Contact UsOffice: 647.264.1087
First Canadian Place
100 King Street West
The growing recognition of the systemic economic risks from climate change has resulted in a call to action to reduce global greenhouse gas (GHG) emissions. This will require a coordinated effort by governments and companies in setting emissions reduction targets that limit global temperature increases to levels consistent with scientific assessments. This piece provides an overview of the fundamentals of science-based targets (SBTs) and key considerations for companies.
The Paris Agreement calls for countries to limit the increase in global average temperature to well below 2 degrees above pre-industrial levels and to pursue efforts to limit the increase to 1.5 degrees by the end of the century. This goal was developed based on the scientific assessments of the International Panel on Climate Change (IPCC).
In 2019, the IPCC updated its research guidance, indicating that a more aggressive approach was required to meet the 1.5 degree climate goal. The updated guidance called for a 50% reduction in global GHG emissions by 2030 and “net-zero emissions by 2050”. It is important to understand that net-zero does not necessarily mean zero absolute GHG emissions. Net-zero emissions can be achieved by using carbon removal mechanisms (e.g., green infrastructure, carbon capture utilization, and storage (CCUS), carbon offsets) to reduce and offset remaining GHG emissions.
To date, 19 countries (plus the European Union) have revised their national targets to incorporate net-zero goals, and many more are considering them. While all national net-zero commitments call for an absolute reduction in GHG emissions, the scope, sectoral coverage, and target years vary widely. There is also little consensus on the extent to which carbon removal mechanisms should be used to meet net-zero targets.
Scope 1 (Direct GHG Emissions): GHG emissions that occur from sources that are owned or controlled by the company (e.g., emissions from the manufacturing or processing of chemicals and materials, transportation of materials, products, and waste, generation of electricity, heat, or steam, etc.).
Scope 2 (Indirect GHG Emissions): GHG emissions from the generation of purchased electricity consumed by the company.
Scope 3 (Other Indirect GHG Emissions): GHG emissions that are a consequence of the activities of the company but occur from sources that are not owned or controlled by the company (e.g., outsourced activities, employee business travel, the use of sold products and services, etc.).
Absolute GHG Emissions: The total (or absolute) quantity of GHG emissions released to the atmosphere.
Intensity-based GHG Emissions: The GHG impact per unit of physical activity or unit of economic output (e.g., tonnes of CO2 emissions per dollar of revenue, tonnes of CO2 emissions per ounce of gold produced).
Source: The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)
A GHG emissions reduction target is science-based if it is in line with the scale of reductions required to limit global temperature increases to below 2 degrees above pre-industrial levels.
While methods and approaches to setting SBTs are still evolving, all involve the following fundamental components:
Table 1 outlines some of the current benefits and challenges of setting SBTs.
Table 1: Benefits and Challenges of Setting SBTs
A growing number of companies are making net-zero commitments. However, developing a plan to achieve net-zero is a significant undertaking. Quite apart from key decisions around scope and timelines, a commitment to net-zero will involve major business considerations relating to allocation of resources, return on investment, and possible evolution of the business model depending on the sector.
The SBTI is a not-for-profit organization established with a mission of promoting corporate climate action by supporting the expansion of science-based target setting so that it becomes standard business practice. Companies can join the SBTI’s Call to Action through the following steps:
While over 900 companies have committed to the SBTI only 380 have been certified to date. However, momentum for the SBTI methodology is building particularly as countries seek to establish pathways to achieve net-zero by 2050. Investors value that external validation is required, which enhances the credibility of companies’ targets. The World Business Council for Sustainable Development has indicated its support for the SBTI, and the SBTI Call to Action is a commitment of the U.S.-based corporate We Mean Business coalition.
There are increasing expectations for companies, particularly those operating in carbon-intensive industries, to set and meet GHG emissions reduction targets. Developing ambitious, achievable, and meaningful GHG emissions reduction targets can lend credibility to a company’s overall approach to climate change. Companies should consider the following when exploring whether to set SBTs:
The answers to these questions can help a company gauge the relative importance of setting SBTs and understand how difficult it might be to develop a target. In addition, companies should carefully consider the benefits and challenges of setting SBTs outlined in Table 1 to determine whether setting an SBT is aligned with corporate and ESG strategy.
ESG Global Advisors bridges the gap between companies and investors on environmental, social and governance (ESG) factors. A multi-disciplinary team with significant investor and corporate experience, we are uniquely positioned to offer expert advice to companies and investors on material ESG factors that drive long-term value, including climate change.
We offer the following services related to climate change:
Contact us to learn more about our ESG and climate change advisory services.