Science based targets initiative

What Is the Science Based Targets Initiative?

The Science Based Targets initiative (SBTi) is a global collaboration that empowers companies and financial institutions to set ambitious Greenhouse Gas Emissions reduction targets in line with the latest climate science. It falls under the broader umbrella of Sustainable Finance and Corporate Sustainability, providing a framework for businesses to contribute to limiting global warming. The Science Based Targets initiative aims to drive Decarbonization in the private sector by ensuring corporate climate action is consistent with the goals of the Paris Agreement, which seeks to keep global temperature rise well below 2°C above pre-industrial levels, and ideally to 1.5°C. By adhering to the Science Based Targets initiative's rigorous standards, companies demonstrate their commitment to measurable and impactful climate action, which can also inform their broader Environmental, Social, and Governance (ESG) strategies.

History and Origin

The Science Based Targets initiative was established in 2015 as a collaborative effort by four key organizations: CDP (formerly the Carbon Disclosure Project), the United Nations Global Compact, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). T¹⁵, ¹⁶his partnership emerged from a recognized need to provide companies with a clear, scientifically grounded pathway to reduce their carbon emissions, moving beyond general commitments to specific, measurable targets. The formation coincided with the lead-up to the Paris Agreement, providing a practical mechanism for businesses to align their strategies with global climate goals. I¹³, ¹⁴ts inception marked a significant step in mobilizing the private sector to address Climate Change by offering a credible standard for corporate climate ambition.

¹²## Key Takeaways

• The Science Based Targets initiative (SBTi) helps companies set greenhouse gas emission reduction targets aligned with climate science.
• Targets are considered "science-based" if they are consistent with what is needed to limit global warming to 1.5°C or well-below 2°C, as per the Paris Agreement.
• The SBTi provides standards, tools, and guidance for companies to develop and validate their targets.
• Over 7,000 businesses globally have set or committed to set science-based targets through the SBTi.
• ¹¹ Adopting science-based targets can enhance a company's reputation, drive innovation, and improve competitiveness in a low-carbon economy.

##¹⁰ Formula and Calculation

The Science Based Targets initiative (SBTi) does not provide a single universal formula for companies to calculate their targets. Instead, it offers methodologies, tools, and guidance that companies use to determine their specific emission reduction pathways based on their sector, scale, and the emissions they generate (Scope 1, 2, and 3 Greenhouse Gas Emissions).

Companies typically follow a process that involves:

1. Defining the base year emissions: This involves calculating the company's historical Carbon Footprint for a chosen base year. This often aligns with the Greenhouse Gas Protocol's accounting standards.
2. Selecting a target year and ambition level: Companies commit to a target year (e.g., 5-15 years out for near-term targets) and an ambition level (e.g., 1.5°C or well-below 2°C).
3. Applying a target-setting method: The SBTi provides various methods, such as the Absolute Contraction Approach (ACA), Sectoral Decarbonization Approach (SDA), or the GHG-Emissions per unit of economic value added approach. These methods translate global carbon budgets into company-specific reduction requirements.
4. Calculating the reduction target: Based on the chosen method and ambition, a quantifiable percentage or absolute reduction target is calculated for Scope 1 and 2 emissions (direct and energy-related indirect emissions), and often for significant Scope 3 emissions (value chain emissions).

For example, a common approach for Scope 1 and 2 targets might involve a linear or compound annual reduction:

Annual Reduction Rate = (\frac{\text{Target Emission Level}}{\text{Base Year Emission Level}}^{\frac{1}{\text{Number of Years}}} - 1)

The SBTi provides detailed technical guidance and tools on its website to assist companies in these calculations, ensuring alignment with climate science.

Interpreting the Science Based Targets Initiative

Interpreting the Science Based Targets initiative involves understanding that it provides a critical benchmark for corporate environmental performance. When a company announces its targets are "SBTi-validated," it means these targets have been rigorously assessed against strict scientific criteria, confirming they align with the global effort to limit warming to 1.5°C or well-below 2°C. This va⁹lidation indicates a significant level of Corporate Responsibility and strategic commitment to sustainability.

For investors, a company's engagement with the Science Based Targets initiative can signal robust Corporate Governance and a proactive approach to managing Financial Risk associated with climate change and future regulations. It also suggests that the company is integrating climate considerations into its long-term business strategy, which can be a positive indicator for sustainable Investment Strategy. The validation process ensures a level of credibility and transparency often lacking in voluntary corporate environmental commitments.

Hypothetical Example

Consider "GreenTech Solutions Inc.," a hypothetical software company. GreenTech wants to set a science-based target to reduce its Carbon Footprint.

Scenario:

• Base Year (2023) Scope 1 & 2 Emissions: 5,000 metric tons of CO2 equivalent (tCO2e)
• Target Year: 2030
• Ambition: 1.5°C alignment

Steps taken by GreenTech Solutions Inc.:

1. Data Collection: GreenTech gathers comprehensive data on its electricity consumption (Scope 2) and direct emissions from company vehicles and facilities (Scope 1).
2. SBTi Guidance Application: Using the SBTi's Corporate Net-Zero Standard and associated tools, GreenTech applies a specific methodology, such as the Absolute Contraction Approach (ACA), which requires a percentage reduction consistent with 1.5°C pathways. Let's assume the SBTi guidance for their sector and ambition level mandates a 42% absolute reduction in Scope 1 and 2 emissions by 2030 from a 2023 base year.
3. Target Calculation:
   • Required reduction = 5,000 tCO2e * 42% = 2,100 tCO2e
   • Target 2030 emissions = 5,000 tCO2e - 2,100 tCO2e = 2,900 tCO2e

GreenTech Solutions Inc. would then commit to reducing its Scope 1 and 2 emissions from 5,000 tCO2e in 2023 to 2,900 tCO2e by 2030. To achieve this, GreenTech might invest in Renewable Energy for its offices, optimize its data centers for energy efficiency, and transition its company fleet to electric vehicles. This specific, measurable target allows GreenTech to track progress and demonstrate its commitment to climate action to Stakeholder Engagement.

Practical Applications

The Science Based Targets initiative (SBTi) plays a crucial role across various facets of business and finance:

• Corporate Strategy and Planning: Companies use SBTi guidance to integrate climate action directly into their long-term business strategies, driving internal Decarbonization efforts. This includes investments in energy efficiency, shifting to Renewable Energy sources, and optimizing manufacturing processes.
• Sustainability Reporting and Disclosure: Adherence to SBTi standards enhances the credibility of a company's environmental Disclosure to investors, regulators, and the public. It provides a standardized and verifiable metric for progress on climate goals.
• Supply Chain Engagement: Many companies with validated targets extend their efforts to their Supply Chain by encouraging suppliers to also set science-based targets, addressing significant Scope 3 emissions. This fosters a ripple effect of climate action throughout value chains.
• Investor Relations and Capital Allocation: Investors increasingly use SBTi commitments as a criterion for evaluating companies, viewing them as indicators of forward-thinking management and reduced climate-related Financial Risk. Financial institutions themselves are also setting SBTi-validated targets for their lending and investment portfolios.
• Pol⁸icy Influence: The growing adoption of science-based targets by businesses can influence government policy and regulation, demonstrating the private sector's capacity and willingness to contribute to national and international climate goals.

Limitations and Criticisms

While widely recognized as a leading framework for corporate climate action, the Science Based Targets initiative (SBTi) has faced certain limitations and criticisms. One significant area of debate revolves around the use of carbon offsets, particularly for Scope 3 emissions. In April 2024, the SBTi Board of Trustees announced a decision to allow the use of "Environmental Attribute Certificates," including carbon credits, to abate Scope 3 emissions, which are often the largest and most challenging category of emissions for companies. This decision drew considerable backlash from some staff members, climate experts, and advocacy groups, who argued that it could undermine the initiative's scientific integrity and lead to "greenwashing," where companies might buy credits instead of directly reducing their Supply Chain emissions. Critics s⁶, ⁷tated that this approach might not incentivize genuine Decarbonization and could allow companies to appear to improve their Carbon Footprint without tangible reductions in their operations.

Another ⁵criticism suggests that the SBTi's methodology, while robust, implicitly allocates the world's remaining carbon budget primarily to incumbent companies, potentially leaving less room for new entrants. Some obse⁴rvers also note that while science-based targets are a powerful tool for initiating climate commitments, they might not always push leading companies to the absolute maximum level of ambition required, especially if widespread adoption by all companies lags. Additiona³lly, challenges in data collection and accuracy for complex Scope 3 Greenhouse Gas Emissions can present hurdles for companies in setting and achieving truly comprehensive targets.

Science Based Targets Initiative vs. Net-Zero Targets

While closely related, "Science Based Targets Initiative" (SBTi) and "Net-Zero Targets" represent distinct but often interconnected concepts in corporate climate action.

The Science Based Targets initiative is the organization and framework that defines and promotes best practices for setting emissions reduction targets aligned with climate science. It validates these targets to ensure they are consistent with limiting global warming to 1.5°C or well-below 2°C. The SBTi provides the methodology and stamp of approval for targets, which can be both short-term (e.g., 5-15 years out) and long-term.

Net-Zero Targets, on the other hand, are the specific long-term goals that companies set to achieve a state where any remaining Greenhouse Gas Emissions released into the atmosphere are balanced by an equivalent amount removed. The SBTi developed the world's first Corporate Net-Zero Standard in 2021, providing a framework for companies to set credible net-zero targets that are also considered "science-based." Therefore, ¹, ²while a company might have a net-zero target, for it to be considered scientifically credible and aligned with global climate goals, it ideally should be validated by the Science Based Targets initiative framework. In essence, the SBTi is the validator and standard-setter, while net-zero targets are a type of ambitious, long-term climate goal that the SBTi helps companies achieve.

FAQs

What does "science-based" mean in this context?

"Science-based" means that a company's emissions reduction targets are in line with what the latest climate science indicates is necessary to limit global warming to 1.5°C or well below 2°C above pre-industrial levels, as outlined in the Paris Agreement. These targets provide a clear pathway for companies to reduce their Greenhouse Gas Emissions in line with global climate goals.

What are Scope 1, 2, and 3 emissions?

• Scope 1 emissions: Direct emissions from sources owned or controlled by the company (e.g., emissions from company vehicles or owned facilities).
• Scope 2 emissions: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the company.
• Scope 3 emissions: All other indirect emissions that occur in a company's value chain, both upstream and downstream (e.g., emissions from purchased goods and services, business travel, employee commuting, waste disposal, and the use of sold products). Measuring and reducing Carbon Footprint across all scopes is crucial for comprehensive climate action.

Is setting a science-based target mandatory?

Setting a science-based target is currently voluntary for companies. However, a growing number of investors, customers, and regulatory bodies are encouraging or expecting companies to set such targets as part of their Corporate Responsibility and overall Sustainability Reporting efforts.

How does the SBTi ensure targets are credible?

The Science Based Targets initiative provides a rigorous target validation service through its subsidiary, SBTi Services. Companies submit their proposed targets, which are then independently assessed against the SBTi's comprehensive criteria, methodologies, and sector-specific guidance. This independent validation process ensures that the targets are aligned with the latest climate science and contribute meaningfully to global Decarbonization efforts.