Science Based Targets (SBT) is a joint initiative by CDP, the UN Global Compact (UNGC), the World Resources Institute (WRI), and WWF to promote and support the business community in developing greenhouse gas emission targets that align with the globalized goal of limiting the warming of the Earth to 2°C compared to pre-industrial temperatures. The intent behind SBT is to evolve the business approach towards carbon goals from an ad-hoc approach to a consistent standard based on a shared global responsibility. The concept of SBT remains in its infancy, but is a trend that I believe will become common best practice in a few short years. Mars and Autodesk have already established SBT and in doing so developed their own methodology (the methodologies will be discussed further on). As of the writing of this reference, 116 companies had pledged to create SBT within the next two years, including sustainability leaders Unilever and Marks & Spenser. The We Mean Business Coalition of 325 companies and 144 investors and counting lists SBT as one of several commitment options to gain admittance. Needless to say, this concept has a sufficient number of advocates to ensure it gains steam in a hurry.
If you've made it here, it is unlikely that I need to outline the urgency that climate change poses for all citizens of this planet. However, WRI developed a great infographic summarizing the global carbon budget concept. As described in greater detail by IPCC and other sources, over half the carbon budget for keeping the planet's temperature within 2°C is already has already been emitted with the remainder on track to be in the next 30 years. It is unrealistic to think we could immediately stop all emissions on 1 January 2045, thus the budget issue requires a non-business as usual approach such as SBT to achieve the IPCC's lowest concentration pathway estimate - the green line representing a temperature increase of between 0.9 and 2.3°C.
Curious how the Paris Climate Agreement that resulted from COP21 changes the equation? Figure 2 demonstrates that the Agreement is a step forward from business-as-usual but will require additional ratcheting with stronger connection to the SBT approach.
As there are plenty of articles discussing the what's and why's, let's dive straight into decoding SBT. The information included below is based largely on the DRAFT Science-based Target Setting Manual prepared by the Science Based Target initiative and released in September 2015. The final version is anticipated in 2016.
What is a science-based target?
A target adopted by a company to reduce GHG emissions in line with the level of decarbonization required to keep global temperature increase well below 2°C compared to pre-industry, as described in the assessment reports of the IPCC.
The Basics of SBT Methodologies
All SBT methodologies are developed by selecting an option within each of the following components: an emissions scenario, a level of disaggregation and an allocation mechanism. The capabilities of each developed methodology will vary based on the options selected (i.e. intensity targets, baseline year flexibility, varied growth compared to sector).
Emission Scenarios: There are three emission scenarios are the currently accepted - IPCC Annual Report (AR) 5, IPCC AR4 and IEA 2DS. Each of these scenarios are built around the 2°C threshold, but differ in base year, target reduction and pathway to achievement.
Level of Disaggregation: The concept here is to assign future global emission limits at greater granularity. Each emission scenario allows for better granularity at the regional and/or sector level. For example the IEA 2DS scenario disaggregates emission limits between nine world regions and five sectors (power, transport, industry, buildings and others). An additional benefit of this granularity is a superior fit to corporate emissions. A power company generates emissions in a vastly different manner than a technology company and thus need different criteria to set realistic SBT.
Allocation Mechanisms: There are three mechanisms to define how to achieve a SBT: convergence, compression or contraction.
- Convergence means a company's carbon intensity will be equal to the sector's target carbon intensity at year 2050. The annualized rate of decrease will depend on the existing intensity of the company. Convergence requires a high level of sector granularity to generate realistic targets.
- Compression means a company's carbon intensity will have an annualized rate of decrease equal to all company's in the same level of disaggregation (i.e. sector / region), regardless of the existing intensity of the company. Companies that have been proactive on emissions will have a more difficult time achieving targets and have lower targets using this approach compared to companies that haven't.
- Contraction means a company's absolute emissions will have an annualized rate of decrease equal to all company's in the same level of disaggregation. This is the same concept as compression except with absolute emissions. Companies that remain in significant growth mode (i.e. resembling the emission curves of developing nations) would find this mechanism a significant challenge to achieve.
Existing SBT Methodologies
The SBT Initiative has identified seven methods that cover the key requirements to be a science-based target and are all free and publicly available. As mentioned, there is currently no universally preferred method as some will work better for certain companies than others. Limitations within each method may mean conglomerates and other companies with diverse operation types may find that using more than one method is necessary to define targets across its entire operation. The seven methods are briefly described below:
Absolute Emissions Compression: The most simplified methodology of the seven with significant flexibility. Any of the three emission scenarios can be applied and the absolute emission contraction allocation mechanism can be setup with a linear, CAGR, or scenario pathway mirrored annualized reduction rate to any future target year. The end result of this methodology is between a 41 and 72% reduction in absolute emissions between 2010 and 2050. However, the simplicity makes this methodology fairly blunt in its implementation and there is no guidance or tools available.
Climate Stabilization Intensity Targets (CSI): This is a customized version of the GEVA methodology created and used by BT. This version uses AR4 emission scenario with a 2007 base year, carbon intensity compression normalized by value added, is limited to operations in developed countries, aggregate scope 1 and 2, and does not cover scope 3. The end result is a 9.6% annualized reduction in carbon intensity through 2050. BT provides guidance on its methodology. No tool or update is anticipated, but given its simplicity, neither is warranted.
Context-based Carbon Metrics (CSO): Another variant of the GEVA methodology. This one was developed by Mark McElroy for Ben & Jerry's target in 2006. Any of emission scenarios can be applied to the carbon intensity compression allocation normalized by value added. The end result is an annualized reduction rates based on the user defined variables (i.e. emission scenario, base year, and target year, level of disaggregation) for scope 1 and 2 with scope 3 optional. The Center for Sustainable Organizations (CSO) provides guidance updates and a tool for the methodology.
Corporate Finance Approach to Climate-stabilizing Targets (C-FACT): Created by Autodesk in 2009 as another variant on GEVA, this methodology utilizes the AR4 emission scenario, contraction of absolute emissions at 80% and 50% between 2007 and 2050 for developed and developing countries, respectively, and covers scopes 1, 2 and 3. Although targets are based on absolute emissions, the methodology presents the targets as carbon intensities using value added based on company input growth projections. Note that company growth projections higher than that of the defined sector or region will have no impact on the target. Autodesk provides guidance and a tool upon request.
Greenhouse Gas Emissions per Value Added (GEVA): A flexible methodology utilizing AR4 and compression of carbon intensity normalized by value added. The end result will depend on user defined economic growth scenario (a default is provided), base year, target year, and level of disaggregation. A description of the methodology by the creator, Jørgen Randers, is available, but only covers scope 1 and no tools are available. GEVA is recommended as a jumping off point to create a custom variant; otherwise, using one of the existing variants with an existing tool is recommended.
Sectoral Decarbonization Approach (SDA): The most recently created methodology as well as the most complex, this one uses the IEA 2DS scenario and two different allocation models, 1) carbon intensity convergence for homogeneous sectors like buildings or power generation, and 2) absolute emission contraction (presented as an intensity a la C-FACT) for heterogeneous sectors. Scopes 1, 2 and 3 are covered although scope 3 is largely unsupported at the present time. Unlike the other six methodologies, users will need to input additional information between emissions and growth such as square footage of owned buildings. More diverse companies will likely utilize both allocation method to properly represent the entire company. The collaboration of authors (CDP, WRI, WWF, Ecofys) continue to develop this methodology a tool and guidance covering the current version. By far and away the most comprehensive methodology.
3% Solution: A simple absolute scope 1 and 2 emissions contraction model developed for the US Government's 2020 reduction target. The methodology is limited to companies and emissions in the US only and excludes utility companies. The end result is an annualized reduction rate through 2020 based on which of 11 sectors your company is. The annualized 3.2% reduction as a whole for the US is divided between the sectors based on what can be profitably reduced. Limited documentation is available due to the proprietary nature of the McKinsey and Company model and a simple tool is available. An update for post-2020 is envisaged, but not yet scheduled.
Great, but which one should my company use?
Good question. The following chart provides a quick view of the strengths and weakness of each and an example of a well known company that would be suitable to use it.