Science-Based Targets Initiative (SBTi): A Scientific Approach to Define and Achieve Carbon Emission Reduction Targets

S Vijaya Lakshmi
Professor and Registrar, The ICFAI Foundation for Higher Education (Under IFHE - A Deemed to be University u/s 3 of the UGC Act, 1956), Hyderabad, Telangana, India. E-mail: vijayas@ibsindia.org

Nagendra Kumar M V
Senior Research Associate, IBS Case Research Center, IBS Hyderabad (Under IFHE - A Deemed to be University u/s 3 of the UGC Act, 1956), Hyderabad, Telangana, India. E-mail: nagendra@ibsindia.org

Science-Based Targets initiative (SBTi) was a step taken by leading nonprofit organizations engaged in protecting and sustaining the global environmental systems. These included the Carbon Disclosure Project (CDP), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), the World Wide Fund for Nature Inc. (WWFN), and We Mean Business (WMB). WMB, a coalition, was formed to bring together all global business organizations to commit themselves to achieving the objectives of climate change initiatives. SBTi was an effort led by WMB. Its primary purpose was to aid companies in formulating their climate change strategies. This assistance was facilitated by tapping into the collective knowledge and expertise of prominent nonprofit organizations and global networks focused on environmental preservation. The SBTi achieved this through the creation of a scientifically grounded framework. The primary objective of SBTi revolved around collaborating with a network of business organizations and providing them with technical support. The initiative also directed its efforts toward cultivating a substantial collective of companies. Despite these endeavors, SBTi needed help to establish a formal institutional mechanism.

Having a network of business leaders that are committed to Science-Based targets in line with the Paris Agreement creates incredible leverage and the opportunity to apply international best practice to dramatically reduce their emissions.

- Jacinda Ardern, Prime Minister of New Zealand, in 2019i

It is encouraging to see global companies setting Science-Based target in line with the Paris Agreement. The science is clear current levels of ambition are insufficient and businesses have a role to play in limiting temperature rise to 1.5 °C.

- Patricia Espinosa, Executive Secretary, United Nations Framework Convention on Climate Change (UNFCCC), in 2019ii

Introduction

In 2021, Luiz Fernando Do Amaral (Fernando), Chief Executive Officer (CEO) of Science-Based Targets initiative (SBTi), expressed happiness and optimism over the functioning of the SBTi: "I joined the SBTi at a pivotal time in the fight against climate change and the SBTi's growth. After my first few months, I find myself in awe of the progress achieved, and facing a perfect storm of challenges ahead," he said.iii SBTi made a mark for its approach in bringing together several private companies across the world and getting them to commit themselves to Science-Based Targets (SBTs).1 Moreover, it got SBTi targets validated and approved through SBTi's scientific process.2

The objective of SBTi was to support and contribute to achieve the carbon emission reduction targets to which governments worldwide had committed as a part of the Paris Agreement through the participation of private business organizations. To reach this goal, SBTi concentrated on creating, endorsing, attaining, and sharing of SBTs in line with the latest climate science as a regular practice. This helped diminish the effects of global warming on the planet and involved everyone invested in this process, including governments, social services groups, banks, financial institutions, and private businesses, working collaboratively (Refer Exhibit I).

SBTi's philosophy was based on the principle of engaging the maximum number of private companies region-wise and industry-wise in its initiative and achieving a network effect, thereby standardizing the process of companies defining and achieving the SBTs.

The standardization among the companies was expected to influence the sustainability policy of the business organizations. As the SBTs were defined as per the SBTi process, the procedures and benchmarks were expected to be standardized. The standardization was expected to create an institutional mechanism for the setting of SBTs by all the key stakeholders (governments, social services organizations, banks and financial institutions, and the private sector business organizations).

It was understood that achieving climate change goals outlined in the Paris Agreement-specifically, limiting global warming to under 2 °C by 2030 and even further by 1.5 °C by 2050-would prove to be a considerable challenge without involving private businesses and holding them accountable for carbon emission reductions. In response to climate change initiatives, SBTi took steps to collaborate with global business entities. The initiative provided crucial technical resources and guidance to assist these businesses, leading to the validation and formation of a substantial group of companies. This collective effort aimed to standardize the process of setting SBTs.

While some companies had been independently working to meet carbon reduction targets, the degree to which they adopted a scientific approach remained uncertain. The SBTi initiative addressed this gap by offering scientific guidance and expertise. This proactive initiative sought to ensure that businesses followed a consistent and evidence-based methodology when establishing their emission reduction targets, thereby contributing to the larger goal of combatting climate change.

Since the launch of the initiative in the year 2015, the SBTi had seen a large number of companies joining it. These companies could make a public commitment to setting an SBT, after which they had two years to develop their SBTs and get them approved by SBTi (Refer Exhibit II). The number of companies that joined the SBTi was 334 between April 2015 and March 2018. After that, 352 companies joined SBTi in less than two years, between April 2018 and October 2019. The number of commitments given by the companies and approved by SBTiiv also witnessed a substantial increase.

Of the 686 companies that joined SBTi between 2015 and October 2019, 285 were officially approved by the SBTi. Of these 285 companies, 168 got their targets approved within 2 years of committing themselves, 47 companies were approved without having made any previous public commitments, and the remaining 70 companies took longer than the two-year commitment period to get their targets approved. Usually, companies that exceeded the commitment period were removed from the SBTi website.v

After remaining focused and successful during the first five years of its launch, the SBTi had been witnessing challenges due to the uncertainty created by the Covid-19 pandemic and the Russia-Ukraine war crisis in the global business environment.

During Covid-19, the world witnessed 5% reduction in carbon emissions and companies committed to SBTi were able to reduce emissions by 7%vi at that time. However, as per the targets specified by the Paris Agreement, the Glasgow Climate Pact, and the US Environment Program to achieve the target of limiting global warming to 1.5 °C, the reduction in global emissions had to be at least 7.6% per year between 2020 and 2030.vii

As of 2021, of the SBTi High Impact Sample consisting of the largest companies in terms of market capitalization and emissions worldwide, 27% had set SBTs. However, this was skewed, comprising the US, Japan, and several companies from Europe. A few companies from Asia, Africa, and Latin America had adopted SBTs. Where industries were considered, industries heavy on emissions were yet to become a part of SBTi. SBTi therefore needed to quickly expand to other geographic regions and industries to achieve its mission.

Amid growing concerns caused globally by the uncertainties in the business political and economic environments, SBTi needed to update the process of setting up SBTs and the criteria for approval and validation of the SBTs. The management of SBTi was looking to address internal and external concerns and expand its global reach. Fernando called on all key stakeholders and partnering organizations to participate in the carbon emission reduction process with a renewed and rigorous collaborative approach to meet the targets of bringing down global warming to 1.5 °C by the year 2050.

Note on Climate Change
The impact of climate change was considered both unimaginable and catastrophic. Gradual shifts in temperature and weather patterns over time had always been a natural phenomenon. However, starting from the early 19th century, rapid industrialization and various anti-environmental activities accelerated the pace of climate change. This became a pressing issue, profoundly affecting human lives and survival. The consequences of climate change were evident in rising temperatures, intense rainfall, prolonged droughts, and extreme weather conditions that exceeded historical norms.

The primary reason for the change in the climatic conditions was the increased use of fossil fuels like coal, gas, and oils in manufacturing and production activities. When factories and industries used these fuels, they produced greenhouse gases (GHGs).3 These gases added extra heat to the environment, making it warmer (Refer Exhibit III).

From the late 1970s, the adverse impact of GHGs on climate was keenly observed. From then on, there was a shift toward a more scientific way of looking at climate change. Climate science began to grow and improve using better information and communication technologies and scientific models that could help predict how climate change would affect the environment in the future.

Because of the progress achieved in improving climate science and the necessity to raise awareness about climate change and its effects on the world, the United Nations established thes Intergovernmental Panel on Climate Change (IPCC) in November 1988. The objective of the IPCC was to publish research reports and to update knowledge in the area of climate science. Some of the significant events initiated by the global community toward a commitment to environmental protection and reducing the impact of climate change on the environment are shown in Exhibit IV.

One of the significant events in the history of climate change was the commitment made by the global community to reduce emissions of GHGs to net zero by the year 2050. As a signatory to the United Nations Framework Convention on Climate Change (UNFCCC), each country was committed to this plan.

Following information from various online sources, nations committed themselves to lowering global warming by less than 2 °C by 2050. As a subsequent development, the IPCC released a report emphasizing limiting global warming further to 1.5 °C by 2100. This collective understanding among member countries was commonly recognized as the Paris Agreement.

The Paris Agreement
The Paris Agreement was an accord established by both developed and developing nations to curb pollution and safeguard the environment. This agreement served as an all-encompassing framework outlining the policies and procedures to be adhered to by member nations, with the primary objective of safeguarding the environment from climate change and global warming impacts. Officially put into action on November 16, 2016, the Paris Agreement was ratified by signatory countries associated with the United Nations Framework Convention on Climate Change (UNFCCC).4

The nations that were part of UNFCCC were dedicated to fulfilling the goals outlined in the Paris Agreement. These objectives centered on attaining climate change targets by lowering carbon emissions and mitigating the effects of global warming. The UNFCCC member countries were resolute in their aim to decrease global warming to below 2 °C. Their ultimate goal was to restore global warming levels to pre-industrial levels.

The Paris Agreement was a legally binding international treaty on climate change signed by around 196 countries at the world at conference of parties (CoP) 215 held in Paris on December 12, 2015. The agreement came into force on November 16, 2016. The Paris Agreement was considered a milestone in the history of climate-related agreements. All the members were unanimously committed to the agreement's objectives, signifying the importance and adverse impact of the climate change problem. All the member countries committed to working as a team to achieve the objectives of reducing the effects of GHGs on the environment and reducing global warming to targeted levels.

However, to meet the Paris Agreement's objectives, the countries needed financial and technical support and a comprehensive framework. Accordingly, the member countries were committed to promoting investments that encouraged the reduction of GHGs.

Each participating nation was required to submit its strategies and the outcomes of its climate change initiatives every five years. These countries were expected to review their strategies annually, evaluate their effectiveness, and make necessary adjustments. Consequently, an annual report was mandated, and a comprehensive long-term report was due at the end of the five-year period.

The key components of the Paris Agreement could be categorized into four-temperature targets, strategies for reducing greenhouse gases, financing by the developed countries, and a continuous review mechanism (Refer Exhibit V).

Furthermore, the Paris Agreement had an additional requirement to raise public awareness about climate change initiatives and the actions to be taken by the involved parties. This encompassed fostering public engagement through various awareness and training initiatives. To amplify the effectiveness of the Paris Agreement, a variety of programs were introduced. These efforts focused on delineating guidelines, protocols, and actionable strategies across various stakeholders. In this direction, different subsidiary bodies like the Subsidiary Body for Implementation (SBI)6 and Subsidiary Body for Scientific and Technological Advice (SBSTA)7 were established.

The Paris Agreement outlined the responsibilities of both developed and developing nations regarding their contributions and objectives for financial and technical assistance. The developed countries committed to offering financial aid to developing nations through a five-year strategic plan, complemented by yearly operational plans. This financial assistance from the developed countries could be utilized by the developing nations to foster sustainable climate change initiatives. Beyond relying solely on the funding from developed countries, the agreement also extended an invitation for voluntary contributions from other parties to support the developmental efforts of the developing nations.

The financing was provided based on the Financial Mechanism prescribed under UNFCCC articles. As a first instalment, the developed countries committed to financing $100 bn per year starting from 2020 and agreed to revise the targets for funding every five years.viii

The agreement also looked at the development of climate-safe technologies and at transferring those technologies across the developing countries to support the capacity-building programs of these countries. The developed countries were required to support and provide guidance for establishing an institutional mechanism for developing and transferring climate mitigation and reduction technologies, methods, and approaches.

Even after the agreement was reached, if efforts to this effect were not initiated, global warming was expected to increase to 3 °C, resulting in unimaginable loss to the natural environment and humankind. In this process, and among all the stakeholders, the business organizations were expected to play a major role. Analysts said that achieving the targets defined under the Paris Agreement would be difficult unless the companies were held responsible for carbon emissions and held accountable for contributing to the climate change initiative.

Making companies a part of the global transition process toward the reduction of carbon emissions could speed up the process of meeting the objectives under the Paris Agreement. Besides, the corporate leaders were also looking at leveraging the innovative business opportunities that could come with transitioning to low-carbon emission business models.

The Stakeholders
SBTi was a step taken by leading nonprofit organizations engaged in protecting and sustaining the global environmental systems. They were the Carbon Disclosure Project (CDP), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), the World Wide Fund for Nature Inc. (WWFN), and We Mean Business (WMB). WMB, a coalition, was committed to bringing together all the global business organizations to define and commit to achieving the objectives of the Paris Agreement.

SBTi aimed to aid companies in formulating climate change strategies by utilizing the expertise, knowledge, and extensive global networks of prominent nonprofit environmental protection organizations. This was achieved by creating a scientific framework for establishing science-based targets, drawing on their expertise. The objective was to disseminate these targets globally among various private-sector business entities within and outside the WMB network.

The CDP, an international social services organization, was established in 2000 by Paul Dickinson in London, United Kingdom. It collaborated with various intergovernmental organizations, businesses, regional associations, and financial institutions. Its mission revolved around aiding these entities in the formulation and execution of environmental objectives. CDP also played an important role in the disclosure, monitoring, and oversight of environmental preservation efforts undertaken by diverse organizations. It offered solutions addressing challenges like climate change, deforestation, and water scarcity. CDP's disclosure system was recognized as a comprehensive and valuable dataset, shedding light on environmental impacts and the actions initiated by stakeholders, including investors, companies, cities, states, and regions globally.

The UNGC, an initiative of the United Nations, aimed to bring together corporate business organizations to work in association with the United Nations to solve social problems with the help of business organizations. It was launched on July 26, 2000. Around 13,000 corporate business organizations and other entities from 170 countries participated in this initiative. It was a nonbinding, voluntary agreement for the corporate business organizations and firms to work on human rights, labor laws, and environmental issues within the framework defined by the United Nations.

The WRI, an NGO, engaged in research activities to identify and promote sustainability, protect the environment, and develop economies. It was founded in Washington DC, US, in 1982 by the MacArthur Foundation under the leadership of James Gustave Speth. The research conducted by WRI primarily focused on identifying and endorsing solutions for food security, water conservation, energy conservation, and climate change. The organization collaborated with a network of governments, government-affiliated organizations, corporations, businesses, and other nonprofit organizations.

The WWFN, the largest environmental conservation organization, had a presence in 100 countries and over five million supporters worldwide. The primary objective of WWFN was to protect the environment and conserve the natural living environment. It was founded in the year 1961 with its headquarters in Switzerland. It received most of its funding (around 65%) from individuals, around 17% from global government associations, and around 8% from global business organizations. WWFN invested more than $1 bn in different conservation projects worldwide.

WMB, an association of seven nonprofit socially motivated organizations, worked toward getting business organization to committing to become being a part of climate change activities. Each organization had a unique commitment to climate change activities. The major organizations engaged under WMB were BSR, CDP, Ceres, CLG Europe, Climate Group, Team B, and WBCSD (Refer Exhibit VI). SBTi was put forward by WMB to work in association with the other leading nonprofit socially engaged organizations to leverage their expertise and technical knowledge to provide solutions for the business organizations to define and commit to following SBTs through a systematic validation mechanism. The initiative aimed to create an ecosystem within which business organizations could define their commitments toward SBTs and get their commitments validated and approved by SBTi.

Objectives
The objective of SBTi was to spread the expertise and knowledge of all the stakeholders in the area of climate science and to standardize the process to define SBTs through an institutional mechanism in which the business organizations, governments, social sector organizations, and other regulatory organizations across the world could consider the frameworks, methods, and methodologies defined by the SBTi as the benchmark practice in the area of carbon emission reduction.

SBTi assisted the business organizations by providing the necessary technical support and resources and aimed to build a critical mass of business organizations committing themselves to commonly defined climate mitigation and change initiatives, thereby institutionalizing the process of defining and controlling climate change initiatives across the globe. The initiative's objective was to develop and implement innovative solutions that could be adopted or followed among all types of global business organizations (Refer Exhibit VII). SBTi commenced its operations with the support of the Commit to Action team of WMB. Initially, the WMB provided the financial and operational support to initiate the process.

SBTi initiated two programs for working with business organizations. The first initiative, "Call to Action," invited business organizations to participate in the SBTi. It was organized through different awareness programs, workshops, and training programs. This initiative came into force between 2015 and 2019. Later, after the UN Secretary General's Climate Action Summit in September 2019, the target was revised to reduce the global temperature rise to 1.5 °C by the year 2050. As a result, the SBTi initiated another program called "Business Ambition for 1.5 °C only the Future," committing the business organizations to targets in alignment with 1.5 °C. As a result of this initiative, the number of companies that committed to SBTi during the year 2019 increased phenomenally.

SBTi Target Setting Process
SBTi brought together several private sector companies to commit themselves to reducing carbon emissions by following the scientific procedures designed and developed by SBTi. Those companies had to submit a letter of intent to SBTi expressing their commitment to SBT. Following their submission of a letter of intent, SBTi followed a rigorous validation process to understand the feasibility and applicability of the targets (Refer Exhibit VIII).

Companies with less than 500 employees were considered small or medium scale enterprises and were advised to follow step 3 of the target-setting process directly. The other companies could submit their intent first to commit to net-zero emissions. Some companies operating in industries like oil and gas, airport operations, and companies relying more than 50% on coal for running their business operations were excluded from submitting their commitments. Once an online commitment had been submitted, the companies were given 24 months to submit SBTs to be considered for validation and approval by the SBTi team.

A company had to define the SBTs based on the criteria specified by the SBTi. SBTi could revise the criteria considering the changing emissions scenario, changes in the policies of the partner organizations, and the greenhouse gases accounting and reporting practices. The SBTi criteria Version 5.0 had been in force since July 15, 2022.

In the first stage, the companies had to define their SBT boundary. The targets had to be defined at the parent-level entity, not at the individual or subsidiary level. While setting the targets, the companies had to take into consideration the GHG Protocol8 corporate standards defining the scope of target emissions within Scope 1, Scope 2, and Scope 3 emissions.9 The criteria for defining the targets under each category changed depending on the organization's nature and type. The targets defined by the companies had to be modeled based on the tools and techniques approved by the SBTi and be validated by SBTi (Refer Exhibit IX). The targets defined under the previous model could be sent for validation within six months of the proposed change in the procedures, tools, and techniques for defining the model.

Once the targets and the model had been finalized as per the criteria specified by SBTi, the companies had to decide on the accounting requirements for reporting and disclosing information regarding the targets and their achievements against the defined targets. The accounting requirements had to be defined as per the GHG protocol. The accounting guidelines for scope 2, scope 3, bioenergy accounting, carbon credits, and avoided emissions had to follow the guidelines defined in the GHG protocol.

Determining accounting and reporting requirements was important in the SBTi approach, as that would enable better monitoring and control. For example, as per the GHG protocol, companies had to decide on the base year for calculating Scope 2 emissions using either location- or market-based approaches. SBTi's guidance suggested that preference should be given to a single approach to ensure uniformity in the process of measurement and testing the validity.

The targets had to be formulated for a minimum of five years and a maximum of ten years. The minimum five-year period were called near-term targets, and the targets set for ten years were called long-term targets. SBTi encouraged defining short-term targets with long-term scope. While reporting the progress, SBTi focused on achieving net-zero emissions by 2050. While reporting the progress, the companies had to consider linear absolute reduction,10 linear intensity reduction,11 and intensity convergence12 between the year of reporting and the target year 2050.

SBTi Approach
SBTi followed a three-stage approach. In the first stage, it provided technical support to companies for setting up the SBTs and then validated and approved the targets for implementation. In the third and final stage, many companies were expected to follow SBTs as a standard practice.

Commitment among many companies toward SBTs as a standard practice was expected to turn it into a benchmark for the formulation of policy decisions, investment decisions, and action-oriented approaches by governments, financial institutions, and regulatory institutions.

Support Provided to Companies
The SBTi criteria component defined the different criteria to be considered by the companies toward reduction of carbon emissions. The criteria that needed to be considered were classified into eight categories (Refer Table I).

Under each category, SBTi provided guidelines and recommendations for defining the SBTs as per the GHG Protocol and specified criteria for defining the timeframe between minimum and maximum periods for achieving the targets and reporting the progress as of the reporting date.

To reduce Scope 2 emissions, SBTi provided criteria for selecting different approaches per the GHG protocol, mentioning different sources of renewable and alternative energy sources. To reduce the Scope 3 emissions, SBTi provided guidelines for screening Scope 3 emissions, specified requirements for defining Scope 3 emissions, and set boundaries within which the Scope 3 emissions could be defined. It specified the criteria for the supplier and the customer engagement targets and the sale, transmission, and distribution of fossil fuels.

SBTi's criteria specification document outlined different ambition ranges based on the classification of targets for Scope 1 and Scope 2 emissions against three long-term temperature goals. SBTi also provided guidelines for sector-specific criteria concerning Scope 1, 2, and 3 emissions (Exhibit X).

SBTi provided the technical support in prescribing the criteria, process manual for target setting, target calculation using Excel, technical research information on the target setting process, and target validation protocol. It resulted in positive feedback from the companies. Over time, the SBTi improved the quality of the standard-setting process and the criteria to be followed by the companies. There was also clarity in the validation process, which ensured quick approval of the targets set by the companies.

The Case of JAB and AstraZeneca
Examples of organizations that had successfully implemented SBTs were German conglomerate JAB and AstraZeneca. The management of JAB, an association between JAB holding company and JCP, a strategic investor and an investment company, had a strong inclination for protecting and saving the planet. It believed that the investment community had to play a greater role in addressing the environment, social and governance (ESG) issues and contributing to climate change initiatives.

SBTi provided a separate framework for the finance companies, and JAB was a part of its pilot project to set the SBTs based on the SBTi financial framework. The pilot project started in 2021, and JAB submitted its SBTs based on the SBTi criteria in October 2021. They were validated and approved by SBTi by January 2022 and were officially announced in March 2022. JAB committed to reducing Scope 1 and Scope 2 GHG emissions by 46% by 2030 with a base year of 2020.

As of 2021, 99% of JAB's total investments covered different ways of reducing Scope 3 emissions. By 2025, the company committed to setting 80% of the portfolio of investments comprising carbon emissions reduction targets validated by SBTi and increased this to 95% by 2030. JAB believed that the guidance provided under the SBTi financial framework was in tune with the requirements of the investors.

Another company, AstraZeneca, a leading global biopharmaceutical company, believed that the validation of net-zero targets set by the company against the net-zero standard of SBTi made them credible and valid, and ensured that the journey of the company toward reducing carbon emissions was achievable as per climate science.

Moving Toward the Targets
A rapid increase in the voluntary submission of the targets set by the companies was observed in 2019. Considering the total number of commitments given by the companies between 2015 and 2018, the target submission was less than 50%, while it increased to around 80% during the first nine months of 2019. Subsequently, the validation and approval period was reduced from 100 days to 28 days.ix

Out of 2,253 high-impact companies13 identified from different sectors and across different regions, 1,171 committed to setting the targets, while 1,082 companies got their targets approved by SBTix by December 2021.

These companies were spread across 70 countries and 15 industries as of December 31, 2021. The market capitalization of the companies committed to the SBTi framework accounted for around 35% ($38 tn) of the total global market capitalization, which increased from 20% in the year 2020.xi

Creating the Critical Mass
To bring the desired change among the corporate entities, SBTi based its approach on the diffusion of innovation theory; SBTi believed that the creation of a critical mass of companies committing to the carbon emissions reduction strategies could affect the other companies to adopt and follow the strategies being followed by the critical mass of companies, industry-wise, economy-wise, and region-wise.

SBTi defined a threshold of 20% as the critical mass among the high-impact companies committed to reducing carbon emissions that could motivate other companies to be a part of formulating and implementing carbon emissions reduction strategies on a large scale over time.

In a survey conducted during the year 2021, SBTi found an increasing trend toward the creation of a critical mass of companies region-wise and industry-wise, and also among the OECD and non-OECD countries. The survey was conducted on high-impact companies with a market capitalization of $67 tn. The list was prepared by CDP using the MSCI ACWI index.14

With regard to region-wise creation of a critical mass of companies in terms of commitment and approved targets, the European region stood in the top position, followed by North America and Latin America. During 2015-20, the European region crossed the threshold limit of above 20% defined by SBTi to be considered under a critical mass of companies. North America, Latin America, and Oceania crossed the threshold limit in 2021 while the Asian and African regions were yet to cross the threshold limit as of 2021 (Refer Exhibit XI).

In terms of industry-wise creation of a critical mass of companies, excluding power generation, infrastructure, and other sectors, most companies in other sectors had crossed the threshold limit. Apparel, financial services, hospitality, food and beverages, agriculture, biotech, healthcare, and pharma crossed the threshold limit during 2015-20. The manufacturing, retail, transportation services, materials, and services sectors crossed the threshold in 2021. A consistent increase in the commitments and approvals could be observed concerning apparel, hospitality, biotech, healthcare and pharma, manufacturing, transportation services, and services (Refer Exhibit XII).

From the perspective of OECD and non-OECD countries,15 USA, Japan, Canada, South Korea, UK, and Germany stood in the top position, having the highest number of high-impact companies. Among them, the UK was consistent during the study period in terms of the threshold limit being crossed by the companies.

When observed for six years since the inception of SBTi in the year 2015, among the top 10 OECD countries, four countries had consistently crossed the threshold limit of above 20% (Refer Exhibit XIII).

From the perspective of non-OECD countries, it was observed that China, India, Hong Kong, Russia, and Brazil stood in the top position, having the highest number of high-impact companies. However, consistent improvement was yet to be observed regarding the number of high-impact companies crossing the threshold limit. Only India had crossed the threshold limit during the period of six years, followed by Brazil and Singapore (Refer Exhibit XIV). In terms of non-OECD countries, the implementation could have looked more satisfactory. Hence, it was necessary to focus on expanding its scope in these countries.

Are the Commitments and Approvals Impactful? The major challenge for SBTi lay in ensuring that the companies achieved the approved targets. SBTi was yet to develop a framework for reporting and disclosing the approved targets within a timeframe. In a survey conducted during the year 2021 among a select number of companies, it was observed that around 76% of the companies were achieving the targets. However, systematic and credible evidence was not available to ensure the actual achievements of the companies.

The sample consisted of around 834 companies that were expected to be reported during the year 2021. Only 46% of the companies reported on all the targets, 26% of the companies reported on only one target, and no information was provided related to other targets to be achieved. For 28% of companies, there was more information needed.

SBTi had been endeavoring to develop a framework to ensure proper reporting and disclosing mechanisms. It was developing a measurement, reporting, and verification (MRV) framework. The development of MRV would not only improve the quality of reporting but would also streamline the whole process of reducing carbon emissions. Hence, the SBTi team had been focusing on developing the MRV framework's technical aspects by the meeting of the Conference of Parties (CoP) 27 in November 2022 and the full framework by the time of the meeting of CoP 28 in February 2023. However, despite an existing gap in the reporting and disclosure mechanism, SBTi had made significant progress in terms of carbon emissions reductions.

Between 2015 and 2019, SBTi-approved companies had reduced Scope 1 and Scope 2 emissions by 25%. Regarding absolute reductions, a difference of 419 MtCo2e could be observed between 2015 and 2019. This was equivalent to 1.3 times the emissions in the United Kingdom. On an average, all the SBTi-approved companies had reduced Scope 1 and Scope 2 emissions from 5% to 10% between 2015 and 2019 and 12% during 2020. It was estimated that SBTi-approved companies would have to reduce Scope 1 and Scope 2 emissions by 4.2% on an average a year since the approval of the targets.

However, they were contributing to an average of 8.8% reductions per annum, double the expected and planned outcome. In a study conducted among 20 countries with a larger number of SBTi-approved companies, it was observed that while the average reduction of each country was 10%, an SBTi company had contributed to a reduction of 12% among these countries. On the other hand, the global emissions had only reduced by 5%.

Challenges and Road Ahead
The Covid-19 pandemic and subsequent lockdowns and operational breakdown of the business entities resulted in a temporary decline of carbon emissions during the calendar years 2020 and 2021. However, after slowly recovering from the pandemic, an increase in carbon emissions was observed. Hence, it was thought high time for all stakeholders, especially business organizations, to commit themselves to formulating carbon emissions reduction strategies and to be a part of net-zero reductions as per the Paris Agreement.

SBTi had been instrumental in bringing together global business organizations, getting them to commit to setting up carbon emission reduction targets, and aligning them toward achieving the set targets. Despite making satisfactory progress by getting many companies to commit and ensuring the carbon emission targets, SBTi believed there was a long way to go.

In its endeavor to achieve the targets as per the specified time framework, SBTi focused on the G20 economies, higher carbon-emitting industries, and the financial sector companies to be a part of the SBTi framework. The primary target was to reduce carbon emissions to 50% by the end of the year 2030 and reach net-zero emissions by the end of 2050.

To achieve the desired objectives, the SBTi had updated itself to meet the changing requirements and provided guidelines as per the changing market requirements. During 2021, SBTi went through a strategic review process and aligned itself to defining the standard practices for corporate business organizations. It was also planning to modify its operational and governance model as per the requirements of the corporates and was trying to ensure the formulation of the best and highest standards for corporations toward defining science-based climate change initiatives.

Suggested Readings and References

1. "What Is Climate Change?, www.un.org, accessed during May 2022.
2. "Science-Based Targets - What They are, Why They Work & How to Get Going," https://ecochain.com/, accessed during May 2022.
3. "Key Aspects of the Paris Agreement", https://unfccc.int/, accessed during May 2022.
4. "International Efforts to Combat Climate Change", www.planete-energies.com, August 5, 2021.
5. Sami Adler, "How Much Would It Cost to End Climate Change?" www.globalgiving.org, March 1, 2021.
6. Quirin Schiermeier, "The US has Left the Paris Climate Deal - What's Next?", www.nature.com, November 4, 2020.

End Notes

1. SBTi Progress Report, 2019.
2. Ibid.
3. SBTi Progress Report, 2021.
4. SBTi Progress Report, 2019.
5. Ibid.
6. SBTi Progress Report, 2021.
7. Ibid.
8. https://unfccc.int/topics/climate-finance/the-big-picture/climate-finance-in-the-negotiations
9. SBTi Progress Report, 2019.
10. SBTi Progress Report, 2021.
11. Ibid.