Science-Based Targets (SBT) Declaration

Science-based targets must cover scope 1 and 2 emissions, which are the emissions a company produces directly and those from purchased electricity. For scope 3 emissions (indirect emissions in a company’s value chain), the requirements depend on their significance:

• If a company’s scope 3 emissions account for more than 40% of its total emissions (scopes 1, 2, and 3 combined), it must set targets for its scope 3 emissions as well.
• Even if scope 3 emissions are less than 40%, companies are encouraged to set ambitious scope 3 targets.
• For many companies, particularly those in consumer-facing industries, scope 3 emissions often represent the largest portion of their carbon footprint, making their inclusion crucial for meaningful climate action.

The SBTi recommends that companies review their targets at least every five years. However, more frequent reviews may be necessary under certain circumstances:

• Significant changes in the company’s structure (e.g., mergers, acquisitions, divestments)
• Major changes in the calculation methodologies, improved data accuracy, or discovery of significant errors
• Significant changes to the business or sector that would affect the relevance of the existing targets
• If updated climate science suggests more urgent action is needed Companies should also note that as climate science evolves, the SBTi may update its criteria. In such cases, companies may need to recalculate and update their targets to ensure continued alignment with the latest climate science.

Yes, the SBTi provides sector-specific guidance for several high-emitting sectors. This is because different industries face unique challenges and have varying decarbonisation pathways. Some sectors with specific guidance include:

• Power Generation: Must use a sector-specific method that ensures alignment with rapid power sector decarbonisation
• Transport: Includes specific guidance for aviation, shipping, and automotive companies
• Oil and Gas: Has specific requirements due to the sector’s significant impact on global emissions
• Forest, Land, and Agriculture (FLAG): Specific guidance for companies with land-intensive operations
• Financial Institutions: Have a separate framework due to the nature of their emissions (primarily in their portfolios)
• Information and Communication Technology
• Apparel and Footwear

These sector-specific guidances are regularly updated to reflect the latest science and industry developments. Companies in these sectors must adhere to these specific guidelines when setting their targets.

While the SBTi does not impose direct penalties for missing targets, there can be significant consequences:

• Reputational Impact: Failing to meet publicly announced targets can damage a company’s credibility and reputation, particularly with environmentally conscious consumers and investors.
• Investor Confidence: Many investors use ESG criteria in their decision-making. Missed targets could lead to reduced investor confidence and potentially impact the company’s valuation.
• Regulatory Risks: As climate regulations become stricter, companies that fail to reduce emissions in line with their targets may face increased regulatory scrutiny or penalties.
• Competitive Disadvantage: Companies that successfully meet their targets may gain a competitive advantage in terms of operational efficiency, innovation, and market positioning.
• Stakeholder Pressure: Employees, customers, and other stakeholders may increase pressure on the company to take more decisive action.
• Requirement to Explain: Companies are expected to report on their progress annually. If targets are missed, they should provide a clear explanation of why and outline plans to get back on track.

It’s important to note that the SBTi’s focus is on encouraging and supporting companies in their decarbonisation journey. If a company is struggling to meet its targets, it’s encouraged to engage with the initiative and its stakeholders to address challenges and revise strategies as needed.

The process typically involves five key steps:

1. Commit: Submit a letter to the Science Based Targets initiative (SBTi) declaring your intention to set a science-based target.
2. Develop: Work on creating an emissions reduction target aligned with the SBTi’s criteria. This involves assessing your current emissions, projecting future emissions, and determining reduction pathways.
3. Submit: Present your target to the SBTi for official validation. This includes providing detailed information about your company’s emissions and the methodology used to set the target.
4. Communicate: Once approved, announce your target publicly and inform your stakeholders. This should be done within six months of approval.
5. Disclose: Annually report your company-wide emissions and track progress against your targets. This often involves disclosure through platforms like CDP, annual reports, and sustainability reports.