Implementing science-based targets in the company

In the course of COP26, the focus is currently shifting towards long-term net-zero targets and decarbonization strategies. Science-based climate targets (SBTs) are a key lever for the transformation to a climate-neutral economy. Anna Lena Hackelsberger from “econsense - Forum for Sustainable Development of German Business” explained at CHOICE Event #29 what exactly “science-based” means and how the target works in practice. Here you can find the most important content from her presentation on science-based targets.

Who is the Science Based Targets Initiative (SBTi)?

The Science Based Targets Initiative (SBTi) was founded in 2015 in the year of the Paris Climate Agreement by four NGOs - CDP, WWF, UN Global Compact and World Resources Institute. The initiative is regarded as a leading player for both guidance on science-based climate target setting and its validation. Companies can make a public commitment to setting science-based targets and then have two years to have these targets validated in close consultation with the SBTi.

Currently, over 2,000 companies worldwide are already part of the SBTi. Around half of these already have validated targets, while the other half are still in the target-setting process.

The Science Based Targets methodology

The SBTi therefore aims to support companies in setting climate targets that are in line with the latest findings of climate science. Although some companies are still pursuing 2 °C targets from the early days of the initiative, the level of ambition has since been updated so that every new company must now commit to a 1.5 °C target.

The methodological approach of the SBTi can be divided into three steps:

1. The starting point is global greenhouse gas budgets, i.e. the amount of emissions that can still be released into the atmosphere before certain temperature thresholds are exceeded. In concrete terms, this means that for the 1.5 °C pathway, the SBTi estimates the remaining GHG budget - from 2018 to the net zero target - at 990 gigatons of CO2 equivalents.

2. As a second step, the SBTi uses emissions scenarios to model how this greenhouse gas budget can be distributed over time. To do this, the SBTi works with around 50 different emissions scenarios, including those from the International Energy Agency (IEA).

3. Finally, the greenhouse gas budget is broken down to the private sector and individual companies. There are two different approaches for this distribution: In the absolute contraction approach, each company reduces its emissions linearly by 4.2% per year, regardless of the sector. The sectoral decarbonization approach is not about absolute emissions, but about emission intensities. According to this approach, all companies in a certain sector reduce their emissions intensity to the same level by a certain date.

Success factors for implementation

When setting climate targets, important conditions for their successful implementation must be taken into account. Firstly, the science-based targets should be closely interwoven with the corporate strategy so that all current and future business areas contribute to the achievement of the targets. As a result, the SBTs act as an impetus for fundamental discussions about the climate-compatible alignment of the business model at many companies.

As the commitment to SBTs has now become a very high-profile issue, the decision is inevitably made by top management or the Board of Directors. It is therefore important to make them aware of the importance of SBTs both for their own climate impact and for future business development and competitiveness. CSR and sustainability managers should pass on the impetus for defining SBTs to the entire company and involve as many departments as possible in the process through strategic stakeholder management. Ultimately, the objective can only be successful if everyone in the company pulls together.

Advantages for internal and external positioning

With Science Based Targets, companies are not only making an important contribution to a climate-compatible economy, they are also meeting the increasing demands of a wide range of stakeholders. These include:

External stakeholders

For many companies, investors are ultimately one of the main reasons for setting SBTs. They are exerting more and more pressure on companies and value SBTs as an externally validated and climate-relevant quality signal. The same applies to end customers or partner companies along the supply chain. In addition, SBTs also have a major influence on a better rating and thus an enhanced brand reputation in climate-relevant ratings and rankings.

Political decision-makers

Since the Paris Climate Agreement, policymakers have increasingly been working on new laws and regulations for a climate-compatible economy. Especially with regard to future legal requirements, companies can use SBTs to prepare themselves accordingly and reduce uncertainty.

Strategy

The climate performance of companies will become increasingly relevant to the market in the future. Those who embrace the ambitious goals of the SBTs at an early stage and work on a climate-friendly business strategy that is resilient in the long term will create decisive competitive advantages for the near future.

Operation

SBTs can also have operational benefits for a company's profitability. On the one hand, they open up new revenue streams by incentivizing innovation and, on the other, the increased energy and resource efficiency ensures cost savings. In addition, SBTs provide a shared vision for the company and team culture and thus promote employee engagement.

Points of criticism of science-based targets

For all their positive effects, SBTs can also be criticized on a few points. For example, their impact on the climate is only given with a correspondingly high participation of global companies. So far, however, penetration is still very low, particularly in non-OECD countries and sectors with high emissions (e.g. construction, automotive, shipping). In addition, it is much easier for some sectors to participate in SBTs than for others. Companies that manufacture very heterogeneous products (e.g. the chemical sector) or companies in sectors for which only a few 1.5 °C-compatible pathways exist (e.g. aviation), for example, have particular difficulties in setting targets.

The level of ambition of the SBTs is also considered insufficient by some. For example, the initiative calculates on the basis of a 50 percent probability for the temperature limit of 1.5 °C. In other words: If all companies worldwide were to set SBTs, the probability of achieving the 1.5 °C target overall would still only be 50%. In light of all these challenges, the Science Based Targets Initiative is continuously working to further improve its methodology, enabling more and more companies to drive climate transformation through science-based climate targets.

Further information on this topic can be found in the paper “Accelerating the Race to Net Zero” by econsense.

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