Six important steps for setting a science-based decarbonization target

Introduction

In 2015, the United States, China, European Union, India, Russia, Brazil and 190 other parties adopted a legally binding international treaty on climate change during the 21st Conference of the Parties (COP) held in Paris. Now known as the Paris Agreement, the signatories to the treaty committed to curbing global temperature rise to well below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C.

Achieving those targets is an ambitious goal because government operations and spending are only a small fraction of international gross domestic product and the associated worldwide anthropogenic emissions of greenhouse gases (GHGs). Therefore, the private sector and the general public must also take climate actions for the goals of the Paris Agreement to be met. Not surprisingly then, numerous voluntary programs and a small but growing number of laws that require decarbonization have been established to support attainment of the Paris climate goals.

The Science Based Targets initiative (SBTi) is one such program. The SBTi is a partnership among several not-for-profit organizations that helps companies set and achieve voluntary science-based targets for reducing their GHG emissions. The SBTi partners include the Carbon Disclosure Project, the United Nations Global Compact, World Resources Institute and the World Wildlife Fund for Nature.

Companies that participate in the SBTi commit to reducing their carbon footprint to science-based targets that align with the goals of the Paris Agreement. More than 4,200 organizations have registered with SBTi as of January 2023. A complete list of those companies is available for download from the SBTi website.

The number of companies that participate in the SBTi may increase as:
1. Impacts and existential risks of climate change become more widely recognized.
2. Expectations for climate action from investors and the public mounts.
3. Current SBTi participants incentivize their supply chains to participate.

This post describes six steps a company should take to prepare for participating in the SBTi. The intended audience is companies that are considering establishing a SBT. But before getting into that topic further, I first discuss why a company would choose to set a SBT at all.

---

Why do companies participate in the SBTi?

Direct benefits

Participating in the SBTi can have several benefits for companies. Those benefits include but are not limited to:

• Increased competitiveness: Companies that participate in the SBTi can be attractive to customers, employees, and investors who value sustainable business practices. Lowering GHG emissions can also lower costs, such as those for energy, and make an organization more competitive.
• Improved brand reputation: Participation in the SBTi can improve a company’s brand reputation and thereby help to increase customer trust and loyalty as well as employee engagement.
• Better risk management: Companies that participate in the SBTi can lower exposure to operational risks such as power outages and spikes in fossil energy prices. Legal or regulatory risks can be lowered as well by aiding compliance with applicable laws such as New York Local Law 97 and the Boston Emissions Reduction Disclosure Ordinance which set legal limits on GHG emissions for buildings.

SBTi participation can influence other companies

Because of benefits like these, participation in the SBTi and other sustainability programs has become increasingly important for companies. A notable twist on participation is that a company’s commitment to decarbonize can have implications for other organizations, in effect spurring a positive feedback loop for reductions in GHG emissions.

Peers

For instance, the competitors of a company that commits to a SBT may take actions to lower their carbon emissions and thereby neutralize any competitive advantages enjoyed by the trendsetting peer. Here it’s worth noting that 9 of the 10 largest biopharmaceutical companies have committed to decarbonization goals through the SBTi. Their decisions to do so are consistent with the notion of a competition-driven feedback loop.

Company	Market Cap	SBTi Participant
Johnson & Johnson	$427.3 B	Yes
Eli Lilly	$327.0 B	No
Novo Nordisk	$312.1 B	Yes
Merck	$272.3 B	Yes
AbbVie	$261.3 B	Yes
Roche	$248.6 B	Yes
Pfizer	$247.9 B	Yes
AstraZeneca	$202.9 B	Yes
Novartis	$196.4 B	Yes
Bristol-Myers Squibb	$154.5 B	Yes

Supply chain partners

A company’s commitment to a SBT can also affect climate actions of organizations that comprise its value chain. This situation can arise when the commitments of an SBTi participant includes quantitative targets for supply chain spend on organizations that have also committed to decarbonization goals through the SBTi.

For example, AstraZeneca’s SBTi targets include a pledge that 95% of its suppliers by spend covering purchased goods and services will a validated SBTi target by 2025. Thus, your company may need to participate in the SBTi to protect its relationship with a valued customer.

See a prior post on Salm for more on this topic in the context of the biopharmaceutical sector.

Wrap up for this section

In summary, a company may choose to participate in the SBTi and decarbonize its operations and value chain for any number of reasons. Doing so is more than a makeover though. The decision to lower GHG emissions will require involvement of personnel from throughout the company and may necessitate changes to certain operations. Thus, planning and preparation is key for success in this endeavor. The remainder of this post describes six important steps for preparing to set a SBT.

---

#1 Establish a clear understanding of the SBTi

The first step toward developing a SBT is gain a clear understanding of the SBTi and the potential benefits of your organization’s participation in the initiative. A great way to get started is to familiarize yourself with the SBTi website. There you can find information on the obligations for companies that participate in the SBTi. Those obligations are summarized in the five step process illustrated below.

After reviewing the website, I recommend moving on to a document entitled SBTi Criteria and Recommendations. This report lays out critical information such as the effective dates of updated criteria, the scope of an organization’s GHG emissions applicable to the SBTi, emissions accounting requirements, minimum acceptable targets which are often called ambitions in the vernacular of the SBTi, and criteria specific to 13 mostly energy intensive business sectors.

Another important early read from the SBTi is a10-page report titled How-to Guide for Setting Near-Term Targets. The report contains two figures – a flow chart and a schematic of four questions – that organizations can use to determine the general SBTi criteria that apply to them. For more information on the content of those figures, I suggest reviewing the SBTi Corporate Manual.

For persons interested in the science behind the SBTi, I recommend reading Foundations of Science-based Target Setting, a 2019 report that describes the program’s interpretation of climate forecasts and carbon budget analyses conducted by the Intergovernmental Panel on Climate Change (IPCC) and International Energy Agency (IEA).

The upshot of the Foundations report is that the SBTi selected a model result that indicates that global GHG emissions must lower by at least 40% by approximately 2035 in order to meet the 2°C limit on atmospheric warming established by the Paris Agreement. That overall reduction translates to an absolute linear reduction of 4% annually for the next 10 years. SBTi applicants must demonstrate that their plan can achieve that rate of reduction in order for the targets to be validated by the SBTi.

In addition to the Foundations report, several other technical documents are available on the SBTi website. These documents include the protocol used by SBTi to validate science-based targets and their plans for achieving the targets. Another set of of reports describes a more ambitious SBTi program to which companies can commit – net zero GHG emissions. Lastly, a number of brief case studies are available; these can be useful for learning from targets and plans established by other organizations.

---

#2 Assess your carbon footprint

Assessing your company’s carbon footprint is the first step towards managing it. This process is also commonly referred to as developing a greenhouse gas inventory. The inventory will give you a clear understanding of your company’s carbon emissions as well as their sources and causes. The knowledge gained from this assessment is a critical initial step toward identifying opportunities for lowering GHG emissions and eventually establishing science-based targets for decarbonization.

Developing a GHG inventory involves quantifying the emissions from your operations, as well as those from your supply chain. Per the requirements of the SBTi, the GHG inventory shall be completed in accordance with standards and guidance from its partner the Greenhouse Gas Protocol, a collaboration between the World Resources Institute and the World Business Council for Sustainable Development. In particular, the SBTi references these GHG protocols:

• GHG Protocol Corporate Standard
• GHG Protocol Scope 2 Guidance
• GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard

Several approaches exist for assessing a company’s carbon footprint, including using a carbon calculator, conducting life cycle assessments (LCAs), or engaging an external consultant.

Carbon calculators

Several commonly used carbon calculators are available, including publicly available tools from sources such as the Greenhouse Gas Protocol and the U.S. Environmental Protection Agency as well as commercial software from companies like Carbon Trust and others. You can also manage the necessary data on your own using internal or external business informatics or analytics resources.

Regardless of the tool used, you should prepare to gather and compile lots of data for several years of operations, including:

1. Building addresses, dates of occupation, building use types, and indication of owned or leased.
2. Utility records by meter that contain monthly consumption of electricity, gas, steam, cooling, and water suppliers.
3. Crosswalk of building addresses and utility meters.
4. Purchase, consumption, and disposal of commercial grade GHG gases such as isoflurane, nitrous oxide, and carbon dioxide.
5. Number of full-time employees and gross floor area of occupied buildings.
6. Spend on waste management.
7. Spend on purchased goods and services.
8. Spend on capital goods.
9. Number of vehicles owned or leased and annual miles driven.
10. Spend on third-party transport such as freight by ocean, air, rail, or road.
11. Spend on third-party distribution such as warehousing, upstream transportation and distribution, or downstream transportation and distribution.
12. Spend on business travel including transport and hotels.
13. Total weight or volume of materials used to produce and package products and services sold.

Life cycle assessments

Life cycle assessments or LCAs can help you understand cradle-to-grave or cradle-to-cradle GHG emissions of your products and services, including those from raw materials, manufacturing, transportation, and end-of-life disposal. This information can help you assess the impact of different options for reducing emissions.

Several useful LCA tools are available. These tools include no-cost, few frills, commonly used software such as OpenLCA and commercial software such as SimaPro, and Earthster, each with its own features and benefits. Earthster is a relatively new entrant in the LCA marketplace and offers a drag-and-click graphical interface for creating product systems from unit processes that are drawn from a widely used LCA database known as ecoInvent. Choose the tool that best suits your needs and budget.

Once you have assessed your carbon footprint, you will be able to identify the areas where your company can reduce its carbon emissions and set science-based targets accordingly.

---

#3 Engage stakeholders

The SBTi process will involve a significant commitment from your company, and it is essential to engage all relevant internal stakeholders from the start. This will help ensure the buy-in and support of all parties involved. Stakeholder engagement can help to build support for the initiative and drive action to reduce emissions.

The planning process should involve representatives from key functional areas within the company, such as facilities, procurement, health and safety, finance, marketing, brand management, and executive leadership. Encourage your employees to get involved by sharing information about the SBTi and inviting their feedback and ideas for reducing your carbon footprint.

Work with your suppliers to identify ways to reduce the carbon footprint of the goods and services you purchase. Engage with your customers to understand their expectations and to educate them about your SBTi commitments.

---

#4 Develop a carbon reduction strategy

Based on the results of your carbon footprint assessment and input from stakeholders, the next step is to develop a carbon reduction strategy that aligns with the SBTi’s science-based targets and the decarbonization opportunities available to your organization. In other words, it’s this step where you: (1) identify the ways that your company can reduce its carbon footprint and (2) make plans to achieve those reductions.

All parties to the strategy development should be aware that achieving GHG reductions may involve changes in business operations, procurement practices, or supply chain management. Therefore, make sure your carbon reduction strategy is realistic, measurable, and achievable. Your plan should include specific actions, timelines, and performance metrics. The plan should be regularly reviewed and updated as needed to ensure you remain on track to achieve your target.

Fortunately, you won’t need to start from scratch because tools and guidance are available to support development of a decarbonization strategy. For example, the SBTi provides general guidance on developing a strategy and setting science-based targets. Also, you can use the SBTi’s online Target Setting Platform to determine your target, which will be validated by the SBTi before being approved.

Other sources for general information on strategies for decarbonization are available from sources such as these:

• The U.S. Environmental Protection Agency publishes a detailed report on approaches to decarbonization
• ASHRAE is an organization for engineers that specialize in building systems. See this page on the ASHRAE website for information on decarbonization of large buildings.
• The U.S. Department of Energy Better Buildings program is an excellent source of guidance on reducing greenhouse gas emissions from buildings and manufacturing plants.

Sector-specific guidance on decarbonization strategies is available as well. For instance, the SBTi offers support for about a dozen sectors, mostly energy intensive, with others in development. Healthcare delivery is another sector for which guidance on approaches to GHG reductions is readily available. See for example, reports and tools published by the U.S. Department of Health and Human Services, American Society of Hospital Engineers, Practice Greenhealth, Health Care Without Harm, and case studies from Environmental Health & Engineering.

While certain tactics may be better suited for some sectors than others, the four most common strategies for reducing carbon emissions include: (1) transitioning to renewable energy sources, (2) electrification of systems that consume fossil gas or liquid fuels; (3) improving energy efficiency, and (4) having flexibility in the timing of electricity consumption. Those strategies are illustrated in the figure below.

Those decarbonization tactics that most commonly accompany those strategies are:

1. Optimization of existing mechanical, electrical, and plumbing systems in buildings
2. Recovery of energy from waste gas and water flows
3. Procurement of renewable energy
4. Generation of renewable energy on-site
5. Electrification of heating systems
6. Product substitution for transportation (e.g., electric vehicles) and process gases
7. Procurement of Renewable Energy Certificates or qualified carbon offsets (although offsets and credits do not count toward SBTi targets)

To facilitate identification of the strategy and tactics most appropriate for your organization, the stakeholder group described in #3 may be tasked with evaluating the applicability of these approaches to your facilities and operations. They will likely need to solicit and evaluate proposals for energy contracts and new technologies. The former could include proposals for no and low-cost energy efficiency programs or fixed price contracts for renewable energy. The latter could include heat pumps, energy recovery from wastewater, and energy storage.

The stakeholder group may also be tasked to determine whether any federal, state, or utility incentives are available to offset costs of the decarbonization strategies being considered for your organization. Federal grants are primarily offered to state and local governments and not-for-profit organizations, but tax credits and utility incentives are generally available to all organizations or customers. This area is dynamic and new incentive programs are likely to emerge in the near-term, so remaining up to date on opportunities for external funding could be a good investment of effort.

#5 Monitor and communicate your progress

Monitoring and reporting on your progress regularly to stakeholders is another important part of the decarbonization process. These stakeholders will likely be a combination of employees, customers, investors, and other interested parties. This activity will help to ensure opportunities to learn from interim findings are identified and used to adjust the plan as needed.

Interestingly, the SBTi does not have specific requirements about where the GHG inventory and progress toward published targets should be reported or disclosed. The only SBTi requirement is that the information is made publicly available. Nonetheless, the initiative recommends reporting through standardized data platforms such as (1) the Climate Disclosure Project’s climate change annual questionnaire, (2) annual reports, (3) sustainability reports, or (4) the company’s website.

Accuracy in disclosures is essential as customers, investors, and the general public will consider this information when forming opinions about your organization. Likewise, the prospect of possible regulations on climate disclosures from the U.S. Securities and Exchange Commission indicates that organizations should begin to plan and execute as if third-party scrutiny of carbon emissions is going to be the new normal. And as noted above, some municipal governments already require annual reporting of building-related GHG emissions. It is important for quality assurance and brand management to ensure the GHG reporting is consistent among all programs, both internal and external.

---

#6 Seek support from experts

If you need support in any aspect of the SBTi process, seek the help of experts in the field. This will help ensure that you are on track and that your SBTi commitments are in line with the SBTi’s science-based targets.

---

Conclusion

Participating in the SBTi is an important step for companies that want to demonstrate their commitment to reducing their carbon footprint and fighting against climate change. By following the six steps outlined in this post, companies can prepare for participation in the SBTi and reap the benefits of increased competitiveness, improved brand reputation, and enhanced risk management.