Should businesses be legally required to set science-based climate targets?
Corporate support for science-based emissions targets has grown exponentially in recent years, with more than 1,200 businesses now having verified their targets voluntarily. But with the world still off-track to achieve the Paris Agreement, should governments intervene?
This was a question raised by the We Mean Business Coalition’s chief executive officer Maria Mendiluce at edie’s Sustainability Leaders Forum in London last month. Mendiluce stated that the value of voluntary initiatives, like the Science-Based Targets Initiative (SBTi), is that they “help companies to prepare for what is to come on a mandatory basis.”
As of yet, no major economy has mandated that businesses set verified, science-based goals to reduce emissions in their operations and supply chains. However, with more than 90% of global GDP now covered by net-zero targets set nationally or regionally, this change may well come in the not-too-distant future.
At the moment, top-level pledges from nations and regions remain, in many cases, just that. The material in the Intergovernmental Panel on Climate Change’s (IPCC) Sixth Reporting Cycle outlines how the global temperature increase is now likely to exceed 1.5C by 2030 due to historic inaction at the national and international levels. Whether this is temporary or permanent depends, largely, on actions taken in the near term. Exceeding 1.5C permanently will likely put the world on course for 2.7-3.5C of warming by 2100 – an increase that will have devastating impacts on humanity and nature.
Separately, much research has been undertaken into corporate net-zero commitments, revealing a widespread over-reliance on offsetting and under-reporting of Scope 3 (indirect) emissions that undermines their credibility. Mandatory science-based targets may offer a way for governments to tackle this issue and ensure that, ultimately, national climate mitigation plans are not being derailed by private sector interests.
As BT’s head of environmental sustainability Gabrielle Giner summarises: “Looking back to where we were after Paris, in 2016, and where we are now – the difference is amazing. But it’s clearly not enough.
“We feel like we’re in this bubble where companies are doing great things but we need so many more thousands of companies – large and small – to set these targets.”
A rapidly-growing movement
BT was one of the first three businesses in the world, along with Tesco and Carlsberg Group, to achieve target verification in line with 1.5C from the SBTi. The telecommunications giant achieved verification in September 2017. At that point, the IPCC was yet to comprehensively outline the difference between the Paris Agreement’s two temperature pathways – 1.5C and 2C – in terms of nature, public health and the economy. This information was to come in October 2018.
Fast-forward to now, and almost 1.400 companies have signalled an intent to set 1.5C-aligned targets through the SBTi. The IPCC’s analysis in 2018 kick-started a fresh wave of support for 1.5C, which has quickly become seen as the only acceptable temperature goal in international climate discussions. The private sector is going this way too – the SBTi is increasing its minimum target-setting requirement to 1.5C and 2C-aligned targets will cease to be valid from 2025.
Similarly to BT’s Giner, Carlsberg Group’s senior director of sustainability and communications, Simon Boas Hoffmeyer, said he has been “surprised and extremely proud” to see 1.5C science-based targets evolving from “being a little bit of a fringe movement” to being “more mainstream”.
For both Giner and Boas Hoffmeyer, however, now is not the right moment for governments to mandate this mainstreaming of science-based targets.
Giner explains that “even regulators are trying to find their feet, at the moment, around what role they can play. We know from conversations with our regulatory team that these discussions are happening”.
Instead of mandating target-setting, Giner believes the role of governments, at this moment, is increasing mandatory climate-related disclosure requirements. What companies discover by measuring and disclosing their climate risks and emissions may well prompt them to explore science-based targets, Giner argues.
This line of argument has been taken by many in recent weeks, relating to the UK Government’s introduction of reporting in line with the Taskforce on Climate-Related Disclosures’ (TCFD) recommendations from 6 April. It will likely be taken again with the mandates on net-zero transition plans from big emitters, due to be introduced in 2023.
Carlsberg’s Boas Hoffmeyer has a note of caution, however. He says: “The devil is always in the detail. If we don’t have extremely clear guidance on what disclosures are required, we risk having this proliferation of subpar reporting happening.”
“Unfortunately, I think this is already happening today,” he continues, recounting his experience reading sustainability reports which avoid listing a business’s full Scope 3 (indirect) emissions, despite the business’s supposed alignment with the Greenhouse Gas Protocol.
From disclosure to transformation
Also favouring a disclosure-first approach, with a view that most businesses will not view disclosures as simple box-ticking exercises, is Bupa’s head of environment and climate action Julia Giannini. Giannini has led on the development of the healthcare giant’s 2040 net-zero pathway, underpinned by 1.5C-aligned science based targets. Prior to joining Bupa in 2021, she also spearheaded the development of a science-based net-zero action strategy for broadcaster ITV.
For Giannini, pressures from investors, customers, staff, business peers and climate scientists should already be pushing most businesses to act, with this sense of urgency now reaching further than a select group of firms.
She tells edie: “If we want to live in a society underpinned by a profitable economy, that can deliver returns on investment and where businesses are still able to grow, develop, and thrive, we all need to decarbonise in line with what the science says.
“1.5C is beyond the pipe dream of a single sustainability idealist – it is now, very usefully, recognized as paramount to maintaining our economy.”
“If you are the kind of business that needs regulation to force you to build climate risk and opportunity into your business model, then you are a business that is not being led with a long-term vision…This starts with your targets, and then goes into really building climate risk and opportunities into governance, risk management and, ultimately your strategy. To do that meaningfully, you need to transform your business, so you become the kind of organisation you need to be to respond to the very real climate risk we’re facing, and the vocal requirements of various stakeholders – not just your shareholders.
Giannini, like Carlsberg’s Boas-Hoffmeyer, questions whether mandating science-based targets in isolation would simply lead to more box-ticking (Boas Hoffmeyer summarises that “a standard without action is absolutely nothing”.)
Instead, Giannini would favour a broader package of carrots and sticks. She points to the importance of sticks like carbon taxes, which can force businesses to stop externalizing the environmental impact of their supply chains, along with incentives to help them realise the opportunities of the net-zero transition.
Boas Hoffmeyer adds: ““For me, there’s a big difference between telling companies to align targets with the SBTi and taking inspiration from the best available experts in the world, to inform particular policy actions on the ground.” He questions whether this inspiration is being adequately taken in the UK, regarding how the SBTi assessed what a “fair share” of emissions reductions is. The Net-Zero Strategy disappointed many by stopping short of providing sector-specific decarbonisation goals in line with forthcoming carbon budgets and is now the subject of two legal challenges.
Of course, how the SBTi is planning to engage with policymakers, regulators and businesses is just as important – arguably more so – than what any committed business is doing.
The initiative recently appointed its first chief executive, Dr Luiz Fernando do Amaral. In doing so, it stated an intent to focus on hard-to-abate sectors and on regions with historically low science-based targets uptake as it grows. “He will also lead the ongoing review of the initiative’s new technical governance structure in 2022, to further increase the robustness of the initiative,” the SBTi statement added.
Dr Amaral tells edie that we’ve reached a juncture in which the sustainability agenda is no longer seen as a reason for businesses to make incremental changes, justifying their actions via risk avoidance and cost savings. Instead, he believes “it is now in the centre of business and leaders are looking at the risks and opportunities they need to manage.”
“It’s not just the leaders who are paying attention; it’s also the business middle-class, so to speak. [They realise that they must] go from doing something on climate, to doing enough to fight the climate crisis.”
Dr Amaral believes that growing business interest should be sufficient, on its own, without mandates requiring businesses to commit to the SBTi, summarising: “Our theory of change is based on the idea of the tipping point… that, if we get enough businesses to [set targets], it just takes off. There is a realisation in most sectors that companies cannot opt-out.”
For the SBTi, mandating greater disclosures can form “the foundation” for governments’ efforts to push private sector actors to reduce their environmental impact.
“Every action, every initiative, every policy that brings us closer to the 1.5C objective is welcomed,” Dr Amaral says. “That said, we need to move from doing something to doing enough, and there’s no doubt that policy has a major role to play.
“We need to recognise that there’s a push and a pull – there’s raising the floor and raising the bar. Raising the floor is very welcomed, because we need that scalability. But we also need to make sure that is enough.
“A very important role of policy is on the transparency side. The old saying that you cannot manage what you do not measure is true; the only way for companies to set credible emissions targets is if they have measured emissions.”
And so, the discussion comes back around to disclosures once again.