Bullseye: Emissions target setting for sustainable SMEs

August 2023

What do the experts think...

I like to think of emissions target setting as making an apology: it should be heart-felt and it should be backed with consistent action.

Governments and businesses are watching us move closer towards a catastrophic increase in global temperatures and realising the need to set ambitious emission reduction targets. While the art of balancing ambition with plausibility can seem like a foggy one, it is also crucial if we want our apology to be accepted by our atmospheric overlord. Jokes aside, how can we do this? What should a good target look like? What types of targets are there? How do we make sure the target is in line with such an enigmatic end-goal as a global average temperature? Well, as the imposter syndrome sets in, I certainly can’t hope to demystify all of your specific grey areas around target setting. However, I can lean on my consulting experience - and associated frantic research skills - to paint a picture of what an effective target should look like and how you might go about setting one.

Anatomy of a target

Firstly, let’s look at the anatomy of a good target. It should consist of four key components: an outcome (e.g. 90% reduction), a scope (in scope 1 and 2 emissions), an end date (by 2040), and a baseline (compared to 2023 levels). This structure gives our target some direction and transparency but it can still lack credibility. It follows that ambitious long term targets like this one should be backed up by medium and short term targets which provide accountability and serve as milestones to shape the reduction pathway. Taking this information, a complete, transparent and credible emissions target disclosure could look something like this:

  • Long term: net zero scope 1, 2 and 3 emissions emissions by 2045
  • Medium term: 70% reduction in scope 1 and 2 emissions and 25% reduction in scope 3 emissions by 2030 compared to 2023 levels
  • Short term: 50% reduction in scope 1 and 2 emissions by 2028 compared to 2023 levels, plus reporting of all scope 3 emissions

It may look like I’ve just pulled these numbers out of thin air, and that’s because I have. So let’s turn to the Climate Council for a look at some background for two approaches to determining emission reduction targets.

Types of targets

1. The targets and timetables approach

This typically involves naming a date at which net-zero emissions will be achieved and is often adopted at the national level. The targets and timetables approach risks being flawed or misaligned with climate science if appropriate interim targets are not set, or if inaccurate estimations or assumptions are made in relation to the reductions required to meet a specific temperature goal (e.g. assuming a linear trajectory in order to adhere to a sub-1.5 degree outcome, but not including interim targets to shape this). The Paris Agreement hopes to navigate this issue by requiring countries to set a target for 2025 or 2030, and then successive interim targets every five years. 

The image below illustrates another factor which a poorly thought-out target might overlook: early action is important. Each emissions reduction pathway below relates to a “net-zero by 2050” target, which may seem fine at first glance, but when we consider that the area under each curve represents the cumulative amount of emissions over the timeframe: it’s pretty clear to see that there is a lot more carbon dioxide being pumped into the atmosphere with the “laggard” approach. We can also see that the aim high, go fast method allowed for achieving the target faster than initially planned.

2. The carbon budget approach

The carbon budget approach is a more scientifically robust method which is based on the cumulative amount of CO2 emitted from all human sources since the beginning of industrialisation and the increase in global average surface temperature. A carbon budget refers to the maximum amount of carbon that can be emitted into the atmosphere while still adhering to the requirements of a specific temperature outcome (usually adjusted to a desired probability of this outcome).

The carbon budget required to achieve a specific temperature goal can depend on:

  • the desired probability of meeting this goal
  • the climate models used to estimate the trajectory of the climate for a given level of emissions
  • the treatment of other GHGs such as methane, nitrous oxide, and aerosols
  • Earth System feedbacks, such as permafrost melt and forest dieback
  • the additional warming that is still to be expected after a halt in all additional CO2 emissions.

A targets and timelines approach can be tweaked to adhere to a carbon budget using additional interim targets, as with the Paris Agreement.

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Science based targets

Now that I’ve sufficiently convoluted the situation, I’m pleased to introduce the Science Based Target Initiative (SBTi), which aims to simplify the science based target setting process. This refers to targets that are set in alignment with the latest climate science and a pathway to a sub 1.5 degree temperature rise. Thankfully, I can give my fingers a bit of a rest here as the SBTi provides a whole lot of guidance on their website, so be sure to make use of the hyperlinks here and below. 

The standard SBTi process involves the following steps:

  1. Commit: submit a letter establishing your intent to set a science-based target
  2. Develop: work on an emissions reduction target in line with the SBTi’s criteria (near term targets or net-zero targets)
  3. Submit: present your target to the SBTi for official validation
  4. Communicate: announce your target and inform your stakeholders
  5. Disclose: report company-wide emissions and track target progress annually

Thankfully for SMEs (i.e. independent, non-subsidiary companies with less than 500 FTE - excluding financial institutions and oil & gas companies) this process has been simplified even further. Some key differences between setting an SBT as an SME vs a larger corporation are:

  1. No need for the formal commitment letter
  2. Your target will not be put through SBTi’s standard validation process
  3. SMEs can immediately set science-based targets (near-term and long-term options available) by choosing from one of the predefined target options available in the SME science-based target setting form.
  4. The near-term option does not require SMEs to set targets for their scope 3 emissions; however, SMEs must commit to measure and reduce their scope 3 emissions. 

For more SME-related information you can jump into SBTi’s SME FAQs.

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