While we should rightly recognise the ambition of companies setting science-based targets, if we are going to meet our goals on climate change we will need broader and bolder ambition from businesses, beyond mitigating their own emissions.
Science-based targets can work for organisations of any size in principle, although in practice businesses of a significant size have been more likely to set them. They can be complex to set and implement, requiring the sort of knowledge, skills and forward planning capability that more typically exist in larger corporates.
However, even if there were universal adoption of science-based targets by large corporates, we would not get anywhere near the necessary global emissions reductions required to tackle climate change, given that SMEs make up the majority of businesses and account for over half of employment worldwide.
It is important to recognise that for most companies, the overwhelming majority of the greenhouse gas emissions associated with their business model are outside of their direct operational control. There are only a few sectors where this may not be the case, such as agriculture, electricity generation, cement, or some services businesses.
Although science-based targets can drive very high levels of emissions reductions from direct operations, they are by no means the highest impact way that most businesses can act on climate change. It is for this reason that, in order to sign up to the Science Based Targets initiative (SBTi), additional commitments are required.
Organisations with value chain (Scope 3) emissions that make up more than 40 per cent of their total emissions – which will also include direct emissions (Scope 1) and indirect emissions from purchased electricity, heat and steam (Scope 2) – are required to set ambitious value chain targets in addition to their science-based target for this to be recognised by the SBTi.
As of March 2020, a total of 841 companies had committed to science-based targets, but only 348 of these had had their targets approved by the SBTi – around 40 per cent. Of the companies without approved targets, 199 had been committed for over a year.
From our own experience, we know there also are many other companies who are working hard to finalise their targets before committing. Given the backlog in companies that are keen to set targets and the number that are actually approved, is it worth asking why there is such a large gap?
Based on targets that were submitted for validation to the SBTi in 2017, 64% of those that failed were due to issues with their additional Scope 3 targets. In particular, companies seeking validation had often not consistently completed a full screening of their end-to-end value chain impact. Many also had difficulty setting suitably ambitious targets for reducing these emissions.
These value chain targets are often a sticking point for companies. It can be an area where they either do not have good visibility and data on their impacts, or aren’t sure how to translate their ambitions into credible targets. Also, it may be the first time a company has looked to extend sustainability to its supply chain.
Identifying your hot spots
A key point for companies seeking to overcome this is to remember is that you can’t manage what you don’t measure. Knowing where the most material impacts exist across a value chain, companies are able to put in place strategies to mitigate them appropriately. There are simple approaches available to perform an initial screening of Scope 3 emissions across different categories, which typically use spend data to give a high-level estimate of emissions.
These simple tools help to provide insight into where hotspots of Scope 3 impact will exist, but may not give information that is specifically useful for an organisation. Calculations based on generic spend data do not provide an especially accurate measurement.
It is, therefore, important for companies to go beyond this and perform deep dives into their identified hotspots, which can provide a business with valuable insights into its supply chain and customers. A pragmatic approach should be taken that balances effort with the value of insights to be gained. Armed with these insights, a company can then start to consider how it could frame a target that is not only ambitious and can be meaningfully tracked in the future, but is also aligned to where the company has influence on decision-making.
While some companies have chosen to set absolute Scope 3 targets, which are fully aligned with below 2°C reductions on a science-based trajectory outside of their organisation, this is not the only approach. Many companies with approved targets have looked to align to the alternative criteria set by the SBTi.
For some, this involves setting ambitious intensity targets that, at a minimum, do not result in absolute emissions growth. To have a Scope 3 reduction target recognised as ambitious by the SBTi, there must be a clear, unambiguous commitment to decouple business growth from growth in emissions. However, this is structured, it is crucial to show that the target should achieve an overall Scope 3 reduction.
Engaging key stakeholders
An alternative to reduction targets for Scope 3 is to look at engagement targets, where science-based targets are cascaded along the supply chain to a significant proportion of suppliers.
Engagement-focused targets are a good solution for companies that both have significant purchasing power, and predominately procure goods and services from large corporates that could also implement their own science-based targets. However, this combination is comparatively rare, or may only be applicable to a portion of procurement, so may often need to be supplemented by a reduction target to meet the two thirds threshold requirement.
Successfully approved Scope 3 targets are frequently phrased in very simple terms. But achieving this simplicity can be a struggle for companies working on a wide range of reduction activities and engagement actions across their value chain.
It is important to try and incorporate the full impact of these initiatives in the target setting process, weaving together supply chain and customer engagement into a single cohesive narrative. Having this clarity of purpose also serves to illustrate a company’s ambition to external stakeholders and assists with demonstrating progress against the target. The exercise of bringing together sustainability actions from across the company can help to identify new opportunities for internal collaboration under the umbrella of meeting the goals set out by a value chain target.
Without the addition of an ambitious Scope 3 target, even a company achieving reductions in line with its science-based target may not considered to be taking enough action on climate change. We will need leading companies to bring their suppliers and customers along with them in the journey towards a net zero economy. Without collaborative and inclusive action on mitigation, we will fall well short of our global climate ambitions.
This is the fifth and final article in a series of five articles on science-based targets, first published in 2016 and updated with the latest developments:
Part 1: Why do we need to set science-based targets on climate change?
Part 2: What exactly is a science-based target?
Part 3: Why should a company set a science-based target?
Part 4: How do you make the internal business case to set a science-based target?
Part 5: How does setting a science based target fit in with your wider sustainability strategy?