Introduction 

The Science Based Targets Initiative (SBTi) which is a partnership between international organisations such as CDP, United Nations Global Compact (UNGC), World Resource Institute (WRI), and the World Wide Fund for Nature (WWF) have set the guidelines for industries to reduce global greenhouse gas 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.

Over 4,000 companies worldwide are leading the transition to a net-zero economy by setting emissions reduction targets grounded in climate science through the SBTi. As of March 2023, over 2,300 companies have had science-based targets approved with the SBTi. The SBTi’s 2021 Progress Report revealed that one third of global market capitalization has committed to climate action through the SBTi, and 1.5 billion tonnes of CO2 are covered by the SBTi (scopes 1 and 2). 2021 also saw 53 million tonnes of CO2 emissions reductions across all targets.

Decarbonising business models across the entire value chain first requires understanding and accounting for three distinct scopes of emissions. Scope 1 refers to emissions that originate directly from a company’s owned assets, such as on-site energy or engine emissions from a company’s vehicle fleet. Scope 2 encompasses indirect emissions from purchased energy generated offsite. Scope 3 accounts for indirect emissions from across a company’s value chain, both upstream and downstream. These are the hardest to quantify, yet they can represent up to 90% of a company’s carbon footprint. 

A net-zero value chain implies that each and every step involved in the provision of goods and services aligns to a level of emissions that is compatible with achieving climate stability. Here’s how companies can create a science-based target:

1. Select a baseline year -  The SBTi recommends using the most recent year for which data is available. 

2. Select a target year - Targets must cover a minimum of 5 years. It is worth noting that the SBTi criteria require companies to review, and, if necessary, revalidate their targets every five years from the date of the original target approval.

3. Measure scope 1, scope 2 and scope 3 emissions - Scope 1, 2 & 3 emissions need to be measured for the baseline year. They need to be measured according to the GHG Protocol using a common boundary approach across all company operations.

4. Calculating the science based target - A sub-sector science based target (SBTs ) is then calculated by multiplying the combined Scope 1 and 2 emissions in the baseline year by an emissions reduction factor (ERF). The emissions reduction factor is based on the appropriate sub-sector emission reduction pathway and the baseline and target years.

It is important to note that SBTi criteria requires a company to reach a Scope 3 target when its Scope 3 emissions are 40% or more of its total Scope 1, 2, and 3 emissions. The Scope 3 target must cover at least 2/3 of total Scope 3 emissions. Companies can set either a Scope 3 emissions reduction target, or a supplier or customer engagement target, or a combination of the two.

Given the number of years that it will take a company to reduce its emissions by following a 4.2% linear annual reduction rate, year on year, the company will accordingly decide to choose the type of fuel in its manufacturing process (higher caloric value for production with a lesser emission rate); it will also determine the capex and opex of the related machinery that comes along with the fuel change. For example, the company will have to assess the capex details in case it decides to shift from a coal based boiler to an electric boiler which requires additional investments. The decarbonization process enables. 

The two approaches leading to decarbonization

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 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.

At Oren, we support companies manage their decarbonization journey from emissions quantification to decarbonization targets and all the way to creating a long-term decarbonization strategy.