Companies cannot keep shying away from setting tough climate targets

Only a handful of companies are setting emission reduction targets in line with what climate scientists say is necessary – that must change.

Today the low carbon economy is worth over £3tn. This fact is just one of many showing how far the business case for addressing climate change has come, with smart businesses broadening their strategy beyond risk management to value creation. Business leaders who shared their vision of a low-carbon future in Paris this week echoed this sentiment, calling on governments to lock in the right frameworks and targets to help deliver this goal.

Yet, despite the emphasis on government target setting, the goals that come from businesses are just as important. Balancing near-term targets with longer-term climate risks is one of the most complex risk management challenges facing company executives today. Businesses increasingly recognise that emissions reductions will need to be ambitious, because going over the 2C warming limit is not a viable economic option.

The good news is that many companies are already setting themselves greenhouse gas reduction goals. In 2014 over 80% of the world’s 500 largest companies reported having an emissions reduction target. But in this critical year for climate action, it is no longer sufficient to set just any target.

For companies, figuring out how much greenhouse gas emissions they can continue to release is one of the biggest hurdles to framing their long term goals. Our analysis of 70 energy intensive companies shows that a small handful are leading the way by setting ambitious and long term emission reduction targets in line with climate science. However, most are not and the majority of targets reported through CDP tend not to extend beyond 2020, suggesting a lack of long-term strategy to stay within the global carbon budget.

Rather than focusing on the inadequacy of most corporate climate targets, however, we need to better understand how we can help companies raise the bar in this critical area of climate action.

To do this, we need to look at how companies set emissions reduction goals. This varies from sector to sector, but factors such as economic feasibility, compliance with current or expected regulation and stakeholder expectations all play a part. And while many companies are embedding sustainability into their business strategy, few in the corporate world have the expertise in aligning their goals with science. Those who shoulder the responsibility for setting these goals may be a mix of sustainability officers, accounting departments and management. It is not guaranteed that many, or any, of these individuals are greenhouse gas experts.

Companies shouldn’t have to do this alone. As we have discovered at the Science Based Targets initiative – a collaboration between CDP, the UN Global Compact, WRI and WWF – it takes a lot of collaboration to develop a greenhouse gas reduction target or methodology.

French multinational L’Oréal, which aims to cut its absolute emissions by 60% from 2005 levels by 2020, spent two years developing its targets and consulted with several hundred organisations in the process. Enel, Italy’s largest power company and Europe’s second largest listed utility by installed capacity, announced this year together with Greenpeace its “shared view” of an energy system largely based on renewable sources. The company aims to be carbon neutral before 2050, putting it firmly in alignment with climate science. Crucially, both of these companies see these ambitious goals as helping to create resilience and add value to their business in the long term.

Those in the most energy intensive sectors have the greatest potential for making emissions reductions. The new tool developed by the Science Based Targets initiative, together with technical support from consultancy firm Ecofys and an advisory committee including BT, Diageo and Mars, aims to help businesses in the most energy intensive sectors set meaningful targets. This methodology, called the Sectoral Decarbonization Approach, balances the level of ambition needed against the economic realities of operating in that sector. It also covers over 60% of current global greenhouse gas emissions and nearly 90% of the remaining carbon budget up to 2050.

However, this is by no means a one-size-fits-all solution or a finished task. Companies should consider a wide range of methods and tools to choose the target that is right for both their business and the planet. What is critical is that they start to figure this out now. We will all benefit from new knowledge and understanding of this developing area as more businesses adopt science-based targets. As the UN climate chief Christiana Figueres notes: “Everybody has the obligation now to find out where they are going to be 50 years from now… We have run out of time to be asking the other person to come forward first.”

This post by Pedro Faria, technical director at CDP, originally appeared on The Guardian.