Understanding SBTi and Net Zero Targets: How Companies are Committing to Climate Action

As the global urgency to address climate change intensifies, more companies are making significant climate commitments. The Science-Based Targets initiative (SBTi) and net zero targets are becoming critical frameworks for businesses aiming to reduce their greenhouse gas (GHG) emissions. This blog article explores the concept of SBTi, how companies are adopting these targets, and the rising trend towards net zero goals.

What is SBTi?

The Science-Based Targets initiative (SBTi) is a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). It provides a framework for companies to set GHG emissions reduction targets that are in line with the latest climate science. These targets aim to limit global warming to well below 2°C above pre-industrial levels and pursue efforts to limit warming to 1.5°C.

Key Components of SBTi:

1. Science-Based Targets: These are specific goals set by companies to reduce their GHG emissions, aligned with the Paris Agreement's objectives.
2. Validation: SBTi offers a rigorous validation process to ensure that the targets set by companies are scientifically credible.
3. Transparency: Companies publicly commit to their targets, enhancing accountability.

The Importance of Setting Science-Based Targets

In the context of accelerating climate change, setting science-based targets represents an essential step for companies aiming to demonstrate leadership in sustainability. These targets are rooted in climate science, ensuring that the actions taken by companies are consistent with the global effort to limit temperature rise. Here's why science-based targets are crucial:

1. Alignment with Global Goals: By setting targets based on climate science, companies ensure their efforts are in line with the objectives of the Paris Agreement, which aims to limit global warming to well below 2°C and pursue efforts to keep it to 1.5°C.
2. Risk Management: Climate change poses significant risks to businesses, including regulatory changes, physical impacts, and shifting market demands. Science-based targets help companies proactively manage these risks by reducing their carbon footprint.
3. Reputation and Competitiveness: Companies that commit to ambitious climate targets often gain a competitive edge. Consumers, investors, and other stakeholders increasingly prefer businesses that demonstrate environmental responsibility.
4. Innovation and Efficiency: Setting science-based targets can drive innovation and operational efficiency. Companies often discover new ways to reduce energy consumption, minimize waste, and develop sustainable products and services.

Adoption of SBTi Targets

The adoption of SBTi targets has seen a remarkable increase over recent years. Companies are recognizing the importance of aligning their business strategies with climate science to mitigate the impacts of climate change.

Growth in Commitments

The trend of companies committing to science-based targets has been steadily rising. This growth reflects the increasing awareness and sense of urgency among businesses regarding their role in combating climate change.

1. In 2020: 340 companies had committed to SBTi emissions reduction targets.
2. In 2021: The number of companies increased to 1,192.
3. In 2022: The upward trend continued with 3,212 companies.
4. In 2023: The number surged to 6,954, representing a 117% increase from the previous year, with 3,742 new commitments.

This substantial growth indicates that more businesses are recognizing the need to take meaningful action against climate change. The increasing number of commitments also suggests that setting science-based targets is becoming a mainstream practice in corporate sustainability strategies.

Types of Targets

Within the SBTi framework, companies can set different types of targets based on their specific circumstances and goals. The two primary target categories are:

1. Below 2°C Targets: These targets aim to limit global warming to below 2°C above pre-industrial levels. In 2023, 443 companies committed to these targets.
2. 1.5°C Targets: These are more ambitious targets, aiming to limit warming to 1.5°C. In 2023, 3,965 companies set their targets to this level.

Additionally, 2,758 companies have committed to setting an SBTi target, indicating a robust pipeline for future commitments. This demonstrates a strong and growing momentum towards more ambitious climate action among businesses.

Net Zero Targets

Net zero targets involve balancing the amount of emitted GHGs with an equivalent amount of carbon removal, achieving a net zero state. Companies are increasingly committing to net zero targets to address their long-term climate impacts.

Understanding Net Zero

The concept of net zero emissions is critical in the fight against climate change. Achieving net zero means that any GHG emissions released into the atmosphere are balanced by an equivalent amount of emissions being removed. This balance can be achieved through a combination of reducing emissions and investing in carbon removal technologies and projects.

Net zero targets are essential for several reasons:

1. Addressing Residual Emissions: Even with significant reductions, some emissions are difficult to eliminate completely. Net zero targets ensure that these residual emissions are offset through carbon removal efforts.
2. Long-Term Commitment: Setting net zero targets demonstrates a long-term commitment to sustainability. It signals that a company is committed to not only reducing its emissions but also balancing any remaining emissions through carbon removal.
3. Market Signal: By committing to net zero targets, companies send a strong market signal to investors, customers, and policymakers about their dedication to sustainability and climate action.

Growth in Net Zero Targets

The adoption of net zero targets has also seen significant growth in recent years. More companies are recognizing the importance of these targets in achieving long-term climate goals.

1. In 2020: 87 companies had set SBTi net zero targets.
2. In 2021: This number grew to 443.
3. In 2022: The number increased to 1,359.
4. In 2023: The number of companies with net zero targets almost doubled to 2,735, representing a 101% increase from the previous year.

Commitments and Validations

Within the framework of net zero targets, there are various levels of commitment and validation:

1. Committed to Setting Targets: In 2023, 2,161 firms committed to setting an SBTi net zero target.
2. Validated Targets: Out of these, 574 companies have set validated net zero targets. These targets cover 2.4 gigatons (Gt) of emissions across Scopes 1, 2, and 3.
3. Total Emissions Scope: The total emissions scope covered by these commitments amounts to 11.7 Gt, highlighting the substantial impact these targets could have on global emissions reductions.

The Broader Context: Climate Targets Among Listed Companies

A significant proportion of listed companies are now setting climate targets, reflecting a mainstreaming of climate action in corporate strategies. This broader adoption of climate targets is a positive trend, indicating that more companies are taking their environmental responsibilities seriously.

Percentage of Listed Companies Setting Climate Targets

The percentage of listed companies setting climate targets has been steadily increasing over the past few years:

1. In 2020: About 28% of listed companies had set climate targets.
2. In 2021: This percentage increased to 42%.
3. In 2022: The figure rose to 48%.
4. In 2023: Over half (52%) of listed companies had established climate targets.

This trend demonstrates that setting climate targets is becoming a standard practice among publicly traded companies. It also reflects the growing pressure from investors, regulators, and consumers for companies to take meaningful climate action.

Self-Declared Net Zero Targets

In addition to science-based targets, many companies are also setting self-declared net zero targets. These targets represent a company's commitment to achieving net zero emissions, even if they are not formally validated by an external body like the SBTi.

1. In 2020: 27% of listed companies had self-declared net zero targets.
2. In 2021: This grew to 33%.
3. In 2022: The figure increased to 37%.
4. In 2023: The percentage remained steady at 37%.

Self-declared net zero targets are an important step for companies on their sustainability journey. While they may not have the same level of external validation as SBTi targets, they still represent a significant commitment to reducing and offsetting emissions.

Companies in SBTi

The percentage of listed companies in the SBTi program has also seen growth, indicating that more companies are opting for externally validated climate targets:

1. In 2020: 3% of listed companies were part of SBTi.
2. In 2021: This percentage increased to 6%.
3. In 2022: The figure rose to 12%.
4. In 2023: 19% of listed companies were in the SBTi program.

This growth reflects the increasing importance of external validation and accountability in corporate climate action. By participating in the SBTi program, companies demonstrate their commitment to rigorous, science-based targets and transparency.

Why Are Companies Opting for SBTi and Net Zero Targets?

The rising trend of companies adopting SBTi and net zero targets can be attributed to several factors. Understanding these motivations can provide insight into the broader movement towards corporate sustainability.

Regulatory and Policy Drivers

One of the primary drivers for companies to adopt SBTi and net zero targets is the evolving regulatory landscape. Governments and regulatory bodies around the world are implementing stricter climate policies and regulations. Companies need to comply with these regulations to avoid penalties and ensure continued operation.

1. Carbon Pricing Mechanisms: Many countries have introduced carbon pricing mechanisms, such as carbon taxes or cap-and-trade systems. These mechanisms create financial incentives for companies their operations with national climate goals. Adopting SBTi and net zero targets helps companies contribute to these national efforts and demonstrates their commitment to supporting broader societal goals.

Investor Expectations and Market Trends

Investors are increasingly prioritizing environmental, social, and governance (ESG) factors in their investment decisions. This shift is driven by the recognition that companies with strong ESG performance are better positioned for long-term success and resilience.

1. ESG Integration: Investors are integrating ESG criteria into their investment processes, seeking companies that demonstrate strong environmental performance. By adopting SBTi and net zero targets, companies can attract ESG-focused investors and access a broader pool of capital.
2. Risk Mitigation: Climate change poses significant risks to businesses, including physical risks (e.g., extreme weather events) and transition risks (e.g., regulatory changes). Investors are increasingly assessing these risks as part of their investment analysis. Companies with science-based and net zero targets are perceived as proactive in managing these risks, making them more attractive investment opportunities.
3. Market Differentiation: Companies that commit to ambitious climate targets can differentiate themselves in the market. This differentiation can lead to competitive advantages, such as increased customer loyalty, improved brand reputation, and stronger relationships with stakeholders.

Consumer and Stakeholder Pressure

Consumers and other stakeholders are demanding greater environmental responsibility from companies. This pressure is influencing corporate behavior and driving the adoption of more ambitious climate targets.

1. Consumer Preferences: Consumers are increasingly choosing products and services from companies that demonstrate strong environmental stewardship. Companies with SBTi and net zero targets can appeal to environmentally conscious consumers, enhancing their market position and driving sales growth.
2. Employee Engagement: Employees, particularly younger generations, are increasingly concerned about climate change and prefer to work for companies that align with their values. Companies with strong climate commitments can attract and retain top talent, fostering a motivated and engaged workforce.
3. Stakeholder Expectations: Other stakeholders, such as suppliers, partners, and communities, are also placing greater emphasis on sustainability. Companies that adopt SBTi and net zero targets can build stronger relationships with these stakeholders, enhancing their overall business resilience and reputation.

Operational Efficiency and Innovation

Adopting ambitious climate targets can drive operational efficiency and innovation within companies. By focusing on reducing emissions, companies often uncover new opportunities to improve their processes and develop sustainable solutions.

1. Energy Efficiency: Setting science-based and net zero targets often leads to investments in energy efficiency measures. These measures can reduce energy consumption, lower operational costs, and decrease GHG emissions, resulting in both environmental and financial benefits.
2. Sustainable Innovation: Companies that commit to ambitious climate targets are often at the forefront of sustainable innovation. They develop new products, services, and business models that address environmental challenges and meet the growing demand for sustainable solutions.
3. Supply Chain Optimization: Reducing emissions often requires companies to work closely with their supply chains. This collaboration can lead to supply chain optimization, improved resource efficiency, and reduced environmental impact.

The Role of SBTi and Net Zero Targets in Corporate Strategy

Incorporating SBTi and net zero targets into corporate strategy requires a comprehensive and integrated approach. Companies need to consider various aspects of their operations and engage multiple stakeholders to achieve their climate goals.

Setting Ambitious and Realistic Targets

The first step in adopting SBTi and net zero targets is to set ambitious yet realistic goals. Companies should base their targets on the latest climate science and ensure they are aligned with the objectives of the Paris Agreement.

1. Scientific Basis: Targets should be grounded in scientific evidence, ensuring they contribute meaningfully to global efforts to limit temperature rise. The SBTi provides guidance and tools to help companies set science-based targets that are aligned with climate science.
2. Comprehensive Scope: Companies should consider the full scope of their emissions, including Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased electricity), and Scope 3 (indirect emissions from the value chain). Comprehensive targets address emissions across the entire value chain, driving more significant climate action.
3. Short- and Long-Term Goals: Companies should set both short-term and long-term targets to create a clear pathway towards their ultimate climate goals. Short-term targets provide immediate focus and accountability, while long-term targets demonstrate a sustained commitment to sustainability.

Integrating Climate Targets into Business Operations

To achieve their climate targets, companies need to integrate these goals into their core business operations. This integration requires a holistic approach, involving various departments and functions within the organization.

1. Leadership Commitment: Strong leadership commitment is crucial for the successful implementation of climate targets. Senior executives and board members should actively support and champion the company’s climate goals, embedding them into the company’s overall strategy.
2. Cross-Functional Collaboration: Achieving climate targets requires collaboration across different departments, such as operations, supply chain, finance, and marketing. Cross-functional teams can develop and implement strategies that align with the company’s climate goals.
3. Employee Engagement: Engaging employees at all levels of the organization is essential for driving climate action. Companies should provide training and resources to help employees understand the importance of climate targets and their role in achieving them.

Monitoring and Reporting Progress

Regular monitoring and reporting are critical for tracking progress towards climate targets and ensuring transparency and accountability.

1. Performance Metrics: Companies should establish clear performance metrics to measure progress towards their climate targets. These metrics should be regularly reviewed and updated to reflect the company’s evolving climate strategy.
2. Transparent Reporting: Transparent reporting of climate performance enhances accountability and builds trust with stakeholders. Companies should disclose their progress through sustainability reports, annual reports, and other communication channels.
3. Third-Party Verification: Independent third-party verification of climate targets and performance adds credibility and ensures the accuracy of reported data. The SBTi provides validation services to verify that companies’ targets are aligned with climate science.

The Impact of SBTi and Net Zero Targets

The adoption of SBTi and net zero targets has far-reaching impacts, both for individual companies and the broader global effort to combat climate change.

Environmental Benefits

The primary impact of SBTi and net zero targets is the reduction of GHG emissions. By setting and achieving these targets, companies contribute to the global effort to mitigate climate change and limit temperature rise.

1. Emissions Reduction: Companies with science-based and net zero targets significantly reduce their GHG emissions. This reduction helps to slow the pace of climate change and mitigate its impacts on the environment and human health.
2. Carbon Removal: Net zero targets often involve investments in carbon removal technologies and projects. These efforts contribute to the overall reduction of atmospheric CO2 levels, helping to balance residual emissions and achieve net zero status.

Economic and Financial Benefits

Adopting ambitious climate targets can also yield significant economic and financial benefits for companies.

1. Cost Savings: Investments in energy efficiency and renewable energy can lead to substantial cost savings. Companies can reduce their energy consumption and lower their utility bills, improving their bottom line.
2. Access to Capital: Companies with strong climate commitments often attract investment from ESG-focused investors. This access to capital can support further sustainability initiatives and drive long-term growth.
3. Risk Mitigation: By proactively managing climate risks, companies can avoid potential financial losses associated with regulatory changes, physical impacts, and reputational damage.

Social and Stakeholder Benefits

Companies that commit to ambitious climate targets can enhance their relationships with stakeholders and contribute to broader societal goals.

1. Enhanced Reputation: Companies with strong climate commitments are often perceived as leaders in sustainability. This enhanced reputation can strengthen relationships with customers, investors, employees, and other stakeholders.
2. Employee Satisfaction: Employees are increasingly seeking employers that align with their values. Companies with strong climate commitments can attract and retain top talent, fostering a motivated and engaged workforce.
3. Community Impact: By reducing their environmental impact, companies can contribute to the well-being of the communities in which they operate. This positive impact can enhance the company’s social license to operate and build stronger community relationships.

Conclusion

The increasing number of companies committing to SBTi and net zero targets is a promising sign of corporate responsibility towards climate change. These commitments are crucial for achieving global GHG emissions reduction goals and mitigating the adverse effects of climate change. As more companies join this movement, the collective impact will drive significant progress towards a sustainable and climate-resilient future.

The adoption of science-based and net zero targets reflects a broader shift in corporate strategy towards sustainability and long-term value creation. Companies that commit to these targets not only contribute to global climate goals but also position themselves for success in a rapidly changing business environment.

By setting ambitious climate targets, integrating them into their operations, and transparently reporting their progress, companies can demonstrate leadership, manage risks, and drive innovation. The journey towards a net zero future is challenging, but it also presents significant opportunities for companies to thrive in a sustainable world.

The collaboration and commitment of businesses, investors, consumers, and policymakers are essential to achieving the transformative change needed to address climate change. Together, we can create a future where economic growth and environmental sustainability go hand in hand, ensuring a healthy planet for generations to come.