Science-Based Targets: A Strategic Tool for the Low-Carbon Transition

By Maria Stoica
Member ofGreen Bee’s Network of Experts

To achieve the Paris Agreement, the global economy needs to become fully net-zero by 2050. Setting Science-Based Targets (SBT) for short-term, 5 years, to medium-term, 15 years, into the future from the chosen base year, allows organisations to take GHG reduction decisions and act upon them at a pace that is needed to achieve this long-term goal.

SBT are GHG emissions reduction targets that are based on climate science and indicate the level of decarbonisation required to keep the increase of global temperature within 1.5-2C compared to pre-industrial temperature levels.

SBT works with climate scenarios developed by the IPCC and by IEA and allocates the available global carbon budget of 2100 across companies and sectors.

Whilst GHG emissions reporting is becoming more mainstream, companies can advance the reporting stage to mitigate climate impact by reducing GHG emissions under a clear decarbonisation trajectory, validated by the Science-Based Targets Initiative (SBTi).

The alignment of GHG inventories with annual rates of emissions reduction allows a monitoring and disclosure process by the implanting company, and a recalculation of the SBT is required every 5 years by the SBTi.

In 2020, approximately 900 companies have set SBT, about 400 have the targets validated, and around 200 companies have committed to the most ambitious 1.5C emissions reduction targets.

In the roadmap to COP26, SBT is an increasingly adopted method to measure progress to targets and create the path to transition to a low carbon economy.

Overview of the SBT Process

The SBT process starts with a commitment letter that is specific for SMEs with up to 500 employees and larger organisation above 500 employees.

Companies have up to 24 months to develop SBT using the SBT tools and submit them to SBTi for official validation. Companies with approved targets must announce their targets publicly on the SBTi website within a maximum of 6 months from validation.

Ambitions and Criteria for Scope 1 and 2 Emissions

In the SBT absolute contraction method, all companies reduce carbon at the same linear annual reduction rate that the IPCC requires globally.

The criteria are to cover 95% of GHG emissions with a linear annual reduction of min 2.5% to keep global temperatures well below 2C. This method is used by most sectors, while the sectoral decarbonisation approach is implemented by specific sectors.

The sectoral decarbonisation approach (SDA) is a sector-specific pathway developed by the International Energy Agency (IEA), taking into consideration both historic emissions and future projections at the sector level to define an intensity path that all companies in that sector will be converging on. The SDA sectors are power, iron and steel, cement, aluminium, building services, pulp and paper.

SBT allow the substitution of Scope 2 emissions reduction targets by renewable electricity purchase ambitions at 80% of total electricity purchase by 2025, or 100% by 2030. Nevertheless, carbon offsets and avoided emissions must not be counted in the science-based targets.

Ambitions and Criteria for Scope 3 Emissions

Emissions reduction targets are required for Scope 3 when they total 40% or more of the combined Scope 1, 2 and 3 emissions.

Companies must set one or more emissions reduction targets and/or supplier or customer engagement targets, that in total, cover 2/3 (66%) of total Scope 3 mandatory emissions in conformance with GHG protocol Value Chain (Scope 3) Accounting and Reporting Standards.

Companies that sell and distribute natural gas or other fossil fuel products must set Scope 3 targets for the use of sold products, irrespective of the share of these emissions compared to Scope 1, 2 and 3 emissions.

“Entire value chain or individual Scope 3 categories are considered ambitious if they fulfil any of the following:

  • Absolute contraction: Absolute emission reduction targets consistent with the level of decarbonization required to keep the global temperature increase to 2C compared to preindustrial temperatures. This translate into a 1.23% absolute reduction per year. Absolute targets can be expressed in intensity terms based on units that are consistent and representative of companies’ activities.
  • Economic intensity: Targets that result in minimum 7% year-on-year reduction of emissions per unit value-added.
  • Physical intensity: Intensity reductions aligned with relevant sector reduction pathway within the SDA; or targets that don’t result in absolute emission growth and lead to linear annual intensity improvements equivalent to 2%, at a minimum.”

From Science-Based Targets Initiative, 2021

The Financial Sector

Within the SBTi framework, an organisation is considered a financial institution (FI) if 5% or more of the revenues or assets are a result of financial and monetary transactions, including loans, deposits, investments and currency exchange.

FIs are required to undertake GHG emissions inventories according to the GHG Protocol Corporate Accounting and Reporting Standard for the science-based targets. The new SBT guidance for the financial sector, issued in October 2020, outlined the methodology and the criteria to follow according to the asset class.

Depending on the asset class, the FIs may choose among the three applicable methods to set the science-based targets: sectoral decarbonisation approach (SDA) for sectors where the method is available, SBT portfolio coverage or temperature rating method.

The SBTi has created the financial tools for the implementation of SBT portfolio coverage and temperature scoring methods as an open-source format that might be translated into other more user-friendly formats.

Setting Targets Beyond the 2C Emissions Scenarios

The Business Ambition for 1.5C is an initiative created by SBTi and partners, following the latest 2019 IPCC special report on global warming of 1.5C. Participant companies align with trajectories that lead to net-zero value chain emissions by 2050.

The first option of the pledge is to set emissions reduction targets across all GHG Scopes in line with 1.5C emissions scenarios, in the short and medium-term.

The second option allows more flexibility by setting long-term targets to reach net-zero value chain GHG emissions by no later than 2050, alongside the science-based targets. Companies that join the campaign, commit therefore to the SBT validation criteria and recommendations. 

The Journey Considerations

The journey from committing to targets to achieving them in the short, medium or long term, will require an understanding of the business priorities and challenges. The company’s KPIs and emissions reduction targets should contribute to each other’s realisation.

Challenges in the journey could be the data quality, investment planning, timing and growth ambitions, ongoing sustainability initiatives, as well as the ability to track and reduce emissions according to targets.

A business as usual scenario assessment can serve as a baseline for a decarbonisation action plan that would identify specific areas of intervention within an organisation’s value chain.

The marginal abatement cost curve (MAC) is a useful tool in the decision-making process that emphasises the economic cost of emissions abatement metrics ($/tCO2e) with a visualisation of the most significant and cost-effective carbon mitigation actions.

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