Setting and reaching greenhouse gas (GHG) emissions reductions targets can be like climbing Mount Everest. We dream big, muster resources, trek to basecamp but upon arrival, we realise that reaching the summit is a seemingly impossible task; we may make it to Camp 1, but not beyond.
The reasons for failure are many – the mountain is too high, we didn’t plan well, or maybe we don’t have the proper support or resources to reach the summit.
The journey is similar for many companies who make ambitious, and often well-meaning commitments to reduce greenhouse gas and carbon emissions in order to eventually reach net zero. They set targets using international guidelines, publicise them but soon realise – often when reporting season comes around – that their goals are unachievable.
This blog post is for companies who find themselves stuck at basecamp and for those who do not want to be a struggling emissions mountaineer. We’ll share some of what we at GCX know and do about setting realistic and achievable science-based emissions targets (SBTs).
A net zero strategy: Science-based emissions targets
A science-based target (SBT) provides clear goals for companies to achieve qualitative emissions reductions, helping prevent the worst impacts of climate change and future-proofing business growth. Targets are ‘science-based’ when a ‘fair share’ of the proportion of your company’s own reductions are in line with global CO2 emissions reductions needed to keep global temperature increases to less than 1.5 celsius above the preindustrial period average.
The Science Based Target Initiative (SBTi) is a global coalition that supports companies to set SBTs. The initiative offers support on best practices for identifying relevant scope 3 emissions sources that need to be included in a GHG inventory and providing resources and guidance to companies to define and promote the best practices for ghg reductions. and reduce barriers to implementation. The SBTi mostly acts as an independent assessment body that approves companies’ targets.
Why you should care about setting achievable SBTs
Aside from the brand and reputation value associated with having an emissions reduction plan that sets achievable science-based milestones and targets, success means greater confidence in your company from investors, customers, financiers and stakeholders. Greater regulatory compliance and investment in emissions reduction measures can:
- Reduce business risk
- Give you licence to operate
- Save costs, such as electricity, heating, utilities and waste
- Reduce the cost of unserved energy, which is the opportunity cost of not having access to electricity for operations (especially relevant in South Africa)
By setting targets that are unachievable, companies risk the temptation to greenwash, greater public scrutiny, negative media attention and loss of trust from the aforementioned stakeholders that can greatly affect revenue. Greenwashing can destroy your company, as illustrated by the rapidly declining fortunes of The Adani group, which has been called out for greenwashing their coal and other operations and for apparently ‘knowing how to play the ESG game’.
Why companies fail to reach the summit
In our experience, companies that fail to achieve their emissions reductions milestones and targets suffer of one or a combination of:
- Lack of commitment from leadership to achieve targets
- Lack of data – robust systems are needed to collect and analyse data and report on performance in a way that works for those responsible for ESG
- Lack of expertise and support in implementing measures, tracking performance and tracking targets
- Lack of implementation action plans
- Lack of accountability, including lack of governance structures and incentives, and poor culture
- External factors out of the control of a company – e.g., lack of access to the right or affordable low carbon technologies. The complexity of achieving scope 3 targets may also be outside the direct control of an organisation.
How to implement realistic and achievable science-based targets
There are two ways to implement SBTs – top-down and bottom-up – and we recommend that companies deploy a combination of both, sprinkled with a healthy dose of realism.
Top-down targets
No matter the practical and financial implications, setting science-based targets from the top down is becoming unavoidable, with investors and financiers requiring it, and with SBTs essential for mobilising resources for growth.
Top-down target setting is setting a target from the baseline to reduce greenhouse gas emissions proportionally in line with the 1.5 degree target set in the Paris Agreement. This means that a company, measures its current Scope 1, 2 and 3 emissions and sets targets that are pegged to global emissions reduction standards. Targets may have near term horizons (2030 – 2035) and longer term horizons (2040 – 2050).
Geographical considerations are important for this type of target setting. For instance, some countries have taken on nationally determined contributions (NDCs) which show which initiatives they intend to leverage to reduce the country’s carbon footprint. A country’s integrated resource plan (IRPs) also shows how the change in energy mix will impact the decarbonisation efforts of that country.
However, by only setting targets from the top down in this externally-driven fashion, there is a major risk that targets are wholly unreachable. While there is admittedly a blind faith element to setting SBTs, and while implementing plans is like building the plane while you’re flying it, top-down target setting does not take account of a company’s reality.
This is why going through a parallel exercise of bottom-up target setting is critical.
An entity’s resources, capabilities, knowledge and how emissions reductions initiatives are implemented will determine success.
Bottom-up targets
Bottom-up target setting focuses on what can be achieved if various feasible and practicable greenhouse gas emissions reduction projects are implemented. These can include modelling on how renewable energy systems, energy efficiency retrofits and other building retrofits the company can afford will affect emissions by the target date. This type of modelling provides a realistic picture of what can be achieved with existing innovations but should also be cognisant of future innovations that could be a silver bullet.
The challenge is to bridge the gap between what is realistically achievable from the bottom up and the theoretical science based target of emissions reductions (top down) which usually is higher. Considerations on how to bridge the gap is worthy of another blog post but in short, companies can get creative, depending on how enabling the policy and regulatory environment is.
In South Africa, where electricity consumption is responsible for a huge portion of a company’s scope 1 and 2 emissions, the lifting of the 100MW cap on self generation as well as the ability to sell excess electricity back into the grid, will unlock enormous potential to generate and sell electricity to other consumers, while wheeling agreements are becoming commonplace.
The danger with bottom-up only target setting is that there is often a lack of ambition and accountability and we also see analysis paralysis, where nothing gets done.
A final tip – who sets the targets vs who implements them is a critical consideration. It is very rare for such long term goals (usually to 2050) to be set in a business.
By 2050 the leadership of a company will be long gone, and therefore boards and executives really need to understand the implications for the business of setting SBTs one, two and three decades down the line.
As mentioned in my January blog post on sustainability leadership in the real estate sector, the remuneration and bonuses of executives should be tied to sustainability performance. It has been one of the most successful ways to unlock action and performance. Most large and listed companies now have such measures in place. Your company should not set SBTs without executive incentives in place.
Incentives and emissions analytics: How to achieve targets and reach the summit
As mentioned in my January blog post on sustainability leadership in the real estate sector, the remuneration and bonuses of executives should be tied to sustainability performance. It has been one of the most successful ways to unlock action and performance. Most large and listed companies now have such measures in place. Your company should not set SBTs without executive incentives in place.
A Single Source of Truth
Achieving targets will require bold actions in energy sourcing and procurement, but will also require the careful tracking and management of your performance, supported by a single source of truth and certainty in the form of rigorous data and emissions analytics.
At GCX, our analytics platform to support companies in reaching their SBTs is called GCX DASH- and it delivers data confidence and business intelligence to guide action and decision making. GCX Dash- consolidates reporting on a company’s operational activities, and sets dynamic benchmarks to achieve better performance.
The ability to visualise all potential and active projects in one place is key. Emissions reduction projects in energy efficiency, renewables, water, waste and gas are the means by which companies will meet their SBTs and eventually achieve net zero targets. Having these projects visible in one place to understand budgets, forecast savings and ROIs in order to prioritise and budget for the transition is critical.
| A good illustration of how data intelligence can drive performance and success is through our work with Attacq Limited, a real estate industry leader that has a complex property portfolio across multiple sectors. This blog post details how Attacq uses DASH-, for monthly reports across its portfolio at sector and operations manager level and to inform strategic decision-making. DASH- helps Attacq to understand where they can improve performance as it can drill down to a granular, even tenant level. Consolidating data at a portfolio level can be a cumbersome task, even more so with a portfolio as large as Attacq’s. With the added task of reporting to frameworks and standards such as the Carbon Disclosure Project and FTSE4Good, having on-demand access to relevant and consolidated (or disaggregated) data has been the key value driver of GCX DASH- to Attacq. |
Benchmarking
Benchmarking a company’s performance to that of its peers will tend to drive that company to want to exceed their competitors’ performance. This “healthy competitive behaviour” could be a powerful means to set more ambitious targets and to ensure companies are tracking to meet targets faster than their peers.
Support and advice
The criteria, standards and guidelines around setting SBTs are hard to navigate and companies ideally need the support and advice of a seasoned guide. Our team helps large and small companies by performing modelling and engaging with the SBTi on behalf of clients.
To learn more about SBTs or how we can support your company on its way to the summit, get in touch with a demo or a chat.
I hope you enjoyed our article. Let us know what other key sustainability aspects you think could or should be included.
