SBTs

What does the IPCC’s latest Special Report mean for SBTs?

 

A number of significant climate change impacts could be avoided by limiting global warming to 1.5C compared to 2C, or more. That is the key message from the much-anticipated IPCC Special Report on Global Warming of 1.5C. But what does this mean for companies who have already aligned themselves with a 2C warming scenario through science-based emissions reduction targets, or ‘SBTs’?

The idea of limiting global warming to no more than 2C above pre-industrial temperatures has long been a central tenet of global climate policy dialogue. This long-term goal was eventually formalised through the December 2015 Paris Agreement, when 195 countries came together to commit to limiting global temperature increases to “well below 2C” and to “pursue efforts towards 1.5C”.

On the back of the Paris Agreement, the IPCC Special Report on Global Warming of 1.5C (published on 8 October 2018 and commissioned by the UNFCCC), provides the most comprehensive evidence to date of the differences between a 2C and a 1.5C rise.

IPCC  Special Report on climate change

What are the differences between a 2C and a 1.5C world?

The much-anticipated report articulates the increased risks to natural, managed and human systems of a 2C pathway compared with 1.5C. These risks are numerous, hence why the chapter in which they are detailed – chapter three – is the longest of the report at a full 246 pages. Helpfully, the report provides a graphic (PDF), adapted below, showing how the risks of significant climate impacts vary with different warming levels. The coloured shading indicates the risk level, from “undetectable” (white) to “very high risks of severe impacts” (purple).

IPCC report

What do these differences mean for business?

From the physical risks identified above to ‘transition’ risks associated with a large-scale and coordinated transformation of our economic and energy systems, climate change impacts businesses in different ways.

Where there is consensus, however, is that businesses have a substantial role to play in the “rapid, far-reaching and unprecedented changes in all aspects of society” being called for by this Special Report.

In order to limit warming to 1.5C with “no or limited overshoot”, net global CO2 emissions need to fall by about 45% from 2010 levels by 2030 and reach “net zero” by around 2050. Renewables will also be required to provide up to 85% of global electricity generation by 2050, with coal-based generation expected to be reduced to a negligible level. In contrast, for a 2C target CO2 emissions will need to decline by about 20% by 2030 and reach net zero around 2075.

How does this report relate to Science-Based Targets?

Such an unprecedented transformation of our economic and energy systems will require businesses to go even further, and even faster than previously thought. It will also require tools to determine just how far, and how fast, an individual organisation needs to go to ‘do its fair share’ in tackling this challenge.

Science-Based Targets (SBTs) are one such tool being deployed by organisations across a range of sectors. SBTs represent long-term greenhouse gas emission reduction targets consistent with the level of decarbonisation required to achieve the goals of the 2015 Paris Agreement. SBTs are grounded on an objective, scientific evaluation of what actions are needed, rather than what is achievable, by any individual organisations.

Methodologies for calculating SBTs are predicated upon the idea of ‘carbon budgets’ – the amount of carbon dioxide the world can emit whilst limiting the corresponding temperature change to a pre-determined level. Put simply, setting an SBT requires an organisation to allocate a portion of the global carbon budget – in a transparent and rigorous manner – to its own operations, accounting for a variety of uncertainties such as the future growth of the organisation and the sector in which it operates.

As announced in the IPCC’s Special Report, carbon emissions from human activities have already increased global temperatures by around 1°C since pre-industrial times. To have a medium chance of limiting warming to 1.5C, the world can only emit a further 770 gigatonnes of carbon dioxide (GtCO2). To have a likely chance (67 percent), the remaining budget drops to 570 GtCO2. According to the new report, we could go past this threshold in just 12 years (by 2030) and it is entirely possible that we blow past those thresholds, into temperature zones that will have truly devastating consequences.

Should businesses change their approach to SBTs?

Recognising the innovation and investment potential of a low-carbon transition, nearly 500 companies have already committed to taking ‘science-based’ climate action, aligning their business strategies with the Paris Agreement’s aims.

For the handful of companies already pursuing 1.5C aligned SBTs, these will be required to switch attention to delivery – the practical implications of reaching stretching net-zero targets by or before 2050.

These companies will be required to formulate measurable and achievable action plans for reducing greenhouse gas emissions, and to lead by example in continuing to push for more stringent climate regulations across the jurisdictions in which they operate.

However, the majority of companies with verified SBTs have set already their targets in line with a 2C scenario. These companies will face increasing pressure to raise the level of their ambition further, and to manage the change associated with ‘moving goal posts’. This will require renewed efforts to engage stakeholders throughout the SBT process, ensuring continued buy-in to climate action across companies’ value chains.

Climate-related scenario analysis is a means of developing and testing future business responses to a range of financial and strategic implications of climate change. If such an analysis has been conducted with only a 2C aligned SBT in mind, any changes to targets may also prompt adjustments in a company’s scenario analysis. Scenario analysis can also help companies identify any inconsistencies between a more ambitious emissions reduction target and wider business strategies.

Helpfully, SBTs are intended to be updated periodically to reflect changes in climate science or a company’s growth predictions. To aid such revision, the Science-Based Target Initiative (SBTi) announced a raft of additional support in light of the IPCC’s Special Report. The SBTi will undertake a review of its target setting resources and target validation protocols to account for the updates to emissions pathways published as part of the Special Report. A newly formed Scientific Advisory Group will advise on this process, having been established to ensure that all updates to the climate science underpinning science-based target-setting methodologies are accounted for within the SBTi’s resources.

Is this a good time to start developing an SBT?

In short, yes. The Special Report has increased interest from a range of groups, including investors, the media and the general public, in the environmental performance of companies. This increased scrutiny provides an opportune moment to reaffirm your organisation’s commitment to climate action.

Developing SBTs can also drive competitive advantage by:

  • Building resilience ahead of future low-carbon regulatory and market shifts
  • Driving efficiency improvements across your value chain
  • Fostering innovation among your employees and your suppliers
  • Improving performance across various sustainability indices, such as CDP
  • Strengthening confidence among investors, customers and other stakeholders

Science-Based Targets can also act as a substitute for undertaking climate-related scenario analysis. Through accounting for global carbon budgets and sectoral decarbonisation scenarios, SBTs provide companies with an opportunity to demonstrate that they are taking steps to future-proof their business from the impacts of climate change, much in the same way that climate-related scenario analysis facilitates.

How can Carbon Smart help?

At Carbon Smart, we can deploy an expert team from across our strategy, reporting, supply chain and energy services to develop targets in line with both the latest climate science and your commercial realities.

We help companies with each stage required to setting and realising an SBT, by providing:

  • A managed approach to emissions data collection and analysis
  • A strategic approach to stakeholder identification and engagement
  • A realistic approach to emissions reduction planning

This is our Smart Approach to Science-Based Targets. For support and queries, get in touch with Chris Guest on +44 (0) 207 048 0450 or email info@carbonsmart.co.uk.

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