Our industry is engaged in an important dialogue to improve sustainability through ESG transparency and industry collaboration. This article is a contribution to this larger conversation and does not necessarily reflect GRESB’s position.
Looking back, it is fair to say 2021 was the year of climate commitments. Against the backdrop of the latest Intergovernmental Panel on Climate Change (IPCC) report issuing a ‘code red for humanity’ and world leaders meeting in Glasgow for COP26, there was a proliferation of companies setting headline grabbing Net-Zero and Carbon Neutral targets.
However, the rapid uptake in climate commitments, coupled with the wide variety of approaches used to define these terms, means it is often a challenge to distinguish between climate leaders and those guilty of greenwashing.
A recent report by the NewClimate Institute reviewed the integrity of 25 large multinational companies’ targets and concluded climate commitments are often limited in scope and ambition. Keen to present themselves as frontrunners, companies can often rush to make commitments that do not have the appropriate level of ambition and have an over reliance on compensating with carbon offsets.
However, Net-Zero is intrinsically a scientific concept with little room for interpretation. So, let’s discuss some key terminology and how companies can create credible climate commitments that stand up to scrutiny.
Net-Zero vs Carbon Neutrality
Starting with carbon neutrality, this refers to companies who balance their emissions (most commonly Scope 1 & 2) within a given reporting year by an equivalent volume of carbon offsets. These are projects that either actively remove carbon from the atmosphere, such as reforestation projects, or deliver energy-efficiency, particularly in developing countries.
Taken at face value, the IPCC definition of Net-Zero sounds similar to carbon neutrality, whereby greenhouse gas (GHG) emissions are balanced out by an equal amount of GHG removals. However, underpinning this a clear objective to limit global temperature to below 1.5°C through absolute emissions reductions which are in line with a defined carbon budget, before considering balancing any further emissions through removal into sinks.
The role of the Science-Based Target Initiative
The Science-Based Target initiative (SBTi) is a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the Worldwide Fund for Nature (WWF). Launched in the wake of the 2015 Paris Climate Agreement, the SBTi’s core objective is to ensure companies emission reduction targets adhere to the level of ambition and scope required to mitigate the worst impacts of climate change.
In 2021, the SBTi launched the first corporate Net-Zero standard, which explicitly state the key requirements a company must adhere too before they can credibly make any form of Net-Zero claim.
This includes:
- Long term emission reduction targets set to 2050 or earlier, in line with a 1.5°C pathway (4.2% linear reduction) and covering all scopes of emissions
- Accompanied by a near term target (5-10 years), with a minimum ambition of 1.5°C for a company’s operations and a well-below 2-degree pathway (2.5% linear reduction) for a company’s value chain emissions
- Long term Scope 3 targets must cover at least 90% of a company’s value-chain emissions (compared to 67% for near-term targets)
- Overall long-term decarbonisation of ~90% across all Scopes by 2050
- A limited dependance on carbon removals to neutralize emissions that cannot be abated (5-10%)
While the SBTi is not impervious to criticism, it has provided a transparent framework for setting long-term Net-Zero targets, which utilizes a robust set of tools based on the latest climate science, with an ongoing requirement for companies to report their progress on an annual basis. Additionally, each target must be validated by the initiative itself, which will provide much needed credibility to companies making Net-Zero claims in the future.
Additional considerations to align with best practice:
So clearly, defining a credible Net-Zero strategy is an achievement in and of itself. However, this is only the start of a company’s sustainability journey. Increasingly there are expectations from stakeholders for transparency, particularly with regards to how companies plan to achieve their targets.
The prevailing view is that companies should now disclose detailed information on how they plan to reduce their carbon footprint across all sources of emissions, to improve credibility and encourage knowledge sharing within their sector.
Progress against targets should also be reported annually, through a comprehensive disclosure of emissions across all Scopes, either through sustainability reports or reporting bodies such as the Carbon Disclosure Project. Companies should also be transparent about the level of data quality they are reporting.
Additionally, companies looking to reduce their emissions through the procurement of renewable electricity should be open about the quality of the specific instruments they have purchased. There is now an increasing expectation for companies to procure instruments that directly contribute to additional green energy being supplied to the grid, rather than certificates generated from older pre-existing projects such as a hydroelectric plant.
Conclusion
While some questions remain unanswered, the SBTi’s new Net-Zero standard provides companies with a framework to define a credible long-term decarbonisation strategy. This coupled with the increasing scrutiny from stakeholders and expectations for transparency in company reporting, will play an important role in ensuring future headline grabbing targets are in line with the levels of decarbonisation required to keep global temperatures below 1.5°C.
This article was written by James Oram, Senior Sustainability Consultancy Manager, Sustainability Business, Schneider Electric
References
Foundations for net-zero target-setting in the corporate sector
Special Report: Global Warning of 1.5 ºC, Glossary
Corporate Climate Responsibility Monitor 2022