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Setting yourself up for failure? The challenges of environmental target setting

Posted by Guy Rickard | 23 October 2014 | Viewpoint

 

Business reporting - green graph

Guy Rickard of the Carbon Trust explains why having an agreed business case is crucial to setting short-term environmental targets.

 

Companies often set targets for memorable milestones and landmark years, such as 2015 or 2020, as this makes it easier to communicate and refer to them. In 2015 there are 17 companies in the FTSE 100 that will be held to account for meeting the targets that they themselves publicly set for reducing greenhouse gas emissions.

Setting ambitious but realistic corporate targets is recognised as a key part of developing business strategy for success. But deciding on environmental targets is a different sort of challenge to setting financial ones. One issue is that businesses simply have far less experience in working out how to get these targets right. Another major challenge is that sustainability goals tend to be set from within a part of the company with limited resources and authority to achieve them, often having to take a back seat to the needs or wants of revenue-generating business units. Some businesses have come in for criticism recently from NGOs for not reaching their own sustainability goals, such as 3M, Walmart and Disney. Some would say it is better to shoot for the stars and reach the moon, than not to try at all. In fact a third of the FTSE100 have no public carbon reductions targets whatsoever, despite the fact that they are now legally required to report on greenhouse gas emissions. But how can you set a meaningful and stretching target, at the same time as ensuring that it is achievable within a specific timescale?

As 2015 approaches, we will see some companies celebrating their successes, others desperately struggling to grasp at targets outside their reach, and others being challenged that the targets they have achieved were just not stretching enough. All of these companies will have to consider how to best set their next set of targets for the future.

Frameworks for target setting

When taking a comprehensive approach to target setting, businesses need to look at the short, medium and long-term and take a different approach for each one.

  Long-term Medium–term Short-term
Timeframe 2050 2030 2020

Ease of measuring progress

Low Low High

Reliance on current technology

Low Medium High

Approach to meet target

Define company sustainability vision, future business model, science- based target setting Strategy for environmental resource reduction
Benefits Reputation, risk mitigation, driving innovation Reputation and cost savings

 

Looking to the future

Medium and long-term targets are markedly different to short-terms targets. They enable a company to demonstrate commitment to evolution, transformation and longevity as a sustainable, responsible business. They can consider how a business model will need to change to adapt to a sustainable, low carbon economy. One of the best examples of companies taking this approach is through science-based target setting. The Carbon Trust sits on the Technical Advisory Group for a target setting methodology that does exactly this, which is being led by a partnership of CDP, UN Global Compact, WRI and WWF. This will provide a way for companies to demonstrate that they are aligned with the emissions reduction trajectory required to limit global warming to no more than two degrees.

This science-based approach allows today’s higher impact industries to imagine their place in a carbon-constrained world. The challenge is that the pathway is unclear on how to meet these targets and be a successful business. Many of the business processes and technologies are still in their infancy or adolescence. For examples, LEGO have a target to make all their products from sustainable materials by 2030, but the sustainable alternatives to plastics that they will need do not exist today.

Tomorrow’s problems, today

Although there are reputational and risk mitigation benefits to setting medium and long-term targets, which can help to inspire innovation and build foundations for future success, these can feel quite abstract in the fast-paced business world. Although they set the direction, they do not always take businesses that far along the road.

When it comes to short-term targets, however, a different set of drivers come into play. Progress against these targets can be measured much more easily, and the individuals responsible for setting them may still be in the same role when the target end date is reached and have to deal with actual consequences of missing them.

The timescales do not allow enough time for a ‘silver bullet’ which will enable the targets to be reached in a new, easier way. They will have to be met using the options and technology available today. It is therefore important to increase confidence in achieving these targets.

Investment plans are key

One reason that companies fail to meet targets is a failure to make a solid business case and follow through with the actions. Another is that they have struggled to overcome the organisational challenges whereby targets are owned by the sustainability team, and budget for reduction initiatives is owned by operational teams.

The Carbon Trust works with companies across a range of sectors, including AXA Group and Stagecoach, to help them set meaningful short-term targets. Experience has shown that the best way to understand and achieve targets comes from developing at the same time an associated environmental resources strategy with a strong business case. Before committing to those targets it is crucial to give the rest of the business the confidence to include environmental resource reduction plans in business planning and investment cycles.

Assuming that a company has a robust reporting system in place to measure progress, successful companies can reduce the risk involved in setting stretching but realistic targets by including the following aspects in their short term target-setting:

  • An understanding of how business growth will impact environmental impact
  • A set of costed reduction measures using current technology identified through technical site audits
  • Modelling to understand the overall impact of business growth and reduction measures on the business, both from an environmental and cost perspective
  • Benchmarking against competitors to put proposed targets in context
  • Engagement with stakeholders to explain proposed reduction measures and get their input on what is practical

These elements combine to create a well-considered business case to support targets that can be brought to the board or key financial decision makers. This is particularly appealing to people within companies with responsibility for business strategy. Having access to a robust environmental and cost model with an associated plan of action can help manage down the cost of making ongoing progress, providing a framework for looking at different future scenarios.

Investment plans are key – if the investment is in the business plan, it will be expected to happen. With this comes a dramatic increase in confidence that the reduction measures will be implemented and the targets will be achieved. And that means that you won’t be setting yourself up for failure.

 

Read more about how our sustainability services help companies turn good environmental performance into competitive advantage.

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