Companies flock to science-based targets

The Science Based Targets initiative has announced a dramatic rise in companies adopting its standards. But while corporations and asset managers increasingly consider the group as the gold standard for carbon reduction targets, the organisation has its detractors.

The number of companies signed up to the Science Based Targets initiative for carbon emission reductions more than doubled during 2021 to 2,253, representing a market capitalisation of $38tn

The global standards setter campaigns for companies to aim for emission reductions aligned with limiting global warming to 1.5°C. In its latest report, released today, it said 80 per cent of companies with approved targets were aligned to 1.5°C. The report said since 2015, a total of 1,081 companies had set targets approved by SBTi, with a further 1,171 committing to do so. 

The SBTi has been adopted as a standard by a number of asset managers and funds too. Joshua Palmer, head of credit sustainability research at risk management and advisory group WTW, said his organisation typically recommended that funds adopt SBTi rather than other rival metrics as it has a clear focus. WTW also use it as an engagement objective for asset managers. "If an asset manager can work with a company to help them set a science-based target, then we view that as a very positive engagement outcome,” said Palmer.

UK leads adoption

Adoption of SBTi is led by the UK and Europe, followed closely by the US. In the UK, 401 companies have SBTi-approved targets or commitments; in the rest of Europe the number is 843, while for the US it is 355.

Take-up has been far lower in emerging markets. SBTi managing director and co-founder Alberto Carillo Pineda said there were two factors that would improve emission reductions in emerging markets. “First, we need more and more ambitious action on Scope 3 emissions. We need large companies, in sectors and regions that are more advanced, to incentivise decarbonisation in their supply chain to build incentives,” he said. 

“The second key that is important is stronger policies. The reality is in some regions there are insufficient policy incentives for the corporate sector to take action and there are significant barriers to transition that can only be addressed through policy,” he added.

A stronger focus on Scope 3 poses greater challenges to companies than assessing and tackling emissions in their own operations and immediate activities, known as Scope 1 and 2.

Despite his support for the targets, WTW’s Palmer said SBTi’s heavy focus on Scope 3 was one of its negatives. “For most organisations, that is just not very feasible. When you start looking through large company supply chains at the companies that are servicing them, it is very tough to assess,” he said, adding that the work required would be particularly onerous on small business in that supply chain.

SBTi under fire

In recent months, SBTi has faced harsher judgement from other quarters. Bill Baue, a US adviser on corporate sustainability who previously worked with SBTi, has criticised the group for its methodology and for potential conflicts of interest because it earns fees from companies it approves.

Meanwhile, in February, as part of a report into climate reporting methods Germany-based consultancy NewClimate Institute analysed 18 companies with an SBTi approved target. It stated that the majority of these companies' rating by SBTi was “either contentious or inaccurate, due to various subtle details and loopholes”.

Pineda said critical views were welcome. “There is always room for improvement, and we are always happy for that, because it helps us strengthen our framework so best practice continues to evolve." He also added that there is also room for interpretation too. 

Sarah Wilson, chief executive at ESG research and proxy voting agency Minerva Analytics, backed SBTi's defence as the targets help shareholder understand what a company is actually doing.

"Every process is capable of perfecting, but we must not let perfection be the enemy of good,” she said. “I am sure SBTi will work through its issues. Shareholders [...] need this information to be able to make informed decisions.”

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