6 Steps for Setting Achievable, Appropriate GHG Emissions Targets

Greenhouse gas (GHG) emissions disclosures are rapidly becoming a standard practice. With more and more companies calculating and sharing the GHG component of their environmental footprint, investors and other stakeholders are now asking corporate leaders to take the next step and publicly commit to reducing those emissions. And not just generally: stakeholders are looking for companies to disclose specific emissions reduction targets along with the deadlines for meeting these climate goals. Companies are feeling the pressure to comply with the latest requests, especially as the stakes keep rising and major companies like Microsoft now require their vendors to set emissions reduction targets or risk losing their contracts.

While it can be tempting to put something on paper quickly, it can be detrimental to setting an emissions reduction target too hastily and without internal buy-in. Without a strategic approach to GHG emissions reductions, companies could be committing to a goal that is unrealistic, increases reputational risk, and ultimately does not come to fruition. It is vital for CFOs and sustainability reporting professionals to collaborate across internal teams, considering multiple angles before an organization makes this important commitment.

Here are six steps to set emissions reduction targets that work for the company and all its stakeholders:

1. Establish the starting point and lay the groundwork

Before a company can set GHG reduction targets, it is critical to get a full baseline GHG inventory of emissions, which will be used as the starting point for any future reduction targets and for comparing all future emission disclosures. This GHG inventory should cover the company’s entire operations, including scope 1, 2, and 3 emissions. Typically, companies calculate these inventories in accordance with a recognized standard such as the GHG Protocol. Each company must also establish a deadline for achieving its target. Both the reduction target and the target year should align with the Paris Agreement’s goal of keeping global temperatures below the pre-determined level of warming. Finally, companies must put in place standardized data collection and calculation processes to accurately compare emissions year-over-year.

2. Prioritize the most significant emission sources

A baseline inventory of emissions gives a company insight into the most substantial emissions sources from the company’s own operations as well as the value chain, such as purchased electricity and emissions associated with the supply chain. This data is key to focusing future reduction efforts and helping a company understand where the greatest opportunities exist for reducing emissions. An emissions inventory also helps leaders decide whether or not a company needs to set a target for scope 3 emissions—emissions associated with the company’s value chain—in addition to scope 1 and 2 targets for emissions generated by the company’s owned and leased facilities and vehicles. Any company choosing to set a target through the Scient Based Targets initiative (SBTi) must set a scope 3 target if these emissions make up more than 40% of the company’s total GHG emissions. See step 5 for more on SBTi.

3. Evaluate which big emitters are easiest to change

While major emissions sources are obvious targets for reduction, it is worth evaluating the effort required to reduce specific categories of emissions. For most companies, the sweet spot of “easy to tackle” and “significant emissions source” is the ideal place to realize meaningful reductions, and going after this low-hanging fruit first is typically the best place to start. This could include relatively easier-to-manage emissions sources such as fleet electrification or renewable energy procurement.

On the other end of the spectrum, sources like fugitive emissions from HVAC system refrigerant leakage or process-related emissions—including carbon dioxide used to manufacture products—may be integral to operations or prohibitively difficult to curtail. Scope 3 sources from the value chain— data centers from web services, mining operations for minerals, or transportation distribution systems, for example— are more challenging, too. This type of emissions reduction will require collaboration with suppliers and a significant effort from procurement and supply chain teams.

Regardless of how difficult an emissions source is to influence, large sources of GHG emissions will most likely need to be mitigated, at least in some capacity, to meet GHG reduction targets. It can be helpful to start small with more manageable emissions sources while simultaneously ramping up efforts to address larger sources down the road. The momentum gained from addressing straightforward emissions sources will inevitably open doors and offer potential solutions for larger, trickier sources.

4. Compare peers’ targets

Identifying GHG targets within a company’s peer set can help inform appropriate reductions that may be reasonable for companies based on their size and industry. It can be insightful to look at the GHG disclosures of peer organizations to see which companies have set reduction targets and to what degree. CFOs and sustainability reporting professionals should pay close attention to the following factors:

• Categories: Do peers have a target for all scopes? For scope 3, does the target cover all scope 3 emissions or only a select few categories?
• Timeframes and percentage: What are the base and target years in peers’ GHG targets? What percentage reduction do these targets aim to achieve for each scope?
• Methodologies: Have any peers disclosed plans or initiatives to meet their GHG emissions targets?
• Progress: How much progress have peers made toward reaching their sustainability targets?
• Validation: Have comparable organizations set science-based targets that have been verified by the SBTi?

5. Consider setting targets through the Science Based Targets initiative (SBTi)

SBTi is an organization established in 2015 to provide technical assistance, expert resources and guidance, and validation to companies that set science-based emissions reduction targets in line with the latest climate science and research. SBTi offers one of most credible and widely recognized ways to set emissions reductions targets that support keeping global heating below catastrophic levels and reaching net-zero emissions by 2050. As of the end of 2022, more than 4,000 companies covering over a third of the global economy’s market capitalization have set targets or committed to do so via the SBTi.

The first step in setting targets through SBTi is signing a standard commitment letter, which gives companies 24 months to develop and submit targets in line with SBTi criteria. SBTi offers a range of pricing options based on company size, target ambition level, and whether the company has already submitted targets. Companies can choose to set only near-term targets (i.e., within the next 10 years) or submit both near- and long-term targets. Receiving SBTi approval increases the credibility of a company’s climate efforts and often translates into greater investor confidence as well as improved scores from ratings groups such as CDP.

6. Leverage SBTi’s target-setting tools

Whether or not a company pursues SBTi approval, it can still benefit from the organization’s guidance and tools when it comes to determining an appropriate level of emissions reduction ambition. For example, the Corporate Near-Term Tool and Corporate Net-Zero Tool are Excel-based tools that allow companies to model targets in line with SBTi’s approved criteria and methods. The Near-Term tool includes pathways for various levels of ambition, including the pathway to meet the 1.5°C warming threshold. These tools can help companies better understand the scale of GHG emissions reductions needed to meet a specific target.

Give emissions reduction targets the attention they deserve

A strategic approach to reducing emissions will strengthen a company’s ability to meet stakeholder expectations and make a positive sustainable impact. For many companies, setting GHG emissions reduction targets represents a major milestone on the climate-reporting journey, which can be a complex yet worthwhile effort. Ensuring internal collaboration, taking guidance from established standards, and carefully considering what industry peers are doing can lead companies to establish the right sustainability targets and a credible, measurable plan for reaching them.