Given that they make, produce, and sell the majority of the products and services we all use, enterprise organisations have a huge role to play in addressing the climate crisis. Without considerable efforts from these large companies, we have no chance of meeting the global warming minimisation targets outlined in the Paris Agreement. One key way these organisations can make an impact is by setting “science-based targets”. In this article we look at the risks of the climate crisis, how science-based targets can help us address this challenge, and how they relate to supplier engagement.
We are already 25% of the way through the most important decade of our lives in regards to the health of our planet. Though businesses and consumers alike are facing unprecedented disruption from all angles – from rampant inflation and a pandemic, to widespread sociopolitical upheaval, and more – the climate crisis remains the defining emergency of our generation.
Though the planet’s overall temperature fluctuates across time, the rate of global warming has advanced rapidly since the Industrial Revolution began over 250 years ago. Our best estimates show that the average global temperature has increased by at least 1.1°C since 1880. The majority of this warming has occurred since 1975. As a result, scientific consensus is clear: the vast majority of this planetary heating can be attributed to human activity, or “anthropogenic climate change” – primarily as a result of the burning of fossil fuels such as coal, oil, and natural gas.
The burning of fossil fuels releases greenhouse gases such as carbon dioxide and methane into the atmosphere. Because these gases absorb and retain heat, they trap it in the atmosphere and prevent it ‘leaking’ back into space, artificially warming the planet much like a greenhouse – hence their name.
The levels of GHGs in the atmosphere are now higher than at any time in the past 800,000 years. Yet despite our knowledge of their negative effects, 2021 saw the highest-ever level of annual carbon dioxide emissions of 36.3 billion tonnes globally – primarily as a result of increased burning of coal – and these figures show no sign of slowing down.
Rising temperatures confer enormous threats to our planet. Global warming is directly fuelling environmental degradation and species loss, erratic and extreme weather events, natural disasters, and rising sea levels.
In addition to harming ecosystems and the animals that inhabit them, this heating also threatens the planet’s human population. The 2003 European heatwave, for example, claimed 35,000 lives – a tragedy that will repeat itself as temperatures continue to soar. 2022 has provided a case in point, seeing record heat waves across much of Europe.
Climbing temperatures also affect the livelihoods of populations in indirect ways. Erratic weather leading to droughts, wildfires, and floods endangers food supply from both livestock and crops and increases the likelihood of famine, in addition to threatening human life and displacing millions of people from their homes. Lakes, rivers, and reservoirs are rapidly drying up in some countries, leading to an insecure fresh water supply, while simultaneously 150 million people currently inhabit land that will be below sea level by 2050. And as air quality decreases, insect activity changes, and other animals move around unpredictably – in order to seek water, escape extreme weather events, or flee the destruction of their habitats – the likelihood of pandemic-level illnesses increases.
Importantly, widespread insecurity such as this increases the likelihood of sociopolitical instability and unrest as populations suffer increased threats to their way of life; climate change acts as what’s known as a “risk multiplier”. It bears stressing that all of these threats are especially magnified in developing countries where weather is frequently more extreme, and livelihoods more precarious.
All this is despite the “global south’s” relatively minimal contribution to the climate problem when compared to disproportionately high emitters in the “global north”. The recent and ongoing deadly floods in Pakistan have seen this dynamic play out clearly, with the country’s planning minister Ahsan Iqbal noting that despite Pakistan’s very low national emissions output, the country has become a victim of “the irresponsible development of the developed world.”
With clear evidence that human behaviour has been responsible for the rapid warming of our planet, it follows that the only solution to slowing catastrophic climate change also lies in changes to the way we live our lives: how we travel, use resources, build our homes and communities, run our businesses, grow and raise our food, and manufacture our products.
In order to organise these efforts, some key inter-governmental and cross-sector organisations and initiatives have been established.
The Intergovernmental Panel on Climate Change (IPCC) was established in 1988 as the result of a partnership between the World Meteorological Association and the UN’s Environment Programme. Its bureau of appointed scientists meet to systematically review scientific literature on climate change to provide an overview of the evidence, the risks to the planet, and to suggest risk mitigation measures.
By the time its Fifth Assessment Report was completed in 2014, the notion of an “upper acceptable limit” of 2°C of warming over pre-industrial levels had been floating around for almost forty years. By 2010 it had been officially adopted by the European Council of Ministers, the G8, and the UN.
Yet the IPCC report demonstrated that we were set to far exceed this limit, with projections suggesting an increase in global mean temperature of 3.7 to 4.8°C by 2100 in the absence of any new policies to mitigate climate change. A report from the UN the following year concluded that 2°C was “inadequate” as a safe limit, pushing the ideal to 1.5°C.
In the landmark Paris Agreement forged at COP21 the same year, this 1.5°C figure was endorsed by 106 nations, and the IPCC was invited to provide a special report on 1.5°C versus 2°C of warming.
Time is running out to keep the 1.5°C target within the realm of possibility, with the IPCC stating earlier this year that “without immediate and deep emissions reductions across all sectors, limiting global warming to 1.5°C is beyond reach” (emphasis added). More specifically, they commented:
In the scenarios we assessed, limiting warming to around 1.5°C (2.7°F) requires global greenhouse gas emissions to peak before 2025 at the latest, and be reduced by 43% by 2030; at the same time, methane would also need to be reduced by about a third. Even if we do this, it is almost inevitable that we will temporarily exceed this temperature threshold but could return to below it by the end of the century.
With 2025 looming barely over the horizon and 25% of the current decade already gone, the need for “immediate and deep” emissions reductions becomes ever clearer.
According to CDP’s 2017 Carbon Majors report, since 1988 more than half of global industrial GHGs can be traced to just 25 corporate and government-run producers, with the top 100 emitters responsible for more than 70% of total emissions.
Chief among these companies are fossil fuel producers when understood as responsible for both their own emissions and those elsewhere in their value chain. This includes both upstream in the supply chain and downstream as used by customers – both other companies, and individual consumers.
Though a similar database of research into these “Carbon Majors” conducted by Richard Heede received some push-back when it was published in 2013 – accused of “unfairly” holding these organisations to account for the actions of individual consumers and businesses – recent years have gone some way to ratifying his methodology. A 2021 ruling, for example, saw a Dutch court mandate that oil and gas giant Shell must up their emissions reductions targets in addition to making these targets absolute rather than relative to previous performance. Perhaps most importantly, the judge ruled that this reduction applies not only to their own operations but also to “the suppliers and customers of the group”.
Even beyond the oil and gas sector, pressure is rising on corporate enterprise businesses to tackle the true extent of their impact on the planet. Regulatory action, governmental fines, and legal rulings will only continue to occur more frequently as we approach the end of the decade.
One key way that organisations can demonstrate their commitment, prove their progress, and protect their business against the rising tide of climate scrutiny is through science-based targets.
In addition to the UN’s 1.5°C Report and the Paris Agreement, 2015 saw the formation of the Science Based Targets initiative (SBTi). A joint venture between the UN Global Compact, the World Resources Institute (WRI), the WWF, and CDP, the initiative helps businesses set and achieve emissions reductions targets by acting as an assessing and approving authority for these targets. SBTi also offers guidance, workshops, and other resources to increase these organisations’ chances of success.
Science-based targets are near-term goals that organisations develop to provide them with a clear, measurable path towards achieving considerable emissions reductions in line with the Paris Agreement. As such, in order to count as “science-based” these targets must be in line with what the most up-to-date climate science sees as necessary to limit global warming to “well below” 2°C above pre-industrial levels.
As of July 2022, this guidance has been updated to be more stringent, with the SBTi now only accepting targets that are aligned with the ambition of limiting warming to a safer maximum of 1.5°C. Organisations with existing SBTs are able to voluntarily upgrade their commitments. The time frame for targets has also been shortened from 15 years to 10 years.
The initiative provides extensive “science-based criteria” to organisations looking to develop their own targets. This includes factors such as time frame, guidance on parent company versus subsidiaries, accounting methodology, and the status of offsetting.
Notably for large enterprise organisations whose impact sits concentrated within their value chains, scope 3 targets are mandatory if these value chain emissions account for more than 40% of total GHG output.
In addition to science-based targets, the SBTi also recognises science-based net zero targets for longer-term goals (latest deadline of 2050) – defined as “reaching a state of no impact on the climate resulting from the organization’s GHG emissions”.
Financial institutions and private sector organisations of all sizes can join the Science Based Targets initiative, with a fast-track streamlined validation option for SMEs. SBTi does not assess the targets of public sector institutions, governments, non-profits, or the like.
Recognising that certain industries may face certain challenges or have disproportionately high impact, the SBTi offers sector-specific guidance to enable companies across all sectors to set science-based targets. Additional frameworks and requirements apply to industries such as the power sector, and to financial institutions.
At time of writing, there is one exception to the “all private organisations welcome” rule: fossil fuel companies. Not only has SBTi validation of these oil and gas companies been put on pause, they are also pausing commitments from these companies whilst they develop a specialised methodology for target-setting within the fossil fuel industry.
The process of setting a target as a large company consists of five core steps:
Submitting the “standard commitment letter” which states that the organisation is committing to setting science-based emissions reduction targets in line with the SBTi criteria and recommendations.
Developing a target in line with the science-based target criteria and the target validation protocol. For some sectors, this process can look slightly different, so the SBTi provides sector-specific guidance.
Submitting targets occurs no later than 24 months after step 1 of committing to making them. The SBTi then validates targets and their methodology (including accounting processes) to assess whether the stated targets can be described as “science-based”
Once approved, targets are usually published by the SBTi within one month. This information must be publicly disclosed within six months of approval, or it has to be re-validated.
Ongoing progress should be disclosed through frameworks such as executive reports or CDP, with companies monitoring and reporting their emissions at least annually.
To get started setting science-based targets for your company, head to https://sciencebasedtargets.org/set-a-target
And for more information on disclosing your organisation’s climate, water, and deforestation credentials through CDP, visit https://www.cdp.net/en/companies-discloser
As mentioned above, court rulings and new legislation will only become more likely as the climate emergency reaches a fever pitch. Setting ambitious climate targets grounded in the the best available scientific evidence will enable large corporate polluters to demonstrably reduce the burden they place on the climate, and in doing so increase their resilience; any new regulations which come into force are highly likely to follow the Paris Agreement targets in line with the SBTi.
Precisely because sustainability is hard to do well, ESG performance is considered a good proxy for organisations’ overall soundness by market agents, and most ESG portfolios outperform the wider market over a decade.
Investors are slowly but surely waking up to the enormous risk of investing in organisations with a dilatory approach to climate change. In a huge watershed moment for ExxonMobil last year, activist investor Engine No. 1 began to oust sitting board members, arguing that in the face of governments scrambling to slash emissions as a result of the climate crisis, continuing to pursue fossil fuels posed an ‘existential risk’ to the business that the organisation had been reluctant to confront.
Exxon lost three board seats to Engine No. 1 as a result of the coup, with the hedge fund garnering the support of BlackRock, Vanguard, and State Street against Exxon’s leadership. The market also responded in kind, with Exxon’s share price seeing 45% growth over the six months after Engine No. 1 began their campaign, having trailed its oil and gas peers for the previous half-decade.
Consumers are voting with their cash in favour of purpose-led brands, with 81% of respondents in a 2018 Nielsen survey feeling “extremely or very strongly” that companies should help improve the environment. The survey also found that this desire for corporate sustainability is in high demand across generations and across genders. With such huge swathes of the consumer base expecting large corporates to pull their weight when it comes to ESG issues, neglecting their needs poses a considerable risk to brand.
What’s more, the global popularity of Google searches relating to sustainable goods has increased by 71% over the past half decade according to The Economist’s Intelligence Unit, with the most dramatic uptick in engagement and awareness taking place in developing economies. Across consumer categories, products marketed as sustainable have been growing five to six times faster than the average market, with consumers frequently willing to pay a premium for products that less negatively impact the planet.
To learn more about the Science Based Targets initiative, visit https://sciencebasedtargets.org/
For most large enterprises, the key challenge in setting and adhering to science-based targets will come as a result of the initiative’s mandatory scope 3 target-setting for all organisation whose scope 3 emissions make up more than 40% of the total. Given that for most large organisations, in excess of 80% of total emissions will sit in the value chain, this mandate will therefore apply to most enterprise organisations looking to set science-based emissions targets. The conclusion is clear: we cannot set our targets (let alone achieve them) without our suppliers.
The SBTi itself recognises the challenge that this poses in terms of supplier engagement on sustainability issues: ‘‘Scope 3 emissions reduction is a key challenge for companies, often due to a lack of visibility and monitoring of suppliers’ data. Companies also face engagement gaps between their suppliers and procurement teams.”
To combat this lack of visibility, alignment, and true engagement – in addition to the difficulties over unwieldy datasets – the team here at Vizibl built our recently-launched Supplier Sustainability Management module.
Expanding on our existing sustainability functionality, the new module allows enterprise organisations to:
Together with the rest of the Vizibl platform, Supplier Sustainability Management enables organisations to align on sustainability targets, collaboratively problem solve with their supplier ecosystems, open source innovation for sustainable transformation and business growth, and gain priority access to scarce green goods & services. This combination unlocks the ability to collaborate with suppliers on sustainability goals systematically and at scale.
To learn more about how Vizibl can help your organisation deliver on scope 3 reduction and other sustainability challenges, visit https://www.vizibl.co/platform/supplier-sustainability-management