Setting emission reduction targets in line with climate science: A comparative analysis of different methods to develop a science-based targetBrigitte Frank

24 July 2019

In light of ongoing climate change and its corresponding risks and impacts, it is essential that companies reduce their greenhouse gas emissions drastically. So far, however, only a few companies have set emission reduction targets that are based on climate science, also known as science-based targets (SBT). One major reason for this is that there are several methods for developing an SBT to choose from. While most of the methods are complex, the differences, advantages, and disadvantages of each method are not obvious.

The relevant literature provides clear recommendations for companies with homogeneous outputs and a high percentage of total emissions in Scopes 1 and 2. However, guidance is still lacking for companies with heterogeneous outputs and a high percentage of total emissions in Scope 3, and yet, these latter characteristics apply a majority of companies worldwide.

In order to close this knowledge gap, the author investigates various methods for deriving an SBT. The purpose of the thesis is to identify differences between the methods as well as to reveal advantages and disadvantages for companies with heterogeneous outputs and a high percentage of total emissions stemming from Scope 3. This is accomplished using a theoretical approach, which is completed by an empirical analysis using the exemplary case of a listed German company in the retailing sector.

The main finding of the thesis is that in practice currently, only one of the methods analyzed is suitable for companies with heterogeneous outputs and a high percentage of total emissions in Scope 3. Further important findings are:

1. Most of the disadvantages of all four methods are due to the fixed combination of the method and its underlying emission scenario(s). As a result, the decisive limitations of each SBT method derive from weaknesses in the emission scenarios applied. The most significant disadvantages are: (a) None of the methods is able to take sector-specific emission reduction potentials of heterogeneous sectors into account; and (b) three out of four methods are not able to generate an SBT that is compatible with a 1.5 °C global warming target.

2. The data requirements differ significantly between the methods, whereas increased data requirements lead to a more company-specific target.

3. In all methods, companies with a good initial emission performance are at a disadvantage when compared to companies with poor initial emission performance. This is due to the fact that all methods use a company’s initial emission performance as the reference value.

These findings are relevant to both practitioners and researchers. On the one hand, the findings enable companies to shorten the complex and time-consuming method selection process, and thus, speeding up the development and implementation phases of such targets. On the other hand, the identification of the methods’ shortcomings forms the basis for further research and development on SBT.