GHG Emissions Targets Cheat Sheet: Science-Based Targets vs. Net Zero
With climate change being one of the hottest topics in ESG today, it’s at the top of investors’ agendas. And those investors are pushing the topic to the forefront of their portfolio companies’ agendas as well, specifically putting pressure on companies to rein in their greenhouse gas (GHG) emissions. As a result, many leading organizations are publicly committing to science-based emissions reduction targets or even going a step further and setting more ambitious net-zero goals.
If you’re still deciding which emissions-reduction approach is best for your business, consider these key points.
Understanding GHG emissions scopes.
Before you can set a realistic emissions reduction goal, it’s important to understand the extent of the emissions your business is releasing into the atmosphere, both directly and indirectly. The term “scope” relates to who owns the specific GHG emissions in questions, and there are three scopes that should be on your radar:
- Scope 1: Direct emissions from sources you own or operate, including:
- Generated electricity, heat, and steam
- Physical or chemical processing
- Mobile combustion resulting from company-owned transportation
- Fugitive emissions that result from releases, such as equipment leaks
- Scope 2: Indirect emission from the electricity, heat, and steam your company purchases
- Scope 3: All other indirect emissions, such as business travel, employee commuting, and purchased goods and services
Comparing science-based targes to net zero.
Once you have a handle on the emissions you are producing, you can define your strategy for reducing them. Generally, organizations are choosing one of the following two approaches:
|Science-Based Targets||Net-Zero Targets|
|What it is: Science-based targets are aligned with the latest climate science from The Intergovernmental Panel on Climate Change (IPCC) and specifically with what IPCC deems necessary to meet the goals of the Paris Agreement and limit global warming to 1.5 °C. These targets provide companies with a well-defined path for rapidly reducing emissions and working toward achieving the global climate-change goals.||What it is: According to Net Zero Climate, “It is international scientific consensus that, in order to prevent the worst climate damages, global net human-caused emissions of carbon dioxide (CO2) need to fall by about 45% from 2010 levels by 2030, reaching net zero around 2050.” Net zero essentially means that greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere; it is the point at which global warming stops.|
|How it works: Science-based targets must cover scope 1 and 2 emissions and companies must be tracking and measuring these emissions across their enterprise. |
For companies whose scope 3 emissions cover more than 40% of combined scope 1, 2, and 3 emissions, targets must cover scope 3 emissions as well.
Science-based targets need to be defined, submitted, and approved by The Science Based Targets initiative (SBTi). The targets should be clearly communicated to all stakeholders, and progress toward the goals should be disclosed on a regular basis.
|How it works: Currently no set standard exists for net-zero targets and companies differ in how they define their goals. Organizations like Energy & Climate Intelligence Unit have pointed out that net-zero commitments vary hugely in their quality while SBTi has stated that not all net-zero targets are created equal; variances exist in the types of emissions included in the target, the speed at which emissions are reduced, and the timeframe for achieving net zero. |
In general, achieving net zero requires an overall balance between emissions produced and emissions taken out of the atmosphere. Because companies cannot completely eliminate all emissions, they can purchase voluntary carbon credits through certified programs that include planting trees, restoring wetlands, building artificial coral reefs, or similar projects to create “carbon sinks” and remove carbon dioxide from the atmosphere.
Keep in mind that investors, and BlackRock in particular, have made it clear that companies cannot rely too heavily on buying credits to offset emissions and must take reduction measures as well.
|Why it matters: Science-based targets are becoming increasingly common and are the most recognized and legitimate way for companies to set emissions targets. Aligning with IPCC science makes companies less vulnerable to greenwashing claims, ensuring that targets are ambitious and timely. It also satisfies new mandates from major investors, including BlackRock, that specifically call for short- and medium-term targets to reduce emissions in line with the Paris climate accord.||Why it matters: As the topic of net zero gains traction, investors are increasing pressure on companies to set long-term targets because of the urgent need to control the rise in global mean temperatures and limit global warming. Specifically, BlackRock CEO Larry Fink’s 2021 letter to executives calls on CEOs “to disclose a plan for how their business model will be compatible with a net-zero economy.”|
|Global Initiatives: The Science Based Targets initiative (SBTi) defines and promotes best practices in science-based target setting. SBTi offers companies resources and guidance for target-setting and also independently assesses and approves companies’ targets in line with its strict criteria. ||Global Initiatives: The Net-Zero Asset Owner Alliance is convened by UNEP’s Finance Initiative and the Principles for Responsible Investment. Its membership is made up of more than 40 institutional investors with over $6.6 trillion in assets under management, including AXA and CalPERS. The goal of the alliance is to commit to setting and reporting ambitious targets for net-zero by 2050. |
Net Zero Asset Managers Initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, with the goal of limiting warming to 1.5 °C. The initiative’s 128 signatories represent $43 trillion in assets under management and include BlackRock, Franklin Templeton, Nordea, and Vanguard.
|Early Adopters: More than 1,000 companies around the world have already set emissions reduction targets in line with a 1.5°C future through SBTi. |
These companies include:
Yum! Brands (pg. 31)
Apple Inc (pg. 10)
General Motors (pg. 47)
See the full list of companies taking action.
|Early Adopters: At least one-fifth (21%) of the world’s 2,000 largest public companies have committed to meet net-zero targets, according to a new report called ‘Taking Stock: A global assessment of net-zero targets.’ Together, the companies represent sales of nearly $14 trillion. |
According to Carbon Intelligence, net-zero committed companies include:
Verizon: Net-zero by 2035
Nestle: Net-zero by 2050
Dell: Net-zero by 2050
See the full list of companies that have set net-zero targets.
Can both approaches be combined?
Yes. Companies that are most ambitious when it comes to emissions reduction can choose to adopt both science-based targets and a net-zero commitment. Some institutional investors, including BlackRock, are already calling for such action, specifically asking companies to set short, medium, and long-term targets. Furthermore, a Net-Zero Science-Based standard is currently in progress and is expected to be released at the end of the year. The standard will provide more guidance and direction around this robust approach to emissions reduction.
How ESG Infinite can help.
It’s important to start tracking GHG emissions soon, especially since there is an expectation for the SEC to release new climate risk disclosure rules by the end of the year. Using the ESG Infinite platform, you can compare which of your peers have adopted science-based targets and/or net zero commitments. With over 500 examples of corporate ESG disclosures and guidance on how to address ESG throughout all corporate materials, ESG Infinite can help ensure you effectively communicate your company’s progress to all stakeholders. Contact us today to learn more about ESG Infinite.