How Science-Based Climate Targets Work - Alberto Carillo Pineda Flashcards
Today’s episode features Alberto Carrillo Pineda, Co-Founder and Chief Technical Officer of the Science Based Targets Initiative explains how they help companies and financial institutions design verifiable and achievable climate targets, and how they assess and validate those targets. He also discusses how the SBTi is transitioning from focusing on technical assistance and assessments to a standard-setting organization.
I’m in charge of the development and the evolution of our framework, which is what is used by companies to set climate targets and what is used by our auditors to assess the ambition and the performance of corporate climate targets. And I’m one of the co-founders of the Science-Based Targets Initiative. We started working together almost 10 years ago with the idea of creating a benchmark to raise ambition in corporate climate target setting.
July 2023
02/03/24
By science-based targets we mean emission reduction pathways or mitigation pathways are produced by climate scientists, by models to inform the level of reduction that is consistent with the climate goals that we have at the global level, for instance, limiting to 1.5 degrees, which is a common goal that has been formalized through the Paris agreement.
We make sure that targets are expressed in terms that actually convey absolute reductions. And we also make sure that targets use a robust baseline, because of course the baseline is critical to telling the mission of the target and also the targets are expressed in a timeframe to lead to action as opposed to targets that just basically delay action to the future.
How do you translate that global ambition into a company target So I imagine you can go through a sector analysis, a country analysis, and then a company analysis. How does that all fit together where you go from the global target of limiting warming to 1.5 degrees to a company’s own target?
What climate scenarios and climate models help us understand is what is the pattern of transformation and the pace of transformation that is needed for different sectors of the economy, this is the 1st element. And then it can help us derive metrics that can be used. So this is the 2nd key element which is deriving benchmarks that are useful to assess transformation at the sector level. And then the 3rd element is how we translate these benchmarks from the sector level to the entity level. And that’s where we use allocation methods. Let’s take one entity, and this entity may have different activities as part of their business model. They may be a conglomerate that is involved in the production of energy, in the production of materials. The mix of activities in the business model is different from entity to entity. And finally, there’s the 4th element related to the performance of the entity today. We have, for instance, power producers are already at producing most or all of their electricity from renewable sources. And of course the level of decarbonization that they need to achieve is different compared to a power producer that today is producing most of their energy or all of their energy from fossil sources.
We don’t do this all by ourselves at the Science Based Target initiative. The climate models are produced by climate scientists part of the Intergovernmental Panel on Climate Change and by the climate models that create mitigation pathways, for instance, one of the most used pathways are the ones that are created by the International Energy Agency. We also have entities that create pathways at sector level, and those are consistent with the global carbon budget that is defined by scientists that are modeling our climate system. And so we rely on all this information that is generated by different parts of the ecosystem including scientists, modelers, et cetera, and we translate this and integrate this for the development of standard. And so what we do at SBTI is to take this body of information that exists in the wider ecosystem to develop standards that can be used to set targets and to assess ambition and performance against those standards.
What are the top factors that they’re considering that might have one pathway for one industry and a different pathway for another? And I can imagine availability of technology might come into play, the marginal cost of abatement might come into play.
In the most widely used models, what they consider is the cost of abatement of different measures in different sectors, where availability of technologies are already mature enough. And yes, we need to ensure that these emission trajectories are feasible. And then structural factors about the sector. For instance, there are sectors that are expected to experience significant growth because the growth of the sector is linked to population growth or economic growth. And there are other sectors where these factors are less relevant. So while the level of reduction may be different between the aviation sector and the power sector, the level of effort is comparable considering these differences in abatement costs.
In general, we make a distinction between what is usually known as operational emissions and certified emissions that are under direct control of the target-setting entity and indirect emissions, which are usually emissions that are influenced or enabled by the company, but that are occurring in assets that are not controlled by the company. For instance, operational emissions are emissions related to the operations and assets that the company owns and controls. An example of indirect emissions are for instance the use of electricity. Some companies generate electricity that they use, but most companies they source electricity from the grid or from a power producer. And so those are emissions that are definitely enabled to a certain extent by the company, but they are occurring in assets that are not owned or controlled by the company.
We have set requirements for those emissions that are under control of the company components emissionsm, and for indirect emissions we have materiality thresholds. And if most emissions are happening within scope 1 and scope 2, then we don’t require companies to set also scope 3 targets. But when scope 3 indirect emissions are relevant, then companies need to set scope three targets and those targets need to also include most of the emission sources, the value chain. And as you said, in some cases we are talking about emissions that are happening upstream related to the procurement of materials. And in some cases these emissions are really basically happening at the product use space. For instance, the use of vehicles or the combustion of fossil fuels, this will lead to different targets at the entity level, but they are based on common principles.
I imagine here you’re distinguishing absolute reductions from intensity targets, intensity targets being, well, we’re going to reduce our greenhouse gas emissions per unit sold or per revenue dollar for example, and absolute targets are, well no, we’re going to reduce them by X tons, absolutely regardless of growth. You’re leaning into the absolute types of targets for science-based targets. Can you explain why that is?
We use a combination of metrics for different types of targets as an organization, our role is to incentivize environmental outcomes. For some of the most carbon intensive activities like for instance, power generation or cement production, we use physical intensity metrics. And then there’s also transformation targets. One way to catalyze transformation for companies in their supply chain is by aligning their procurement practices and by using their procurement power to then drive transformation in their supply chain and to incentivize their suppliers to also decarbonize at a pace that is consistent with our global targets. And so we also have these type of targets that are more action-oriented and they’re ultimately leading to the same outcome, which is decarbonization, but that basically are more appropriate for the type of activity that is covered.
An example of an INTENSITY target would be company X is committed to reduce the intensity of cement production by 30% by 2030. So that is linked already to a specific activity. We also have for instance, targets where companies commit to source 100% of their electricity needs from renewable sources. That’s an ACTION target. An example of a TRANSFORMATION target is company X committing to procure X percent of all of their procurement from entities that are decarbonizing. And this is also relevant for instance, for financial institutions that also normally set targets to incentivize entities in their portfolio to decarbonize.
You mentioned robust baselines and timeframe. What does it mean to have a robust baseline and an adequate timeframe? They are interlinked as you mentioned. There’s also an additional aspect related to baseline, which is we incentivize companies to set targets based on a representative base year, which means, for instance, when we started, a lot of companies, especially early movers had targets that were for instance, linked to baseline in 1990. That was the unit that was used in the Kyoto protocol. But of course the reality of those companies in 1990 is very different to the reality of companies today, right? And so we try to use the most recent and most represented based year to ensure that the baseline can actually be based to assess progress over time.
When assessing baselines is to make sure that the target is so that the base year is also robust, that for instance, companies don’t use base year that is an abnormality because there were higher emissions in that year or lower emissions in that year. For instance, when we were at the peak of the COVID, there was slowed down at the global level and that basically brought down emissions at the corporate level. So that year is not representative. Or if a company underwent, for instance, a merger or a major acquisition last year, then the emission inventory that they had three years ago is no longer representative because the structure of the company is different.
The other element that is important here is to make sure that the inventory of emissions that companies use to set the target is also robust and credible, that basically all the material sources of emissions that we talked about are included in the base year in the baseline. And so this is the other element that we assess.
In terms of timeframe, there are two aspects that are important to mention. The first one is the transformation and the transition that we are talking about, which, let’s say emissions is a long-term goal. It’s something that we need to accomplish by 2050 at the latest. It is not something that can be accomplished overnight. And so it’s critical that a target companies set are consistent with this long term goal, but in order to contain emissions we need to incentivize action in the short term.
For instance, these carbon models that we talked about, they normally consider that emissions need to be reduced by around 45% by 2030 compared to emissions that we had in 2019 and in order to have the chances of limiting 1.5 degrees. And so that means that we cannot wait until 2035 or 2040 to start taking action. We take action today so that by 2030 emissions are already half of what we had a few years ago. And so this is another of the elements that we include in our criteria and most of the targets that companies share today with SBTI are for instance, planned around 2030.
Every year we conduct a progress assessment that we communicate through our progress report. But as an initiative, we are transforming and also evolving our model from an initiative that was focused on ambition. That was the main role of SBTI when we started, with standards that basically will assess not only ambition but also progress and performance. And so this will lead to the development of criteria and assessment of performance and progress throughout the entire target setting cycle. And so this is something that is part of the evolution of SBTI and of our transformation from an initiative to a standard.
Where does the Science-Based Targets standard come out with offsets? Do they not allow them? Do they allow them to some extent? Do they have restrictions on the types of offsets? Or is that something you’re leaving to the companies to decide?
So from a scientific point of view, what we’re talking about is the removal of carbon from the atmosphere, we need to basically bring down emissions to zero or close to zero. The SBT initiative standard considers that basically most activities need to be fully decarbonized, but we also acknowledge that some activities will have what is called receivable emissions, which need to be counterbalanced with the removal of carbon from the atmosphere to prevent accumulation of emissions in the atmosphere on a net level. Now there’s the second use of offsets, which is basically emission reduction projects that are typically financed by companies or other stakeholders, for instance, consumers, through the purchase of carbon credits. And I would say our position around the purchasing carbon credits is it supports decarbonization beyond the value chain of a company in addition to what they need to do to reduce their own emissions.
So if a company has a Science-Based Target of 40% absolute reduction, they would be required to take it out of their own value chain and not count as carbon credits from other value chains that they might purchase towards say half that? So they can’t do 20% of their own and then another 20% by buying carbon credits unrelated to their value chain. Is that correct?
That’s correct. The targets the companies set and that we assess are abatement targets of the activities that happen within the value chain of the company. So if the intervention is happening outside of the value chain for the company, it’s something we encourage, we recommend, but that is not a substitute for a cut in emissions that need to happen within the value chain of the company.
A company reviews the standard, they develop their own target based on their best understanding of the standard, then they submit it for your assessment to see whether they in fact conformed with the standard, and if so, then we give it a seal of approval. We call it a validated target. Normally I would say companies work with consulting firms that help them model their targets, but also that help them understand how to implement those targets and create an action plan. Once they are confident about the target and their ability to deliver their target, then they present the target formulation to SBTI.
So we have 2,800 companies with validated targets, and we have around 5,300 companies in total considering those that have already the targets validated. And those are in the process of developing either targets or having their targets assessed. So we are going to double the number of entities that have validated targets from nearly 3000 to nearly 5,500. This is a testament of this transformation that is happening in the economy, but also it is insufficient compared to the level of transformation that we need to really meet the global carbon goals.
Do you have a sense of where the majority of these thousands of companies that are setting science-based targets lie in that continuum?
There’s a good mix of companies. It depends on many factors including how risk averse companies are, the sectors where they operate, the jurisdictions where they operate. In the early days of SBTI, we had most companies being very brave about embracing this ambition that no one knew how to get there. That’s still the case in some jurisdictions and in some sectors. In other cases, we have entities that are setting targets because they are already seeing very, very imminent regulations happening in the jurisdictions where they operate because they have pressure from their shareholders, because they have pressure from their clients, their customers.
I would say the most important, most exciting transformation for SBTI is this transition from an initiative towards standard. We started as an initiative powered and supported by the different NGOs and organizations working on the climate space. we became the practice standard by the level of adoption in the market. And now we’re in the process of transforming our role from a de facto standard to a formal standard. And this brings actually a lot of strengthening in the model and the governance of SBTI, formalization of or strengthening of our technical governance and formalization of our standards setting procedures.
And as you become a standard-setting organization, will you continue to do both the standard-setting and the assessment, or is that something that will split off as often occurs in some organizations as they mature? They separate the assessment from the development of the standards?
This is something that we are exploring as part of these transformations. Our ambition is to operate as an establishing organization that basically conforms to best practice for standard-setting and certification bodies. And we are exploring what is the best model for SBTI.
Some of our listeners are considering careers in business and climate change or might already have careers, but are looking for other opportunities. Where do you see the opportunities arising and what advice do you have for folks who ask you about this?
This is the most important transformation that our economy will go through in the next three decades. We are talking about the transformation in every sector, every activity of the economy. So we need all high job skills to support this transformation. Because of the pace at which the transition is happening, especially in the past two or three years, we observe a scarcity of professionals that are experienced in sustainability and climate change. So I think there are very interesting career opportunities for people that decide to pursue this path. And I would say it’s also, of course, a career choice that not only brings opportunities, it also brings fulfillment. And so I would definitely encourage everyone that is interested in this topic to join this movement
