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How do you make the internal business case for setting a science-based target?

Posted by Alexander Farsan | 18 August 2016 | Viewpoint

Setting the bar high enough: the case for science-based targets on climate change - Part 4

 

This is the fourth in a series of five articles on science-based targets:
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 5: What should businesses be doing in addition to setting science-based targets?

Convincing boards to adopt stretching environmental targets often requires the presentation of a business case and phased investment plan. Traditionally companies set their ambitions for levels of carbon reductions based on the level of change that is financially attractive – the most compelling investment plan – rather than an understanding of what reductions are necessary. Science-based targets require businesses to rethink this approach.

The question for sustainability teams is usually, “What are the greatest improvements I can realistically achieve within our financial constraints?” With science-based targets the question shifts slightly, with the need to strategically consider, “What plan will deliver the best possible business case for achieving these goals?”

From our experience working with multinational businesses on sustainability strategy and target setting, we recognise that internal teams can often struggle to align environmental improvements with wider business goals, in order to drive action. Agreeing targets out to 2050 can be difficult, especially when even the largest businesses struggle to make plans beyond a ten year horizon.

Indeed, many of the changes in technology, policy and energy markets that will enable businesses to meet science-based carbon targets are outside the control of any individual company. Nevertheless, it is very important to be able to demonstrate that the first few steps towards these targets are achievable, but positive for the business.

For most organisations, a large proportion of their current carbon emissions reduction potential will exist in direct energy use. Understanding and explaining these opportunities is therefore an important prerequisite for getting internal buy-in. The strategic approach to achieving reductions in energy use has also been impacted by the introduction of the new GHG Protocol Scope 2 Guidance last year. This enables companies to transparently account for purchasing renewables and low carbon electricity.

In the short to medium term, most companies can now choose from one of three levers to achieve carbon reductions: driving energy efficiency programmes; purchasing electricity from renewable energy sources; and installing on-site renewables. These levers each have advantages and disadvantages, as illustrated in the table below.

 Capital investment required per tonne of carbon savedComplexity of implementationReduces annual energy cost?
Purchasing electricity from renewable energy sources No Low No
Energy efficiency programmes Medium Medium Yes
Installing on-site renewables High High Yes

Purchasing electricity from renewable sources is relatively easy to do and requires no capital, but generally involves a marginally higher energy cost. Energy efficiency requires capital investment and an implementation programme, but delivers annual energy cost savings. Installing on-site renewables is more complex and requires higher levels of investment, but can enable further reductions to be achieved beyond that of energy efficiency alone.

Combining these three approaches allows the development of an investment programme which balances the strengths and weaknesses of the individual approaches to deliver the carbon savings required by science while providing financial returns. This can be invaluable in securing agreement to set science-based targets.

A further option for organisations looking to build a business case for carbon reductions is the use of an internal carbon price as a tool to influence their decision-making processes. This can help businesses to hedge longer term risks from legislative and regulatory change, such as increases in energy costs, or an external carbon price that might affect capital investments over their lifetimes. It can also be used as a way to fund improvements in energy efficiency, as Microsoft has done through its internal carbon fee.

Although companies may not know how they will reach the final destination, having a detailed map for the first stage of the journey can provide decision-makers with the confidence needed to set out in the first place.

In the final part of this series we consider some limitations to science-based targets, exploring why they are not the only solution large companies need to adopt.

 

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