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.
Although science-based targets can work for organisations of any size in principle, in practice it is expected that only businesses of a significant size will set them. They are complex to set and implement, requiring the sort of knowledge, skills and forward planning capability that typically only exists in larger corporates.
Even if there were universal adoption of science-based targets by large corporates, we would not get anywhere near the levels of emissions reductions required across the whole economy. In the UK, almost half of private sector turnover comes from small and medium-sized enterprises, providing 60 percent of private sector employment. In other countries – especially in the developing world – this proportion can be far greater.
It is important to recognise that for most businesses, the overwhelming majority of the greenhouse gas emissions associated with their products or services 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, it is by no means the highest impact way that most businesses can take action 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% 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 August 2018, a total of 454 companies had committed to science based targets, but only 124 of these had submitted and had their targets approved by the SBTi – little over a quarter. Over 190 of the companies without approved targets had been committed for over a year.
From our own experience at the Carbon Trust, 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 acceptable targets for reducing these emissions that were considered to be suitably ambitious.
These value chain targets are generally 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.
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. Armed with these insights, a company can then start to consider how it could frame a target that is not only ambitious but also where progress can be meaningfully tracked in the future.
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 typical approach. Most companies with approved targets have looked to align to the alternative criteria set by the SBTi.
For some, this involves setting ambitious targets that – at a minimum – do not result in absolute emissions growth alongside economic growth. Others 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 procure goods and services from large corporates that could also implement their own science-based targets. However, this combination is comparatively rare, so many companies will have to grapple with what ambitious really means for them.
To have a scope 3 target recognised by the SBTi as being ambitious, companies need to prove that it will deliver absolute reductions, regardless of how it is worded. This involves making a clear, unambiguous commitment to decouple business growth from growth in emissions. This can involve the use of intensity targets, or product-related targets, but it is important show that the target should in all cases achieve an overall scope 3 reduction.
Successfully approved scope 3 targets are frequently phrased in very simple terms. But achieving this simplicity can be struggle for companies working on a wide range of reduction activities and engagement actions across their value chain.
It is important here 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 both, and assist with demonstrating progress against the target. It also may identify crossovers and gaps in action.
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 low carbon economy. Without collaborative and inclusive action on mitigation, we will fall well short of our global climate ambitions.