How can we make science-based targets even better?

How can we make science-based targets even better?
10 May 2018

How can we make science-based targets even better?

In the grand scheme of things science-based targets are a relatively new concept. They were around for the Paris Agreement in 2015 but have really taken off since the signing. But how do we know that they are going to work, and what can businesses do to make sure their targets are achievable and cost effective?

The concepts that underpin science-based targets are perfect; a company must understand its responsibility towards managing climate change and limiting global warming to 2 degrees by 2050, and lead to action.

It directs companies to take the mindset that, over an agreed period of time, they must implement actions that respond to market changes and the risks associated with climate change.

Science-based targets need to be approved at the top level of an organisation, which is great because it means that there is a commitment by the decision makers to ensure that they are met. However, before signing off these targets, it is important that a company knows just how much investment is going to be required and how they are going to be met - and perhaps not in full by some way.

For decades we have helped companies, and indeed countries, to set targets and think about what they will need to do to meet them. In many cases we’ve helped to identify cost effective ways to achieve these ambitions and use advances in technology and supply chain development to deliver long term savings and greater security for their businesses. But, just as importantly, we have helped reveal where ambitions may not be achievable without companies incurring significant, in some cases unsustainable, costs.

Back in the late 2000’s we worked with a large technology company who had set an ambitious sustainability target, had it signed off at board level and publicly declared they were going to meet it. However, it soon became apparent that, although the long-term targets could have substantial environmental benefits for the business they did not understand the cost of meeting it.  

Ricardo was approached to help explore if and how the target would be achievable and the associated cost.

It is important to understand that the exercise of exploring the cost is different to that of setting the target, as it requires an understanding of what the potential routes might be and the cost of carbon contribution and reduction. For this and most instances we needed to look above and beyond traditional Scope 1 and 2, and consider technology developments and factors likely to impact the supply chain. We worked with the company to collect this information, and then put the estimates into a model that looked at when technology was likely to become available, what it would cost, and what it would achieve.

The outcome was that achieving a target of 34% reduction would be completely cost neutral, in other words a no brainer for the company.   

But to go further and try to meet its actual target of 50% reductions was likely to need significant investment.

This allowed the company to question if the target was appropriate and achievable, and to start to think about how it was going to meet it. This wasn’t a simple decision, having already publicly declared its intention, would reducing the target or expanding the time frame risk reputational damage?  

Which scopes?

The other question that a company must ask in setting and reviewing its targets is around how the scopes should be tracked?

Let’s talk about Scope 2 first. With the introduction of ‘location based’ and ‘market based’ emissions reporting routes companies have the option of reporting which is best suited to their businesses.

If a company selects market based and is currently purchasing a poor blend then a saving is easy. However, choosing to report location based factors may not be any better, as I have seen companies talking of their achievement of being ahead of the science-based target trajectory purely on the basis that the grid has decarbonised quicker than they expected.

While procuring green or renewable energy is good, the challenge should be based on making sure that emissions are reduced by the companies themselves. That could be by self-generation and private wires, or community energy, something we are seeing plenty of, or through better energy efficiency and management, with demand side response taking a role. 

Considering which is going to be the best option for the company and understanding what the future might look like must go hand in hand.

Finally Scope 3, as we all know, is where the larger proportion of emissions lie. It is also where the future resource risks are so, again, understanding exactly what the challenges will be and what needs to be done is essential. We’ve been working with a new approach to life cycle assessments (LCA) and Scope 3 that allows a company to do both, measure Scope 3 and do all LCA on all products, at the same time. Not only does this provide an understanding of your Scope 3 but you also allows you to see where the resource risks and costs are for the future.

So, in summary, science-based targets are great. But to make them more robust, they must be matched to a company’s need, and be followed by an understanding of how they are going to be met, and to do so a company must consider its choices of Scope 2 and 3 appropriately.

If you would like to discuss how to set, review and deliver science-based targets for your company, or discuss any of the issues raised in this article, feel free to contact me at Christine.stjohncox@ricardo.com