forward-looking companies set science-based targets

15 March 2016

Forward-looking companies set science-based targetsClimate targets based on long-term global trends and science will prepare better for risks and enable to proactively respond to future opportunities

© fl

ickr/t

here

dmiss

ion

© ECOFYS & SITRA | |

SITRA foreword

Climate change and global warming are among the most severe challenges facing humanity. In order to prevent further climate change, greenhouse gas emissions need to be reduced in ways that are economically viable. For this, industry leaders need valid methods to create a long-term vision towards a carbon-neutral future. Sitra wants to help Finnish industries in improving their strategic competitiveness and in finding their path to carbon neutrality. Sitra provides them with facts, methods and models to be used in the transformation. We find that setting company and sectoral emission reduction targets based on science, provides companies an effective tool to show their leadership and to integrate emission reduction into business development. Sitra commissioned Ecofys to describe the science-based targets methodology and to provide information about the process. This report explains why and how companies can set their own science-based emission reduction targets and show the benefits at company level. In connection to this report, two leading Finnish companies have demonstrated, how the process works and what kind of benefits they have gained by setting science-based targets.

215 March 2016 Science-based targets


This report highlights why and how companies can set science-based targets and benefit from the opportunities

Companies with a long-term vision based on global trends

and climate science can prepare better for risks and benefit from

future opportunities

Improving a company’s long-term vision starts with setting

science-based targets by allocating the global carbon

budget in a fair and transparent way to the company

3

• Increase credibility• Demonstrate leadership• Outperform sector peers• Long-term guidance to steer• Save money and increase competitiveness• Insight in required transformations and position for policy regulations

Introduction

New science-based targets methodology

Benefits of science-based targets

Long-term vision and targets

At the COP21 in Paris (2015) 195 countries made the binding agreement to limit global warming well below 2 °C and to pursue efforts to limit the temperature increase to 1.5 °C, which means taking actions sooner, faster and bigger. The Paris Agreement will lead to robust policy frameworks and huge flows of climate finance to drive the massive transformation in all sectors, creating risks and opportunities for companies.

Allocating global carbon budget

Science-based targets are targets to reduce Greenhouse Gas (GHG) emissions in line with the level of decarbonisation required to keep global warming well below 2 °C. This report highlights why and how companies can set science-based targets and is structured according to the following chapters.



COP21 raised the sense of urgency

Picture

4

© ii

sd



At the COP21, 195 countries made the binding agreement to limit global warming well below 2 °C and pursue efforts towards 1.5 °C

> Global absolute Greenhouse Gas (GHG) emissions are still increasing, more mitigation actions are needed to limit global warming well below 2 °C and to prevent catastrophic impacts of climate change.

> Staying well below 2 °C implies net zero CO2 emissions around 2070. Pursuing efforts towards 1.5 °C even means net zero CO2 emissions around 2050.

> Staying within the 1.5 °C temperature increase implies decisions very similar to the ones needed for a 2 °C pathway, but they need to be taken sooner (early action), achieve their targets faster (net zero by 2050) and scale it bigger (more reductions; more negative emissions after 2050).

5

Source: adapted from Rogelj et al., 2015

Assessment of scientific mitigation scenarios



The Paris Agreement will lead to robust policy frameworks and huge flows of climate finance to drive the massive transformation

The massive transformation of all sectors creates risks and opportunities for companies.

6

Risks Opportunities

Companies with a long-term vision based on global trends and climate science can better prepare for risks and benefit from future opportunities.

>Globally fragmented and non-uniform energy and climate policies

>Increasing prices for purchased goods and services

>Increasing production costs>Increasing pressure from

shareholders, value chain partners and NGOs

>Changing demand patterns for materials and products

>Policies supporting the transformation towards a low carbon society

>Increasing financial flows for climate solutions

>Large uptake of low carbon technologies and solutions

>Market growth of products and services in a circular and sharing economy

>Various platforms and events to show leadership



Long-term vision and targets

Picture

7

© fl

ickr/l

ee-y

oshi



Companies that want to prepare for risks and to benefit from future opportunities, set science-based targets

Current target setting practices Science-based target setting practices

To support companies in setting science-based targets and to make this a common business practice, CDP, UN Global Compact, World Resources Institute (WRI) and WWF have launched:

Science Based Targets initiative www.sciencebasedtargets.org

Current target setting practices Science-based target setting

> 81 percent of the Global 500 companies have targets

> Companies have difficulties setting credible and sustainable emission reduction targets

> Common target setting practices: Bottom-up targets (focus on

incremental change) Targets based on peers Not aligned with science No full coverage of companies’

emissions Short-term

Source: Mindthescience.sciencebasedtargets.org, 2015

> A long-term vision based on global trends and climate science

> Targets aligned with global growth of population and wealth and with the Paris Agreement to keep global warming well below 2 °C

> Targets which allow for decoupling of emissions from economic growth

> Long-term instead of short-term targets



Over 100 companies have already committed to setting science-based targets

9

Amongst others:

Americas• Avery Dennison• BanColombia SA• Coca-Cola Ent., Inc.• Colgate Palmolive

Company• Dell Inc.• General Mills Inc.• Hewlett-Packard• Kellogg Company• Mars• Novex Delivery

Solutions• Procter & Gamble Co.• Pfizer• Walmart• Xerox Co.

Europe

• Acciona S.A.• Alpro• Atos SE• AXA Group• BillerudKorsnäs• BT Group• Carrefour• Correos (Grupo Sepi)• Danone• Enel• Energias de Portugal• Intern. Post Co.• Gas Natural Fenosa• GlaxoSmithKline• H&M AB

Asia

• Aditya Birla Chemicals

• ASICS• China Steel Co.• CLP Holdings• Delta electronics• Honda Motor

Company• Konica Minolta• Sony Co.• Toyota Motor Co.• Yingli Solar

Oceania

• Infigen Energy• Bank Australia• Australian Ethical

Investment

Africa

• Pick ‘n Pay Stores• Safaricom Ltd.• Tiger Brands• Woolworths Holdings

• ICA Gruppen• IKEA• Kingfisher• L’Oréal• Nestlé• Novartis• Panalpina• PUMA• Pukka Herbs• Renault• Royal Philips• Sofidel• Stora Enso• TAV Airports• Unilever



The remaining global carbon budget needs to be divided in a fair and transparent way

Picture

10

© fl

ickr/c

onan

il



Limiting global warming to well below 2 °C corresponds with a remaining global carbon budget of 1,000 GtCO2

11

> According to the IPCC, approximately 1,000 Gigatonnes (Gt) of carbon dioxide (CO2) remain to be emitted in order to keep global warming well below 2 °C (=global carbon budget, the green surface in the graph)2.

> This remaining global carbon budget should be allocated over the companies in a fair and transparent way.

2 The global carbon budget is expressed in only CO2 emissions, since the increase of global CO2 is the main contributor to global GHG emissions rise. However, in determining the global carbon budget the reduction of non-CO2 emissions are taken into account as well.

2010 2020 2030 2040 20500

102030405060708090

100

Non-CO2 emissionsCO2 emissionsBAU

Annu

al g

reen

hous

e ga

s em

issio

ns (G

tCO2

eq/y

r)

Global carbon budget

Non-CO2 emissionsCO2 emissions



How to correlate the global carbon budget with corporate carbon accounting and targets

12

Source: Greenhouse Gas Protocol, 2011

According to Greenhous Gas Protocol Corporate Value Chain Accounting and Reporting Standard:• Scope 1 emissions are the direct emissions from sources that are owned or controlled by the company (including emissions from fleet)• Scope 2 emissions are the indirect emissions of a company from the generation of purchased or acquired electricity, steam, heating, or

coolingconsumed by the company

• Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions



In the past, two methodologies have been used for allocation of the global carbon budget to a company

13

2010 2015 2020 2025 2030 2035 2040 2045 20500

10

20

30

40

50

60

Global 2 °C scenario

GtCO

2e

ABSOLUTE REDUCTION1 ECONOMIC ALLOCATION2

Target calculation: each company reduces its absolute emissions with the same percentage as in global/regional 2 °C pathway or linear reduction per year (-1.5 percent per year)Name of method: C-Fact and The 3% Solutions Applied by: Mars, Autodesk

2010 2015 2020 2025 2030 2035 2040 2045 20500

10

20

30

40

50

60

0%50%100%150%200%250%300%350%400%

Global 2 °C scenario GHG (GtCO2eq)GHG intensity (GtCO2eq / GDP contri-bution)

GtCO

2e/U

S$ v

alue

add

ed

GDP

grow

th

Target calculation: each company reduces its emission intensity (CO2eq/value added value or gross profit) with the same percentage as the reduction of global/regional emission intensity (-5% per year, expressed in CO2eq/GDP) Name of method: GEVA, CSO, CSIApplied by: BT, Ben & Jerry’s

Main disadvantage of these methodologies is that they do not take into account the differences between sectors/companies in growth and emission reduction potential. Therefore Sectoral Decarbonization Approach has been developed.



Sectoral Decarbonization Approach: the new science-based targets methodology

14

© s

xc.h

u



The new methodology was developed to translate the global carbon budget to company targets, based on a sectoral approach

For the Science Based Targets initiative a new methodology, called the Sectoral Decarbonization Approach (SDA) was developed.There are several reasons why to use the SDA:> SDA was developed with CDP, WRI and WWF with

technical support from Ecofys, and is the most recent and most detailed method

> SDA is transparent, well documented, reviewed through an extensive stakeholder consultation process and published in Nature Climate Change

> SDA takes into account sectoral differences (i.e. differences in mitigation potential, mitigation costs and growth)

> SDA is the only method that differentiates between Scope 1 and Scope 2

> SDA will be refined and updated on regular basis and more and more sector-specific decarbonization pathways will be added over time (like for agricultural commodities, freight transport etc.)

Source: www.sciencebasedtargets.org, 2014/2015


http://www.sciencebasedtarget.org/


The SDA methodology is based on a least-cost modelled 2 °C scenario of International Energy Agency (IEA 2DS)

> The SDA methodology combines sectoral emissions pathways with sectoral activity projections from IEA 2DS to construct sectoral intensity pathways for homogeneous sectors, i.e. power, cement, iron and steel, aluminum, pulp and paper, service buildings, and passenger transport.

> For three heterogeneous sectors physical allocation is not possible, and absolute reduction is used to allocate the remainder of the carbon budget. Heterogeneous sectors are chemical and petrochemicals, other industry and other transport.

16

2010 2015 2020 2025 2030 2035 2040 2045 20500

5

10

15

20

25

30

35

Sectoral breakdown of global carbon budget Service buildingsOther transportAviation passenger transportRail passenger transportHeavy road passenger transportLight road passenger transportOther industryPulp and paperChemicals and petrochemicalsAluminiumIron and steelCementPower generation

Dire

ct C

O2 e

miss

ions

(GtC

O2)

(Source: modified by Ecofys based on IEA, 2014)



The SDA methodology uses physical allocation for homogeneous sectors and absolute allocation for heterogeneous sectors

17

Homogeneous sectors

Heterogeneous sectors

Physical allocation:The SDA methodology assumes that the carbon intensity for the companies in all homogeneous sectors tends to converge in 2050. The rate of convergence depends on the difference between the carbon intensity of the company and the 2 ºC carbon intensity of the sector in 2050 and the predicted change in market share of the company.

Absolute allocation:For heterogeneous sectors, the SDA methodology is based on the compression of absolute emissions, which means that the absolute emissions of all companies in the sector will be reduced by the same percentages as the sector in the target year.



In the SDA, each activity of a company is allocated to one of the SDA sectors to define the intensity and absolute targets

18

Activities and footprint company X3:

A. Offices: … m2

Scope 1+2 … tCO2

B. ManufacturingScope 1+2 … tCO2

SDA sectors:

Service buildings

Other industry

Allocation method and indicators:

Physical allocationCO2/m2

Absolute allocationktCO2

A. Offices

2010 2020 2030 2040 20500

2

4

6

8

10

Company Sector

CO2/

m2

2010 2020 2030 2040 20500

2

4

6

8

10

Company

ktCO

2

B. Manufacturing

2010 Target 2020 Target 2050 - 2 4 6 8

10 12 14 16

Absolute emission targets

Scope 1+2 OfficesScope 1+2 Manufacturing

kton

CO2

e

-20%

-90%

3 According to GHG Protocol: Scope 1 emissions are the direct (on-site) emissions from sources that are owned or controlled by the company (including emissions from own fleet) Scope 2 emissions are the indirect emissions of a company’s from the generation of purchased or acquired electricity, steam, heating, or coolingconsumed by the company



Benefits

19

Nokia and KONE have experienced the value of performing the analysis on science-based targets

“Testing this new methodology was interesting. A method that is based on scientific facts and can be applied in various industries helps companies set meaningful long-term reduction targets for greenhouse gas emissions.” Pia Tanskanen, Head of Environment at Nokia

“We are delighted to be among the forerunners of industrial companies in testing this new method. We found SBT provided us with useful insight into the role of climate science in setting long-term carbon reduction targets.” Hanna Uusitalo, Environmental Director at KONE

© n

asa



Key benefits of setting science-based targets

20

1. Increase credibility of climate targets, get recognition and exposure by NGOs.

2. Demonstrate leadership and build on a green reputation to increase stakeholder value and attract excellent talents.

3. Outperform sector peers in benchmarks, increase rating scores and attractiveness for investors.

4. Get long-term guidance to steer investments, drive innovation and transform business practices.

5. Save money and increase competitiveness by gaining insight in company performance and improvement potential.

6. Gain insight in the required sector transformations and position for upcoming policy regulations.



How to get started in setting science-based targets

21

Adopt a science-

based target and gain the

benefits

Explore the science-based target methodologies and gain insights in 2 °C scenarios

Gather GHG emissions, activity and growth data to perform analysis and get insights in own data limitations and improvement possibilities

Analyse (absolute and/or intensity) targets for company’s activities by using online tools on www.sciencebasedtargets.org or by getting external support

Start internal discussions on outcome of science-based targets analysis and use outcome for guidance in internal target setting process


http://www.sciencebasedtargets.org/

http://www.sciencebasedtargets.org/


EcofysGiel LinthorstProgramme leader Science-based targetsT: +31 (0)30 662 3322M: +31 (0)6 11 366 935E: [email protected]

22

SitraJaana PelkonenLeading Specialist, Carbon-Neutral IndustryM: +358 (0)40 540 9775E: [email protected]/en/ecology/carbon-neutral-industry


mailto:[email protected]

mailto:[email protected]

http://www.sitra.fi/en/ecology/carbon-neutral-industry

forward-looking companies set science-based targets

Business