In this primer, we break down the main concepts you need to know for setting Scope 3 targets.
When you set Science Based Targets there are four key elements to the Scope 3 target.
- Measurement Method
- Reduction Goal (i.e. level of decarbonisation)
Throughout this process, the Science Based Targets initiative use a lot of climate jargon that can get rather confusing.
First and foremost, it is important to know that the SBTi only require a business to set Scope 3 targets if Scope 3 makes up >40% of your total baseline.
Where that is true, or if you just want to be a climate leader, when setting Scope 3 targets the target must apply to at least 60% of your total Scope 3 emissions.
- Therefore, businesses can choose which of the fifteen Scope 3 categories to include in this target, and which not to include.
When making this decision, key things to consider are:
- How ambitious do I want to be? Increasing the coverage of your goal naturally increases the absolute amount of decarbonisation needed to achieve that goal, and therefore the ambition of the goal. Today, no business has set a SBT with 100% Scope 3 coverage.
- Which categories can I influence the most? For most businesses, decarbonisation initiatives are easier to implement on upstream emissions categories, such as purchases or business transportation, rather than downstream categories, such as consumer use. It it important to include in your target categories where you can influence the level of decarbonisation achieved.
One top tip: Scope 3, Category 3 for many businesses just tracks the upstream emissions of your energy and fuel use. Therefore, if you have set a Scope 1 and 2 target, you will naturally be reducing the emissions of this category and so it is a natural area to include in your Scope 3 target.
When considering timeframes in SBTs, there are two key concepts to breakdown:
- Long Term vs. Near Term targets: In this process, your business is always setting Near Term targets. The SBTi has recently announced Long Term targets that align to ongoing decarbonisation towards 2050, however most businesses today are first setting Near Term targets, and then considering Long Term and Net Zero add ons.
- Length: For Near Term targets, businesses can set a target anywhere between 5 and 15 years after their Base Year. Your Base Year is defined as the first year where you have a comparable GHG Baseline to the current year. Therefore, if my first GHG Baseline was completed in 2020, I could choose to set my Near Term targets anywhere between 2025 and 2035.
When making this decision, what should I consider?
- When can we start decarbonising? The right answer is always now, but for many businesses it may take 12-18 months to get a roadmap and budget signed off to achieve key decarbonisation initiatives. Therefore, most large businesses are setting targets between 10-15 years to allow time for delivery.
- How technology will change your ability to decarbonise?
- In some industries many abatement initiatives already exist, for example, in fashion the abatement opportunities through business model change (e.g. to rental) or in product design (e.g. new material choices) are already large and cost effective.
- Whereas in other industries, the next decade could see a large change in the cost of abatement technologies, for example the roll out of electric farming equipment is only just beginning and highly expensive, but this is expected to change rapidly.
Therefore, assessing the opportunities that already exist vs. the timeline for new opportunities should be a key consideration when setting timeframes.
3. Measurement Method
A measurement method is the calculation formula that is applied to calculate:
- The level of decarbonisation needed to align to 1.5C warming
- How your business is performing compared to its base year (once targets have been set).
For Scope 3 targets, there are three measurement methods that could be used:
1. Absolute Contraction Approach (ACA): This measures your emissions against the absolute level of decarbonisation needed based on the yearly global requirement to decarbonise and maintain less than 1.5C warming. This approach can be used by all businesses. Under current standards, businesses must decarbonise their own emissions (Scopes 1 and 2) by 4.2% each year to align to this approach.
For growth businesses, this is not a suggested approach for Scope 3 due to the likely need to constrain short term growth to achieve this aim.
2. Economic Intensity Approach (EIA): The measures tracks your business emission reductions in an emissions / £ revenue format. For example, in base year 2020 Company X may have emitted 2.5 tCO2e / £ revenue, and in 2022 Company X emitted 2 tCO2e / £ revenue. Company X achieved Economic Intensity reductions of 20%. The level of ambition in the reduction target may seem higher, but in reality being an intensity metric the absolute level of decarbonisation required is typically lower than the ACA. Overall, this is our recommended approach for most businesses setting Scope 3 targets.
3. Physical Intensity Approach (PIA): Similar to the EIA, this tracks emissions intensity, however in this case it would be in an emissions / physical unit format. SBTi are generally flexible in the physical unit chosen, as businesses will have different ideal measures. This methodology is also highly used for Scope 3 targets, however, the Economic Intensity Approach is typically easier for businesses to measure year on year, and so remains our preferred approach.
Finally, there are other measurement methods available for Scope 1 and 2 targets. However, these will be covered in a separate article.
4. Reduction Goal
This is just the percentage reduction in emissions that will be achieved by the time your target matures.
Under the Absolute Contraction Approach, this is an absolute reduction in emissions compared to the base year.
Under the EIA and PIA, this is the intensity reduction in emissions compared to your base year
It should be noted that the Altruistiq Platform will not allow you to set a reduction goal that does not allow you to meet the SBT's minimum ambition level (aligned to 1.5C warming). However, you can choose to set a more ambitious goal if desired.
Bringing it Together
Overall then, there are 4 key elements to a Scope 1 and 2 SBT that you need to understand. Well what does this look like in practice? Hopefully the below image will help!