Science-Based Greenhouse Gas Emissions Reduction Targets
A patient reports to his physician the good news that he reduced his consumption of red meat by two servings per week over the past six months. The doctor congratulates him, pauses and asks, “How many servings per week are you eating now?” Reluctantly, the patient replies, “Ten.”
While it’s a step in the right direction, it is clear that his progress is insufficient. The same is true of most corporate efforts to reduce greenhouse gas (GHG) emissions.
Forty-eight percent of the 2016 Fortune 500 now have a GHG, renewable energy, or energy efficiency target. However, CDP analysis of the 2017 climate survey indicates that less than 15% of the 1,000 largest publicly traded companies have set targets that align with climate science—commonly called science-based targets, or SBTs.
What is a science-based target (SBT)? According to the Science Based Targets Initiative, a joint initiative by CDP, the UN Global Compact, the World Resources Institute, and WWF, SBTs are “Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered ’science-based’ if they are in line with the level of decarbonization required to keep global temperature increase below 2°C when compared to pre-industrial temperatures, as described in the Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).”
There are several methodologies companies can use to set sciencebased targets, ranging from simple to complex. On the simplest end of the spectrum, absolute-based models evenly divide the prescribed reduction of emissions by the number of years between the baseline year and the target year. For example, reducing emissions by 55 percent by 2050 from a 2010 baseline yields an annual reduction of 1.4 percent per year. On the other end of the spectrum are approaches that identify emission reduction targets based on the type of business. For example, the Sectoral Decarbonization Approach (SDA) uses modeling from the International Energy Agency (IEA) to identify the most economically efficient emissions reduction pathways for the heaviest emitting sectors.
With a sharpened understanding of the importance of science-based emissions reductions and armed with the knowledge of how to set such targets, the investor community and a growing number of businesses are taking action.
For example, 327 companies have publicly committed to align emission reduction targets with the goals of the December 2015 Paris Agreement. An additional 864 companies reported in their 2017 CDP climate questionnaire their intention to set a science-based emissions reduction target within the next two years.
In 2016, investor members of the Interfaith Center on Corporate Responsibility (ICCR) wrote to 106 US-based companies that indicated in their 2016 CDP response they may set a science-based GHG emissions reduction target within the next two years. ICCR members engaged with approximately one-third of the companies during 2017 and 30 companies set science-based emissions reduction targets. Twelve companies indicated that they no longer plan to set a science-based target. Shareholder resolutions will raise this issue at nearly 20 companies in 2018. We believe these actions will stimulate additional progress, either through successful negotiations to withdraw these resolutions or through strong investor support at the ballot box.
Manager, ESG Integration, Walden Asset Management