The Case for Science Based Targets: Why They Will Future-Proof Your ESG Program

In 2018, the IPPC warned that global warming must not exceed 1.5 degrees to avoid catastrophic impacts of climate change. Countries, states, and cities are committing to dropping to net-zero emissions by 2050 in an attempt to curb these potential devastating impacts. The private sector plays a critical role in this transition. The CDP, United National Global Compact, World Resources Institute, and the World Wide Fund for Nature (WWF) partnered to develop a Science Based Target initiative to help companies set reduction targets aligned with the science- by sector.  

What are science-based targets? 

Science-based targets are greenhouse gas reduction goals that organizations can set to demonstrate their commitment to fighting climate change. To qualify as a science-based target, the goal must be verified by the Science Based Targets Initiative (SBTi) as reducing the organization’s emissions at a level that aligns with the Paris Agreement goals (i.e. limiting global warming to “well-below” 2°C above pre-industrial levels, and ideally 1.5° or less). 

How does an organization set a science-based target?  

Organizations follow a high-level framework for setting, disclosing, and tracking science-based emissions targets. As noted, one key point to qualify as “science-based,” the reduction target must pass third-party validation with the SBTi. 

The high-level steps to setting a Science Based Targets initiative (SBTi) are as follows: 

  1. Commit: Submit a letter establishing your intent to set a science-based target
  2. Develop: Work on an emissions reduction target in line with the SBTi’s criteria
  3. Submit: Present your target to the SBTi for official validation
  4. Communicate: Announce your target and inform your stakeholders
  5. Disclose: Report company-wide emissions and track target progress annually

All methods for developing a science-based target consist of three components: a carbon budget, an emissions scenario, and an allocation approach.

  • Carbon budget: The premise that there is only so much carbon that can be emitted while staying within the 2-degree Celsius limit stipulated by the Paris Agreement. 
  • Emissions scenario: A model that predicts levels of carbon emitted over time. 
  • Allocation approach: A method for divvying up carbon emissions among companies to stay within the carbon budget. Various allocation approaches may or may not take into account company sectors and global regions. 

What are the benefits of setting science-based targets? 

Over the next 20 years, we must significantly transform our markets. Organizations must do their part to lessen the severity of the catastrophic climate-related events to occur. In the shorter term, there are many other potential benefits to your organization, as follows: 

Demonstrate indisputable leadership on climate change 

Consumers and investors are increasingly ESG-conscious, and science-based targets are the most definitive signal to the market that an ESG commitment is genuine, meaningful, and impactful. Accordingly, they can help organizations avoid accusations of “greenwashing.” The fact that targets must be validated by the third-party SBTi enhances their trustworthiness and credibility. Moreover, organizations that set science-based targets are highlighted publicly by the SBTi, CDP, and the UN Global Compact, contributing further positive sentiment. 

Guard against future regulation 

Momentum in the market indicates that building efficiency standards will only become more stringent, not less. Additionally, there is growing traction for a single, mandatory ESG disclosure in the United States. Organizations that set science-based targets will be well-prepared for increasing compliance and disclosure requirements. 

Differentiate from your competitors 

Many institutions have issued public ESG targets or receive annual ESG scores. ESG as a business practice is becoming table stakes, and there are numerous different ESG frameworks and certifications organizations can report to, creating market confusion. Science-based targets are simple and easy to understand, meaning that ESG-conscious investors, stakeholders, and occupiers can rely on them as a quick shortcut in decision-making. Unsurprisingly, they are gaining popularity across global institutions and Fortune 500s. 

Save energy and grow asset value 

At the end of the day, reducing energy is good for the planet and improves the bottom line. Reductions in energy consumption lead to OpEx savings, and OpEx savings translate into increases in NOI and asset value.

Key points to consider as you think about setting a science-based target for your organization

To help your organization prepare for setting a science-based target, there are a few key points and requirements to consider:

  • The process for target-setting depends on an organization’s sector. The SBTi provides sector-specific guidance. 
  • Targets must cover a minimum of 5 years and a maximum of 15 years from the date the target is submitted for approval.
  • Companies must set a base year for which they have verifiable Scope 1, 2, and 3 emissions data, which is consistent with the company’s typical level of emissions. In the absence of a “typical” year of data, the SBTi recommends averaging emissions across several years.
  • Companies must align with the GHG protocol inventory boundary to determine the organizational boundaries/population of emissions they need to consider. 
  • Carbon offsets can not be counted as reductions towards achieving science-based targets. 

What are some challenges to expect? 

Getting People on Board

Demonstrating how science informs the target and links back to global climate change is the challenge and the solution. By demonstrating this link, it can be much easier to get buy-in from the top down. This explanation, alongside an outline of potential risks to your business if no action is taken- followed by your renewed commitment to action may also drive further action. It is always a tricky balance to paint a realistic picture and also inspire change. 

Collecting the Data: Scope 3 Emissions

To set an SBT, companies must be able to collect and reliably report on their Scope 1, 2, and 3 emissions. While Scope 1 and 2 emissions may be relatively straightforward, reducing emissions in a company’s value chain is more challenging. Also known as Scope 3 emissions, these emissions are produced by buildings managed by tenants and suppliers during the procurement of products and services. Building owners may not have access to this data or much influence or control over reducing the associated emissions. Therefore, owners and managers must work with suppliers and tenants to collect this data and identify opportunities and incentives for collaboration.

Ensuring the Data are Reliable

The more accurate and complete your data is, leaves less room for error and a better goal. If the data is inaccurate to start with, you may not set the most ambitious or achievable goal. This may lead you to revise it each year, and not only is this a headache, but it may also cause reputational questions. 

Final Thoughts:  

While the process of setting a Science Based Target may seem a bit daunting at first, understanding the key requirements and potential challenges up front will set you up for success. Planning is essential and will pay off in the long term. Make sure to check out the free resources and sector guidance on the SBTi’s website to help you along the way!