Why businesses need a data-driven decarbonisation strategy before they set emission reduction targets.

Ambitious companies lead their peer group by setting targets that ‘stretch’ the business in terms of the pace and scope of emission reductions, i.e. moving fast and potentially including value chain emissions not in their direct control. Decarbonisation leaders will commit to both: near-term targets as a way of committing to early action and long-term net zero targets. Whilst 75% of companies in the Climate Action 100+ Benchmark had set long-term targets, only 12-21% were reported to have set short- or mid-term targets. 

Credible targets are set using a reliable and transparent methodology - the Science-Based Target (SBT) approach, which aligns targets with the climate trajectories adopted within the Paris Agreement, is currently the most recognised scheme. To be feasible, commitments rely on technically- and commercially-feasible solutions that are within a company’s financial, resourcing, and external (e.g., regulatory) constraints. 

As industry standards and regulatory requirements are rapidly evolving, future-proof commitments should be set in ‘anticipation’ of more stringent requirements and allow a degree of future flexibility. For instance, the SBTi has announced its definition of ‘net zero’ stating that companies can only use carbon offsets for 10% of residual emissions across the entire value chain (Scope 1, 2 and 3). Another example are the expected changes in the GHG Protocol rules for Scope 2 accounting which could require more granular temporal and geographical alignment of a company’s renewable electricity procurement to its consumption.  

External Enablers – these are country-specific factors such as the maturity of low-carbon supply chains, energy markets, policy & regulation and infrastructure needed to deploy decarbonisation solutions in different countries of operation. These vary greatly across locations; for instance, there is currently insufficient grid capacity to enable the electrification of certain fossil-based processes and delays in grid reinforcement can affect the pace of decarbonisation. On the other hand, certain locations around the world (e.g., Australia, Texas or the Middle East) are expected to see a faster development of green hydrogen which will enable the decarbonisation of a range of heavy industries. 

Decarbonisation Pathway Modelling enables the development of company-specific decarbonisation scenarios that consider the company’s sources of emissions and potential decarbonisation levers. Decarbonisation pathway modelling helps select the best decarbonisation levers and make strategic decisions on the timing and location of their deployment. Companies can make early progress by picking ‘low-hanging fruit’ (e.g., behavioural change, energy efficiency, renewable power procurement, etc.) but also identify early-on ‘long-tail risk areas’, i.e., hard-to-abate areas and the scale of potential residual emissions. Options to decarbonise those could include carbon offsets, technologies such as CCUS or changes to the business model such as selling part of the business or adapting core business strategies. 

Internal Enablers, such as available capital and resources, may limit the pace of decarbonisation and render certain targets not feasible so its important to consider these prior to setting targets. Other aspects including, robust GHG footprint & operational data strategy, well-defined performance metrics & incentives and a strong governance framework, will be essential to deliver these strategic projects in an effective and timely manner.