Setting a Science Based Target (SBT) can seem a daunting task, especially if the business case is not clearly laid out. Companies ask themselves what are the benefits of setting a SBT, what does it involve, and why should they aim for climate leadership?
To help answer these questions, Corporate Citizenship delivered a webinar on implementing SBTs, which explored each of the stages of SBT setting and highlighted the benefits of doing so. We were joined by Luz Valdiviezo, SBT project officer at CDP, who talked about the Science Based Targets Initiative (SBTi) – the main platform that mainstreams SBT adoption – and Michael Alexander, the Head of Water, Environment and Agriculture Sustainability at Diageo – a beverage company which is one of the most vocal leaders in setting stretching corporate targets.
The science behind the targets
In 2015, 195 countries adopted the Paris Agreement on climate change, agreeing to join efforts in order to limit the global temperature increase to 2oC above pre-industrial times. This is equivalent to a global carbon budget of 2900 GT of CO2. So far, the world has used up more than half of that budget, and it is expected that the budget will be surpassed in only 20 years if climate action is not taken urgently.
The national commitments made so far by governments will not be enough to keep temperatures down and avoid the catastrophic impacts of climate change. The private sector, as a major contributor of GHG emissions, has a crucial role to play in the transition to a low carbon economy.
How much must a company reduce its emissions by to contribute to global emission reductions? It is easier than ever to answer that question because now companies can set emission reduction targets that are informed by science. That is, targets that are set against a baseline, developed using hard, quantitative data, and implemented to achieve a defined global goal – that of limiting the global temperature increase to below 2oC as agreed in Paris in 2015.
The Science Based Targets initiative
The SBTi was formed through collaboration between CDP, the World Resources Institute (WRI), the World Wide Fund for Nature (WWF) and the United Nations Global Compact (UNGC) with the aim of mainstreaming SBT implementation and making it standard practice amongst businesses.
During our webinar, we learnt that, despite the current market and political uncertainty, the SBTi is a growing movement. To put it into perspective, an average of 2 companies are joining the initiative per day! Within less than 2 years of the Paris Agreement, over 250 companies have committed to setting SBTs (55 since March), and of those, 44 have already had their targets approved by the SBTi and are putting their reduction plans into action.
Companies that have had their targets approved include Kellogg’s, Nestlé and Dell. This clearly demonstrates that companies are welcoming climate science as a guide for long-term sustainability and long-term value creation.
Building the business case
So, you might be asking yourself, ‘what is the value in all of this?’ ‘Are science based targets right for my business?’ Understanding the business case is necessary to get internal buy-in and convince senior managers to adopt SBTs. During the webinar we discussed how reducing GHG emissions is good for business:
- Firstly, companies that have adopted SBTs have seen reduced operational costs, such as electricity bills, and improved their long-term competitiveness and resilience. This is because they have become less dependent on increasingly scarce raw materials, particularly those derived from fossil fuels, ensuring lean and efficient business continuity.
- Secondly, setting SBTs is a great driver for innovation. It inevitably leads to technological advancements, such as the adoption of carbon smart technology, as well as improved operational practices. Innovative companies become sector leaders and are seen as exemplary by their peers and competitors.
- Thirdly, businesses can be vulnerable to sudden changes in regulation such as additional taxes on carbon. Setting SBTs allows companies to comply with future climate change regulations.
- Finally, companies aren’t just setting SBTs because of their love for the environment. They know that investors are increasingly asking questions about sustainability goals and that their customers are increasingly basing their purchasing choices on companies’ sustainability credentials, so setting a SBT is one way of strengthening relationships with key stakeholders.
Once you have built your business case, what are the next steps?
Setting a SBT in line with climate science can be challenging. Thankfully, the SBTi has put together a number of methodologies and other resources, using the best available science, to help companies calculate and set their targets. There are seven different available methodologies that companies can choose from to calculate their targets. Choosing the right methodology will depend on factors that are unique to each business, including its sector and its level of growth. To help your company set SBTs a number of guidance documents are available to download from the SBTi website, including the Call to Action Guidelines and draft Science Based Targets Setting Manual.
Once companies have chosen the right methodology, they have to understand the size of their footprint and use available data to calculate scope 1, 2 and 3 emissions against which a target will be set. Calculating scope 3 emissions was identified as one of the biggest challenges in SBT setting by Michael Alexander from Diageo, whose emissions are rooted heavily in its network of suppliers. “Building a relationship with suppliers to better understand their processes of emissions reductions was key to obtain the data we needed. We now have much stronger engagement processes across our supply chain and work together with our suppliers to address scope 3 emissions”, said Michael.
Having calculated emissions, companies must develop a plan of action for implementing, communicating and reporting on emissions reductions that will bring their company in line with the level of decarbonisation required. Setting the timeframe of the target is also an important step. It requires a thorough knowledge of the business as well as making predictions about the future. For example, if setting an absolute target, what will the level of growth of the business be in 2030 or 2050? If setting an intensity-based target, what is the expected pace of technological change? These types of questions are difficult for any business to answer, and companies will need to work through their answers, using all available guidance to determine the ‘right’ pace of decarbonisation for their sector.
Setting interim targets, analysing baseline data and socialising the targets with key internal departments are all important steps in working towards achieving long-term targets. In the event of significant changes in the business, targets will need to be adjusted to ensure they remain relevant.
Many leading companies have now set SBTs. More and more are following suit as they realise that the benefits of setting science based targets are worth the initial investments. Setting the targets and getting independent verification from the SBTi demonstrates commitment to tackling climate change and builds the credibility of companies’ sustainability strategies, providing the foundation for long-term value creation.
An increasingly long-term view on the part of both companies and investors is standardising the practice of setting SBTs. By creating a private sector mass that contributes to a 2oC economy, companies are proving that a low carbon economy is possible.
The dialogue has now changed, from whether a transition to a low carbon economy is possible, to what must and can be achieved to reach a common goal.