Setting Credible GHG Emission Reduction Targets

02 Aug 2010 – Alexander Nick

How can companies set ambitious greenhouse gas (GHG) emission reduction targets without jeopardizing financial growth objectives? Not easily – and companies are struggling on this front. Nothing less than reducing absolute GHG emissions will help our planet, yet companies generally prefer to set relative targets (e.g. relative to moving targets such as sales volume or revenues). And this makes sense from a narrow financial perspective, as a relative target leaves the door wide open to growth and hence – potentially – to an absolute increase in the corporate carbon footprint. Listening to corporate logic these days, relative emission reductions often get justified by the claim that the company is more effective in reducing emissions than its competitors. The company thus has a ‘right to grow’ from a climate perspective as it would contribute to absolute reductions within the industry by growing at the expense of the competition. The problem is, competitors are claiming exactly the same thing!

At SustainAbility, we support our clients in developing credible GHG emissions reduction strategies addressing the following areas:

To avoid many of the worst consequences of climate change, the increase in global average surface temperature must remain below 2°C compared with the pre-industrial era. According to our best understanding of the science, this means global GHG emissions must peak within the next 5-10 years before rapidly declining to virtually zero by 2050. Credible GHG reduction targets take the broader picture into account, linked to the 2°C threshold, and are broken down into consistent short and medium term interim targets. They elaborate on the specific industry situation and its anticipated evolution. They take into account the company’s projected growth trajectories.

Secondly, corporate growth is strongly linked with the company’s innovation strategy. In many industries, we will need to see transformative actions and business model innovation in order to marry climate change and innovation strategies. Current models based on carbon-intense and non-renewable resources need to transition into new ways of delivering value to clients. This will include de-materialisation, the shift from products to services and from owning to leasing. Climate-friendly innovations will be the only way to allow corporate ‘smart growth’ that doesn’t cost the earth.

Although this seems obvious, we thirdly still find many GHG emission reductions targets that are very vague, missing essential information such as the baseline year or whether the target is relative or absolute. A credible strategy discloses proactively why the chosen baseline year is representative and a good point of reference. It also makes the scope of the emissions reduction effort explicit, so that it is crystal clear if a target relates to parts of the business or to the whole – including the supply chain – and whether it applies only to existing infrastructure or includes emissions through organic and inorganic growth.

Finally, a company can increase its credibility by publicly and consistently lobby for tougher regulation as we have seen recently in an open letter to the Financial Times. Sixteen leading European companies that are part of the Cambridge University Corporate Leader’s Group on Climate Change urged EU ministers to increase Europe’s climate targets for 2020 from 20% to 30%… versus the 1990 baseline.