In an earlier article, we had outlined the steps involved in getting science-based targets certified by SBTi. In this article, we explain what the different types of targets are and the methods set out by SBTi to calculate the targets. We also touch upon the kinds of targets that will not be accepted by SBTi and the pros and cons of different methods.
Sector Specific Targets
Currently, companies in all sectors, except oil & gas, can set science-based targets using the SBTi’s universal standards. Additionally, there are specific methodologies, frameworks and requirements for:
- Financial institutions
For the followinng sectors, SBTi has published sector-specific guidance documents to help through the process:
- Apparel and footwear
- Cement
- Forest, Land and Agriculture
- Information and Communication Technology (ICT)
- Maritime
Some other sector-specific documents, either frameworks or guidances, are under development as of the writing of this article:
- Aluminum
- Aviation
- Buildings
- Chemicals
- Oil & Gas
- Steel
- Transport
Scope 1 & 2 Target Setting
There are two main publicly available SBT-setting methods for Scope 1 and 2 emissions: the Absolute Contraction Approach (ACA) and the Sectoral Decarbonization Approach (SDA).
A SBT setting tool is available for users to model targets using these two methods. The methods are sensitive to the inputs and errors can propagate throughout the methods, so company data should be as accurate as possible.
Absolute Contraction Approach (ACA): All companies in a sector reduce emissions to a common value as per global temperature pathway goals. An absolute emissions reduction target is defined in terms of an overall reduction in the amount of GHGs emitted in the target year, relative to the base year. The minimum reduction required for targets in line with 1.5°C scenarios is 4.2% in annual linear terms.
The ACA is based on the expectation that all companies, regardless of their sector, reduce their absolute emissions by the same amount to align with the remaining global carbon budget associated with 1.5°C-aligned emissions scenarios. Companies that set targets using the ACA method must reduce absolute emissions linearly between the base year and target year, at a rate that meets or exceeds the minimum level defined by SBTi.
Sectoral Decarbonization Approach (SDA): The SDA is a method for setting physical intensity targets that uses convergence of emissions intensity. An intensity target is defined by a reduction in emissions relative to a specific business metric, such as production output of the company, i.e. tonnes CO2e per tonne of product produced.
The SDA method is based on the concept that all companies within a homogeneous sector or sub-sector reduce their carbon emissions intensity towards a target convergence value by no later than 2050.
Scope 3 Target Setting
For companies whose scope 3 emissions compose over 40% of their total emissions, their scope 3 targets must include at least two-thirds of scope 3 emissions for near-term (5-10 year) targets and 90% of scope 3 emissions for long-term targets (up to 2050). Using a scope 3 inventory, companies can identify which categories should be included in the boundary of a scope 3 target(s) to meet these thresholds. According to SBTi, across sectors, category 1 (purchased goods and services) and category 11 (use of sold products) account for a major portion of scope 3 emissions.
Following methods are used for Scope 3 targets:
- Absolute Method allows companies to use the ACA and SDA methods for setting targets on one or more of their scope 3 categories. Scope 3 emissions are challenging, both in terms of emissions accounting and reduction, but companies should try to pursue a minimum 4.2% annual linear reduction in absolute terms.
- GHG Emissions per Value Added (GEVA) is a method for setting economic intensity targets of tCO2e/$ value added. Companies are required to reduce their GEVA by 7% per year (compounded). The 7% year-on-year reduction rate is derived from an absolute emissions reduction of about 75% by 2050 from 2010 levels.
- Supplier or Customer Engagement Targets could be used if a company has yet to identify specific ways to reduce emissions amongst its value chain partners and/or if it does not spend enough on any individual suppliers. Engagement targets may alternately focus on “critical” or “strategic” suppliers identified by the company.
Single vs Multiple Targets
Companies can choose to set multiple, category-specific targets or a single target covering all relevant scope 3 categories. They may also choose to set a single target covering total scope 1, 2, and 3 emissions. Each has its pros and cons that the company should keep in mind while selecting the method.
Here are some illustrative examples:
- A single target for total scope 1, 2 and 3 emissions
- reduce absolute scope 1, 2 and 3 GHG emissions 55% by 2030
- A single target for total scope 3 emissions
- reduce absolute scope 3 GHG emissions 15% by 2030 from a 2019 base year
- Separate targets for individual scope 3 categories
- reduce absolute scope 3 GHG emissions from use of sold products 20% by 2030 from a 2017 base year
Combining Multiple Target Setting Approaches
Companies may also use various target setting approaches and combine the target results into one single target. For example, a company may wish to set one single Scope 3 target covering multiple categories for the ease of communication. The company may use the SDA for Scope 3 categories where sector pathways are available. For the rest of the categories, the company may use the ACA. To combine the results into one single target, the company should use the absolute emissions reduction output in the SDA tool and the target year emissions of all other categories modeled under the ACA. It should then calculate the percentage reduction in absolute emissions from base year to target year of all categories. Together with base year, target year, Scope and optional category information, the percentage reduction figure is used to define the combined target.
Unsuitable Targets
Certain other types of targets are considered unsuitable by SBTi because of the difficulty in establishing whether these targets lead to the reductions expected of an absolute, intensity or engagement target. In particular, companies should not be setting targets to reduce emissions by a specified mass of GHGs (e.g. “to reduce emissions by 5 million tonnes by 2030”) because such targets do not reveal percent changes in emissions performance. Targets that benchmark performance against sector average values are also not deemed acceptable because they may change over time with changes in sector performance, making it difficult to track long-term changes in performance.
Benefits and Drawbacks of Different Types of Targets
Absolute vs Intensity Targets: Intensity targets do not necessarily lead to reductions in absolute emissions. This is because increases in business output can cause absolute emissions to rise even if efficiency improves on a per unit basis. Absolute targets also have some shortcomings, e.g. they do not allow for fair comparisons of GHG intensity amongst peers. Also, they do not necessarily indicate efficiency improvements since reported reductions can result from declines in production output rather than improvements in performance.
- Extrinsic factors, like commodity prices, inflation, or changes in the relative contribution of different business activities to a company’s bottom line, may dictate better suitability of the ACA method as opposed to economic intensity.
- Economic intensity methods can often lead to high absolute increases in emissions when used by fast-growing companies and are therefore not recommended by SBTi for such companies.
- The SBTi also does not recommend that companies set economic intensity targets for their operational emissions (Scope 1 and 2) where they have direct influence over emissions reduction. Considering the difficulty of measuring and reducing scope 3 emissions, economic intensity targets are acceptable for scope 3.
Physical Intensity vs Economic Intensity Targets:
- Physical intensity metrics (e.g. tonnes GHG per tonne product or MWh generated) are best suited for use within sectors that create a uniform product (e.g. steel or cement sectors) and may be less suitable for companies that generate a diverse product mix.
- Economic intensity metrics (e.g. tonnes GHG per unit value added) can be used to normalize emissions for sectors with varying products that are difficult to directly compare against each other (e.g. retail or chemical sectors). Economic intensity targets may only be appropriate for sectors with limited fluctuations in product prices over time, where growth in emissions is often tied to economic growth of the company.
Supplier or Customer Engagement Targets: Engagement targets can push companies to think of ways to get better supplier and customer emissions data and to also consider ways of reducing these Scope 3 emissions. However, companies generally only manage to acquire suppliers’ or customers’ Scope 1 and 2 emissions, hence the extent of such targets can be limited, at least in the early engagement stages.
As we have seen in this article, there are different types of SBTi targets for Scopes 1, 2 and 3 emissions. These targets can be set using two calculation methods: ACA and SDA. Target types can be combined in various ways. Methodologies may be defined more specifically in sector-specific frameworks and guidances.
Setting science-based targets is not a trivial exercise but one worth undertaking and perhaps even necessary if they are required by certain regulations.