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Establishing decarbonisation targets is critical to any climate or decarbonisation strategy, like setting targets for revenues, sales, and other core business indicators essential to a robust business strategy. As companies track performance against business targets, effective greenhouse gas (GHG) management requires setting clear emissions reduction targets and monitoring progress.
Corporate-wide GHG targets are often critical components of broader efforts to reduce a company's GHG emissions (e.g., products and services, operations, supply chain). These targets are integral to the GHG management process, which involves collecting data, calculating emissions, and planning a comprehensive decarbonisation strategy. This process includes identifying decarbonisation levers, setting short-term and long-term goals aligned with the overall sustainability strategy, and establishing targets that align with the company's carbon budget and ambitions.
To ensure these targets contribute meaningfully to global climate goals, companies must align their specific GHG emissions reduction targets with the globally agreed 1.5°C limit, as outlined by the Paris Agreement. A crucial step in this process is collecting and analysing data for at least one year to establish a ‘baseline year of emissions,’ which is the foundation for setting science-based targets (SBTs).
According to the Science Based Targets Initiative (SBTi), over 5,918 companies have committed to setting science-based targets as of 2024. However, setting company-wide decarbonisation targets is complex, requiring a thorough understanding of various decarbonisation pathways and target-setting options. It also necessitates engaging and persuading a range of stakeholders to ensure their support for implementing the necessary changes during the subsequent stages of emissions reduction.
Challenges in target setting for companies
Despite the growing awareness of climate change, many companies still need help setting appropriate decarbonisation targets. According to a study by S&P Global, only 42% of companies assessed had set essential climate targets, with many failing to cover all emissions or align with the 1.5°C scenario outlined in the Paris Agreement. This challenge is primarily due to a lack of understanding, resources, and stakeholder alignment to implement effective decarbonisation strategies.
Benefits for companies that set decarbonisation targets
Setting decarbonisation targets is essential for businesses to manage climate-related risks, improve stakeholder relations, and contribute to global efforts to mitigate climate change.
Companies with clearly defined targets demonstrate their commitment to sustainable practices, attract investment, and gain a competitive advantage in the market. Furthermore, these targets help businesses align with the Paris Agreement's goals, reduce their carbon footprint, and achieve long-term financial stability.
Best practices for setting decarbonisation targets
To set effective decarbonisation targets, companies should follow these best practices:
- Publicly declare GHG reduction targets to ensure transparency, accountability, and credibility.
- Include a base year and target year to track progress.
- Set a target year 5 to 10 years from the base year.
- Align targets with the Science Based Targets Initiative (SBTi) criteria, which recommend a 2.5% annual reduction for Scope 1 and 2 emissions and 1.23% for Scope 1, 2, and 3.
- The targets should be for an absolute reduction in GHG emissions. They should be clearly defined and absolute, to be achieved over a specified period (e.g., 25% reduction over ten years).
- Targets should cover global operations within their geographic boundaries and emissions generated in all countries, not just in one or several locations.
- Aim for an absolute reduction in GHG emissions.
- Cover global operations and all three scopes of emissions.
- Communicate targets clearly, including all relevant information.
Setting decarbonisation targets is a critical step for companies in addressing climate change and aligning with global sustainability goals. While there are challenges in the target-setting process, following best practices and collaborating with stakeholders can help businesses overcome these obstacles and contribute to the global effort to mitigate climate change. By adopting a science-based approach and setting ambitious targets, companies can demonstrate their commitment to sustainability, improve stakeholder relations, and secure long-term success.
Advanced carbon management software like Plan A provides companies a dedicated interface to create targets and track their progress, setting them up for a successful decarbonisation strategy.
What are the different types of emission reduction targets?
Setting targets aims to reduce emissions by a set amount over a set period to reach a goal. The emissions reduction goal is known as the target. Setting targets requires a consideration of the following typical elements: base year, target year, absolute vs intensity targets, and near-term and long-term targets.
The base year is the starting point for a target-setting pathway because the company emissions calculated for this year (i.e. base year emissions) are ultimately used to determine the amount of emissions reductions needed in the coming years.
The target year is when your company must reach its emissions reduction goal. Typically, companies do not choose a target year at random. Instead, climate science has set the guidelines for two target years: near-term and long-term targets.
Absolute targets
An absolute emission reduction target is a specific and quantified goal a company sets to reduce the total amount of GHG emissions it produces over a specified period. This type of target is expressed in absolute terms, meaning it focuses on reducing the actual volume of emissions regardless of any changes in the company's size or output.
For example, an absolute emission reduction target might be to cut GHG emissions by 20 million metric tons by 2030, compared to a baseline year (e.g., 2010). This approach emphasises achieving a concrete decrease in emissions, which would contribute directly to mitigating climate change by lowering the overall concentration of GHGs in the atmosphere.
Intensity-based targets
Intensity-based targets, on the other hand, are calculated using a ratio, such as emissions per employee or yearly revenue. The emissions targets are relative to some type of economic or operational variable. Intensity-based targets may initially appear ambitious, but they can sometimes obscure an underlying growth in absolute emissions. This can happen if the variable used to calculate the emissions intensity, such as the number of full-time employees, increases significantly. In such cases, even if emissions per employee decrease, the company's total emissions may still rise, posing a potential challenge for companies committed to decarbonisation.
Intensity-based targets can carry a risk of greenwashing but can be used to decarbonise meaningfully. If used, intensity targets should lead to absolute emissions reductions.
Intensity-based targets should be better based on physical indicators (e.g., mass or volume of produce) that can be more related to the root causes of emissions (indicating the level of activity within a company that leads to actual emissions) as much as possible, trying to minimise the reliance on financial indicators (e.g., revenue or employee count). However, this is only sometimes possible, depending on the business sector.
Peak emissions targets
The peak emissions pathway is a target-setting approach developed by Plan A to suit certain fast-growth companies' needs better. This pathway allows a target-setting company more time to adjust business models and engage with supply chain stakeholders before becoming more ambitious with emissions reduction. This pathway combines a lower ambition intensity-based target first and a more ambitious target after a predetermined peak year. For example, a company might follow an intensity target of a 20% reduction in emissions per employee until the peak year of 2025 and then, after 2025, follow an ambitious target of a 60% reduction in absolute emissions until 2030.
It’s important to note that a peak emissions target can be challenging, depending upon the company's growth rate and resources for change. This pathway allows a company to grow without too many emissions constraints until a peak year. Still, it can be difficult for companies to suddenly transition to an ambitious target pathway after the peak year. Plan A recommends consultation with a target-setting expert before pursuing this pathway. It should also be noted the peak emissions pathway is not an SBT method, and the SBTi would not validate this type of pathway.
Science-based targets
Science-based targets (SBTs) provide a clear pathway for companies to reduce greenhouse gas emissions. Targets are science-based when they align with the climate science from the Paris Climate Agreement, which stated the need to limit global warming to 1.5°C above pre-industrial levels. Additionally, SBTs are a solid foundation for companies’ climate-related strategies, governance, and actions in transitioning to a low-carbon economy.
The Science-Based Targets Initiative (SBTi) created sector-specific guidance for companies to reduce emissions in alignment with the guidelines from the Paris Climate Agreement. The SBTi a) guides the development of SBTs and b) validates the targets of companies who wish to join the SBTi. The SBTi’s five-step process for commitment and validation is described below.
Across all business sectors, the SBTi sets minimum ambition thresholds. These thresholds are the emissions companies must reduce to limit global warming to 1.5°C above pre-industrial levels. The SBTi recognises that Scope 3 emissions are typically the most difficult to reduce, so minimum ambition thresholds for Scope 3 are lower than for Scope 1 and 2.
For example, for Scope 1 and 2 near-term targets, the minimum ambition is a 42% reduction by 2030 for the baseline years of 2020 and later. For Scope 3, it’s a 25% reduction by 2030 for the base years of 2020 and later.
SBTs are typically the most ambitious type of target. There are sometimes exceptions, but generally, SBTs reduce the highest emissions over time.
Near-term targets
The science from the Paris Climate Agreement showed that companies need to halve emissions by 2030 to mitigate climate change. According to the SBti, these are 5 to 10-year GHG mitigation targets in line with 1.5°C pathways.
Long-term targets
Long-term targets help companies understand the extent of emissions reductions they must achieve, typically by 2030 and no later than 2050, to align with climate science. The SBTi corporate standard signals that these targets show companies how much they must reduce value chain emissions to align with reaching net-zero at the global or sector level in eligible 1.5°C pathways by 2050 or sooner.
Net-zero targets
Net-zero means reducing greenhouse gas emissions to as close to zero as possible, with any remaining emissions being neutralised. The net-zero targets are defined according to the ‘Net-Zero Standard from SBTi’ as the goal that companies must adopt for "reducing scope 1, 2, and 3 emissions to zero or a residual level consistent with reaching net-zero emissions at the global or sector level in eligible 1.5°C-aligned pathways''. The standard also establishes that any residual emissions released into the atmosphere after that should be permanently neutralised at the net-zero target year.
Net-zero targets refer to being net-zero by 2050. They are a much longer-term pathway than near-term targets, but developing net-zero targets for 2050 should also involve developing near-term targets for 2030.
Read more about the net-zero journey here.
Which targets are suitable for your business?
Absolute vs intensity-based targets
Science-based targets: The pros and cons
Intensity-based targets: The pros and cons
Peak emissions targets: The pros and cons
SBTi vs not and other considerations for public credit
The SBTi
While the SBTi is an excellent form of public recognition for its dedication to corporate sustainability, commitment to the SBTi is not a requirement for implementing SBTs. Before deciding, every company should consider the criteria for SBTi validation. The SBTi provides a five-step process for companies to set SBTs.
The five steps are:
1) Commit: submit a commitment letter
2) Develop: develop a target in line with SBTi’s science-based criteria
3) Submit: submit your target for validation by the SBTi
4) Communicate: announce your target
5) Disclose: continue to disclose emissions on an annual basis and monitor progress on your target
Considerations for SBTi validation
- Timeline: After the initial commitment letter, companies have up to 24 months to submit their targets to the SBTi.
- Cost: Prices for SBTi validation vary by company size and choice of targets: near-term target submission, net-zero target, or both. The SBTi service offerings guide should be consulted before making a decision.
- Company size: The SBTi differentiates between SMEs (Small and Medium-Sized Enterprises) and large enterprises. SMEs can follow a streamlined process for setting SBTs. An essential aspect of the streamlined process is the exclusion of Scope 3 emissions: SMEs do not have to include near-term targets for Scope 3 emissions in their SBTs, but they must commit to measuring and reducing Scope 3 emissions.
- Employee time: If your company decides to have your target validated by the SBTi, ensure that the relevant staff have the time and resources to handle the validation process and the annual emissions disclosures.
SBTi benchmarking
To see the science-based targets of other companies committed to the SBTi, we recommend browsing the SBTi’s “Companies Taking Action” interactive dashboard. You can filter the information by sector, type of organisation, region.
Science-based targets (SBTs) without the SBTi commitment
It is possible to pursue SBTs without having targets validated by the SBTi. Plan A can assist clients in developing science-based targets that can be implemented with or without official validation by an outside framework.
While other frameworks for public credit do exist, they are aimed at specific sectors (unlike the SBTi, which is aimed at many sectors). One of the better-known sector-specific frameworks is the Net-Zero Asset Owner Alliance (NZAOA). The Alliance is a UN-convened and member-led initiative only for institutional investment.
What comes after target setting?
Setting emission reduction targets is the first step in a company’s decarbonisation journey. Once targets are in place, companies must implement concrete actions that drive measurable reductions. This means integrating emissions reduction into business operations, improving energy efficiency, transitioning to renewable energy sources, decarbonising supply chains, and rethinking products and services to decrease overall emissions.
Tracking progress is critical. Companies must establish rigorous carbon accounting frameworks, disclose emissions data regularly, and refine their strategies based on real-world performance. Emissions reduction must be treated as an ongoing, adaptive process aligning with new regulations, emerging technologies, and shifting market expectations.
Beyond operational changes, businesses must embed decarbonisation into their overall corporate strategy. This can include linking executive compensation to emissions performance, integrating climate considerations into financial planning, and engaging investors and stakeholders in long-term sustainability commitments. Companies that leverage market mechanisms such as internal carbon pricing and sustainability-linked financing can further accelerate their transition.
Achieving net-zero should not be the end goal. Leading companies actively contribute to global decarbonisation efforts through emissions reduction at the source, regenerative practices, and industry collaboration. The real challenge lies in execution, ensuring sustainability becomes a core part of business resilience and competitiveness.
In summary, once your company has set a target, you must reduce its corporate carbon footprint (CCF) and improve its decarbonisation strategy.
If your company is ready to move from target-setting to tangible emissions reductions, Plan A provides tools and expertise to support every step of the process. Contact us today to accelerate your decarbonisation journey.
