently 27 countries represented based on the location of the participants’ headquarters.
Could vs. must
SBTs change the framework of the discussion about corporate action for tackling climate change. The focus shifts from what companies might do, to what companies must do to stay below the limit. In this sense, SBTs differ from other (non-regulatory) commitments for carbon reduction where businesses outline what they’re willing to do. And while adopting meaningful targets separates leaders from laggards, any SBT becomes more credible with the assurance of a scientific approach and alignment to the Paris Agreement; these targets have an extra dose of validity and importance.
Why set SBTs?
The benefits associated with setting an SBT are many:
- Innovation: Setting SBTs can generate innovation that can redefine a company’s bottom line by creating new business models and sources of value, and by disrupting unsustainable economic systems.
- Consistent commitment: Companies can demonstrate their efforts and commitments to reduce GHG emissions and mitigate global warming to shareholders and stakeholders. This also means building credibility and enhancing corporate reputation.
- Regulatory response: Setting SBTs in advance of carbon-related regulations will allow companies to comply with policy changes and new rules with ease.
The stakes are high
The signals from regulators and policymakers are strong and cannot be ignored: From the European Commission’s proposal for an Effort Sharing Regulation that sets binding annual GHG emission targets for the period 2021-2030 to China’s National Development and Reform Commission (NDRC) mandating GHG reporting for more than 20,000 companies and organizations. Reporting on broader sustainability targets is a requirement that is here to stay. Setting and pursuing SBTs creates depth and gravity to the commitment of an organization.
In addition, the cost of carbon adds to the economic discussion and decisions that will drive change. It cannot go unnoticed that more and more companies are willing to use a shadow carbon price internally. According to another CDP report, 517 out of 5,759 firms that disclosed their climate change and supply chain data this year stated they are applying an internal price to their emissions.
A similar trend is noted from a policy-making perspective. About 40 national jurisdictions, and over 20 cities, states and regions, including seven out of the world’s 10 largest economies, currently put a price on carbon. For example, Portugal enacted a carbon tax in January 2015, covering all energy products used in non-European Union Emission Trading Scheme sectors.
How to set SBTs?
Setting SBTs entails company-wide engagement; the first step is to increase organizational knowledge, and then educate leaders on the process, potential and implications. It needs to be understood that SBTs can vary in terms of emissions scope, base year and type of target (absolute or intensity).
Examples of already-approved SBTs include:
- The Kellogg Company commits to a 15 percent reduction in emissions intensity (tonne of carbon dioxide equivalent (CO2e) per tonne of food produced) by 2020 from a 2015 baseline. This includes direct and indirect emissions from the consumption of purchased electricity, heat or steam — also known as scope 1 and 2 emissions. Kellogg’s commits to reduce absolute value chain emissions by 20 percent from 2015-2030. (I.e., other indirect emissions not covered in scope 2, also known as scope 3 emissions.) The company also has a long-term target of a 65 percent absolute reduction in emissions by 2050 from a 2015 base-year (scopes 1 and 2) and to reduce absolute value chain emissions by 50 percent from 2015-2050 (scope 3).
- Thalys commits to reduce scope 1, 2 and 3 GHG emissions per passenger kilometer by 41.4 percent by 2020, compared to a 2008 base year. Scope 3 emissions covered by the target are approximately 50 percent of the total scope 3 carbon footprint. For the other 50 percent, Thalys commits to engage with the maintenance management suppliers to formulate more explicit targets to reduce these emissions.
- Dell commits to reduce GHG emissions from their facilities and logistics operations 50 percent by 2020, using 2010 as a benchmark. Dell also commits to reduce the energy intensity of its product portfolio 80 percent by 2020, using a 2011 base year.
This table provides an overview of the main SBT features companies are working to meet:
Creating a strong foundation is a key to success, not understanding the technicalities, which comes later in the process. A robust accounting and governance protocol is also critical when it comes to both reporting and realizing targets.From a process perspective, there are several considerations that need to be taken into account. Questions about the correct methodology, the type of target, different allocation mechanisms or the timeframe for setting SBTs need to be established. While this may sound overwhelming in the first instance, the process is structured to allow companies to make incremental progress, taking one step at a time.
And, ultimately, it comes down to investment. Building a strong business case, based on a cost-benefit analysis for cutting emissions, is imperative.
Any organization looking to move to SBTs and shrink its carbon footprint will face both a significant opportunity and an enormous challenge. It takes rigor and continuous management. But, in the end, a clear strategy and commitment to action will deliver broad and absolute benefits across an organization — from competitiveness to cost and credibility.
Do you have questions about Science Based Targets?
Contributed by Marientina Laina, Sustainability Consultant