Understand the methods for science-based climate action

With renewed focus on the Paris Agreement after the United States re-joined, companies are working harder than ever to reduce their CO2 emissions in line with the agreement. Already, more than 1,200 companies have committed to cut their carbon footprints through the Science Based Targets initiative (SBTi) and 593 have had their targets approved.

The SBTi has one goal: to reduce global greenhouse gas emissions.

The world relies on science-based targets because they work. The SBTi, a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), is making this common practice and is by far the gold standard for defining the pathway to reduce corporate greenhouse gas (GHG) emissions.

The SBTi has spent years defining corporate best-practice in science-based target setting. It continually updates the framework to incorporate lessons learned and adhere to what the latest climate science says is necessary to meet the goals of the Paris Climate Agreement – limiting global warming to 1.5°C above pre-industrial levels or well-below 2°C.

Are science-based targets advancing corporate climate action?

A new progress report from the SBTi showed the process is working – the typical company with science-based targets has reduced its direct (scope 1 and 2) emissions at a linear rate of 6.4% per year, exceeding the 4.2% rate needed to limit warming to 1.5°C, according to pathways derived from climate scenarios. Recent analysis of 338 companies with approved science-based targets found they have reduced their combined emissions by 25% since 2015 (a reduction of 302 million metric tonnes of CO2 equivalent, the same as the annual emissions from 78 coal-fired power plants).

To set science-based targets, companies must follow a rigorous process to develop an emissions reduction target in line with the SBTi’s criteria and submit the target for validation. The science around greenhouse gas emissions is always improving and the SBTi’s methodology follows suit – Version 4.1 of its Criteria and Recommendations and Target Validation Protocol were published in April 2020 and new versions are in the works.

Which science-based targets methods are eligible through the SBTi?

There are currently two open-source, freely available, target-setting methods used by the Science Based Targets initiative designed to assess corporate emission reduction targets:

• The Absolute Contraction Approach (ACA) is a one-size-fits-all method that ensures that companies setting targets deliver absolute emissions reductions in line with global decarbonization pathways. This is the approach the vast majority of companies setting science-based targets choose. And two-thirds of the targets approved by the SBTi in 2020 used the ACA method to set targets limiting global warming to 1.5°C.

• The Sectoral Decarbonization Approach (SDA) is an alternative method that allows carbon-intensity metrics and targets to be derived from global mitigation pathways for some of the most carbon-intensive activities, such as road transportation, aviation, the generation of electricity or the production of basic materials. These activity-specific metrics can help reflect the different pace at which different sectors and economic activities decarbonize in Paris-aligned mitigation pathways, including those activities that decarbonise faster than the global average (e.g. power generation) or others that decarbonize at a slower pace (e.g. aviation, cement production, etc.). The current version of the SDA supports 1.5°C targets for power generation, while the methods for other sectors rely on well-below 2°C pathways from the IEA.

The SBTi is working to be more transparent about which of these methods was used to assess each company’s targets.

The SBTi has efforts underway to develop more 1.5°C sectoral pathways, like the one published by the SBTi for the power sector in June 2020 and will take into consideration the publication of upcoming scenarios from both IPCC AR6 and IEA. Although the limited number of mitigation pathways with sector granularity is a bottleneck, it is no reason to forego the immense value sectoral pathways can bring to guiding decarbonization of the global economy – an approach widely embraced by the UNFCCC’s Climate Action Pathways, Mission Possible, and the Transition Pathway Initiative, and many others.

Are science-based target setting methods updated by the SBTi?

In the early years of the initiative, the SBTi allowed for additional methods that allocate the global carbon budget using economic metrics such as value-added and GDP contribution. Over time, the SBTi’s analysis of and experience assessing targets using economic allocation and intensity methods revealed that they can often lead to high absolute increases in emissions when used by fast-growing companies and therefore don’t support the goals of the initiative. For example, a company with a compound annual growth rate of 10%, would be allowed to increase their absolute emissions by 48% between 2015 and 2030 when modelling their 1.5°C aligned targets using one of the economic-intensity target-setting methods discontinued by the SBTi. For comparison, a company using the ACA method would be expected to reduce its absolute emissions by 63% over the same timeframe.

A compound annual growth rate of 10% is not uncommon amongst large corporates. Analysis by the Stern School of Business at New York University determined an average compound annual growth rate (in net income) of 9.5% over the past five years for a sample of more than 7,500 listed firms spread across a diverse number of sectors and geographies.

Furthermore, economic intensity indicators (e.g. ton of CO2 / profit) are subject to a number of variables that can lead to apparent changes in a company’s carbon intensity that have nothing to do with its environmental performance, but rather with extrinsic factors. Examples of this include the fluctuation of commodity prices, inflation, or changes in the relative contribution of different business activities to a company’s bottom line.

Vested interests with a stake in the success of certain methods may not like the SBTi’s appraisal of these methods, but the imperative to drive reductions in the real economy has guided and will continue to guide the SBTi’s decisions.

Understanding the methodology of science-based targets - and our commitment to a robust and transparent target-setting framework

The SBTi takes methodological decisions very seriously and engages in extensive consultations to develop and update them. With more and more companies committing to set science-based targets there will continue to be conversations about which methods work best. The SBTi is committed to continuously refining its application of methods to reflect the best science and practice available.

The Science Based Targets initiative’s goal has always been to use robust, freely available target-setting methods that drive ambitious greenhouse gas emission reductions. To that end, the SBTi is committed to providing transparent insight into our decisions – and how they change over time – for the sake of a better future.

*This article was updated on 26 February 2021 to provide additional information about economic intensity indicators and about the SDA.