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Science-based Target Setting Manual 7/19/2017

Version 3.0

A product of the Science Based Targets initiative

[Include logos of CDP, UN Global Compact WRI and WWF]

Nicole Labutong, CDP Pedro Faria, CDP Heidi Huusko, UN Global Compact Bryan Jacob, WRI (consultant) Cynthia Cummis, WRI Jessica McGlyn, WRI (consultant) Nate Aden, WRI Renee Morin, (consultant) Stephen Russell, WRI Alberto Carrillo Pineda, WWF Carole Tornay, WWF Paola Delgado Luna, WWF

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Contents

Foreword .............................................................................................................................. 3Executive Summary ............................................................................................................... 4Key Terms ............................................................................................................................ 9List of Abbreviations ............................................................................................................. 111. Introduction ..................................................................................................................... 122. Making the Business Case for Science-based Targets ............................................................. 17

Benefits of Setting SBTs ........................................................................................... 173. Understanding Science-based Target Setting methods ........................................................... 22

3.1 Components of a science-based target method ................................................................. 233.2 Method parameters ...................................................................................................... 243.3 Selecting an SBT method ......................................................................................... 26

4. Setting a Science Based Target ........................................................................................... 304.1 Follow steps that apply across all scopes ......................................................................... 304.2 Model a Scope 1 and 2 Target ........................................................................................ 334.3 Model a Scope 3 Target ................................................................................................. 344.4 Adjust Targets to Ensure Continued Relevance ................................................................. 454.5 Secure Third Party Review ............................................................................................. 45

5. Building Internal Support for Science-based Targets .............................................................. 465.1 Get All Levels of the Company on Board ..................................................................... 465.2 Address Challenges and Push-back ................................................................................. 48

6. Communicating the Target and Progress .............................................................................. 506.1 Define the Audience ................................................................................................ 506.2 Decide Where to Disclose .............................................................................................. 516.3 Follow Guiding Reporting Principles ........................................................................... 526.4 Describe the Target ...................................................................................................... 526.5 Describe Progress Toward the Target .............................................................................. 54

Annex 1. Components of a Science Based Target Method ........................................................... 55A1.1 Carbon Budget ....................................................................................................... 55A1.2 Emissions Scenarios ................................................................................................... 55A1.3 Allocation Approaches ................................................................................................. 58

Annex 2. Method Descriptions ................................................................................................ 61References .......................................................................................................................... 68Acknowledgments ................................................................................................................. 71About the partner organizations in the Science Based Target initiative ......................................... 72Endnotes ............................................................................................................................. 73

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Foreword

Tobewrittenoncepubhasgonethroughinternalreview.

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Executive Summary

Key Findings

• Companiescanplaytheirpartincombattingclimatechangebysettinggreenhousegas(GHG)emissionsreductiontargetsthatarealignedwiththereductionpathwaysforlimitingglobaltemperaturerisetowithin2°C.Thesetargetsaretermedsciencebasedtargets(SBTs).

• SBTsofferaplethoraofadvantagesovermoreincrementalGHGreductiontargetsandboostcompanies’competitiveadvantageinthetransitiontothelow-carboneconomy.

• MultipleSBT-settingmethodsexistandvaryintermsoftheambitionofthetargetstheyoutput.

• Toensuretheirrigorandcredibility,SBTsshouldmeetarangeofcriteriarelatedtotargetduration,ambition,andcoverageofinternalandvaluechainsources.

• Gettinginternalstakeholdersonboardthroughallstagesofthetarget-settingprocessrequirescarefulplanning.

• OnceanSBThasbeenset,communicatingitfully,simply,andclearlyisimportanttoaccuratelyinformstakeholdersandbuildcredibility.

Context

IntheParisAgreementnationalgovernmentscommittedtolimittemperaturerisetowellbelow2

degreesCelsius(°C)andpursueeffortstolimittemperatureriseto1.5°C.Beyondthesethresholds,theworldwillincreasinglyexperiencedangerouslyelevatedamountsofsea-levelrise,droughts,flooding,andotherextremes.

Despitetheeffortsofgovernmentsandotheractors,totalanthropogenicGHGemissionscontinueto

increase.Undercurrenttrajectories,globalmeantemperaturesareprojectedtoincreaseby3.7to4.8°Cbytheendofthiscentury.Evenunderexistingcountry-levelcommitments,emissionslevelsin2030willbe24to60percenthigherthantheyshouldbeunderleast-cost2°Cscenarios(UNFCCCSecretariat2016).

Companieshaveapivotalroleinensuringthattheglobaltemperaturegoalsaremet,butmost

existingcompanytargetsarenotambitiousenough.ThemajorityofglobalGHGemissionsareeitherdirectlyorindirectlyinfluencedbythecorporatesector.Manycompanies,recognizingtheriskclimatechangeposestotheirbusinessandtheopportunityitcreatesforleadershipandinnovation,havealreadycommittedtochangebysettingemissionreductiontargets.Yet,todate,mostcompanies’targetshavebeenincrementalanddonotmatchtheambitionandtimelinesconsistentwitha2°Cfuture.SBTsrepresentamorerobustapproachforcompaniestomanagetheiremissionsoverthelonghaul.SBTsaregroundedonanobjective,scientificevaluationofwhatisneeded,ratherthanwhatisachievablebyanyonecompany.Andtheyofferafirmfoundationforcompanies’long-termclimatechangestrategies,boostingcompanies’competitiveadvantageinthetransitiontothelow-carboneconomy.Targetsareconsidered“science-based”iftheyareinlinewiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreasebelow2°Ccomparedtopre-industrialtemperatures.

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CompaniesareincreasinglyadoptingSBTs,althoughuncertaintyexistsregardingbestpractices.Over40companieshavealreadysetanSBTandovertwohundredmorehavecommittedtosetanSBTinthenearfuturethroughtheScienceBasedTargetsinitiative(seebelow).BecausesettingSBTsisanemergingpractice,considerableuncertaintyexistsamongstcompaniesaroundthebenefitsofsettingsSBTs,whatkindoftargetmayconstituteanSBT,andbestpracticesforbothgaininginternalcompanysupportforSBTadoptionandcommunicatingSBTstoexternalaudiences.ThisuncertaintypresentsabarriertofurtheradoptionofSBTs.

About This Report

Thismanualprovidesstep-wiseguidanceandrecommendationsonsettingSBTs. Itcovers themainphases insettinganSBT, fromunderstandingthebusinessbenefitsofsettingSBTstocommunicatingprogressagainstestablishedSBTs(FigureES-1).

FigureES-1:ChaptersintheManual

Note:TechnicalannexesprovidesupplementaryinformationtoChapter3onhowSBT-settingmethodsworkandonthespecificSBTmethodsavailable.

ThismanualisaproductoftheScienceBasedTargetsinitiative,whichidentifiesandpromotes

innovativeapproachestosettingambitiousandmeaningfulcorporateGHGreductiontargets.Thecontentofthismanualwasdevelopedbasedoninterviewswithmorethan20companieswithexperienceinsettingSBTs.ItalsodrawsuponrecommendationsandcriteriadevelopedbytheSBTinitiativeforthereviewofproposedSBTssubmittedtotheinitiativeaspartofitsCalltoActioncampaign(seeBoxES-1).AtechnicaladvisorygroupcomprisingexpertsfromindustryandNGOsprovideddetailedinputonmultipledraftsofthemanual. Companiesaretheprimaryintendedaudience,althoughthemanualmaybeusefulforother

stakeholdersinterestedinSBTs.Companies(andanysupportingconsultants)shouldconsultthismanualwhenconsideringordevelopinganewGHGemissionsreductiontarget.Companiesmayalsousethismanualtoestablishwhetherexistingtargetsarealignedwithscience.Aboveall,companies

1.Introduction 2.BenefitsofSettingSBTs

3.UnderstandingSBTsettingmethods

4.SettinganSBT

5.BuildingInternalSupport

6.Communicatingthetargetand

progress

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shouldusethismanual(andSBTsmorespecifically)asaframeworkfortheiroverarchingGHGmanagementstrategy.Otherstakeholders,includinginvestors,environmentalgroups,policymakers,andacademics,canusethismanualtolearnaboutbestpracticesforsettingSBTs.ThismanualrepresentsasnapshotofexistingbestpracticesinsettingSBTs.Overtime,theexpectationofwhatconstitutesanSBTmaychangetoreflectadvancesineconomicmodelling,climatescience,andglobalemissionsreductionefforts,andtoreflectfurtherlessonslearnedfromsettingSBTs.Also,newdataresourcesandtoolsmaybecomeavailableinthefuturethatsupportsettingSBTsbasedonsectoralorgeographicconsiderationsthatcurrentlycan’tbesupportedusingexistingdata.Whilethemanualnecessarilyconcentratesoncurrentlyavailabletools,itoutlinesgeneralrecommendationsthatshouldguidefuturetargetsettingpracticesevenastheunderlyingscienceevolves.

ThismanualdoesnotprovideguidanceonimplementingGHGreductionmeasures.CompaniescanuseavarietyofmeasurestoreduceGHGemissions,includingincreasingenergyefficiencyanddecarbonizingenergysources.SuccessfulstrategiesforachievingSBTswillmostlikelyincludeamixofmeasuresdependingonacompany’sgoals,startingposition,thecostofvariousalternatives,andexternalmarketconditions.Decidinguponwhichstrategyismostappropriateforanyonecompanyisbeyondthescopeofthismanual.BoxES-1.AbouttheScienceBasedTargetsinitiative

TheSBTinitiativechampionsSBTsettingasapowerfulwayoffuture-proofingcompanies’growth

inthetransitiontothelow-carboneconomy.

ItisacollaborationbetweenCDP,WorldResourcesInstitute(WRI),theWorldWideFundforNature(WWF),andtheUnitedNationsGlobalCompact(UNGC).Theinitiative:

• ShowcasescompaniesthathavesetSBTsthroughcasestudies,eventsandmediatohighlighttheincreasedinnovation,reducedregulatoryuncertainty,strengthenedinvestorconfidenceandimprovedprofitabilityandcompetitivenessgeneratedbysettingSBTs.

• DefinesandpromotesbestpracticeinsettingSBTswiththesupportofaTechnicalAdvisoryGroup.

• Offersresources,workshopsandguidancetoreducebarrierstoadoption.• Independentlyassessesandapprovescompanies’targetsthroughaCalltoActioncampaign

thatcallsoncompaniestodemonstratetheirleadershiponclimateactionbypubliclycommittingtosetSBTs.Companiesthenhavetwoyearstosubmitatargettotheinitiative,whichshowcasesthetargetafterhavingconfirmeditmeetsspecificcriteria.

Theinitiative’soverallaimisthatby2020,science-basedtargetsettingwillbecomestandardbusinesspracticeandcompanieswillplayamajorroleindrivingdownglobalGHGemissions.EmbeddingSBTsasafundamentalcomponentofsustainabilitymanagementpracticesiscrucialinachievingthis.Formoreinformation,seehttp://sciencebasedtargets.org/

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Key issues in Setting SBTs

CompanieshavesoughtguidanceonarangeofissuesconnectedtosettingSBTs.Someofthemost

pressinginclude:

WhatarethebusinessbenefitsofsettinganSBT?Arbitrarytargetsorincrementaltargetsbasedonwhatisconfidentlyachievablemayresultinsomebusinessadvantages,suchasreducedcosts.SBTscanrequiregreaterinternalinvestmentandcompaniesareoftenuncertainaboutwhetherandhowSBTscanallowthemtofurthercapitalizeonthesebenefits.

WhatmethodsexistforsettingSBTs?Multiplemethodsexist,differingintermsofwhethertheycalculatetargetsasapercentagereductioninabsoluteemissions,emissionsintensityperuniteconomicoutput,oremissionsintensityperamountofphysicalproduct.Themethodsalsovaryinsectoralspecificityandmaybebasedondifferentscientificdatasetsandemissionsprojections.Differentmethodsmaythereforeyieldtargetsthatrequiresubstantiallydifferentactionfromcompaniesanditcanbeunclearwhichmethodsarepreferredunderwhichcircumstances.

WhatdoesacredibleSBTlooklike?Keyconsiderationsinclude:WhattimeperiodshouldanSBTcovertonotonlyfacilitateinvestmentinlow-carbontechnologiesthataretransformativeoverthelong-term,butalsodriveemissionsreductionsoverthenear-term?Whatpercentageoftheemissionsfrominternaloperations(“scope1and2emissions”)andvaluechains(“scope3emissions”)shouldanSBTcover?Whenarevaluechaintargetsimportant?AndhowmayrenewableenergypurchasesandoffsetsbeusedtowardanSBT,ifatall?Whatareeffectivecommunicationstrategiesforgaininginternalbuy-inandbuildingcredibility?TheeffectivecommunicationofanSBTguidesinternalmanagementdecisions,increasesbuy-infromemployees,andenhancescorporatereputation.BecauseSBTsusuallyentailgreatercommitmentonthepartofcompaniestoaltertheirbusinesspractices,gettingthecommunicationrightmatters.

Conclusions and recommendations

SBTsoffermanyadvantagesovermoreincrementalGHGreductiontargets.SBTsaremoreeffectivein:• Buildingbusinessresilienceandincreasingcompetitiveness.• Drivinginnovationandtransformingbusinesspractices.• Buildingcredibilityandreputation.• Influencingandpreparingforshiftsinpublicpolicy.

SBT-settingmethodscanbecomplexandcertainmethodsarepreferredoverothers.

• Generally,allSBT-settingmethodshavethreecomponents:acarbonbudget(definingtheoverallamountofGHGsthatcanbeemittedtolimitwarmingtowithin2°C),anemissionsscenario(definingthemagnitudeandtimingofemissionsreductions),andanallocationapproach(defininghowthebudgetisallocatedtocompanies).

• Sixmethodsarecurrentlyavailablethateachhaveapplicabilitytomultiplesectors.• Companiesshouldnottodefaulttothe“easiest”option,butshouldchoosethemethodand

targetthatbestdrivesemissionsreductionstodemonstratesectorleadership.• TocalculateSBTs,companiesshoulduseamethodthatisbasedeitheronsector-specific

decarbonizationpathways(i.e.,the“SectoralDecarbonizationApproach”method)oronastraightforwardpercentagereductioninabsoluteemissions.

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• Economicintensitytargetsmaybeset.Ingeneral,however,anintensitytargetshouldonlybesetifitleadstoabsolutereductionsinlinewithclimatescienceorismodeledusingasector-specificdecarbonizationpathwaythatassuresemissionreductionsforthesectorasawhole.

Toensuretheirrigorandcredibility,SBTsshouldmeetarangeofcriteria.Mostimportantly:

• AnSBTshouldcoveraminimumof5yearsandamaximumof15yearsfromthedatethetargetispubliclyannounced.Companiesarealsoencouragedtodeveloplong-termtargets(e.g.,through2050).

• Theboundariesofacompany’sSBTshouldalignwiththoseofitsGHGinventory.• Theemissionsreductionsfromscope1and2sourcesshouldbealignedwith2°C

decarbonizationpathways.• SBTsshouldcoveratleast95%ofcompany-widescope1and2emissions.• Companiesshoulduseasingle,specifiedscope2accountingapproach(“location-based”or

“market-based”)forsettingandtrackingprogresstowardanSBT.• Ifacompanyhassignificantscope3emissions(over40%oftotalscope1,2and3emissions),it

shouldsetascope3target.• Scope3targetsgenerallyneednotbescience-based,butshouldbeambitious,measurable,and

clearlydemonstratehowacompanyisaddressingthemainsourcesofGHGemissionswithinitsvaluechaininlinewithcurrentbestpractices.

• Thescope3targetboundaryshouldincludethemajorityofvaluechainemissions;forexample,thetopthreeemissionssourcecategoriesortwo-thirdsoftotalscope3emissions.

• Thenatureofascope3targetwillvarydependingontheemissionssourcecategoryconcernedandtheinfluenceacompanyhasoveritsvaluechainpartners,aswellasthequalityofdataavailablefromthosepartners.

• SBTsshouldbeperiodicallyupdatedtoreflectsignificantchangesthatwouldotherwisecompromisetheirrelevanceandconsistency,overtime.

• OffsetsandavoidedemissionsshouldnotcounttowardSBTs.Gettinginternalstakeholdersonboardthroughallstagesofthetarget-settingprocessrequirescareful

planning.

• StaffresponsibleforsettinganSBTshouldpartnercloselywithalllevelsofthecompanyduringthetarget-settingprocesstosocializegoals,assessfeasibility,andco-createpracticalimplementationplans.

• Staffshouldanticipatetheissuesthatcommonlycreateinternalpush-backandformulateready-maderesponses.

• Forscope3targets,companiesshouldworkcloselywithandsupportsuppliersduringthetarget-settingprocesstoincreasebuy-inandenableimplementation.

Onceatargethasbeenset,communicatingitfully,simply,andclearlyisimportanttoaccuratelyinform

stakeholdersandbuildcredibility.

• CompaniesshouldfollowtheGHGProtocolaccountingandreportingprinciplestodisclosequantitativeandqualitativeaspectsoftheirSBTssothataudiencescanfullyunderstandtheSBTs’context,implications,andnuances.

• Companiesshouldreportannualprogressinreachingtheirtargets.• SBTsshouldbecommunicatedinunderstandabletermsandinengagingways,suchasthrough

diagramsandinfographics,whileavoidingjargon.

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Key Terms

Absoluteemissiontarget

AnoverallreductionintheamountofGHGsacompanyemitsintotheatmospherebyatargetyearrelativetolevelsinabaseyear.

Allocationapproach

Thewaythecarbonbudgetunderlyingagivenemissionsscenarioisallocatedamongcompanieswiththesamelevelofdisaggregation(e.g.inaregion,inasector,orglobally).

Assessmentreport(AR)

MaterialpublishedbytheIPCCprovidingafullscientificandtechnicalassessmentofclimatechange.

Baseyear Theperiodinhistoryagainstwhichacompanytracksperformanceovertime.Carbonbudget Theestimatedamountofcarbon(orCO2)theworldcanemitbeforewarmingwill

exceedspecifictemperaturethresholds.Commonlytakenas1000GTCO2fora2oCthreshold.

CO2equivalent(CO2e)

Aunitusedtoexpresstheglobalwarmingpotentialofdifferentgreenhousegasesasasinglefigure,namelytheequivalentamountorconcentrationofcarbondioxide.

Emissionsintensitytarget

Areductioninemissionsrelativetoaspecificbusinessmetric,suchasproductionoutputorfinancialperformanceofthecompany(e.g.,tonneCO2epertonneproductproducedorvalueadded).Thetargetisachievedbyatargetyearrelativetolevelsinabaseyear.

Emissionsscenario

AforecastoffutureemissionsandatmosphericGHGconcentrations,usedtoassesstheimpactofsocioeconomicandtechnologicalchangesonfutureemissions.

EnergyTechnologyPerspectives(ETP)

DocumentpublishedbytheIEAthatprovidesscenariosthatsetoutpathwaystoasustainableenergyfutureinwhichtechnologychoicesaredrivenbycostsandenvironmentalfactors.

Greenhousegas(GHG)

Agasthatabsorbsandemitsradiationintheatmosphere,contributingtothegreenhouseeffect.GHGsinclude(amongothers)watervapor,carbondioxide,methane,nitrousoxide,ozone,andCFCs.

Heterogeneoussector

Asectorthatcannotbedescribedusingasinglephysicalindicatorbecauseitproducesadiversearrayofproductsthateachhaveuniquecharacteristicsandtraitsandaredifficulttocomparetooneanother.

Homogeneoussector

Asectorinwhichcompaniesmakeproductsthatareuniformbothwithincompaniesandacrossthesectorasawhole,andthatcanbedescribedusingasinglephysicalindicator.

Offset DiscreteGHGreductionsusedtocompensateforGHGemissionselsewhere.Representativeconcentrationpathway(RCP)

AGHGconcentrationtrajectorydevelopedintheIPCC5thAssessmentReport(AR5)forclimatemodelingandresearch.

Scope1emissions

Emissionsfromsourcesthatareownedorcontrolledbythereportingcompany.

Scope2emissions

Emissionsfromthegenerationofelectricity,heat,orsteamthathasbeenpurchasedbythereportingcompany.

Scope3emissions

Allotherindirectemissionsfromsourcesthatarelocatedalongthereportingcompany’svaluechain.

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Targetyear Theyearbywhichacompanyintendstomeettheemissionsreductioncommittedtoinatarget.

TwoDegreesScenario(2DS)

AnemissionsscenariodevelopedintheIEA’sETPthatdescribesanenergysystemconsistentwithanemissionstrajectorythatwouldgivea50percentchanceoflimitingaverageglobaltemperatureincreaseto2°C.

Value-added Dependingonaccountingterminology,thisisdefinedasgrossprofit,operatingprofit,revenueminusthecostofpurchasedgoodsandservices,orEBITDAplusallpersonnelcosts.

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List of Abbreviations

AR5 FifthAssessmentReportfromtheIPCC

CH4 methane

C-Fact CorporateFinanceApproachtoClimate-stabilizingTargets

CO2 carbondioxide

CO2e carbondioxide-equivalent

CSO Context-basedCarbonMetric

CSI ClimateStabilizationIntensityTargets

ETP EnergyTechnologyPerspectives

GDP grossdomesticproduct

GEVA GreenhousegasEmissionsperValueAdded

GHG greenhousegas

IEA InternationalEnergyAgency

IPCC IntergovernmentalPanelonClimateChange

kWh kilowatthour

RCP representativeconcentrationpathway

SBT science-basedtarget

SDA SectoralDecarbonizationApproach

UNFCCC UnitedNationsFrameworkConventiononClimateChange

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1. Introduction

By How Much Must Global Emissions be Cut?

TheFifthAssessmentReportfromtheIntergovernmentalPanelonClimateChange(IPCCi)showsthatdespiteeffortstomitigateclimatechange,greenhousegas(GHG)emissionslevelshaveincreasedby31%between1990and2010(Blancoetal.2014).Theworldiscurrentlyemittingapproximately50GtCO2e/yearintotheatmosphere(Blancoetal.2014)and,asthepopulationandtheeconomycontinuetogrow,willemit56.3 GtCO2e/year by 2030,evenwithcurrentgovernmentpledges(UNFCCC Secretariat 2016).Underthistrajectory,globalmeantemperaturesareprojectedtoincreaseby2.7to3.7°Cbytheendofthiscentury(WRI2015),withdevastatingimpactsonnaturalsystems,waterresources,agriculturalproductivity,andultimatelyoneconomic,political,andsocialstability.ThesciencesaysthatglobalGHGemissionsmustbecutbybetween49and72%from2010levelsby2050(Clarkeetal.2014)ii.Otherwise,theglobaltemperatureincreasewillexceed2ºC compared to pre-industrial temperaturesandtriggercatastrophicchangestotheearth’sclimate.Anincreasingnumberofscientistshaveindicatedthatevena2°Cincreaseistoohightoensureclimatestabilityandarecallingforalimitof1.5ºC(e.g.,Schellnhuberetal.2016).A1.5ºClimitmeansfeweremissionsarepossibleandthatglobalenergyandindustryemissionsmustbephasedoutearlier(Table1-1).Table1-1.ComparingAllowedEmissionsTrajectoriesBetweenthe1.5ºCand2ºCLimits 1.5ºClimit 2ºClimit

Amountofemissionspossible(fromyear2012)beforetemperaturelimitishit

400GTCO2 1010GTCO2

Yearbywhichglobalemissionsmustpeak

Before2020 Before2020

Requiredreductioninglobalemissionsby2050,from2010levels

70-95% 49-72%

Yearbywhichglobalenergyandindustryemissionsmustbephasedout

Between2045and2055 Between2060and2075

Source:Clarkeetal.2014.Nearly200countriesparticipatedinthetwentyfirstUnitedNationsFrameworkConventiononClimateChange(UNFCCC)ConferenceofParties(COP21)andsignedontotheaccompanyingParisAgreementtohold“theincreaseintheglobalaveragetemperaturetowellbelow2°Cabovepre-industriallevelsandtopursueeffortstolimitthetemperatureincreaseto1.5°C”(UNFCCC2015).Theycommittedtoavarietyofsteps,includingasignificantreductioninGHGemissions.Inspiteofthisambition,asubstantialshortfallexists--eventhebesteffortsunderexistingcommitmentswouldleadtoemissionslevelsin2030thatare24to60%higherthantheyshouldbeunderleast-cost2°Cscenarios(UNFCCC Secretariat 2016).Businesshasacriticalroletoplayinbridgingthisgap.WhatisaScience-BasedTarget?

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Inthismanual,GHGemissionsreductiontargetsareconsidered“science-based”iftheyareinlinewiththelevelofdecarbonizationrequiredtokeepglobaltemperatureincreasewithin2°Cofpre-industriallevels.Overtime,theexpectationofwhatconstitutesascience-basedtarget(SBT)maychangetoreflectadvancesineconomicmodelling,climatescience,andglobalemissionsreductionefforts.Inparticular,targetsmaybecomescience-basedonlyiftheyarealignedwith“wellbelow2°C”or1.5°Cscenarios,inkeepingwiththeParisAgreement.WhilecompaniesareencouragedtosetSBTsalignedwith“wellbelow2°C”or1.5°Cscenarios,doingsoisnotcurrentlyacoreexpectationandthismanualfocusesonmethodsfora2°Cincreaseiii.Onceset,SBTsarenotfixed,butrathershouldbeadjustedovertimetoreflectchangesinclimatescienceandotherfactors(seeChapter4.4). The Vital Role of Business Globalemissionsresultfromtheactivitiesofmajoreconomicsectors,includingelectricityandheatproduction;agriculture,forestryandotherlanduse(AFOLU);commercialbuildings;transportandindustry(Figure1.1).Figure1.1.TotalAnthropogenicGHGEmissions(GtCO2eperyear)byEconomicSector,2010Data

Note:OtherEnergycoverssourcesotherthanpublicelectricityandheatproduction,suchasfuelcombustionincokeovensandblastfurnaces.Source:AdaptedfromIPCC2014a.Companiesoperatingwithinalltheseeconomicsectorshaveavitalroletoplayinfacilitatingthetransitiontoalow-carbonfuture.Manycompanies,recognizingtheriskclimatechangeposestotheirbusinessandtheopportunityitcreatesforleadershipandinnovation,havealreadycommittedtochangebysettingemissionreductionstargets,andtrackingandpubliclyreportingGHGemissions.Forexample,outofasampleof1089companiesthatcollectivelyaccountfor12%ofglobalemissions,fully85%ofthecompanieshadsetatarget(CDP2016).

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However,mostofthesetargetsdonotequatetothereductionsrequiredtomeetthethreatposedbyclimatechange:theyarenotasambitiousasthescienceindicatestheyneedtobe,don’tcoverameaningfulpercentageofthecompanies’emissions,orlackalong-termperspective(i.e.gobeyond2020)(CDP2015a;CDP2016).Forexample,ofthesame1089companies,only1%hadsetanSBT(Figure1.2)andcombinedreductionsfromthosetargetsonlyequalonequarterofthetotalreductionsneededindicatedbya2°Cpathway(CDP2016).Figure1.2:IncrementalTargetsareMuchMoreCommonthanSBTsAmongaSetof1089Companies

Source: CDP (2016).

BusinessOpportunityinFillingEmissionsGap

TheLowCarbonTechnologyPartnershipsInitiative(LCPTi)ivcreatedlow-carbontechnologydeploymentactionplansforninebusinesssectors.PwCestimatedthatifitsambitionswererealized,theLCPTicouldcontribute65percentoftheemissionreductionsnecessarytokeeptheworldwithinthe2°Cscenarioby2030.PwCalsoestimatedthattheactionplanscouldhelp“channel$5-10trillionofinvestmenttowardlowcarbonsectorsoftheeconomyandsupport20-45millionperson-yearsofemployment.(PWC2015)”

DecarbonizationofthePowerSector

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ElectricitygenerationcontributesapproximatelyonethirdofglobalGHGemissions(Figure1-1).Therefore,ambitiousactionbypowercompanieswillbevitaltokeepglobalwarmingwithinthe2°Climit.Thepowersectorisexpectedtodecarbonizethroughashiftinelectricitygenerationfromcentralizedtodecentralizedproductionandfromfossilfuelstorenewables.Besidesthemeasurestakenbythepowersectoritself,companiesinothersectorscaninfluencetheuseoflow-carbonenergybyinvestinginoptions,suchaswind,solar,andgeothermalenergysources.Decouplingemissionsfromeconomicgrowthwillalsobeacriticalcomponentofafuture,low-carboneconomyandispossible.Forexample,thelargest100electricpowergeneratorsintheUSachieveda12percentreductioninCO2eemissionsfrom2008to2013,evenasthetotalamountofgenerationincreased(CERES2015).Forsuchdecouplingtobeachieved,companieswillhavetoavoidinvestmentsincarbonintensiveinfrastructuretopreventlockingthemselvesintoahigh-carbongrowthpathand/orhavingstrandedassetsontheirbalancesheetsthatwouldhavetoberetiredearlyinordertomeetthe2°Climit.

WhyShouldmyCompanyCare?

SmartcompaniesunderstandtherisksposedbyclimatechangeanddemonstrateleadershipbysettingSBTs.CompaniesthatsetSBTsbuildlong-termbusinessvalueandsafeguardtheirfutureprofitabilityby(seeChapter2forfurtherdiscussion):

• Buildingbusinessresilienceandincreasingcompetitiveness• Drivinginnovationandtransformingbusinesspractices• Buildingcredibilityandreputation• Influencingandpreparingforshiftsinpublicpolicy

PurposeoftheManual

ThismanualisaguidetodevelopSBTs.ItincorporatesbestpracticesandlessonslearnedfromtheSBTinitiative’swork.Inparticular,itincorporatesthecriteriaandrecommendationsfromtheinitiative’sCall to Actioncampaignasbestpractice,butdoesnotrequireanyofthesecriteriatobemetwithinthecontextofthis“how-to”manual.

WhoShouldUseThisManual?

Thismanualshouldbeusedbycompanies(andanysupportingconsultants)consideringorintheprocessofdevelopinganewGHGemissionsreductiontarget,oradjustingaprevioustarget.CompaniesmayalsousethismanualtoestablishwhetherexistingtargetsarealignedwithscienceandasaframeworkfortheirGHGmanagementstrategy.Additionally,investors,environmentalgroups,policymakers,andacademicscanusethismanualtolearnaboutbestpracticesforsettingSBTs.

WhatIsinThismanual?

ThebulkofthismanualguidesthereaderatahighlevelthroughthedifferentstepsofsettinganSBT,includingdefiningthebusinesscase(Chapter2),understandinghowtoapplythevariousSBTmethods(Chapters3and4),gettinginternalbuy-in(Chapter5),andcommunicatingthetargetandperformanceprogress(Chapter6).Twotechnicalannexesprovidemorein-depth,technicalinformationonavailablemethodsandchoosingamongstthesemethods.HowWasThisManualDeveloped?

Thismanualwasdeveloped throughamulti-stakeholderprocess coordinatedby theSBT initiative.AtechnicaladvisorygroupofexpertsfromindustryandNGOsprovideddetailedinputonmultipledrafts.Inaddition,morethan20companieswithexperienceinsettingSBTswereinterviewedtounderstand

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bestpracticesanddevelopexamples.Adraftofthemanualwasalsoreleasedforapubliccommenttogain additional input from stakeholders world-wide. This process included a webinar and in-personworkshopsinWashington,DC;Mumbai,India;andSãoPaulo,Brazil.

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2. Making the Business Case for Science-based Targets

ThischapteroutlineshowcompaniescanbenefitfromsettingemissionsreductiontargetsandspecificallyhighlightsthedriversforsettingambitiousSBTs.

Benefits of Setting SBTs

Arbitrarytargetsortargetsbasedonwhatisconfidentlyachievableorwhatsectorpeersaredoingmayresultinsomebusinessadvantages,butSBTsallowacompanytocapitalizeonthesebenefitstotheirfullestextentandmovebeyondincrementalchange(Table2-1).RecognizingthepowerandutilityofSBTs,morethantwohundredcompanieshavecommittedtosetanSBTthroughtheSBTinitiative’sCalltoActioncampaign.LandSecurities:Companyquote

TomByrne,EnergyManageratLandSecurities:“Ultimately,thesciencebringsmeaning,andgroundsourambitioninreality:targetsarenolongernumberspulledfromthinair,theyaregoalslinkedtoarealissue.Science-basedtargetscommitustowhatisrequired,notjustwhatisachievable.Inthissense,theyproveleadershipandprovidethe‘spine’ofalong-termsustainabilitystrategy.”

Table2-1.TheBenefitsofAdoptinganSBT

Opportunity CommonPractice–IncrementalTargets Science-basedTargetsBuildbusinessresilienceandincreasecompetitiveness

AreductioninGHGemissionsoftencorrespondstodecreasedcostsandanincreaseinacompany’soperationalefficiency.

Incrementaltargetsmaylimitcompaniestoonlygoingafterthe“lowhangingfruit”.MethodstosetSBTschallengebusinesstore-alignwiththelow-carboneconomy,capitalizingonarangeofopportunitiesbeyondcost-savings.

Driveinnovationandtransformbusinesspractices

Settingtargetscaninspirecompaniesandsupplychainactorstodiscovernovelsolutionsandproductofferings.Becausetargetsarenear-termandnota“stretch”,companiesmaynotbepushedtotransformbusinesspractices.

BecauseSBTsincludealong-termvision,companiescanthinkbeyondthenear-term,commonsolutionsforGHGemissionsreductions.Newtechnologiesandfinancingoptionscanbedevelopedinacorporateenvironmentthatprioritizespreparingforalow-carboneconomy.

Buildcredibilityandreputation

CompaniesthataretransparentintheirGHGreductioneffortsgarnerreputationalcredibilitythroughdemonstratingtheircommitmenttoaddressingclimatechange.However,investorsandotherstakeholdersarenowdemandingtargetsbasedonexternal,science-drivenprojections,whichcouldputthesecompaniesatrisk.

SBTshavehighercredibilitywithstakeholders.Scienceisrequiringcompaniestoincreasetheirlevelofambition.CompanieswithSBTsareoftenlower-riskoptionsforlong-terminvestment.

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Opportunity CommonPractice–IncrementalTargets Science-basedTargetsInfluenceandprepareforshiftsinpublicpolicy

Incrementaltargetssendasignaltopolicymakersthatcompaniestakeclimatechangeseriously.

SBTshelpcompaniesadapttochangingpoliciesandsendastrongersignaltopolicymakers,allowingcompaniestobetterinfluencepolicydecisions.

BuildBusinessResilienceandIncreaseCompetitiveness

ByreducingtheGHGemissionsfromitsoperationsandvaluechain,acompanycanincreaseitsresilienceandcompetitivenessinalow-carboneconomy.Achievingsteeperemissionsreductionscanhelpacompanysavemoremoneywithrespecttoenergycostsfrommanufacturingandlogisticsoperations,amongstothers,andthereforecanincreaseitscompetitiveness.Also,decreasingenergyconsumptionreducesacompany’sexposuretotherisksassociatedwithfossilfuelpricefluctuations.SBTscanalsohelpcompaniesachievehigherinternalratesofreturnoninvestmentsthancompetitors(WeMeanBusiness2014).

P&G:AmbitiousTargetsSpurringInnovationandEnergySavings

InFY14/15,Procter&Gamble(P&G)setanSBTofa30%reductioninabsolutescope1and2emissionsby2020,froma2010baseyear.Renewableenergywillbekeytohelpingthecompanyachieveitsgoal.P&GhaspartneredwithEDFRenewableEnergytobuilda100MWwindfarminTexas.AccordingtoP&G,itwillprovide"enoughwindpowerelectricitytomanufacture100%ofourFabricandHomeCareproducts...intheU.S.andCanadav."Thisisequivalenttoeliminating200,000metrictonsofGHGsperyear.P&Gisalsolookingtoitsemployeestofindnewwaystoreduceenergy.Thecompanylaunchedaprogramcalledthe“Powerof5”designedtogiveemployeesachanneltosharetheirideastoreduceenergyusageandsavemoney.Sofar,theprogramhasgeneratedmorethan$25millioninnew,energy-savingopportunities,whichwillbeimplementedoverthenexttwotothreeyears.

DriveInnovationandTransformBusinessPractices

Havingaggressivereductiontargetscandrivegreaterinnovationandinvestment.Ambitioustargetscanmotivateemployeesfromallpartsofabusinesstothinkbeyondincrementalchangesandbetrulytransformationalintheirbusinesspractices.Innovationmotivatedbyambitioustargetscanleadtonewbusinessmodelsandsourcesofvalue.Innovationcanhelpredefineacompany’sbottomlinebycreatingnewproducts,newwaystosourcematerials,newwaystointeractwithcustomers,andnewwaystogrowmarkets.Radicalinnovationcan,inturn,disruptcurrentlyunsustainableeconomicsystems.Ambitioustargetscanalsospurinnovativefinancingpracticessuchasinternalcarbonpricingorcarbontaxes.Creativefinancingpracticescanenablethesignificantcapitalandresearchanddevelopment(R&D)investmentsneededtoachieveambitioustargetsandachievingthesetargetscan,inturn,resultinanimprovedbottomline.Dell:InnovationinSoldProductsandServicesTheenergyusedbyDell’sproductsisthelargestcontributortoitstotalcarbonfootprintandinnovationsinproductenergyefficiencyareakeypartofitsoverallemissionsreductionstrategy.AspartofitsSBT,Dellcommittedtoreducetheenergyintensityofitsproductportfolio80%by2020,froma2011baseyear.Dellisleveragingtechnologyacrossitsproductlines,suchaslaptops,desktops,servers,andnetworkingequipment,tomeetthistarget.Oneexampleofthisinnovationis

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Dell’snewgenerationofbladeserverswhichactlikeastreamlineddatacenter,withamuchsmallerGHGfootprintthantypicaldatacenters.Customersgainspaceandprocessingpower,freeuptheirITteamandreduce their power costsbyupto20percent,comparedtoidentically-configuredcompetitiveofferings.Dell’sPrincipalEnvironmentalStrategist,JohnPflueger,said:“Engineerslovedata!Givethemthedataandtheywillrespond.Theycannowgoinandworkoutwherethebiggestenergyfootprintsareinthecompany.Theyhavealicencetoinnovateinordertomeetthebusinessstrategygoals.Thefactisifyouwanttosolveaproblem,youneedtoknowthescaleandnatureoftheproblemyouaretryingtosolve.Whenyouhavethisinformationandtheseinsights,thenyouknowwhatyouneedtodo.”vi

Walmart:companyquote

Fred Bedore, senior director of sustainability at Walmart:"Ithinkwhatever'srightinfrontofyoufeelsthemostdifficult,butthat'salsowherealotofthebreakthroughinnovationhappens.[…]Withsettingsciencebasedtargets,notonlyisthatprobablythelongesttimehorizonforoneofourspecificgoals,butit'salsoprobablyoneofthemostaggressiveandcomprehensivegoalsthatwe'vesetasacompany.SoIthinkitwillreallypushusandpushourstakeholderstoreallygettothoseinnovations."

KelloggCompany:InnovationinSupplychainsAspartofitsSBT,KelloggCompanyhascommittedtoreduceabsolutescope3emissions20%by2030and50%by2050,froma2015baseyear.ThisisKellogg’sfirstquantitativescope3targetandtoachieveitthecompanyisengagingitssupplierstoestablishabaseyearGHGinventoryandidentifywhatchangescanbemade.SinceKelloggsetthistarget,ithasalreadyengaged75%ofitssuppliers(over400intotal),encouragingthemtorespondtotheCDPquestionnaireonemissionsandmaterialstohelpthemunderstandthechallengeandavailableoptions.Kelloggalsohas35programsaroundtheworldtohelpfarmersdecreasetheirfootprint,andissupportinghalfamillionfarmerstoimplementsmartagriculturalpracticesfocusedonemissionreductionsandresiliency.Kelloggisalsocollatingtheresearchresultsandlessonslearnedandsharingthemwithindividualfarmers.vii

BuildCredibilityandReputationwithEmployees,Customers,Investors,andOtherStakeholders

SBTsrepresentarigorous,non-arbitraryapproachtosetstretchgoalsandhelpcreateapathwayformeaningfulGHGemissionreductionefforts.Settingtargetsbackedbyanexternalcommunityofclimateexpertslendscredibilitytocorporatesustainabilitygoalsandcanenhanceacompany’sreputationintheeyesofitsemployees,customers,policymakers,environmentalgroups,andotherstakeholders.Companiesmightalsogainreputationaladvantagewithsomeinvestors.Moreinvestorsarerecognizingthematerialityandriskofclimatechangeformanysectors.Forexample,since2010,therehasbeena54%riseinthenumberofinstitutionalinvestors(from534to822)requestingdisclosureofclimatechange,energyandemissionsdatathroughCDP(CDP2015b).Asof2016,sixtypercentoftheworld’s500biggestassetownersareactingtoreducetheirexposuretoclimateriskandincreasetheirinvestmentinthelowcarboneconomy(AODP2017).

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ThevisibilityandpositivereputationgarneredbyhavinganSBTshouldalsobolstergeneralemployerattractiveness.Forexample,asurveybyNetImpactshowedthat80%ofmillennialswanttoworkforacompanythatcaresaboutitsimpacts.InvestorsIncreasingInterestinClimateRiskandOpportunity

Theinvestmentcommunityisincreasinglyrecognizingthematerialriskclimatechangeposesformanysectors,eitherintermsofhowitimpactsagivencompanyorhowthatcompanyunderstandsandmanagesitsrisk.Someexamplesofinvestorinitiativesinclude:

• TheGlobalInvestorsCoalitiononClimateChange(GICCC),ajointinitiativeoffourregionalclimatechangeinvestorgroups,issuedaStatementatCOP21endorsedby409investorsrepresentingmorethanUS$24trillioninassets.Theinvestorscommittedtoseveralsteps,includingto“workwiththecompaniesinwhichweinvesttoensurethattheyareminimizinganddisclosingtherisksandmaximizingtheopportunitiespresentedbyclimatechangeandclimatepolicyviii.”

• TheSustainableAccountingStandardsBoard(SASB),anon-profitorganization,iscreatingindustrystandardsforthedisclosureofmaterialsustainabilityinformationinmandatorySECfilingsthatinvestorscanusetoassessandmakedecisionsaboutacompany.

• TheFrenchgovernmentnowmandatesthatfinancialinstitutionsdisclosetheirclimaterisk.• The2015UNParisAgreementonClimateChangecommitsgovernmentsto“Makingfinance

flowsconsistentwithapathwaytowardslowgreenhousegasemissionsandclimate-resilientdevelopment.(UNFCCC2015)”

• TheTaskForceonClimate-relatedFinancialDisclosures(TCFD)isdevelopingvoluntary,consistent,climate-relatedfinancialriskdisclosuresforusebycompaniesinprovidinginformationtoinvestors,lenders,insurers,andotherstakeholders.

NRGEnergy:UsingSBTstoFuture-proofBusiness

NRGEnergyprovideselectricitytonearly3millionretailcustomersacrosstheUnitedStates.Ithascommittedtoreduceabsolutescope1,2and3emissions50%by2030,and90%by2050,froma2014baseyear.NRGhasbeeninvestingheavilyincleanenergywithaviewtobecomingtheleadinggreenenergyproducerintheU.S.“Settingascience-basedtargetdirectlyansweredtheneedsofourcustomers,allofwhomarethinkingabouttheirownfootprints.Itisalsocriticalforinvestorswhoneedtoknowthatwearethinkingofpotentialrisks,intheshort-,medium-andlong-term,”saidLaurelPeacock,Sr.SustainabilityDirectoratNRG.“Havinganambitioustarget[…]isimportanttoshowthatwewillremainreliable,sustainable,safesuppliersnowandinthefuture.ix”

LandSecurities:Companyquote

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TomByrne,EnergyManageratLandSecurities:“Havingourtargetapprovedhasundoubtedlyenhancedourreputationandrelationshipwithinvestors.Wearenowanevenbetterlong-terminvestmentprospect.Aslongaswekeepupdatingitinlinewiththelatestscience,ourtargetfuture-proofsusforinvestorrequirementsforthenext50years.Inthesustainabilityteamweareincreasinglytakingcallsfrominvestorswhowanttotalkaboutwhatwe’redoing.Somearethinkingaboutsettingtheirownscience-basedtargets,whileothersarethinkingofmakingthemarequirementforcompaniestheyinvestin.”Ithinkthetargetalsoputsusinagoodpositionvis-à-visgovernmentregulation.WearefullycompliantwiththeUKgovernment’sexistingtargets,andwouldbewellplacedweretheytointroducemorestringentregulationforcompanies.Indeed,Ithinkthatindustryisnowleadinggovernmentonthis:weareshowingwhatcompaniescandoontheirown,andhopefullycreatinganenvironmentinwhichotherswillfollowsuitandthebarwillberaised.”x

Coca-ColaEnterprises:CompanyQuote

JoeFranses,DirectorofCorporateResponsibilityandSustainabilityatCoca-ColaEnterprises:

“Manyofourmajorretailcustomers-includingTesco,CarrefourandSainsbury’s-arealsoputtinginplaceplanstosignificantlyreducetheirowncarbonemissionsandemissionsacrosstheirownsupplychains.Thismeansthatmajorsuppliers,includingCCE,willneedtoensurethatcarbonreductiontargetsarefullyaligned.Weexpectthesameofoursuppliers.”xi

InfluenceandPrepareforShiftsinPublicPolicy

SettingandmeetingSBTscanreduceacompany’sexposuretomorestringentemissionsandenergyregulations,helpingitsmoothlyadapttoregulatoryandpolicychangesthatmightotherwiseimpactdailybusinessoperationsandimpedefinancialgrowth.Leadingcompanies’adoptionandimplementationofSBTsalsodemonstratesthetechnicalandeconomicfeasibilityoflow-carbonproductionforpolicymakersandotherstakeholders.CompanieswithSBTscanalsoinfluencepolicybysignalingtheirsupportforlow-carbonpoliciesandcreatingdemandforlow-carbontechnologypathwaysandrenewableenergysolutionsthatwouldbenefitfrommorefavorablepolicyconditions.Companyquote:Dell

JohnPflueger,PrincipalEnvironmentalStrategistatDell:“IthinktheAmericanBusinessActsonClimatePledgewasarealwatershedmoment.ItwasabigsignalfromtheFederalgovernmentthatcompaniesneededtostartlookingseriouslyattheseissues.Thegovernmentdoesn’tjustsetrulesandaculture,butitisalsoapotentialcustomer.Itcanindicateitssupportforlow-carboninnovationbypurchasingthoseproducts,sointhatsense,havingasciencebasedtargetshouldstandusingoodstead”.

SettinganSBTisnotatoddswitheconomicgrowth.Asdemonstratedbythebenefitsnotedabove,aspiringtoinnovativebusinessstrategiescancatalyzefinancialsuccessandprepareacompanytothriveinalow-carboneconomy.Companieswillcollectivelybenefitfromanenvironmentthatremainsconducivetobusinessandmitigatesdisruptiontobusinessoperations.Inordertoensurethisfuturestate,companieswillneedtosettargetsthatareinlinewiththeglobal2°Climit.

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3. Understanding Science-based Target Setting methods

ThischapterdescribesthegeneralmethodologicalapproachforsettinganSBT.Itthenprovidesahigh-leveldescriptionofthespecificmethodscurrentlyavailableandguidanceonhowtochooseamongstthosemethods.

Annexes1and2ofthisGuidanceprovidesfurther,technicalguidanceontheseissues.

KeyInsightsinThisChapter

• ThekeycomponentsofanSBTmethodarethecarbonbudget(definingtheoverallamountofGHGsthatcanbeemittedtolimitwarmingtowithin2°C),emissionsscenario(definingthemagnitudeandtimingofemissionsreductions),andallocationapproach(defininghowthebudgetisallocatedtocompanies).

• Sixmethodsarecurrentlyavailablethateachhaveapplicabilitytomultiplesectors.• Somemethodswillbemoresuitableforcertaincompanies/sectorsthanothers.• Companiesshouldnottodefaulttothe“easiest”option,butshouldchoosethemethodand

targetthatbestdrivesemissionsreductionstodemonstratesectorleadership.• Companiesshoulduseeitherasector-basedmethodoranabsoluteemissionscontraction

approachtocalculateSBTs.• Economicintensitytargetsmaybeset.Ingeneral,however,anintensitytargetshouldonly

besetifitleadstoabsolutereductionsinlinewithclimatescienceorismodeledusingasector-specificdecarbonizationpathwaythatassuresemissionreductionsforthesectorasawhole.

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3.1 Components of a science-based target method

Ingeneral,anSBTmethodcomprisesthreecomponents(Figure2-1):1. Acarbonbudget2. Anemissionsscenario3. Anallocationapproach.

Figure2-1.MainElementsofMethodsforSettingSBTs

CarbonBudget:Thereisafiniteamountofcarbonthatcanbeemittedintotheatmospherebeforewarmingwillexceedspecifictemperaturethresholds.Thisamountistermedthecarbonbudget.AllSBTmethodsarebasedonkeepingthetotalcumulativeglobalemissionsbelowthetotalavailablecarbonbudgetfora2°Cthreshold.Thisbudgetis1010GtCO2from2013(IPCC2014b)or700GtCO2from2017(Rockströmetal.2017).

EmissionsScenario:Anemissionsscenariomainlyrepresentsawayofdistributingtheavailablecarbonbudgetovertime.AlthoughitisnotpossibletopredictexactlywhenandtowhatextentGHGswillbeemittedinthefuture,severalscenarioshavebeendevelopedbyorganizationssuchastheIPCCandtheInternationalEnergyAgency(IEA)xii.Thescenariosvary,dependingonassumptionsmadeaboutpopulationandeconomicgrowth,andabouttechnologicaladvancesandtheircost-effectiveness.ThescenariosmayalsocoverdifferenttimeperiodsorbemodelledusinginformationonGHGconcentrationsortemperatureincreases(seeAnnex1formoredetails).Inaddition,scenariosvaryintermsoftheextenttowhichtheyaredisaggregatedbysectorand/orregion.AllocationApproach:Anallocationapproachreferstothewaythecarbonbudgetunderlyingagivenemissionsscenarioisallocatedamongcompanieswiththesamelevelofdisaggregation(e.g.inaregion,inasector,orglobally).

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TheSBTmethodsreferencedinthismanualusetwomainapproachestoallocateemissionsatacompanylevel:

1. Convergence,whereallcompanieswithinagivensectorreducetheiremissionsintensitytoacommonvalueby2050asdictatedbyaglobal2°Cpathway(e.g.,theemissionsintensityofallelectricpowercompaniesconvergestoamaximumof29gCO2eperkWhofelectricityin2050).Thereductionresponsibilitiesallocatedtoacompanyvarydependingonitsinitialcarbonintensityandgrowthraterelativetothoseofthesector,aswellasthesector-wideemissionsintensitycompatiblewiththeglobal2°Cpathway.Theconvergenceapproachcanonlybeusedwithsector-specificemissionsscenariosandphysicalintensitymetrics(e.g.,tonnesGHGpertonneproductorMWhgenerated).

2. Contraction,whereallcompaniesreducetheirabsoluteemissionsoreconomicemissionsintensity(e.g.,tonnesGHGperunitvalue-added)atthesamerate,irrespectiveofinitialemissionsperformance,anddonothavetoconvergeuponacommonemissionsvalue.Thecontractionapproachcanbeusedwithsector-specificorglobalemissionsscenarios.

3.2 Method parameters Inadditiontothecarbonbudget,emissionscenarioandallocationapproach,eachmethodrequirescompanydatainputsandgeneratesoutputsthatcanbeusedasabenchmarktoinformtargetsetting. Company Inputs Company-specificdataneededtoproduceatargetunderanyoftheSBTmethodsinclude:

• baseyear• emissionsinthebaseyear,disaggregatedbyscope• activitiesinthebaseyear(e.g.,buildingfloorarea,distancetravelled,valueadded,etc.)• targetyear

Somemethodsrequireadditionalcompanyinputssuchassectorclassification.Annex2liststheprimaryinformationneededbyeachofthemethods. Becauseeachmethodissensitivetotheinputsused,anderrorscanpropagatethroughoutthemethods,companydatashouldbeasaccurateaspossible(seealsoChapter4.3).Projected Outputs Dependingonthemethod,thetargetoutputcanbeanabsolutefigure,anintensityfigure,orboth.AnabsolutetargetisdefinedintermsofanoverallreductionintheamountofGHGsemittedtotheatmospherebythetargetyear,relativetothebaseyear(e.g.,reduceannualCO2eemissions25%by2025,from2000levels).Inturn,anintensitytargetisdefinedbyareductioninemissionsrelativetoaspecificbusinessmetric,suchasproductionoutputorfinancialperformanceofthecompany(e.g.,tonneCO2epertonneproductproducedorvalueadded).Dependingonreportingandcommunicationpreferences,acompanycanchoosetousethetargetformatoutputbyamethodand/ortranslateittootherformats(e.g.,useproductiondatatoconvertanabsolutetargetintoanintensitytarget).Belowareillustrativeexamplesofpublishedabsoluteandintensitytargets:ExamplesofAbsolutetargets:

• Scopes1and2:Procter&Gamblecommitstoreduceemissionsfromoperations30%by2020froma2010baseyear.

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• Scopes1,2and3:GeneralMillscommitstoreduceabsoluteemissions28%acrossitsentirevaluechain(scopes1,2and3),fromfarmtoforktolandfillby2025,usinga2010baseyear.

ExamplesofIntensitytargets:• Scope1:EnelcommitstoreduceCO2emissions25%perkWhby2020,froma2007baseyear.• Scopes1,2and3:Thalyscommitstoreducecorporatescope1,2and3GHGemissionsper

passengerkilometerby41.4%by2020,comparedtoa2008base-year.

ExampleofCombination(AbsoluteandIntensity)targets:• Scopes1,2and3:Coca-ColaEnterprisescommitstoreduceabsoluteGHGemissionsfromtheir

corebusinessoperations50%by2020,usinga2007base-year.Coca-ColaEnterprisesalsocommitstoreducetheGHGemissionsfromtheirdrinks33%by2020,usinga2007base-year.

Comparing Absolute and Intensity Targets Eachtypeoftargethasadvantagesanddisadvantages.Forexample,intensitytargetsdonotnecessarilyleadtoreductionsinabsoluteemissions.Thisisbecauseincreasesinbusinessoutputcancauseabsoluteemissionstoriseevenifefficiencyimprovesonaperunitbasis.Figure3-1illustratesthispoint.Figure3-1.IntensityReductionTargetsCanLeadtoAbsoluteEmissionsIncreasesWhenProductionLevelsIncrease

Anotherchallengewithintensitytargetsisthatitcanbedifficulttocomeupwithasingle,meaningfulactivitymetricthatcoversallofacompany’soperations,particularlywhenthoseoperationsgenerateadiverseproductmix.Physicalintensitymetrics(e.g.,tonnesGHGpertonneproductorMWhgenerated)arebestsuitedforusewithinsectorsthatcreateauniformproduct(“homogeneous”sectors,suchasthesteelorcementsectors).Economicintensitymetrics(e.g.,tonnesGHGperunitvalue-added)arebestsuitedforusewithinsectorswhoseproductsvaryalotandaredifficulttodirectlycompareagainsteachother(“heterogeneous”sectors,suchastheretailorchemicalsectors).However,aneconomicintensitymetricmaynotcorrelatewithproductemissionsand,ifpricesofacompany’sproductsarevolatile,aneconomicmetricisnotusefulfortrackingemissionsperformance(seealsoChapter3.3).Absolutetargetsalsohavesomeshortcomings.TheydonotallowcomparisonsofGHGintensityamongstpeersandtheydonotnecessarilytrackwithefficiencyimprovements,asreportedreductions

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canresultfromdeclinesinproductionoutput,ratherthanimprovementsinperformance.Table3-1summarizesthemainadvantagesanddisadvantagesofbothtypesoftargets.Table3-1.TheMainAdvantagesandDisadvantagesofAbsoluteandIntensityTargets AbsoluteTarget IntensityTarget

Advantages DesignedtoreducethequantityofGHGsemittedtotheatmospherebyaspecificamountEnvironmentallyrobustandmorecredibletostakeholdersasitentailsacommitmenttoreducetotalGHGsbyaspecifiedamount,thusalsomakingthecontributiontoglobalemissionsreductionseffortspredictableandtransparent.

ReflectsGHGperformanceandefficiencyimprovementsindependentofbusinessgrowthordeclineMayincreasethecomparabilityofGHGperformanceamongstcompanies

Disadvantages DoesnotallowcomparisonsofGHGintensity/efficiencytothatofpeersReportedreductionscanresultfromdeclinesinproduction/output,ratherthanimprovementsinperformanceTargetmaybemorechallengingtoachieveifthecompanygrowsandgrowthislinkedtoGHGemissions

Lessenvironmentallyrobustandlesscredibletostakeholdersbecauseabsoluteemissionsmayriseevenifintensitydecreases(e.g.,becauseoutputincreasesmorethanGHGintensitydecreases).Companieswithdiverseoperationsmayfinditdifficulttodefineasinglecommonbusinessmetric.Aneconomicintensitymetricmaynotcorrelatewithemissionstiedtophysicalproductionprocesses.

3.3 Selecting an SBT method AvailableMethods

ThisguidancemanualprovidesdetailsonsixSBTmethods,allofwhicharefree,publiclyavailable,andapplicabletomorethanonesector(Table3-2).

1. Onemethodusesconvergenceofemissionsintensitytocreatephysicalintensitytargets:SectoralDecarbonizationApproach(SDA).

2. Onemethodusescontractionofabsoluteemissionstocreateabsolutetargets:AbsoluteEmissionsContractionxiii.TheSDAalsousescontractionofabsoluteemissionsforageneral“OtherIndustry”sector,whichcomprisesmanufacturingsectorsforwhichdataaren’tavailabletosupporttheuseoftheconvergenceofemissionsintensityapproach(seeAnnex1).

3. Fourmethodsusecontractionofeconomicintensitytocreateeconomicintensitytargets:CorporateFinanceApproachtoClimate-stabilizingTargets(C-FACT),ClimateStabilizationIntensityTargets(CSI),Context-basedCarbonMetric(CSO),andGreenhouseGasEmissionsperValueAdded(GEVA).

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Thesemethodsalsovaryintermsoftheirsectordisaggregation.TheSDAisbasedonsectoral2°Cpathwaysandcanbeappliedtospecificsectors(seeBox3-1).Stillothermethodscanbeusedwithanysectoralemissionsscenario(AbsoluteEmissionsContraction)orcanbeadaptedforusewithanyscenario(GEVA,CSI,CSO)–thelevelofsectordisaggregationofthesemethodswillthereforedependonthatoftheunderlyingscenario.Annex2furtherdetailsthekeyfeaturesofeachmethod.Beyondthesesixmethods,itisexpectedthatnewscenariosandmethodswillbedevelopedforarangeofspecificsectors.InformationonthesewillbepostedtotheSBTinitiative’swebsiteasthemethodsaremadepubliclyavailableand/orvalidatedbytheinitiative.Currently,availabledatadonotsupportthedisaggregationofemissionspathwaysbycountryorregion;seeAnnex1forfurtherdetails.Table3-2:KeyFeaturesofSBTMethodsMethod Allocationapproach Sectors Typeof

Target

Output

AbsoluteEmissionsContraction

Contractionofabsoluteemissions

Dependsonemissionsscenario

Absolute

CorporateFinanceApproachtoClimate-stabilizingTargets(C-FACT)

Contractionofemissionsintensity


Absoluteandeconomicintensity

ClimateStabilizationIntensityTargets(CSI)



Economicintensity

Context-basedCarbonMetric(CSO)



Economicintensity

GreenhouseGasEmissionsperValueAdded(GEVA)



Economicintensity

SectoralDecarbonizationApproach(SDA)

Convergenceofemissionsintensity

Various Physicalintensity

Contractionofabsoluteemissions

1sectorcoveringmiscellaneousmanufacturingindustries

Absolute

Box3-1.SDASectorsCurrently, the SDA provides sector-specific pathways for the following sectorsa:

• PowerGeneration• Iron&Steel• Cement• Aluminum• Pulp&Paper• Chemicalsb• Services/commercialbuildings• Passengertransport

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TheSDAalsocalculatesSBTsforageneral“OtherIndustry”sectorthatcoverstheconstructionindustryandawiderangeofmanufacturingsectors(e.g.,foodandbeverage,electronics,machinery).Notes:

a. TheSDAsectorsaredrawnfromtheInternationalEnergyAgency(IEA).AnappendixintheSDAuserguidancemapstheIEAsectorsagainstcommonindustrialclassificationsystems:http://sciencebasedtargets.org/wp-content/uploads/2015/05/Sectoral-Decarbonization-Approach-Report.pdf.

b. TheheterogeneityofthechemicalsectorlimitsthepresentutilityofthisSDApathway.Choosing an SBT Method TheSBTinitiativerecommendscompaniesuseeitherasector-basedmethod(SDA)orAbsoluteEmissionsContraction.Aneconomiccontractionmethodmayalsobeusedtosetaneconomicintensitytarget(usingC-FACT,CSI,CSO,orGEVA).Ingeneral,anintensitytargetshouldonlybesetifitleadstoabsolutereductionsinlinewithclimatescienceorismodeledusingasector-specificpathway(e.g.,SDA)thatassuresemissionreductionsforthesectorasawhole.Becauseintensityandabsolutetargetseachhaveadvantagesanddisadvantages,itisrecommendedthatcompaniesexpresstheirtargetsinbothabsoluteandintensityterms.Ifacompanyoperatesinmorethanonesector,itshouldidentifythetopsectorsthatcoveramajorityofitsoperations.Themethodsthatapplytothesesectorscanthenbeusedasabenchmarktodeterminetheaggregatedfinaltarget.Forexample,acompanymightoperateinthealuminumsectorandhavepowergenerationoperationstosupportthealuminumproduction.Inthiscase,thecompanycouldsettwodifferenttargetsusingboththealuminumandpowergenerationsectorpathwaysintheSDA.Similarly,acompanycouldusemultiplemethodsfordifferentscope3emissionscategories(seeChapter4.3).Acompanyshoulddevelopanaggregatedtargetthatappliesacrossitsentirestructureforexternalreportingandcommunication,althoughseparateinternaltargetsmaybedevelopedbyregion,sector,facility,oremissionscategoryforeaseoftrackingandexecution.CompaniesShouldChoosetheMostAmbitiousTargetInsomecases,variationwillexistintheambitionandreductionpathwaysoftargetsoutputbythedifferentmethods.Forexample,differentscenariosintheIPCC’sFifthAssessmentReportresultinrequiredreductionsof49%and66%between2010and2050(seeAnnex1).Tohelpensureadherencetothecarbonbudget,companiesshouldnotdefaulttothetargetthatiseasiesttomeet.Companiesshouldinsteadusethemostambitiousdecarbonizationscenariosandmethodsthatleadtotheearliestreductionsandtheleastcumulativeemissions.Acompanyshouldscreenseveralofthemethodsandchoosethemethodandtargetthatbestdrivesemissionsreductionstodemonstratesectorleadership.Methodselectionmayalsobeinfluencedbypracticalconsiderations,suchastheavailabilityofinputdataforthebaseyearandtargetyear.ElectricPowerGenerationCompaniesElectricpowergenerationcompaniesshouldsetscope1targetsthatareatleastasambitiousasthosedeterminedbytheSDA.ThisisbecausethepowersectoristhesinglelargestcontributortoglobalGHG

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emissions(Figure1-1)andcancost-effectivelyreduceitsemissionsbyanamountthatmaybeunderestimatedbyothermethods.SettingSBTsinSectorswithPriceFluctuationsForsectorswithlimitedfluctuationsinproductpricesovertime,growthinemissionsisoftentiedtoeconomicgrowthofthecompany:ifacompanysellsmoreproducts,moreemissionsareproducedtomakethoseproducts.Insuchcases,aneconomicintensitytargetmaybeappropriate.Forsomesectorsthefinancialgrowthofacompanyisnotalwaystiedtoincreasedemissionsandcanbeinfluencedbyothermarketforces,suchassupplyanddemand,andpricefluctuations.Forexample:

• Apharmaceuticalcompany’spricesforcertaindrugsmayfluctuatebasedondemand,patents,orregulatoryfactors.

• Thevalueadded(orgrossprofit)ofaluxurybrandcompanycanberelatedtomarketingandconsumerwillingnesstopayforapremiumproduct,introducingvariabilityintopricing.

• Thepriceofmanycommodities(e.g.,metalsandagriculturalcommodities)issetbytradesplacedoncommodityexchanges.

InsuchcasescompaniesshoulddevelopSBTsusingthecontractionofphysicalintensity(SDA)orthecontractionofabsoluteemissions.

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4. Setting a Science Based Target

ThischapteroutlinesastepwiseprocessforusingtheSBTmethod(s)toinformascope1,2,and3target.ItincorporatestheexistingcriteriaandrecommendationsfromtheSBTinitiative’sCalltoActioncampaignasbestpractice.BecauseSBTsarebuiltuponcorporateGHGinventories,thischapteralsoreferencesrelevantrequirementsinGHGProtocolstandardsforGHGinventorydevelopment.ThischapterfirstdiscussescorerecommendationsandstepsthatapplyacrossallscopesindesigninganSBT.Itthenoutlinesspecificrecommendationsforscope1and2targetsand,separately,scope3targets.ItcloseswithguidanceonhowSBTsshouldbeadjustedovertimetoensuretheircontinuedrelevance,aswellaswithoptionsforthethird-partyreviewofproposedSBTs.TheCalltoAction’scriteriaandrecommendationsmaychangeslightlyovertimetoincorporatefurtherlessonslearned.UsersareencouragedtoconsultthecurrentlistoftheCalltoAction’scriteriaandrecommendations,availablefromtheSBTinitiative’swebsitexiv.KeyInsightsinThisChapter

• AnSBTshouldcoveraminimumof5yearsandamaximumof15yearsfromthedatethetargetispubliclyannounced.Companiesarealsoencouragedtodeveloplong-termtargets(e.g.,through2050).

• Theboundariesofacompany’sSBTshouldalignwiththoseofitsGHGinventory.• Theemissionsreductionsfromscope1and2sourcesshouldbealignedwith2°C

decarbonizationpathways.• SBTsshouldcoveratleast95%ofcompany-widescope1and2emissions.• Companiesshoulduseasingle,specifiedscope2accountingapproach(“location-based”

or“market-based”)forsettingandtrackingprogresstowardanSBT.• Ifacompanyhassignificantscope3emissions(over40%oftotalscope1,2and3

emissions),itshouldsetascope3target.• Scope3targetsgenerallyneednotbescience-based,butshouldbeambitious,

measurable,andclearlydemonstratehowacompanyisaddressingthemainsourcesofGHGemissionswithinitsvaluechaininlinewithcurrentbestpractices.

• Thescope3targetboundaryshouldincludethemajorityofvaluechainemissions;forexample,thetop3categoriesortwo-thirdsoftotalscope3emissions.

• Thenatureofascope3targetwillvarydependingontheemissionssourcecategoryconcernedandtheinfluenceacompanyhasoveritsvaluechainpartners,aswellasthequalityofdataavailablefromthosepartners.

• SBTsshouldbeperiodicallyupdatedtoreflectsignificantchangesthatwouldotherwisecompromisetheirrelevanceandconsistency,overtime.

• OffsetsandavoidedemissionsshouldnotcounttowardSBTs.

4.1 Follow steps that apply across all scopes

A varietyofconsiderationsandstepsapplyacrossallthreescopes:

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ChooseaBaseYear

Themeaningfulandconsistenttrackingofemissionsperformanceoverthetargetperiodrequirescompaniestoestablishabaseyear.Twocriteriaareimportantforselectingabaseyear:verifiabledataonscope1,2,and3emissionsmustexistforthebaseyear,andthebaseyearmustberepresentativeofacompany’sGHGprofile.TheSBTinitiativerecommendschoosingthemostrecentyearforwhichdataareavailableasthetargetbaseyear.Sometimes,individualyearsmaynotserveasrepresentativebaseyears.Insuchcases,companiescouldaverageGHGdataformultiple,consecutiveyearstoformamorerepresentativebaseyearthatsmoothsoutunusualfluctuationsinemissions.Forexample,acompanythathadanuncharacteristicyearin2009couldsetitstargetas:‘By2025emissionswillbe40%lowerthanaverageemissionsforthe2008-2010period’.Also,thebaseyearshouldbechosensuchthetargetisforward-lookinganddoesnotcoverprogress-to-datealreadyachievedbythecompany.Whilecompaniesdeservecreditforpastprogress,theintegrityofanSBTwouldbesuspectifthereislittlelefttoaccomplishbythetimethetargetisannounced.Finally,variousfactorsmaynecessitaterecalculationsofthebaseyear(andSBTasawhole)toensurethecontinuedrelevanceoftheSBT.SeeChapter4.4forfurtherguidanceonthistopic.ChooseaTargetYear

Theimpactsofclimatechangewillbefeltforyearstocome.Settinglong-termSBTs(e.g.,through2040or2050)encouragesplanningtomanagethelong-termrisksandopportunitiesconnectedwithclimatechange.Thesemayincludethecreationofnewservicesandmarkets,andtheneedforlargecapitalinvestmentsthatofferGHGbenefits.However,long-termtargetsalonedonotmatchthedecisionhorizonsofmanycompaniesandmightencouragelaterphase-outsoflessefficientequipment.Mid-termtargets(thosebetween5and15yearsinthefuture)canbeinstrumentalforidentifyinginefficienciesandopportunitiesforemissionreductions.Companiesshouldsetatargetthatcoversaminimumof5yearsandamaximumof15yearsfromthedatethetargetispubliclyannounced.Itisalsorecommendedtosetlong-termtargetsbeyondthisintervalandsetinterimmilestonesatfive-yearintervals.InterimtargetsshouldbealignedwiththeemissionscenariousedtosettheSBT;seeAnnex1forfurtherguidance.CompaniesshouldbeawarethatSBTsettingmethodsvaryintheearliestpossiblebaseyear(often2010)andthelatesttargetyear(often2050).Wherethelatestpossibletargetyearisearlierthan2050(2025inthecaseoftheCSOmethod),companiescanusethosemethodsandextendtheprojectionsmathematicallyorconsiderothermethodstodeveloplong-termtargets.Variouscompanies:FramingandCommunicatingShortandLong-termTargets

• Pfizerdetermineditneededtoreduceitsemissions60to80%by2050from2000levels,inordertostayona2oCtrajectory.Doingsowouldrequirea20%reductionby2020,from2012levels.Settinga2050goalalonewouldbechallengingbecauseoftheuncertaintiesintroducedbyalongtargetperiod.Pfizerthereforeusesthenearer-term(2020)goal,butclearlycommunicatesthatitisontracktomeetthe2050target.

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• Nestlémadea2020commitment,whichisonthetrajectorytoa2050target.However,Nestlébelievesthatshorter-termtargetshavemoremeaningandcreatemoreownershipamongemployeeswhomaystillbetherein2020andthuswillfeelresponsible.

• Marshasboth2020and2040targets,andbenchmarksitselfona3%annualreductionwithaneyeonefficiencyactivitiesthatareunderway.Itbelievestheshorter-termtargetengendersgreateraccountability.Butthelonger-termgoalhelpsensurethatshort-termstrategiesdon’tlockitintoinvestmentsordecisionsthatwouldcauseittoveeroffalow-carbontrajectoryafter2020.

SetScope1,2and3TargetsinTandem

WhensettinganSBT,acompanyshouldconsiderallthreescopesatthesametime.Inparticular:• AcompanyshouldaligntheboundariesofitsSBTwiththoseofitsGHGinventory.Thereare

threedifferentapproachesfordeterminingwhichoperationsareincludedinaninventory:operationalcontrol,financialcontrolandequityshare.Acompanymustselectasingleapproachbasedonarangeofcompany-specificconsiderationsandapplythatapproachconsistentlyacrossitscorporatestructure.TheGHGProtocolCorporateStandard(WRI&WBCSD2004)providesfurtherguidance.

• Companiesmaysetasingletargetforallscopes(seealsoChapter4.3).Insuchcases,thescope1and2portionofthetargetmustbescience-based.

• Ifseparatetargetsaresetfordifferentscopes,companiesshouldusethesamebaseyearandtargetyear.Acommontargetperiodwillsimplifydatatrackingandcommunicationaroundthetarget.Wherevaluechaindataaredifficulttoobtain,however,itisacceptabletousedifferentbaseyears.

• EmissionsthatfallunderonescopeshouldnotbeaddedtoanotherscopeforthepurposesofsettinganSBT.Forexample,theemissionsfromacompany’stier1suppliersshouldnotbeaddedtoitsscope1emissions.

ExcludetheUseofOffsets

TheuseofoffsetsshouldnotbecountedtowardattaininganSBT.Instead,companiesshouldsettargetsbasedonreductionswithintheirownboundariesortheirvaluechains.Offsetsmaybeuseful,however,asanoptionforcompanieswishingtofinanceadditionalemissionreductionsbeyondtheSBT.

ExcludeAvoidedEmissionsfromSBTs

Avoidedemissionsoccuroutsideofacompany’sscope1,2and3inventoryandrequireamethodologyinformedbyprojectaccountingtoestimate.Anyestimatesofavoidedemissionsmustbereportedseparatelyfromacompany’sscope1,2and3emissions,andshouldnotbecountedtowardSBTs,includinganyscope3target.

DetermineHowtoTreatSubsidiaries

Complexbusinessrelationships(subsidiaries,joint-ventures,etc.)cancomplicatehowthetargetboundaryisdrawn.Ideally,parentcompaniesshouldsetSBTsforsubsidiaries.However,itcanbeacceptableforasubsidiarytosettargetsdirectlyifithasoperationalandmanagerialindependence.AndincaseswhereboththeparentcompanyandsubsidiarysetSBTs,caremustbetakentocommunicatewhetherthetargetsoverlap.Thalys:SettingTargetsforSubsidiaries

33


Internationaltrainoperator,Thalys,wasfoundedbySNCF,theNationalRailCompanyofBelgium(SNCB),andDeutscheBahn.ThoughThalysispartlyownedbySNCF,itoperatesindependently.ThalyshasanSBTtoreducescope1,2and3GHGemissionsperpassengerkilometer41.4%by2020,froma2008base-year.SNCFhasalsocommittedtosetanSBTand,sinceithasmaintenanceresponsibilityatsomeofThalys’sites,willhavetodistinguishitsadditionaltargetsfromthoseofThalys’.xv

4.2 Model a Scope 1 and 2 Target

AnSBTmustleadtoemissionsreductionsfromscope1and2sourcesthatarealignedwithscience.Importantstepsincludedecidingwhichemissionssourcestoincludewithinthetargetboundariesandhowtoaccountforscope2emissions. Set Target Boundaries Keyconsiderationsforsettingtheboundaryofascope1and2SBTare:

● Whichscopes?SBTsshouldalwayscoveracompany’soverallscope1and2emissions,evenifonescopetotalmayseeminsignificantcomparedtotheother.Thisistoensurethattherisksandopportunitiesofchangingenergysourcesarecaptured.

• WhichGHGs?BasedontheGHGProtocolCorporateStandard,inventoriesandtargetboundariesmustincludetheemissionsofsevendifferentGHGsorclassesofGHGscoveredbytheUNFCCC/KyotoProtocol:carbondioxide(CO2),methane(CH4),nitrousoxide(N2O),perfluorocarbons(PFCs),hydrofluorocarbons(HFCs),sulphurhexaflouride(SF6),andnitrogentriflouride(NF3).

● Whichgeographicaloperations?SBTsshouldcoverthesamegeographicaloperationsasthecorporateGHGinventory.

Ingeneral,acompanyshouldexcludenomorethan5percentofitsaggregatescope1and2emissionsfromitsinventoryandtarget.Companiesshoulddisclosewhetherandwhyspecificoperationsandsourceshavebeenexcluded(seeChapter6).AccountforScope2Emissions

Settingandtrackingperformanceagainstscope2targetsentailssomeuniqueconsiderations:ShouldaCompanyUsethe“Location-based”or“Market-based”Approach?:RenewableenergyislikelytobeaninstrumentalpartofcorporatestrategiestorealizeSBTs.TheGHGProtocolScope2Guidance(WRI&WBCSD,2015)definestwoapproachesforcalculatingthescope2emissionsfrompurchasesofrenewableenergyandotherformsofenergy.The“location-based”approachisdesignedtoreflecttheaverageemissionsintensityofgridsonwhichenergyconsumptionoccursandmostlyusesgrid-averageemissionfactors.Incontrast,the“market-based”approachisintendedtohelpcompaniesreflecttheemissionsimpactsofdifferentiatedelectricityproductsthatcompanieshavepurposefullychosen(e.g.,supplier-specificemissionsratesandpowerpurchasingagreements).ForthepurposesofsettingSBTs,companiesshouldchoosetheresultsofonlyoneapproachwhencalculatingbaseyearemissionsandtrackingperformance.Also,ifacompanychoosestousethemarket-basedapproach,itshouldassessallcontractualinstrumentsforconformancewiththeScope2QualityCriteriaxvi.HowShouldPurchasedHeatandSteambeAccountedFor?:Theemissionsfrompurchasedheatandsteamfallunderscope2inacorporateinventory.However,forthepurposesofsettinganSBT,companiesshouldmodelheat-andsteam-relatedemissionsasiftheywerepartoftheirdirect(i.e.

34


scope1)emissions.ThisisbecauseexistingSBTmethodsforscope2emissionsdonottakepurchasedheatandsteamintoaccount.

4.3 Model a Scope 3 Target Whencompaniessettargets,theyinitiallyfocusonscope1and2emissionsbecausetheyaregenerallymoreabletoinfluencetheseemissions.However,acompany’sscope3emissionsareoftenmuchgreater(Figure4-1)andambitiousscope3targetscanplayanintegralpartinacompany’sGHGreductionstrategy,allowingittodemonstrateperformanceandleadership,managesupplychainrisksandopportunities,andaddresstheneedsofstakeholders.Keystepsinsettingscope3targetsaspartofanSBTstrategyincludeconstructingascope3inventorytoassesswhetheranambitiousscope3targetshouldbesetand,ifso,whichscope3emissionssourcecategoriesshouldbetargeted.Subsequentstepsincludeidentifyingtheappropriatetypeoftargetandlevelofambitionforthesecategories.

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Figure4-1:TheRelativeMagnitudeofScope1,2and3Emissions,BySector

Notes:GraphbasedonCDPdataforS&P500firms.Source:CDP 2013.ConductaScope3Inventory

Ascope3inventoryiscriticalinidentifyingemissionshotspots,reductionopportunities,andareasofriskupanddownthevaluechain.TheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard(WRI&WBCSD,2011)providesdetailedguidanceonhowtocompleteascope3inventory.Itdefines15distinctcategoriesofupstreamanddownstreamemissionssources(seeBox4-

36


1).TheScope3Standardrequirescompaniestoincludeallrelevantcategoriesinaninventory,basedonsuchcriteriaastheamountofemissionsorthelevelofinfluenceexertedoverthecategories(Table4-1).Ingeneral,companiesshouldprioritizeactivitiesinthevaluechainwherethereportingcompanyhasthepotentialtoinfluenceGHGreductions,butshouldnotexcludeanyactivitythatisexpectedtocontributesignificantlytothecompany’stotalscope3emissions.SeeChapter7oftheScope3Standardforfurtherdetails.Box4-1.TheScope3Categories

Upstreamscope3emissions1.Purchasedgoodsandservices2.Capitalgoods3.Fuel-andenergy-relatedactivities(notincludedinscope1orscope2)4.Upstreamtransportationanddistribution5.Wastegeneratedinoperations6.Businesstravel7.Employeecommuting8.UpstreamleasedassetsDownstreamscope3emissions

9.Downstreamtransportationanddistribution10.Processingofsoldproducts11.Useofsoldproducts12.End-of-lifetreatmentofsoldproducts13.Downstreamleasedassets14.Franchises15.InvestmentsSeeChapter5intheScope3Standard(WRI&WBCSD2011)foracompletedescriptionofthesecategories.

Table4-1:CriteriaforIdentifyingRelevantScope3CategoriestoIncludeinaScope3Inventory

Criteria DescriptionofScope3ActivitiesSize Theycontributesignificantlytothecompany’stotalanticipatedscope3emissionsInfluence Theyofferpotentialemissionsreductionsthatcouldbeundertakenorinfluencedby

thecompanyRisk Theycontributetothecompany’sriskexposure(e.g.,climatechangerelatedriskssuch

asfinancial,regulatory,supplychain,productandcustomer,litigation,andreputationalrisks)

Stakeholders Theyaredeemedcriticalbykeystakeholders(e.g.,customers,suppliers,employees,investors,orcivilsociety)

Outsourcing Theyareoutsourcedactivitiespreviouslyperformedin-houseoractivitiesoutsourcedbythereportingcompanythataretypicallyperformedin-housebyothercompaniesinthereportingcompany’ssector

Sectorguidance Theyhavebeenidentifiedassignificantbysector-specificguidanceOther Theymeetanyadditionalcriteriafordeterminingrelevancedevelopedbythecompany

orindustrysectorSource:AdaptedfromtheGHGProtocolScope3Standard(WRI&WBCSD2011),Table6.1.Thedevelopmentofaninitial,screeninginventorycanbeausefulfirststeptowardthedevelopmentofacomprehensivescope3inventory,lettingcompaniesunderstandtherelativemagnitudeofscope3

37


emissionsoverallandidentifyhigh-impactcategoriesforwhichmoreaccuratedataareneeded.Box4-2describestheScope3Evaluator,atoolusefulinconstructingscreeninginventories.Scope3DataQualityCompaniesarelikelytofacechallengesincollectingdataandensuringdataqualityforscope3sources,becausethesesourcesarenotunderthereportingcompany’sownershiporcontrol.Thesechallengesinclude:•Relianceonvaluechainpartnerstoprovidedata•Lesserdegreeofinfluenceoverdatacollectionandmanagementpractices•Lesserdegreeofknowledgeaboutdatatypes,datasources,anddataquality•Broaderneedforsecondarydata(i.e.datathatarenotspecifictoacompany’svaluechain)•BroaderneedforassumptionsandmodelingIngeneral,companiesshouldselectdatathatarethemostrepresentativeintermsoftechnology,time,andgeography;mostcomplete;andmostreliable.Companiesshouldcollecthighquality(“primary”)datafromsuppliersandothervaluechainpartnersforscope3activitiesdeemedmostrelevantandtargetedforGHGreductions.Secondarydataareacceptable,butdolimitacompany’sabilitytotrackperformance.Secondarydataarethereforebettersuitedforscope3categoriesthatarenotsignificant.Chapter7oftheScope3Standardprovidesfurtherguidanceondataqualityissues.Ifscope3emissionscomposeover40%oftotalscope1,2and3emissions,companiesshoulddevelopanambitiousandquantitativescope3targetthatcoversasizeableportionofscope3emissions.Subsequentsectionsofthischapterexpandonthisrecommendation.

Box4-2:TheScope3EvaluatorToolGHGProtocolteamedupwithQuantis,aconsultancy,todevelopafreescope 3 screening tool.Thistoolprovidesuserswithasimpleinterfacetomakeafirst,roughapproximationoftheirfullscope3inventory,regardlessoftheirorganizationtypeandsize.Thetoolleadsusersthroughaseriesofquestionsabouttheirorganizationalstructureandtheiractivities,suchasthepurchaseofgoodsandservices,useoffuels,transportationofmaterials,andmore.Linkingtheseinputstoacombinationofeconomicinput-outputandprocesslifecycleinventorydata,thetoolprovidestheuserwithascope3inventorywhichcanbeusedasaninitialbasisforidentifyingreductionareas,publicreporting,andinformingfutureeffortstoproduceamoreaccurateemissionsinventory.CompaniesshouldworktocollectprimarydataforcategoriesshowntobeasignificantpercentoftheirtotalScope3inventory.Formoreinformation,seehttps://quantis-suite.com/Scope-3-Evaluator/resources/Quantis_Scope3_Evaluator_Checklist_20150325.xlsx

IdentifyWhichScope3CategoriesShouldbeIncludedintheTargetBoundary

Usingascope3inventory,companiescanidentifywhichcategoriesshouldbeincludedintheboundaryofascope3target(s).ThecriteriainTable4-1canalsobeusedtoguidethisapproach(seeBox4-3foranexample).Acrosssectors,purchasedgoodsandservicesandtheuseofsoldproductsaccountforthemajorityofscope3emissions(CDP2016).Thesecategorieswillthereforebeintegraltomanycompanies’targets.However,therelativeimportanceofdifferentscope3categorieswillvarybysector.Scope3categorieslikelytobeimportant(intermsofemissionsmagnitude)forcompaniesinspecificsectorsinclude:

38


● Automotive:Useofsoldproducts● Chemicals:Endoflifetreatmentofsoldproducts● ConsumerPackagedGoods:Purchasedgoodsandservices● Electronics:Useofsoldproducts● FoodProcessing:Purchasedgoodandservices● GasDistributionandRetail:Useofsoldproducts● Logistics:Upstreamtransportationanddistribution● Oil&Gas:Useofsoldproductsxvii

Overall, the scope 3 target boundary should include the majority of value chain emissions; for example, the top 3 categories or two-thirds of total scope 3 emissions.

Box4-3:DeterminingRelevantScope3Categories

Aninternationalindustrialchemicalandgascompanyconductedascreeninginventoryofitsfullvaluechainanddeterminedthatscope3emissionscontributedalmost50%ofitstotalfootprint.

Recognizingthatscope3wasasignificantcontributortooverallemissions,thecompanytheninvestigatedwhichofthe15scope3categoriescontributedmosttoscope3emissions.Threecategorieswerenotapplicableforthecompanyandwerenotincludedintheinventory(categories10,13,and14).Conductingtheinventoryfortheremainingcategoriesledthecompanytofocusitstargetsettingactivitiesonthethreecategoriesthataccountedforthemajorityofemissions:upstreamfuelandenergy,useofsoldproducts,andinvestments.

Category

Scope3Emissions(mmtCO2e)

%ofScope3Emissions

1.Purchasedgoodsandservices 773,731 8%2.Capitalgoods 35,054 >1%3.Fuel-andenergy-relatedactivities(upstream) 5,152,751 51%4.Upstreamtransportationanddistribution 125,000 1%5.Wastegeneratedinoperations 10,667 >>1%6.Businesstravel 41,526 >1%7.Employeecommuting 39,742 >1%8.Upstreamleasedassets 32,170 >1%9.Downstreamtransportationanddistribution 221,217 2%11.Useofsoldproducts 2,150,739 21%12.End-of-lifetreatmentofsoldproducts 116,379 1%15.Investments 1,347,360 13%

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Determine Whether to Set a Single Target or Multiple Targets Companiescanchoosetosetmultiple,category-specifictargetsorasingletargetcoveringallrelevantscope3categories.Theymayalsochoosetosetasingletargetcoveringtotalscope1,2and3emissions.Eachtypeoftargetboundaryhasadvantagesanddisadvantages(seeTable4-2).Table4-2.AdvantagesandDisadvantagesofDifferentTargetBoundariesCoveringScope3Emissions.Target

Boundary

Example Advantages Disadvantages

Asingletarget

fortotalscope

1,2and3

emissions

• Autodesk:reducetotalscope1,2,and3emissions43%by2020from2008levels.

• CapgeminiUKPLC:reducetotalscope1,2,and3emissions40%by2030,from2014levels.

• GeneralMills:reducescope1,2,and3emissions28%,fromfarmtoforktolandfillby2025,usinga2010base-year.

• Ensuresmorecomprehensivemanagementofemissionsacrosstheentirevaluechain

• Offersgreaterflexibilityonwhereandhowtoachievethemostcost-effectiveGHGreductions

• Simpletocommunicatetostakeholders

• Doesnotrequirebaseyearrecalculationforshiftingactivitiesbetweenscopes(e.g.,outsourcing)

• Mayprovidelesstransparencyforeachscope3category

• Requiresthesamebaseyearforthedifferentscopes,whichmaybedifficultifscope1and2baseyearshavealreadybeenestablished

Asingletarget

fortotalscope

3emissions

• EDP:reduceabsolutescope3emissions25%by2030,from2015levels.

• KelloggCompany:reduceabsolutevaluechainemissions20%by2025,from2013levels.

• EnsuresmorecomprehensiveGHGmanagementandgreaterflexibilityonhowtoachieveGHGreductionsacrossallscope3categories(comparedtoseparatetargetsforselectedscope3categories)

• Relativelysimpletocommunicatetostakeholders

• Mayprovidelesstransparencyforeachscope3category

• Mayrequirebaseyearrecalculationforshiftingactivitiesbetweenscopes(e.g.,outsourcing)

Separate

targetsfor

individual

scope3

categories

• Dell:reducetheenergyintensityofproductportfolio80%by2020,from2011levels.

• Panalpina:reducescope3emissionsfromoutsourcedtransportationandbusinesstravel15%by2025from2013levels.

• Seebelowforfurtherexamples

• Allowscustomizationoftargetsfordifferentscope3categoriesbasedondifferentcircumstances

• Providesmoretransparencyforeachscope3category

• Providesadditionalmetricstotrackprogress

• Doesnotrequirebaseyearrecalculationsforaddingadditionalscope3categoriestotheinventory

• Easiertotrackperformanceofspecificactivities

• Morecomplicatedtocommunicatetostakeholders

• Mayrequirebaseyearrecalculationforoutsourcingorinsourcing

• Mayallowincreasesinabsoluteemissionsand/oremissionsintensityfromothercategories,unlessthosecategoriesalsohavetheirowntargets

IdentifyanAppropriateMethodandLevelofAmbition

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Acompany’sscope3targetsshouldclearlydemonstratethatitisaddressingthemainsourcesofGHGemissionswithinitsvaluechaininlinewithcurrentbestpractice.Scope3targetsshouldbeambitious,althoughtheygenerallyneednotbescience-based.WhileexistingSBTmethodscanbeusedtosetscope3targets,arangeofother,non-emissions-basedtargetscanalsobesetforspecificscope3categories,aslongastheemissionsreductionbenefitcanbequantitativelydemonstrated.OverallPreferenceHierarchyforScope3TargetsTable4-1liststheadvantagesanddisadvantagesofdifferent,generalclassesofscope3targets.Ingeneral,percentage-basedemissionsreductiontargetsarepreferredovernon-emissions-basedtargets,whichshouldonlybesetwhenacompanycannotacquiretheemissionsdataneededtosettheformer.Ifagoalissetaroundengagingacertainpercentageornumberofsuppliers,thentheengagementmustencourageemissionsreductionsthatarequantifiable(seediscussionbelow).

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Table4-1.DifferentTypesofScope3TargetsTarget Example Advantages Disadvantages

Percentage-basedemissionsreductiontargets

Percentage-basedabsoluteemissionstarget(inlinewith2oCpathwaywhenpossible)orintensitytargetbasedontheSDA

Swisscom:reducescope3emissions18%by2020from2013levels

Transparentaboutdirectionofchangeinabsoluteemissionsand/oremissionsintensityTargetambitionmoreeasytocompareacrosscompanies

Canbechallengingtosetforscope3sourcesoverwhichacompanyhaslittleinfluence

Other,percentage-basedemissionsintensitytargetresultinginambitiousreductionsinabsoluteemissions

Toprovide

Non-emissions-basedtargets

Performance-basedtargetexpressedinabsoluteorintensityterms

AMD:improvethecomputeperformanceperwattofenergyconsumedbymobileAPUprocessors2500%by2020,from2014levels

Doesnotrequireemissionsdatafromvaluechainpartners

Nottransparentaboutdirectionofchangeinabsoluteemissions

Targettoinfluencethebehaviorofsuppliersorcustomers

L’Oréal:By2020,suppliersrepresenting80%ofdirectspendwillsetanemissionsreductiontargetandreportactivitiestoreduceemissionsthroughCDPColgate-Palmolive:promotewaterconservationawarenessto100%ofitsglobalconsumers

MaybeusefulifacompanyhasyettoidentifyleversformorespecificreductionopportunitiesamongstitsvaluechainpartnersMaydrivereductionbehaviorsthatbenefitothercustomersofthesamesupplierUsefulwhencompanyhasmostlyindirectspend,suchthatitsbestreductionleveristoasksupplierstoreducetheiremissions(sincecompanydoes

May not be effective in driving ambitious reductions in the emissions from purchased goods and services if majority of emissions come from tier 2 suppliers or beyond May not foster collaboration along the value chain

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notspendenoughtowarrantcollaborations)

Note:Companiesmentionedinthetablemayhavesetmorethanonetypeofscope3targetthatarenotreflectedinthistable.

PUBLIC COMMENT VERSION

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Recommendedtargettypesforkeyscope3categoriesareprovidedbelow.

UsingExistingSBTMethodsforScope3

Twomethods-AbsoluteEmissionsContractionandtheSDA–canbeusedtosetpercentage-based

emissionsreductiontargets.Theeconomic-basedapproachesarenotrecommendedunlesstheyresult

inambitiousreductionsinabsoluteemissions.

TheSDAshouldbeusedbythemanufacturersoflight-roadpassengervehiclestosetscope3targets

fortheuseofsoldproducts.Otherwise,theSDAshouldonlybeusedforscope3targetswhen:(1)the

GHGemissionsoftier1suppliersaresignificant,relativetothoseofsuppliersfurtherremovedfrom

thecompany;and(2)scope1and2datacanbeobtainedfromthetier1suppliers.TheSDAismost

appropriateforbuildings(leasedassetsandfranchises)andupstreamordownstreamtransportation

anddistributionforthesereasons.

AfurtherdisadvantageofusingtheSDAisthatitcanlimitoptionsfortrackingreductionsincertain

categories,dependingonhowcomprehensiveacompany’soverallscope3targetis.Forexample,a

constructioncompanycouldsetanintensitytargetforpurchasedsteelusingtheironandsteel

pathwayintheSDA.BecausethispathwaydoesnotsupportmaterialswitchingtolessGHG-intensive

steelsubstitutes,thecompanycouldonlymeetthistargetbyreducingtheGHG-intensityofpurchased

steel.Thisproblemcanbecircumventedbysettingatarget(ortargets)forallpurchasedgoodsand

services.

SettingTargetsforPurchasedGoodsandServices(Category#1)

Asnotedabove,percentage-basedemissionstargetsarepreferred.Companiesmayalsosetarangeof

othertargets(Table4-3)forpurchasedgoodsandservices,aslongastheexpectedemissionsreduction

benefitcanbequantitativelyshown.Thesetargetsmayrelate,forexample,toensuringthattop

supplierssetandreportprogresstowardtheirowntargets(“topsuppliercommitments”),eliminating

theuseofGHG-intensivematerials,orincreasingtheuseofreusablematerials.

Topsuppliercommitmentsarenotrecommendedwhenthemajorityofcategory1emissionscome

fromtier2suppliersorsuppliersevenfurtherremovedfromthereportingcompany.Topsupplierscan

beidentifiedonthebasisofspendand/oremissionsimpact.Topsuppliercommitmentsmay

alternatelyfocuson“criticalsuppliers”or“strategicsuppliers”thatthecompanyhasalreadyidentified

basedonavarietyoffactors,suchasoperationalrisk.Spenddataandcriticalsupplierlistsare

advantageouswhentheycanreliablyserveasaproxyforleverageoversuppliers.However,thebiggest

suppliersbyspendarenotalwaysthebiggestGHGemitters,socompaniesshouldmakesurethat

targetsbasedonspendorcriticalsuppliersalsocoverthemajorityofcategory1emissions.Ideally,top

suppliercommitmentsshouldfocusonsupplierssettingSBTs.

Companiesshouldnotsettargetsthatbenchmarkperformanceagainstsectoraveragevalues.Thisis

becausesuchtargetsarenottransparentaboutchangesinemissionsperformance.Theymayalso

changeovertimewithchangesinsectorperformance,reducingtheabilitytotracklong-termchanges

inperformance.

Table4-3.RecommendedTypesofNon-emissionsTargetsforPurchasedGoodsandServices.

TypeofNon-

emissionsTarget

Example Conditions

Generalsourcing

commitment

Allgoodsandserviceswillbe

procuredfromsupplierswith

• Suppliersmustreportthequantitative

GHGbenefitoftheiractionsannually


44


existingSBTsorwithGHG

reductionpracticesinplace

Eliminateorreduce

useofGHG-intensive

materials

Nikeandleather

Proctor&Gamble:ensurezero

deforestationinthepalmoil

supplychain

• Materialmustsignificantlycontribute

tototalemissionsfrompurchased

goodsandservices

• Emissionsreductionbenefitcanbe

quantitativelydemonstrated

Adoptsectorbest

practices

100%ofcropsuppliersreduce

fertilizerapplicationratesand

useslow-releasefertilizersor

nitrificationinhibitors

• Emissionsreductionbenefitcanbe

quantitativelydemonstrated

Increaseuseof

reusablematerials

Increaserecycledcontentin

packagingto80%by2015,from

2022levels

Topsupplier

commitment

80%ofkeysuppliers

(representing80%ofcategory1

emissions)setSBTsby2025.

• Companiesshouldpreferablycommit

togettingtheirsupplierstosetSBTs

• Topsuppliersidentifiedonbasisofemissionsimpact,spendand/or

“criticalsupplier”criteria.Targets

basedonspendorcriticalsupplier

criteriashouldcoverthemajorityof

category1emissions.

• Suppliersshouldreportonprogresstowardtargetsannually

Reduceemissions

comparedto

industrybenchmark

Emissionsintensityofpurchased

goods’productionwillstay30%

belowsectoraveragevalues

• Neverusethistypeoftargetbecauseitisnottransparentandwillchange

overtime

SettingTargetsforUseofSoldProducts(Category#11)

Productscanhavedirectuse-phaseemissions,suchaswhenanapplianceuseselectricityorwhenan

air-conditioneremitsrefrigerants.Productsmayalsohaveindirectusephaseemissions;forexample,

apparelwhenwashedwithhotwaterorfoodwhencooked.UndertheGHGProtocolScope3Standard,

directuse-phaseemissionsmustbereportedinscope3inventories,whileindirectuse-phaseemissions

areoptional.

Companiesshouldsetaquantitativetargetfordirectuse-phaseemissions.Thetargetshouldbe

emissions-based(eitherabsoluteorintensity-based)orperformance-based.ExamplefromDELL:

reducetheenergyintensityofproductportfolio80%by2020,usinga2011base-year.

Atargetaroundtheentirelifecyclemayalternativelybesetandispreferredwhentrade-offshave

beenidentifiedoraresuspectedacrosstheproductlifecycle(e.g.,amoreenergyefficientproduct

mighthavehigheremissionsintheproductionphase,comparedwithalessenergyefficientproduct).

Targetsforindirectuse-phaseemissionsareoptionalandcanbesetaroundinfluencingthebehaviorof

customers.ExamplefromColgate-Palmolive:Promotewaterconservationawarenessto100%ofits

globalconsumers.

SettingTargetsforUpstreamorDownstreamTransportationandDistribution(Categories#4and9)

Percentage-basedemissionstargets(eitherabsoluteorintensity)arepreferred.Forexample:


45


• InternationalPostCorporation:Reduceemissions20%perletterandparceldeliveryby2025,

froma2013base-year(scopes1,2and3).

Goalsaroundspecificpractices(e.g.,modeorfuelswitchingandlogisticsmanagement)canbeusedto

supportthetarget,butshouldnotrepresenttheprimarytargetbecauseofpossibletrade-offsin

emissionswithdifferentsources.Forinstance,switchingfromoil-togas-poweredvehiclesmayincur

increasesintheemissionsfromupstreamfossilfuelproduction.

4.4 Adjust Targets to Ensure Continued Relevance Toensureconsistenttrackingofperformanceovertime,acompanyshouldrecalculateitsSBT,as

needed,toreflectsignificantchangesthatwouldotherwisecompromisethetarget’srelevance.

Recalculationshouldbetriggeredbysignificantxviii

changesin:

• Companystructure(e.g.acquisition,divestiture,mergers,insourcingoroutsourcing)

• Methodologyforcalculatingthebaseyearinventory(e.g.,improvedemissionsfactorsor

activitydata)

• Methodologyforcalculatingthetarget(e.g.,emissionsscenarios,growthprojectionsandother

assumptions)

• Recalculationsshouldalsobeperformedforthediscoveryofsignificanterrors

Long-termtargets,inparticular,mayrequirerecalculationtoupdatethecompanygrowthassumptions

usedtoprojectthetargetandalsotoreflectthelatestclimatescience.Forexample,targetscouldbe

recalculatedtoalignwiththelatestemissionsscenariosavailablefromtheIPCCorotherscientific

bodies,asthesescenariosarepublished.

Recalculationshouldnotbetriggeredbyorganicgrowthanddecline,whichisdefinedas“increasesor

decreasesinproductionoutput,changesinproductmix,andclosuresandopeningsofoperatingunits

thatareownedorcontrolledbythecompany”(WRI&WBCSD2011,106).

Ingeneral,companiesshouldchecktheirtargetsannuallyandnolessthaneveryfiveyears.When

targetprojectionshavechanged,companiesshouldkeeptheirshort-termtargetsandrecalibratetheir

long-termtargettrajectoryasshort-termtargetscomedueforrenewal.

4.5 Secure Third Party Review

WhilethereisnostandardagainstwhichtoassureSBTs,theemissionsinventoryitselfshouldbe

verified.Additionally,acompanycanhaveathirdpartyreviewtheprocessesanddataitusedto

calculatethetarget,aswellasensurethetargetisalignedwiththechosenSBTmethodandthis

manual’srecommendations.OneoptionforvalidatingtargetsisthroughtheSBTinitiative’sCallto

Actioncampaign,whichoffersaprocesstotechnicallyreviewandcheckthequalityofacompany’s

target.Companiescanmentionsuchathird-partyreviewintheirpubliccommunications.


46


5. Building Internal Support for Science-based Targets

SBTsrepresentanewwayofsettinggoalsformanycompaniesandoftenyieldmoreambitioustargets

thantraditionaltarget-settingapproaches.Assuch,gainingbuy-inacrossbusinessunitsandupthe

chaintotheC-Suitemayrequirecarefuljustification.Thischapterexploreshowtogetcompany

stakeholdersonboardthroughallstagesofthetarget-settingprocessandhowtonavigatepotential

challengesandpush-backwhiledoingso.


• StaffresponsibleforsettinganSBTshouldpartnercloselywithalllevelsofthecompany

duringthetarget-settingprocesstosocializegoals,assessfeasibility,andco-createpractical

implementationplans.

• Staff should anticipate the issues that commonly create internal push-back and formulate

ready-maderesponses.

• Forscope3targets,companiesshouldworkcloselywithandsupportsuppliersduringthe

target-settingprocesstoincreasebuy-inandenableimplementation.

5.1 Get All Levels of the Company on Board

DuringtheprocessofdetermininganSBT,thesustainabilityteammustoftenbuildsupportfromboth

executiveleadershipandbusinessunitmanagersinordertoaccessresourcesfordeveloping,finalizing,

announcing,andultimatelyachievingthetarget.

Usefulstrategiesforsecuringinternalsupportinclude:

1. Partnercloselywiththebusinessunitsandsocializethetargetatthegrassroots:

• Askeachdepartmenttoofferwhatitcanfeasiblydotomeetthetargetandavoidputting

alltheresponsibilityonanysinglebusinessunit.

• Getcommitmentsfromoperationstomaketheneededreductionsandshow,through

bottom-upanalysis,howthetargetwillbeachieved.Thiswillhelpinobtainingapproval

fromseniorleadershipifithasnotalreadyaskedforanSBT.

• Findinternalchampionswithininfluentialdepartments–peoplenotonthesustainability

teambutwhowillsupportthetarget.

2. Don’tgiveabusinessunitatargetithaslittlecontrolover;doingsoisde-motivating.

3. Ifacompanyoperatesinmultiplecountries,considerhavingchampionsatthecountrylevel

whocanengagecountryoperationstoidentifyreductionopportunities.

4. Makeagoodbusinesscase,includingpointsonriskmitigationandshowingfinancialreturns

wherepossible:

• IndicatehowmuchmoneytheSBTwillhelpthecompanysave.

• Createabalancedportfolioofprojectswithshortandlong-termpay-backperiods.

• ShowhowtheSBTcontributestocorebusinessstrategyandhowthetargetcanhelp

mitigaterisk.

• Don’tdiscountthecontributionthatsmallerprojects,suchasfacilityenergyefficiency

measures,canhaveontheoveralltarget.Suchcontributionscanbecollectivelysignificant.

5. Makeiteasierandmoredesirableforbusinessunitstomeetthetarget:


47


• Assistbusinessunitsinconductinganalysesandofferfeasibleideasthattheunitscan

practicallyimplement.

• Allowthebusinessunitstokeepthemoneytheysavefromtheemissionsreduction

projectstheyimplement.

• Setshort-term,interimtargetstocreateasenseofurgencyandcollectiveownership.

6. Enlistoutsidehelp:

• Whennecessary,partnerwithNGOsorconsultanciesthatunderstandthesciencebehind

SBTsandcanprovideguidanceinsettinganSBT.

• Workwiththegovernment,suppliers,customers,andotherstakeholderstobetter

understandtheavailableoptions.

• Forscope3,taketimetodescribetovaluechainpartnersthetarget(s)andgeneralbest

practicesforreducingemissions(and,ifatopsuppliercommitmenthasbeenset,best

practicesforcalculatingandreportingthesereductions).

LandSecurities:CompanyQuote

TomeByrne,EnergyManageratLandSecurities:“Anotherchallengewashowtomakethelink

betweenthemacroissueofclimatechange,whichpeopleseeonthenews,andthespecificdetails

ofascience-basedtarget.Inthissense,theinternalconsultationsandworkshopswerereally

important.Westartedwiththesustainabilityteamandmovedout,viamoreseniordirectorswhowe

knewwereinterestedintheseissues(the‘earlyadopters’),tothemostseniorrepswhoweneeded

toconvince.Byhavingothersonboardalready,andbybeingabletoshowhowthescienceinforms

thetargetandlinksbacktotheglobalsituation,itwasmucheasiertogetsignofffromthetop.We

hadareallypowerfulmessagethatempoweredpeopleandmadetheambitioustargetsmuchmore

palatable“.

Pfizer:CompanyQuote

SallyFisk,SeniorCorporateCounselandEnvironmentalSustainabilityAdvisoratPfizer:“Acrossa

largenetworkofdiversesites,ourGlobalEngineeringgrouphasworkedhardtoengageour

colleaguestoensuretheyunderstandthevalueofenergyefficiencyandrenewableenergyandfeel

empoweredtoseekoutopportunitiestomakeGHGreductionsratherthanviewingtherequestto

makereductionsasaburden.Communicationwasakeyelementtoensuringthatcolleaguesfrom

otherpartsofthebusinessunderstoodthepotentialglobalimplicationsofclimatechangeand

thereforetheneedtoact.Havinganearertermgoal(2020)withalonger-termvision(2050)

approvedattheexecutiveleadershiplevelreallyhelpedourteamtoobtainbuy-in.”xix

Definingthetargetandgettingapprovalarenotalwaysalinearprocessandcaninvolvefeedbackloops

orsomeback-and-forthwithleadershipandbusinessunitsbeforethetargetisapproved.Tohave

greaterconfidenceinsecuringsupportitisimportantto:

UnderstandtheAudience

Employeesoutsideofsustainabilityrolesdon’ttypicallyhaveabackgroundinclimatesciencebutthey

couldbeveryfamiliarwiththeconceptsofclimatechangeandsustainability.Findingtherightstarting

pointformakingthecaseforanSBTwillbecriticaltogettingthoseintheroomonboard.Forsome

audiencesthismaymeanexplainingincleartermstheIPCC’sfindingsandthenecessityforcompanies


48


toreduceemissionsinlinewithscience.Othergroupsmaybereadytojumpintodiscussingthetarget

itself.TheSBTinitiativeprovidessomehelpfulresourcesforcommunicatingSBTs.

MaketheCasewithDatabutDon’tUnderestimatetheImportanceofInterpersonalSkills

Arecentsurveyofsustainabilityprofessionalsfoundthatinterpersonalskillsarethemostimportant

factorinbeingasuccessfulsustainabilityleader.BecauseachievinganSBTwilltakethecooperationof

multipledivisionswithinacompany,itisimportanttodeveloprelationshipsandbuildnetworksto

assistinthisendeavor.

Alsocriticalistheabilitytomakethecasewithdata.WhiletheSBTapproachisrelativelynew,thereis

agoodbodyofevidencetosupportthebusinessbenefitsofsettingambitiousGHGtargets(see

Chapter2).QuantifiablebenefitsfromGHGemissionreductionsincludecostsavings,energysavings,

andanimprovedbottomline.OtherimportantbenefitsofsettinganSBTshouldalsobebroughtinto

thediscussion.Theseincludedrivinginnovation,enhancingcredibilityandreputation,and

demonstratingleadership.

CommunicatetheTargetinBusinessTerms

Framingtargetsintermssuchasrisk,opportunities,revenueandreputation,ratherthaninclimateor

sustainabilityjargon,willresonatewithcorporatedecisionmakers.Andwhilegettingdecisionmakers

onboardiscriticaltosettingandachievingatarget,targetsshouldalsobeclearlycommunicatedin

businesslanguagetoallemployeeswithinanorganization.

EngageEmployeesAcrosstheCompanyEarlyOn

Internalaudiencestoconsiderincludealmosteverydepartmentinacompanyfromfacilitiesoperations

toprocurement.Inparticular,management,employee“GreenTeams”,communicationsdepartments,

anddepartmentsdirectlyinvolvedinsubstantialemissionsreductionactivitiesshouldbeinformedof

thetarget.ItisalsoimportantthattheteamsresponsiblefortheactivitiesandprojectstoreduceGHG

emissionshavehadsomeroleinvalidatingthefeasibilityoftheirportionofthetargetandarenotjust

informedofthetargetafterithasbeenannounced.Investinginemployeeawareness-raisingcan

engenderasupportivecompanycultureandmayinspireemployeesthatwerenotdirectlyinvolvedin

thetarget-settingexercisetocreateinnovativenewsolutionstocutGHGemissions.

Theearlierandmoreeffectivelytheimportanceofreachingtargetsiscommunicatedtoanemployee,

themorelikelythecompanyistogetbuy-infortargetefforts.Considerintegratingwaystodescribe

andworktowardthetargetintoemployeeorientationandtraining/handbooks.Periodic

announcementsandcompany/departmentalmeetingsarealsoapotentialavenueforcommunicating

progress.Likewise,writtenmediasuchascompanynewsletters,blogs,andsocialmediaaregood

placestohighlightachievementsandareasforimprovement.

5.2 Address Challenges and Push-back

BeforeapprovinganSBT,acommitmentthataffectsmultipledivisions,resourcesandbudgetswithina

company,leadershipwilllikelyraisesomeimportantquestions.

● Ifourtargetistiedtoourfuturegrowthrate,changeinmarketshare,orotheraspectof

businessstrategy,whatarewerequiredtodisclosepublicly?Doweneedtobeconcernedwith

confidentiality?


49


Intensitytargetssetusingasector-specificmethodorusinganeconomicintensityapproachwill

generallybetiedtometricssuchasmarketshare,estimatedproductiongrowth,financialgrowthrates,

orcontributiontoGDP.However,itisnotnecessarytopubliclydisclosetheassumptionsusedto

determinethetargetandallsensitiveinformationcanremainconfidentialwhilestillannouncingthe

SBT.

● Ourinitialtargetisforjust5yearsfromnow.Howarewegoingtogetthere?

Shorter-termtargetscanbevalidatedbyputtingtogetherandsummingtheemissionsreduction

potentialofmultipleprojects,includinganticipatedrenewableenergypurchases,plansforchangesin

productdesignorsuppliers,adoptionofnewtechnologies,andplannedchangesinproductmix.Many

companiesusetypicalbusinessmetricstodeterminewhichprojectsareviable,includingIRR,ROI,and

paybackperiods.CombiningthesemeasurementswithestimatedGHGsavingswillhelptobuilda

projectportfoliothatmakesreductiontargetsachievable.Thisgroupofprojectscanthenbepresented

aspartofthetarget-settingpackage.

Alternatively,somecompaniesaresatisfiedtosetatargetinlinewithscienceandthenletthetarget

bethemotivatorfordiscoveringprojectsandfosteringinnovation.Whilethisthisisalesssystematic

approach,itcanbejustassuccessfulinsomecompanycultures.

● Whatifwedon’thitourannouncedtarget?

AlthoughtheplanforachievinganSBTmaybecarefullythoughtout,somecompaniesmaynotachieve

theirtarget(orinterimtargets)duetounexpectedcircumstances.Thesemightinclude,forexample,

strongerthanpredictedorganicgrowthordelaysinbringingrenewableenergyprojectsonline.Insuch

cases,companiescanhelpretaintheconfidenceoftheirstakeholdersbytransparentlycommunicating

theirsituation,includingprogressachievedtodateandremainingreductiongaps.Describingtheplan

formovingforwardandhowthetargetgapswillbeaddressedisequallyimportant.

TheseandothercommunicationandreportingissuesarediscussedinmoredetailinChapter6.


50


6. Communicating the Target and Progress

TheeffectivecommunicationofanSBTguidesinternalmanagementdecisions,increasesbuy-infrom

employees,andenhancescorporatereputation.Furthermore,itsendspositivemessagestothe

businesscommunityandpolicymakers.Onceatargethasbeenset,communicatingitfully,simply,and

clearlyisimportanttoaccuratelyinformstakeholdersandbuildcredibility.

ThischapteroutlinethekeystepsincommunicatingSBTsandperformanceprogress,includingdefining

theaudience,decidingwheretodiscloseSBT-relatedinformation,anddeterminingwhatinformationto

disclose.


• CompaniesshouldfollowtheGHGProtocolaccountingandreportingprinciplestodisclose

quantitativeandqualitativeaspectsoftheSBTsothataudiencescanfullyunderstandthe

SBT’scontext,implications,andnuances.

• Companiesshouldreportannualprogressinreachingtheirtargets.

• SBTsshouldbecommunicatedinunderstandabletermsandinengagingways,suchas

throughdiagramsandinfographics,whileavoidingjargon.

Keycommunicationstepsinclude:

6.1 Define the Audience

Itisimportanttofirstdefinetheprimaryaudiencebeforedeterminingwhatandhowtocommunicate

theSBT.Customers,suppliers,competitors,partners,andinvestorsmayallhaveaninterestina

company’sGHGemissionsreductionefforts.Companiesshouldfirstidentifytheinteresttheexternal

partyhasandbesuretoemphasizeaspectsoftargetsettingthatarerelevanttotheparty.Itisalso

importanttokeepinmindthatsomeinformationusedintargetsettingmaybeconsideredconfidential

(e.g.,projectedactivitydata)andthatmessagingmayneedtobetailoredtoprotectsensitive

information.However,thisshouldnotpreventacompanyfromeffectivelycommunicatingitsSBTto

externalaudiences.Regardlessoftheaudience,SBTsshouldbecommunicatedinunderstandable

terms(seeBox1).

Box1:CommunicatingSBTsinUnderstandableTerms


51


InadditiontoensuringthatsufficientdetailisincludedwhencommunicatinganSBTforatechnically-

mindedaudience,acompanyshouldalsopresentthisinformationinawaythatisjargon-freeand

understandabletothegeneralaudience.

Forexample,tothelaypersonwithalimitedenvironmentalorfinancialbackground,theintensity

metricmtCO2e/valueaddedmaybeconfusingormeaningless.Anyabsoluteorintensitymetric

shouldbedefinedeitherinaglossaryorwithinthetextofthecommunicationitself.Using“reallife”

examplesorcomparisonssuchas“thisreductionequalstaking4,000passengervehiclesofftheroad

annually”canbehelpfulforbothexternalandinternalaudiencesinunderstandingthemagnitudeof

acompany’sprogress.TheUSEPA’sGreenhouseGasEquivalenciesCalculatorxxisausefultoolfor

equatingaquantityofemissionswithreal-lifeemissionssources,suchasvehicles,powerplants,or

homeenergyuse.

Eventhosegroupswithextensivebackgroundknowledgemayalsobenefitfromclarification.For

example,theterm“valueadded”(whichcanbeusedasthedenominatorofanintensitymetric)can

bedefinedasgrossprofit,operatingprofit,EBITDAminusallpersonnelcosts,orrevenueminusthe

costofpurchasedgoodsandservices,dependingonlocalaccountingterminology.Usinglanguage

withoutclimatescienceandfinancialjargoncanprovideclarityandreduceconfusion.Forexample,

“directemissions”canbeusedinplaceoforalongsidethetermscope1emissions.

Thechallengeliesinensuringthatasimplified,layman’sdescriptionofanSBTcontinuestoreflect

scientificgroundinganddoesnotconveyinaccurateinformation.Forthisreason,theSBTinitiative

recommendsusinglinksorfootnotestoprovideaccesstothefull,technicaldescriptionofthetarget,

evenincommunicationsintendedforanon-technicalaudience.

TableB1-1.TermsthatSimplifyTechnicalJargon

TechnicalTerm Layman’sTerm

Scope1emissions Directemissions

Scope2emissions Emissionsfrompurchasedheatandelectricity

Scope3emissions Valuechainemissions

Science-basedtarget Emissionstargetsupportedbyclimatescience

6.2 Decide Where to Disclose

SettinganSBTcandifferentiateacompanyasaleaderandsoitisinthecompany’sinteresttodisclose

thetargetinaplacethatiseasytofind,suchasonthecompanysustainabilitywebpage.Company

reports(e.g.,sustainabilityreports,CSRreports,annualreports,andstrategicplans)arealsogood

platformsuponwhichtoperiodicallyreportonprogressandintegratethisinformationwiththeother

activitiesofthecompany.

TheGlobalReportingInitiative(GRI)xxiprovidesawidely-usedframeworkforreportingenvironmental,

social,andeconomicperformanceandimpacts.SBTsandreductioneffortscanbeincludedinGRI

reportsalthoughtheymaynotbehighlightedtothesamedegreethataseparatewebpageorcompany

reportwouldafford.

CDP’sClimateChangeQuestionnairexxiiisalsoawell-knownpublicresourceforreachinglargeexternal

audiences.CDPprovidesaplatformtodiscloseclimateleadershiptoinvestors,purchasers,and


52


governments.CDPalsocommunicatesSBTstotheNAZCAplatformxxiii

,whichtrackssignificant

commitmentsmadeby“non-stateactors”,includingcompanies,aspartoftheUNFCCC’sAction

Agenda.

6.3 Follow Guiding Reporting Principles

Itisessentialtodiscloseallpertinentaspectsofthetargetsothattheaudiencecanfullyunderstandits

context,implications,andnuances.TheGHGProtocolCorporateStandard(WRI&WBCSD2004)

definesfiveoverarchingprinciplesthatshouldguidethedevelopmentofcorporateGHGinventories.

Thesesameprinciplesshouldalsobeusedtodescribethetargetandreportonprogress.

● Relevance:EnsurethetargetappropriatelyreflectstheGHGemissionsofthecompanyandserves

thedecision-makingneedsofusers–bothinternalandexternaltothecompany.

● Completeness:AccountforandreportonallGHGemissionsourcesandactivitieswithinthechosen

targetboundary.Discloseandjustifyanyspecificexclusions.

● Consistency:Useconsistentmethodologiestoallowformeaningfulcomparisonsofemissionsover

time.Transparentlydocumentanychangestothedata,inventoryboundary,methods,oranyother

relevantfactorsinthetimeseries.

● Transparency:Addressallrelevantissuesinafactualandcoherentmanner,basedonaclearaudit

trail.Discloseanyrelevantassumptionsandmakeappropriatereferencestotheaccountingand

calculationmethodologiesanddatasourcesused.

● Accuracy:EnsurethatthequantificationofGHGemissionsissystematicallyneitherovernorunder

actualemissions,asfarascanbejudged,andthatuncertaintiesarereducedasfaraspracticable.

Achievesufficientaccuracytoenableuserstomakedecisionswithreasonableassuranceastothe

integrityofthereportedinformation.

Specificrecommendationsfordescribingthetargetandreportingonprogressaregivenbelow.

6.4 Describe the Target

AdescriptionoftheSBTshouldincludetechnicalinformationontheboundaryandambitionofthe

target,aswellastheassumptionsandmethodsusedtosetthetarget.Companiesmaychoosetoalso

includequalitative,contextualinformationonthetarget.

TechnicalInformationontheSBT

Ataminimum,acompanyshouldprovidethefollowinginformation:

• Baseyearandtargetyear(specifycalendarorfiscalyears)

• Theemissionsscopesthatareandarenotincludedinthetarget(e.g.,whetherscope3emissions

areexcludedbecausetheydonotaccountforasignificantportionoftotalemissions)andany

futureplanstoincludethem

• Percentageofthecompany’stotalemissionscoveredbythetarget

• Whethertargetsaremeasuredonanabsoluteand/orintensitybasis

o Forintensitytargets:anexplanationofthemetric

o ItisbesttoexpressintensitytargetsonbothanabsoluteANDintensitybasis• Percentreductions,forbothfinalandintermediatetargets

• Emissionsscenario,allocationapproachandmethod(s)usedtosettarget

• Thetargettrajectoryusedforsettingintermediatetargets;i.e.annualcompoundreductions,

linearreductions,orapeakanddeclinepathway(seeAnnex1formoreinformation)


53


• Whetheralocation-ormarket-basedapproachisusedtocalculatescope2emissionsinthebase

yearandtrackperformanceagainstanSBT

• Anyotherinformationrequiredbythemethod(assumingdataarenotcommerciallysensitive)

• Alinktothecompany’sannualGHGinventorythatfollowstheGHGProtocolCorporateStandard

reportingrequirements

Companiesarealsoencouragedtospecifytheactualtargetemissionslevel(MtCO2e)inadditiontothe

percentagereduction.

Scope3Targets

Therecommendationsabovealsoapplytoscope3targets.Forexample,forapercentage-based

emissionstarget,acompanyshoulddisclosethepercentagereductionandwhetherthattargetisan

intensityorabsolutetarget.However,certainoftheaboverecommendationsmaynotberelevant,

dependingonhowthescope3targethasbeenset.Forinstance,itwouldnotbenecessarytodisclose

anemissionsscenarioifanSBTmethodhasnotbeenused.

Inaddition,companiesshoulddothefollowingwhendescribingscope3targets:

• Describewhichscope3categoriesarecoveredbythetargetaswellasanythatare

specificallyexcluded.

• Contextualizethesignificanceofthetargetby,forexample,describingthepercentageof

scope3emissionscoveredbythetargetorthesizeofthescope3targetrelativetothatof

thecompany’sscope1and2emissions.

Thereisnosingle,prescribedtemplateforcommunicatingascope3target.Aswithscope1and2

targetdisclosures,itisimportanttounderstandtheaudienceandpresentthetargetinawaythatis

meaningfulandrelevanttothem.Itisalsoimportanttorecognizethatachievingascope3target

dependsoncollaborationandcooperationfromsuppliers,customersandotherexternalstakeholders,

soitmustbecommunicatedintermsthatencouragethemtobemotivatedtocontribute.

Qualitative,ContextualInformation

Explainingthecontextforatargethastwoimportantbenefits.First,stakeholderswillbetter

understandthesignificanceofthetarget,therebyrecognizingthecompany’sleadershiponclimate

change.Second,thecompanywillcontributeitsvoicetoalargernarrativeonhowcorporateclimate

actionisbothfeasibleandsmart.Contextualinformationcaninclude:

● Motivation:Whydidthecompanycommittosuchsignificantemissionsreductions?Whyis

followingclimatescienceimportanttocorporateleadership?Theanswerstothesequestionsare

illuminatingforstakeholders,journalists,andotherswhoareinterestedinbusinessmanagement

trendsand/orclimatechange.Theymightprovideanincentivetootherstocontributetothe

targetorfollowsuitbysettinganSBTattheirownorganization.

● Relationshipwithbroadercompanyobjectives:Manycompanieswillexploreradicallydifferent

businessmodels,technologies,operationalprocedures,suppliersandotherbusinesspracticesin

ordertobecomealow-carbonbusiness.Stakeholdersmayrequireafullunderstandingofthe

company’scurrentstandingandvisionforthefuturewhenconsideringanSBT.Therefore,the

companymaywishtoconnectthetargettoitsstrategic,financial,andoperationalplans.

● Howthecompanywillcutemissions:Whilemostcompanieswillnothaveafullyengineeredplan

formeetingtheirSBTattheoutset,theymaybeabletoprovidenear-termexamplesofthesteps

theywilltaketoreduceemissions.Tangibleexamplesthatareeasytovisualizearehelpful;for

example,acompanymaystate,“Weplantoputsolarpanelson20%ofourfacilitiesnextyear.”


54


● Thecaseforfollowingclimatescience:SBTsarenotablebecausetheysupporttheglobaleffortto

preventthemostdangerousconsequencesofclimatechange.Itisimportantforstakeholdersto

understandthatclimatesciencecanandshouldguidedecisionsonemissionsreductions.

Suggestedtalkingpointsareprovidedintheboxbelow.

● Linkstoawards,presscoverage,andothernotablecommunicationsmaterials.

SBTTalkingPoints

• ThesciencetellsusthatwemustcutglobalGHGemissionsbyupto72%by2050toprevent

catastrophicandirreversibleclimatechange.Thiswillrequireglobaltransformationalchange.

• CompaniesmustsetGHGreductiontargetsthatalignwithbest-availableclimatescienceinorder

totransformtheirbusinessforalow-carbonfuture.

• Smartcompaniesknowthatsettingambitioustargetsisintheirownself-interest.SBTscanhelp

driveinnovationandsecurelong-termcompetitiveadvantage.

• Settinglong-term,meaningfultargetssendsaclearsignaltostakeholdersastowhereacompany

isheaded,andprovidesthecontextforstrategicinvestmentsneededtotransformbusiness

models.

• InDecember2015,nearlyeverynationonearthsignedthehistoricParisAgreement,agreeingto

limitwarmingby1.5°Cto2°Coverpre-industriallevels.Nowcompaniesmustdotheirpartto

fulfillthatpromise,andanemissionstargetthatalignswiththisglobalgoalisacriticalfirststep.

6.5 Describe Progress Toward the Target

Companiesshouldreportonprogresstowardtheirtarget(s)annually.Showingprogressoverthetarget

periodwillhelpstakeholdersbetterunderstandacompany’sprogressandeffortsbeforereachingthe

targetyear.Thefollowinginformationshouldbeincludedbyacompanyincommunicationsaboutits

progress:

● Adescriptionofthetargetitself,followingtheaboverecommendations

● Emissionschangesfromthebaseyeartothecurrentyear(yearlybreakdownsarepreferable)

o Variabilitybetweenyearsisexpected,soitisimportanttoshowtrendsovermultipleyears

● Whenacompanyhassub-targetsforaspecificscopeorscope3category:progressagainsteach

sub-target.

● Reasonsforsubstantialemissionsvariations(e.g.,emissionsreductionactivities,significant

increasesordecreasesingrowth,orchangesinproductlines)

● Ifprogressisnotontrackordeviatesawayfromthetargetpathway:explainwhyandthe

strategyforaddressingthesedeficitsinthefuture

● Whetherthetargethasbeenrevised,andifso,whatchangesweremadeandwhy(e.g.,duetoa

recalculationofthebaseyearinventoryoranupdatetotheemissionsscenario)

● Informationonsuccessfulprojectsthathavehelpedtoreduceemissions

● Novelorinnovativeeffortsorpartnershipsthathavebeenputintoplaceandcandifferentiatea

companyandhighlightitasaleader

● Investmentsorchangesthathavebeenmadethatmaynotyethavedeliveredsignificantresults

butthatareexpectedtodosointhecomingyearsorthatenablethenecessarytransformation

towardsthelong-termgoal.


55


Annex 1. Components of a Science Based Target Method

AsChapter3summarized,anSBTmethodhasthreeprimarycomponents:acarbonbudget,an

emissionscenario,andanallocateapproachthatapportionsa“share”ofemissionstoaparticular

company.Thischapterdiscussesthesecomponentsinmoredetail.


• Theinternationalscientificcommunityestimatestheremaining“carbonbudget”tobe700

GtCO2from2017onwards.

• Avarietyofemissionsscenarioshavebeendevelopedthatapportiontheavailablecarbon

budgetovertime.

• Sector-specificemissionsscenariosareavailableforselectedhomogeneoussectors.

• Currentdatasourcesdonotsupportthegeographicdifferentiationofemissionsreduction

responsibilities.Attemptstodifferentiateonthebasisofcountryorregionarecomplicated

byequityissuesandpoliticalconsiderations,andshouldnotbeundertaken.

• ItisrecommendedtousealinearreductiontrendwhendeterminingcompanySBTs,instead

ofa“peakanddecline”scenario.

• Convergenceisappropriatetoprojectthecarbonintensityofcompaniesinsectorswhere

thesectorpathwaysassureemissionreductionsforthesectorsasawhole.Contractioncan

beappliedtobothabsoluteemissionsandcarbonintensity.

A1.1 Carbon Budget

Thecarbonbudgetistheestimatedamountofcarbon(orCO2xxiv

)theworldcanemitbeforewarming

willexceedspecifictemperaturethresholds.

Aglobalwarmingthresholdof2°Ccomparedtopre-industrialtemperatureshasbeenwidelyadopted

asaglobalgoalinnationalandinternationalclimatepolicy.TheIPCCFifthAssessmentReport(AR5)

estimatedthat,foralikelychanceoflimitingwarmingto2°C,thecarbonbudgetis1010GtCO2from

2012onwards(IPCC2013).ThespecificexplanationfromtheAR5SynthesisReportisthat“Multi-model

resultsshowthatlimitingtotalhuman-inducedwarmingtolessthan2°Crelativetotheperiod1861–

1880withaprobabilityofover66percentwouldrequirecumulativeCO2emissionsfromall

anthropogenicsourcessince1870toremainbelowabout2900GtCO2(witharangeof2550to3150

GtCO2dependingonnon-CO2drivers).About1900GtCO2hadalreadybeenemittedby2011.”(IPCC

2014b).Recentdataindicatethat,foramorethan75percentchanceoflimitingwarmingtobelow2°C,

thecarbonbudgetisonly700GtCO2from2017onwards(Rockströmetal.2017).

A1.2 Emissions Scenarios

TheIPCCdevelopedlong-termemissionsscenariosforitsthird,fourthandfifthassessmentreportsthat

modeltheemissionreductionsconsistentwiththegoalofnotexceeding2°Cofglobalwarmingxxv.In

theAR5,thesescenariosareGHGconcentration(notemissions)pathwaysandaretermed


56


RepresentativeConcentrationPathways(RCPs).Moreover,theIPCChasbeenaskedbytheUNFCCCto

publishscenariosforwell-below2°Casearlyas2017.

Othertechnicalbodies,liketheInternationalEnergyAgency(IEA),havedevelopedtheirownscenarios,

largelybasedontheIPCCscenarios,toprovidemoredetailedemissiontrajectoriesattheregionaland

sectorallevel.TheIEAscenariosareincludedinitsEnergyTechnologyPerspectives(ETP)reports.

AsummaryofrecommendedscenariosforsettingcorporateSBTsisprovidedinTableA1-1.Someof

theSBTmethodsdescribedinAnnex2canaccommodatevariousemissionsscenarios,whereasothers

aredesignedforaspecificscenario.

TheemissionsscenariosinTableA1-1varyintermsoftheemissionsreductionsrequiredandmayalso

specifyarangeofvalues,reflectiveoftheuncertaintyinemissionsprojections.Forexample,one

scenariointheAR5(“Overshoot<0.4W/m2”)specifiesarangeofbetween49%and72percent

reductions.The49percentvalueistheminimumvaluecompatiblewiththescenario’sassumptionthat

globalnetnegativeemissionswillberequired(-103to-118%)inthesecondhalfofthecenturytostay

underthe2oCthreshold.(Clarkeetal.2014).Giventheexpenseandtechnicalchallengesrelatedto

negativeemissionstechnologydeployment,theSBTinitiativerecommendscompanieschoosethemost

aggressivemitigationscenariopossible.

Manyofthe2°Ccompatibleemissionscenariosfollowa“peak-and-decline”pathway,inwhich

emissionspeakatsomedate(e.g.,between2010and2020inRCP2.6)beforedecliningxxvi

.Forthe

purposesofsettingacorporateSBT,itisrecommendedthatreductionsfollowacompoundingorlinear

pathwayfromthebaseyeartothetargetyear(i.e.thatemissionsbereducedbythesameamountor

bythesamerateeachyear).SeeBoxA1-1forfurtherdiscussion.

TableA1-1.EmissionScenariosCompatiblewith2oCCarbonBudget

Source Base

year

Targetyear Percentagereductions

required

Sourceswithwhichscenario

isconcerned

IPCC–FifthAssessment

Report(5AR):Overshoot<

0.4W/m2

2010 2050 -49%to72% Allglobalanthropogenic

emissions

IPCC–FifthAssessment

Report:RCP2.6

2010 2050

-41to72% Allglobalanthropogenic

emissions

IEA2°CScenario(ETP

2016)

2013 2050 -56% Globalenergysources

Sources:Clarkeetal.2014,IEA2016,IPCC2014a.

BoxA1-1:SettingCompanyTargetPathwaysBasedonEmissionsScenarios


57


Companiesshouldensurethatinterimtargetsarealignedwiththeambitionofthefinaltargetand

thegeneralpathwayforkeepingglobalwarmingtowithin2oC.Aswithemissionsscenarios,the

individualcompanytargetpathwaysconnectingbaseyearsandtargetyearscanhavedifferent

shapes,determinedbywhethercompaniesassumeannualcompoundorlinearreductions,ora

peak-and-declinescenario.Theareaunderacompany’stargetpathwayrepresentscumulative

emissions,suchthatdifferentpathwayswillyielddifferentamountsofcumulativeemissions,with

differenttotalimpactsontheclimate.Whichpathwayismostappropriateforsettinginterim

targets?

Ingeneral,acompanyshoulduseanannualcompoundedpathwayoralinearreductionpathway.

Forexample,RCP2.6intheIPCC’s5ARfollowsapeak-and-declinepathwayandrequiresa66%

reductionbetween2010and2050.Tousethisscenario,acompanycouldassumeaconstantamount

ofemissionsisreducedeachyear,equalto1.7%ofthebaseyearemissions(=66/[2050-2010]).This

scenarioresultsinthelinearpathway(A)inFigureA1-1.Alternatively,thecompanycouldusea

compoundannualreductionrateof2.7%,resultinginthecurvedpathway(B).Eachpathwayresults

ina66%reductionby2050,butalsoindifferentcumulativeemissions.PathwayBrequireshigher

initialreductions,butdelivers17%morecumulativeemissionsreduction,demonstratingthe

advantageofearlyaction.Itispreferredthatcompaniesuseacompoundedpathwayforthisreason.

FigureA1-1.ACompoundedReductionPathwayYieldsGreaterCumulativeReductionsThanDoesa

LinearReductionPathway

LevelofDisaggregationinEmissionsScenarios

Someemissionscenariosoffermoreresolutionthanothersintermsofgeographicandsectoral

disaggregation.Forinstance,RCP2.6disaggregatesCO2eemissionsacrossfiveworldregionsandtwo

broadsectors(energysystemsandland-usechange).Incontrast,theIEA2DSscenariodisaggregates

CO2emissionsacrossnineworldregions,fivebroadsectorsandanumberofsub-sectors(seebelow).

Generally,theuseofdisaggregatedemissionsscenariosrepresentsamorespecificandpotentially

moreequitabletrajectorythatacompanywouldhavetofollowtobeinlinewitha2°Cpathway.For

instance,anemissionsscenariothatdisaggregatesGHGemissionsforthepowersectorwouldbemore

informativeforanelectricpowercompanythananaggregatedemissionsscenario.

DisaggregatingCompanySBTsattheSectorLevel


58


Sector-specificemissionsscenariosareavailableforarangeofhomogeneoussectors.Inparticular,the

ETP2DSscenarioidentifiesacarbonbudgetfortheenergy,industry,transportandbuildingssectors

consistentwitha2°Cscenario.Thereportalsoidentifiesdetaileddecarbonizationpathwaysforhigh-

emittingindustrialsectors,suchascement,aluminum,pulpandpaper,etc.Thesedatacanhelpguide

companieswithinhomogenoussectorsindevelopingphysicalintensitytargetsbasedonconvergence

(usingtheSDA).

Incontrast,thereislimitedinformationonemissionsscenariosandactivitymetricsforheterogeneous

sectors,whichlimitscompanieswithinheterogeneoussectorstocontractionallocationapproaches.For

example,theSDAprovidesadecarbonizationpathwayforan“OtherIndustry”sector,which

encompassessectorsthattendtobelesshomogeneous.Thispathwaywasderivedbysubtractingthe

carbonbudgetsofdetailedindustrypathwaysfromtheoverallindustrybudget.TheSDAthenusesan

absolutecontractionallocationapproachforOtherIndustry.

Itisexpectedthatemissionsscenarioswillevolveovertime,providingmoredisaggregationnotonlyfor

industrialsectors,butalsoforothersectorsintheeconomy.

DisaggregatingCompanySBTsattheCountryLevel

TheParis Agreementspecifiesrolesfordeveloped,developing,andleast-developedpartiestotheagreement.Theagreementdoesnotdefinetheboundariesofthesecategoriesandleavesittocountry

partiestopresenttheirownnationally-determinedcontributionstoaddressclimatechange.Rather

thanagreeonparticularemissionsallocationprocesses,countriesagreedontheprincipleofequityand

commonbutdifferentiatedresponsibilities(CBDR)andrespectivecapabilities,inlightofdifferent

nationalcircumstances.

TheIPCCandacademicliteraturehasextensivediscussionoftherangeoftechniquesavailablefor

geographicaldisaggregationxxvii

.BeyondtheprincipleofCBDR,countrieshavenotagreedtoany

particulartechnique.Lackofinternationalconsensuslimitscompanyoptionsforgeographical

disaggregation.Likewise,whilesomeinternationalmodelingeffortssuchastheIEA’sETPseries

disaggregateOrganisationforEconomicCo-operationandDevelopment(OECD)andNon-OECD

emissionspathways,thesedataarenotcomprehensiveorgranularenoughtoaddresscompany

requirements.

Asaresult,currentlyavailableSBTmethodsusetwosimplifyingapproachesforaddressing

performancedifferencesamongcountries:contractionandconvergence(seeAnnex1.3fordetails).For

example,theSDAassumesglobalconvergenceofkeysectors’emissionsintensityby2050;inother

words,theemissionsintensityofsteelproductioninChina,theU.S.,andBrazilisassumedtoreachthe

samelevel,regardlessofitscurrentdiversity.Theseapproacheshaveshortcomingsoftheirown,

especiallyfromequityperspectives(e.g.,mitigationcostsmaybegreaterinthesteelsectorina

particularcountry).Additionalscenarioswithgeographicaldisaggregationconsideringequityissues

couldbeusefultoinformSBTmethods.Inthemeantime,companiesshoulduseglobalSBTscenariosto

aligntheiremissionreductiontargetswitha2-degreepathway.

A1.3 Allocation Approaches

Anallocationapproachreferstothewaythecarbonbudgetunderlyingagivenemissionsscenariois

allocatedamongstcompanieswiththesamelevelofdisaggregation(e.g.inaregion,inasector,or

globally).


59


TheSBTmethodsreferencedinthismanualusetwomainapproachestoallocateemissionsata

companylevel:

- Convergence,wheretheemissionsintensityofasectorconvergestothatrequiredbyaglobal

2°Cpathwayby2050(e.g.,29gCO2eperkWhofelectricity).

- Contraction,whereallcurrentsourcesofemissionsreduceatthesamerateindependentlyof

cost,equity,orgrowthfactors.

Convergenceisappropriatetoprojectthecarbonintensityofcompaniesinsectorswith2°Cpathways.

Contractioncanbeappliedmorebroadlytocompanies’absoluteemissionsorcarbonintensity.

ConvergenceofCarbonIntensity:Thisapproachassumesthatthecarbonintensityofallcompanies

withinagivensectorconvergestowardsthe2°Ccarbonintensityofthatsectorataratethatensures

thesectoral2°Ccarbonbudgetisnotexceeded.Therateofconvergenceofanindividualcompanyisa

functionoftheinitialcarbonintensityofthatcompany,the2°Ccarbonintensityofthesector,andthe

growthofthecompanyrelativetothegrowthofthesector.Forexample,ifacompanyhasahigher-

than-averagegrowthrateitmustreduceitsemissionsintensitymorerapidly,comparedwith

companieswithlower-than-averagegrowthrates.Thismethodcanonlybeusedwithemissions

scenariosthatdisaggregateemissionsatthesectorlevel.

ContractionofCarbonIntensity:Thisapproachassumesthatallcompanieswithinthesamelevelof

disaggregation(i.e.sector,regionorglobally)reducetheircarbonintensityataparallelratethat

ensurestherespective2°Ccarbonbudget(sector,regionorglobal)isnotexceeded.Companiesdonot

convergeuponacommoncarbonintensity,butendupwithdifferentintensities.Therateof

contractionisafunctionofthecarbonbudgetandtheexpectedlevelofactivityforthesectororregion

concerned.Forexample,therequiredrateofcontractionincreasesasthecarbonbudgetgetssmaller

orasactivitylevelsincrease.Activitycanbeexpressedusingeconomic(e.g.valueadded)orphysical

(e.g.tonofproduct)indicators.


60


ContractionofAbsoluteEmissions:Thisapproachassumesthatallcompanieswithinthesamelevelof

disaggregation(i.e.sector,regionorglobally)reduceemissionsatthesamerate.Therateof

contractionispurelyafunctionoftheoverallreductionsimpliedinthecorrespondingemissions

scenario.Forinstance,theIPCCAR5’sRCP2.6scenariorequiresglobalemissionstocomedownby66%

between2010and2050.Usingthisscenario,allcompanieswouldhavetoreducetheirGHGemissions

bythissameamount,regardlessofsector.

Thechallengewithintensityapproachesiseffectivemodelingofthedenominator(e.g.dollarsGDP)to

ensurethecarbonbudgetisnotexceeded.Anadvantageoftheabsolutecontractionapproachisthat

suchmodellingisnotrequired.

Contraction


61


Annex 2. Overview of available SBT methods

Themethodsdescribedinthismanualarefreeandpubliclyavailable,andapplicabletomultiple

sectors.Thischaptercharacterizeseachmethodwithrespecttoasetofkeydescriptors.


• SBTmethodsvaryintheemissionsscenarioandallocationmechanismused,conditions

underwhichthecarbonbudgetismaintained,extenttowhichsupportingtechnical

documentationisavailable,andtypesoftargetoutput.

• Itisexpectedthatnewscenariosandmethodswillbedevelopedforarangeofspecific

sectors.InformationonthesewillbepostedtotheSBTinitiative’swebsiteasthemethods

aremadepubliclyavailableand/orvalidatedbytheSBTinitiative.

A2.1 Method Descriptions

Thefollowingmethodsaredescribedinthischapterinsequence:

• Absoluteemissionscontraction

• SectoralDecarbonizationApproach(SDA)

• GreenhouseGasEmissionsperValueAdded(GEVA)

• ClimateStabilizationIntensityTargets(CSI)

• Context-basedCarbonMetric(CSO)

• CorporateFinanceApproachtoClimate-stabilizingTargets(C-FACT)

Eachmethodisdescribedwithrespecttoeightfactors,detailedbelow.TableA2-1summarizesthe

methods.

1.Emissionsscenarios.Emissionsscenariosaredescribedintermsoftheir:

• Identity:theemissionscenariousedandtheextenttowhichthatscenarioisup-to-date.

• Coverage:includingtheGHGsconsidered(onlyCO2orbothCO2andotherGHGs)andthesectors

oractivitiesconsidered(e.g.,energysectors,landusechange,oragricultureemissions).

• Granularity:whetherthescenarioisanaggregatedglobalscenario,aglobalscenariowith

sectoraldisaggregation,oraglobalscenariowithregionalandsectoraldisaggregation.

• Assumptions:thestringencyofthescenarioanditssuitabilityforsettingSBTs.

• Data:whetherdataonthescenarioarepubliclyavailable,includingjusttheemissionsdataor

alsoothervariablesthatareeitherprojectedorusedasinputforthescenario(e.g.GDPgrowth,

electricityproduction,cementproduction,etc.).Thelattermaybeneededtousecertain

methodsandcanprovidefurthertransparencyastoscenarioassumptions.

2. Allocationmechanism:whetheramethodusescontractionorconvergence,andofabsolute

emissions,physicalemissionsintensityoreconomicintensity.

3. Carbonbudget:theextenttowhichcompanies’useofthemethodmaintainsthecarbonbudgetand

whatmechanismsareusedtoensurethis.

4. Validation:theextenttowhichthemethodbeenvalidated(oriscapableofbeingvalidated).For

example,hasthemethodbeenpublishedinpeer-reviewedscientificjournals?Otherwise,isclear

documentationavailableonthemethod,includingonunderlyingprinciplesandamathematical


62


formulationofthemethod;andhasthemethodbeenreviewedbyexternalexpertpanelsorvia

publicconsultation?

5. Usability:whetheracalculationtoolisavailableandanyknownplansforupdatingthemethod.

6. Targets:includingwhetherabsoluteand/orintensitytargetsareoutput,therangeofpermissible

baseyearsandtargetyears,thepathwayconnectingbaseyearsandtargetyears(none,linear,as

peremissionsscenario,orcompoundannualgrowthrate(CAGR)),andapplicabilitytodifferent

scopes.

7. Miscellaneousnotes

Absolute Emissions Contraction

Scenario:GenerallyproposedwithAR5rangeofscenarioresults,requiring49-72%reductionfrom2010

to2050,butanysuitablescenariocanbeused.However,theuseofcertainscenariosrequiresless

emissionsreductionup-front,necessitatingthatmoreemissionsarecapturedandstoredinthefuture-

delayingactionandcreatinga“carbondebt”forfuturegenerations.TheSBTinitiativeencourages

companies,particularlythoseindevelopedcountries,toadopt72%reductiontobemorelikelytoavoid

thefuturecarbondebtissueandadjustforotherpotentialinfluencesontheglobalcarbonbudget.

Allocation:ContractionofabsoluteGHGemissions.Becausethismethodrequiresallcompaniesto

reducetheiremissionsatthesamerate,neworgrowingbusinessesmightfinditdifficulttoittogetto

their“fairshare”ofthecarbonbudgetduringthetransitiontoalowcarboneconomy.

Budget:Budgetismaintained,asallcompaniesreduceinlinewithscenario,providednonew

businessesarecreated.Asthatisnotareasonableassumption,thescenariopredictionsshouldbe

reviewedperiodically(5to10years)andtargetsadjustedaccordinglyinordertomaintainthe

emissionsbudget.

Validation:FariaandLabutong(2015)provideamathematicexpressionforthismethod.

Usability:Themethodiseasytouseandfollow.Nosupportingdocumentationexistssofaronthis

method.Noupdatesenvisaged.

Targets:Absoluteemissionreductions,withpathwaysthatarelinear,CAGRormirrorthescenario

pathway.Baseyearandtargetyearcanbespecifiedaccordingtoscenario.Methodcanbeusedforany

scope,providedsuitablescenariosexist.

Notes:ThismethodhasbeenidentifiedbytheSBTinitiativeasasimple,straightforwardapproachto

setandtrackprogresstowardtargets.

SectoralDecarbonizationApproach(SDA)

Scenario:Themethodusesthe2DSscenariodevelopedbytheIEA(IEA2016),whichiscompatiblewith

theRCP2.6scenario.The2DSscenariocomprisesanemissionsscenarioandanactivityscenario,which

areusedtocomputesectoralintensitypathways.ReferencedataforIEAETPscenariosarepublicly

available(IEA2016).

Allocation:Twoallocationprinciplesareused:physicalintensityconvergence,forhomogeneous

sectors;andcontractionofabsoluteemissions,forheterogeneoussectors.

Budget:Eachsectoralbudgetismaintained,totheextentthesumofsectoralactivitydoesnotgo

beyondthatprojectedforthescenario(forhomogeneoussectors)andthatnonewbusinessesare

created(fortheheterogeneous“OtherIndustry”sector).Periodicrevisionofthescenariosandof


63


targetsisrecommended,toincorporatenewinformationrelatedtohistoricalemissions,technological

developmentsandthenecessaryreductioneffortsbysector.

Validation:Publishedinpeerreviewjournal(Krabbeetal.2015).Adescriptionofthemethodandmost

ofthescenariosusedhasalsobeenpublished(CDPetal.2015).Themethodismathematically

formulatedandpubliclyavailable.Itwasdevelopedthroughastakeholderprocess,includingreviewby

aTechnicalAdvisoryGroupandapublicopencommentperiod.

Usability:Themethodismorecomplexthanotherexistingmethodstotheextentthatitrequires

physicaldatathatmightnotbepubliclyavailable(butshouldexistincompanies)anditusesa

sector/activityapproachwhichmightrequirecompaniestosetmultipletargets.Itismoreorientedto

energyandcarbonintensiveindustries,althoughfornon-carbonintensiveitfallsbacktoanabsolute

emissionscontractionmethod.Atoolisavailable,whichwillbeperiodicallyupdatedxxviii

.

Targets:Absoluteorintensity(physicalorvalueadded,dependingonsector)targets.Allowsdifferent

baseyearsstartingfrom2010anddifferenttargetyearsupto2050.Targetpathwaysfollowthe

contourofthesectorscenariopathway.Requirescompaniestogatherbothemissionsandactivitydata

andtoforecastactivity.Coversscopes1and2,withdistincttargetsforboth.“ProductUse”forLight

roadvehiclesmanufacturingistheonlyscope3sectorinthetool.

Notes:Themethodtakessectoraldifferencesandabatementpotentialsintoaccount,totheextent

theseareconsideredinthemakingofthedifferentsectorscenarios.Italsohasdefinedspecificscope2

scenarios,whichbettertranslateintocorporateGHGaccountingpractices,anditcanbeusedtoset

validscope3targetsforcertainscope3categories(seeChapter4.3).Forhomogeneoussectors,italso

accommodatestheissueofhistoricalaction,asitrequiresGHGemissionsintensivecompaniesto

reducetheiremissionsfaster.Newcompaniesinhomogeneoussectorscanalsobeaccommodatedand

allocatedportionsofthebudget.Asitcurrentlystands,themethoddoesnotcoverseveralactivity

sectors(Agriculture,forestry,andotherlanduse;Oilandgasproduction;Residentialbuildings).

Greenhouse Gas Emissions per Value Added (GEVA)

Scenario:Theoriginalscenariouses50%reductionby2050(IPCCFourthAssessmentReport)and

economicgrowthof3%p.a.,butcanbeusedwithdifferentscenarios.

Allocation:ContractionofGHGintensitypervalueadded.

Budget:Budgetismaintainedtotheextentthatthegrowthinvalueaddedofcompaniesisequaltoor

smallerthantheprojectionusedtocalculatetheintensitytarget.

Validation:DescribedinRanders(2012).FariaandLabutong(2015)provideamathematicexpressionof

thismethod.

Usability:Themethodiseasytouseandfollow.Documentationisonlyavailableforothermethods

basedonGEVA(seeCSI,CSOandC-FACTmethod).Toolsareavailablethatimplementvariationsof

thesemethods(seeCSOandC-FACT).Onlyrequirestrackingofemissionsandvalueaddedtosetand

tracktarget.Noupdatesenvisaged.

Targets:IntensitytargetsintheformoftCO2e/$valueadded.Baseyearandtargetyearcanbe

specifiedaccordingtoscenario.TargetsfollowaCAGRtrajectorytotargetyear.Methodisintendedfor

scope1emissions.

Notes:TheGEVAmethodformsthebasisofseveralothermethodsthatbaseallocationonvalue

added.Therearedifferentwaysofconstructingtheallocationofemissionsbasedonvalueadded,as


64


wellasdifferentscenariosthatcanbeusedtoformthebasisoftheallocation.Thesewillcausesome

degreeofvariationinthefinalresultsfromGEVAandrelatedmethods.

Climate Stabilization Intensity Targets (CSI)

Scenario:IPCCFourthAssessmentReport.80%reductioninGHGemissionsby2050,froma2007base

year.Economicgrowthof5.9%perannum(currentprices)from2007to2050.


Budget:SeecommentsforGEVA.

Validation:BasedonGEVA,whichhasbeenpeerreviewedandpublishedinascientificjournal.This

applicationhasbeendocumentedbyTuppen(2009).Nodetailedgeneralmathematicalformulationof

themethodbeyondvalueaddeddefinitionandGHGintensitypervalueadded.

Usability:Themethodiseasytouseandfollowandisdocumented.Notoolisavailable.Onlyrequires

trackingofemissionsandvalueaddedtosetandtracktarget.Noupdatesenvisaged.

Targets:IntensitytargetsintheformoftCO2e/$valueadded.Baseyearandtargetyearcanbe

specifiedaccordingtoscenario.TargetsfollowaCAGRtrajectorytotargetyear.Methodaggregates

scope1+2anddoesnotcoverscope3.

Notes:CSIisaspecificationofGEVAtothecaseofaparticularcompany(BT)usingaparticularscenario

(describedabove).Thisresultsinalong-termtargetprescribingareductioninscope1+2GHGintensity

(tCO2e/millionGDP)of9.6%p.a.forcompaniesindevelopedcountries.Itfollowstheprinciplethatall

companieswithinagivengeography(inthiscase,developedcountries)willdecreasetheirGHG

intensitypervalueaddedatthesamerate.

Context-based Carbon Metric (CSO)

Scenario:Multiplescenarioscanbeusedwiththismethodthatcanleadtomethodcoveringdifferent

geographies,targetyearsorsectors.


Budget:SeecommentsforGEVA.

Validation:BasedonGEVA,whichhasbeenpeerreviewedandpublishedinascientificjournal.No

generalmathematicalformulationofthemethodpubliclyavailable.UpdatedasneededbytheCenter

forSustainableOrganizations(CSO).

Usability:Documentationisavailable(McElroy2017).Atoolisavailable,specifyingthemethodforone

scenario(SSP1-2.6)xxix

.Onlyrequirestrackingofemissionsandvalueaddedtosetandtracktarget.The

toolcanbeusedalsofortargettrackingbythecompany.

Targets:IntensitytargetsintheformoftCO2e/$valueadded(pertheimplementationavailableonline).

Baseyearandtargetyearcanbespecifiedaccordingtoscenario.TargetsfollowaCAGRtrajectoryto

targetyear.Dealswithscope1and2targets,and,optionally,scope3targets.

Notes:OriginallydevelopedandpilotedforthesettingofBen&Jerry´stargetsin2006(currentversion,

v5.5wasreleasedin2015).Performanceisreportedannuallyandcumulativelyinthreeways:intensity,

absolute,and“context-based”(aratingevaluatingtheratioofactualemissionstotargetedemissions).

Methodisflexibleandcanaccommodatevariationsinemissionsscenarioandintensitymetric.


65


Corporate Finance Approach to Climate-stabilizing Targets (C-FACT)

Scenario:IPCCFourthAssessmentReport.Fordevelopedcountries:85%reductioninGHGemissionsby

2050comparedwith2007baseyear;fordevelopingcountries:50%reductioninGHGemissionsby

2050.Companiesspecifytheirownfuturevalueaddedprojection(basedoncontributiontoGDP).As

withprevioustools,differentscenarioscanbeaccommodated.

Allocation:Contractionofabsoluteemissions,althoughtargetsalsocommunicatedasintensity(value

added)targets.

Budget:Budgetismaintainedtotheextentgrowthofcompaniesisequaltoorissmallerthantheir

projectionusedinthescenario.Companieshavereductionssimilartothatofthescenario.

Validation:Notpublishedinpeerreviewedjournal,butadescriptionofmethodisavailableFariaand

Labutong(2015)provideamathematicexpressionofthismethod.DevelopedbyAutodeskin

consultationwiththeU.S.EnvironmentalProtectionAgency(EPA),theClimateGroup,WRI,and

ClearCarbon(nowDeloitte).

Usability:Themethodiseasytouseandfollow.Documentationisavailable(StewartandDeodhar

2009).Atoolisavailablethatallowssettingtargetsforcompaniesindevelopedcountriesandthatcan

easilybespecifiedfordevelopingcountries.Onlyrequirestrackingofemissionsandvalueaddedtoset

andtracktarget.

Targets:IntensitytargetintheformoftCO2e/$valueaddedbasedoncontractionofabsolute

emissions.Baseyearandtargetyearcanbespecifiedaccordingtoscenario.TargetsfollowaCAGR

trajectorytotargetyear.Methodproposescoverageofscope1,2,and3emissions.

Notes:Themethodhasafive-yearslidingwindowcompaniescanusetoevaluateoverallshort-term

progresstowardsthetarget.Themethodprojectsanabsoluteemissionsreductiontarget,uponwhich

theintensitytargetisconstructedbasedonthegrowthprojectionofcompany.Methodproposesthat

companiestracktheirintensitytarget.


Science Based Targets – Science-based Target Setting Manual 66


TableA2-1.SummaryofSBTMethodsInformation Absolute

EmissionsContraction

CSI Context-BasedMetric(CSO) C-FACT GEVA SDA

BaseYear Flexible Flexible 2005 Flexible,prefers2009

Flexible,prefers2010

Flexible,from2010onward

TargetYear Flexible Flexiblethrough2050

Flexiblethrough2050 Flexiblethrough2050

Flexiblethrough2050

Flexiblethrough2050

Emissionsscenario

Flexible Flexible,althoughIPCCFourthAssessmentReportusedincurrentimplementation

Flexible Flexible,althoughIPCCFourthAssessmentReportusedincurrentimplementation

IEA2DS

Levelofsectordifferentiation

None None None None None Sectoral

AllocationMechanism

Contraction(absolute)

Contraction(intensity)

Contraction(intensity) Contraction(absolute)

Contraction(intensity)

Convergence(forhomogeneoussectors)Contraction(forheterogeneoussectors)




Information AbsoluteEmissionsContraction

CSI Context-BasedMetric(CSO) C-FACT GEVA SDA

InputData

Baseyear

• Absoluteemissions,scope1+2+3ifdesired

• Combinedscope1and2intensity

• Grossprofit

• Scope1and2absoluteandintensityemissions(separately)

• Grossprofit,revenue,physicalactivity

• Absolutescope1,scope2,orscope1+2+3ifdesired

• Grossprofit,revenue

• Eitherintensityorabsolutescope1,scope2,orscope1+2• Grossprofit

• Scope1and2absoluteemissions(separately)• Physicalactivity;grossprofit

Targetyear

• Growthprojection(specifiedbymethodscenario)

• Growthprojection(asprojectedbycompany)

• Grossprofit/margin


• Grossprofit/margintarget(asdeterminedbycompany)


• Grossprofit/margintarget

• GrowthProjection(specifiedbymethodscenario)

• Growthprojection(asprojectedbycompanyandonlyforhomogeneoussectors)

TargetYearOutputs

Absolutereduction,scope1+2+3ifdesired

Combinedscope1and2intensity

Scope1and2absoluteandintensityemissions(separately)

Presentsintensityandabsolutereductions

Intensitytargetorabsolutetarget

Scope1and2absoluteemissionsandintensity(separately)




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Acknowledgments

CDP, UN Global Compact, WRI, and WWF are grateful for the advice and inputs received from various experts during the development of the manual.

Our Technical Advisory Group includes experts from companies, non-governmental organizations, and other organizations listed below:

Andreas Horn, BASF Arunavo Mukerjee, Tata Steel Bill Baue, Sustainability Context Bryan Jacob, Climate Coach Chris Tuppen, Advancing Sustainability Colin Parry, Diageo Cristian Mosella, Colbun Edward Butt, Tate & Lyle Emma Stewart, Autodesk Eric Christensen, WSP Geoff Lye, SustainAbility Giel Linthorst, Ecofys Guy Rickard, Carbon Trust Jed Davis, Cabot Creamery Jeff Gowdy, J. Gowdy Consulting Kevin Rabinovitch, Mars Mario Abreu, Tetra Pak Mark Didden, WBCSD Mark McElroy, Center Sustainable Org Michel Bande, Solvay Michel Cornet, CLIMACT Philippe Le Gall, Nestlé Roger Fernandez, EPA Sanjib Bezbaroa, ITC Tasso Azevedo, Fórum Clima Thomas Gourdon, ADEME Tim Juliani, C2ES

Comments on various drafts of the manual were also provided by:

Amy Barry, Diga Communications Betty Cremmins, CDP Kevin Moss, WRI Internal reviewers at WRI

We are indebted to XXX for their generous financial support.




About the partner organizations in the Science Based Target initiative

CDP

CDP is an international not-for-profit organization providing the only global system for companies and cities to measure, disclose, manage, and share vital environmental information. These insights enable investors, companies, and governments to mitigate risks from the use of energy and natural resources, and to identify opportunities from taking a responsible approach to the environment. (https://www.cdp.net)

UN Global Compact:

The UN Global Compact believes it’s possible to create a sustainable and inclusive global economy that delivers lasting benefits to people, communities and markets. To make this happen, the UN Global Compact supports companies to: do business responsibly by aligning their strategies and operations with Ten Principles on human rights, labor, environment and anti-corruption; and take strategic actions to advance broader societal goals, such as the forthcoming UN Sustainable Development Goals, with an emphasis on collaboration and innovation. (www.unglobalcompact.org)

World Resources Institute (WRI)

WRI focuses on the intersection of the environment and socioeconomic development. We go beyond research to put ideas into action, working globally with governments, business, and civil society to build transformative solutions that protect the earth and improve people’s lives. (www.wri.org)

WWF

WWF is one of the world’s largest and most experienced independent conservation organizations, with over 5 million supporters and a global network active in more than 100 countries.

WWF’s mission is to stop the degradation of the planet’s natural environment and to build a future in which humans live in harmony with nature, by conserving the world’s biological diversity, ensuring that the use of renewable natural resources is sustainable, and promoting the reduction of pollution and wasteful consumption. (http://wwf.panda.org)




Endnotes




iTheIPCCisascientificandintergovernmentalbodyestablishedundertheauspicesoftheUnited

Nations“toprovidetheworldwithaclearscientificviewonthecurrentstateofknowledgeinclimate

changeanditspotentialenvironmentalandsocio-economicimpacts.”https://www.ipcc.ch/.iiTherangeofvaluesforthepercentdecreaseinemissionsisduetouncertaintyinemissionsmodeling

projections.Thevaluesaretakenfromaspecificpathway(Overshoot<0.4W/m2)detailedonp431of

Clarkeetal(2014).iiiSomemethodsforsettingSBTscanbeadaptedtomeetmorestringenttemperaturetargets.See

Annex2formoredetails.ivTheLCPTiisacollaborationbetweenWBCSD(WorldBusinessCouncilforSustainableDevelopment),

SDSN(SustainableDevelopmentSolutionsNetwork)andIEA(InternationalEnergyAgency)that

presentsaseriesofconcreteactionplansonninesectorsforthelarge-scaledevelopmentand

deploymentoflow-carbontechnologies.http://lctpi.wbcsdservers.org/.vFormoreinformationonP&G’swindfarm,seehttp://cdn.pg.com/en-us/-

/media/PGCOMUS/Documents/PDF/Sustanability_PDF/sustainability_reports/PG2015SustainabilityRep

ort.pdf?la=en-US&v=1-201605111505.viFormoreinformationonDell’sSBT,seehttp://sciencebasedtargets.org/case-studies/case-study-dell/.

viiFormoreinformationonKellogg’sSBT,seehttp://sciencebasedtargets.org/case-studies/case-study-

kellogg/viiiToreadthefullstatement,seehttp://investorsonclimatechange.org/portfolio/global-investor-

statement-climate-change/.ix Formore information onNRG Energy’s SBT, see http://sciencebasedtargets.org/case-studies/case-

study-nrg/. x FormoreinformationonLandSecurities’SBT,seehttp://sciencebasedtargets.org/case-studies/case-

study-land-securities/. xi FormoreinformationonCoca-ColaEnterprises’SBT,seehttp://sciencebasedtargets.org/case-

studies/case-study-coca-cola-enterprises/. xiiTheIEA“examinesthefullspectrumofenergyissuesandadvocatespoliciesthatwillenhancethe

reliability,affordabilityandsustainabilityofenergyinits29membercountriesandbeyond.”

http://www.iea.org/about/.xiiiAnothermethodusesthecontractionofabsoluteemissionsapproach–the“3%Solution”:

http://www.worldwildlife.org/projects/the-3-solution.Thismanualdoesnotrecommendthe3%

Solutionbecauseitcalculatestargetsonlythrough2020.Asdescribedinthemanual,companiesshould

settargetyearsthatarebetweenfiveandfifteenyearsoutfromthecurrentyear.xivForthecurrentlistoftheSBTinitiative’scriteriaandrecommendations,see

http://sciencebasedtargets.org/wp-content/uploads/2017/02/SBTi-criteria.pdfxvFormoreinformationonThalys’target,seehttp://sciencebasedtargets.org/case-studies/case-study-

thalys/.xvi ThesecriteriaareexplainedinChapter7oftheGHGProtocolScope2Guidance. xviiTheScienceBasedTargetinitiative’sCalltoActioncampaignrequiresthatallelectricity-generating

companiesthatdistributenaturalgasorotherfossilfuelproductssetscope3targetsfortheuseofsold

products.xviii

Todeterminewhetherthecumulativeimpactofsuchchangeswarrantsrecalculations,companies

shouldadoptasignificancethreshold.TheGHGProtocoldoesnotspecifyathresholdvalue,althougha




5percentvalueisgenerallyrecommended.Usinga5percentthreshold,changeswouldbeconsidered

significantif,intheaggregate,theyaffecttheSBTbymorethan5percent.Oncedefined,asignificance

thresholdshouldbeappliedconsistentlyovertime.xix FormoreinformationonPfizer’sSBT,seehttp://sciencebasedtargets.org/case-studies/case-study-

pfizer/. xxTheEPAcalculatortranslatesemissionsdataintoestimatesoftheannualemissionsfromcars,

households,andpowerplants.https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator.xxiFortheGRIstandardsonsustainabilityreporting,seehttps://www.globalreporting.org/standards/.

xxiiInadditiontocollectingemissionsdata,theCDPClimateChangeQuestionnairecollectsinformation

oncorporaterisksandopportunitiesconnectedtoclimatechange.https://www.cdp.net/en/climate.xxiii

TheNAZCAplatformcurrentlyreportsthecommitmentsofatleasttwothousandcompanies.

http://climateaction.unfccc.int/.xxiv

ThemassofCO2canbeestimatedbymultiplyingthemassofcarbonbytheratioofthemolecular

weightofCO2tothatofcarbon.Thisratiois44/12orabout3.67.xxvThethirdandfourthassessmentreportsoftheIPCCassessGHGconcentrationsratherthan

temperaturethresholds.xxvi

BecauseGHGscanhaveamulti-yearlifespanandaccumulateintheatmosphere,theradiative

forcinglevelsinRCP2.6alsofollowa“peakanddecline”pathway,butoneinwhichforcinglevelspeak

ataround3.1W/m2bymid-century,andreturnto2.6W/m2by2100(Clarkeetal.2014).xxvii

Foradiscussionofinstrumentsandagreementsforinternationalclimatecooperation,seeStavinset

al.(2014).xxviii

TheSDAandsupportingdocumentationcanbedownloadedfrom

http://sciencebasedtargets.org/sda-tool/.xxix

TheCSOtoolcanbedownloadedfromhttp://www.sustainableorganizations.org/context-based-

metrics-in-public-domain.html.