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Setting the Bar High Enough, Part 4: Making the Internal Business Case for Science-Based Targets
August 17, 2016
In this series of articles, the team at the Carbon Trust outlines the reasons for businesses to adopt science-based targets on climate change. This is the fourth in the series; find the other parts here:
Convincing boards to adopt stretching environmental targets often requires the presentation of a business case and a phased investment plan. Traditionally, companies set their ambitions for levels of carbon reductions based on the level of change that is financially attractive – the most compelling investment plan – rather than an understanding of what reductions are necessary. Science-based targets require businesses to rethink this approach.
The question for sustainability teams is usually: “What are the greatest improvements I can realistically achieve within our financial constraints?” With science-based targets the question shifts slightly, with the need to instead strategically consider: “What plan will deliver the best possible business case for achieving these goals?”
From our experience working with multinational businesses on sustainability strategy and target setting, we recognise that internal teams can often struggle to align environmental improvements with wider business goals, in order to drive action. Agreeing targets out to 2050 can be difficult, especially when even the largest businesses struggle to make plans beyond a ten-year horizon.
Indeed, many of the changes in technology, policy and energy markets that will enable businesses to meet science-based carbon targets are outside the control of any individual company. Nevertheless, it is very important to be able to demonstrate that the first few steps towards these targets are not only achievable, but positive for the business.
For most organisations, a large proportion of their current carbon-emissions reduction potential will exist in direct energy use. Understanding and explaining these opportunities is therefore an important prerequisite for getting internal buy-in. The strategic approach to achieving reductions in energy use has also been impacted by the introduction of the new GHG Protocol Scope 2 Guidance last year. This enables companies to transparently account for purchasing renewables and low-carbon electricity.
In the short to medium term, most companies can now choose from one of three levers to achieve carbon reductions: driving energy-efficiency programmes, purchasing electricity from renewable energy sources, and installing on-site renewables. These levers each have advantages and disadvantages, as illustrated in the table below.
Purchasing electricity from renewable sources is relatively easy to do and requires no capital, but generally involves a marginally higher energy cost. Energy efficiency requires capital investment and an implementation programme, but delivers annual energy cost savings. Installing on-site renewables is more complex and requires higher levels of investment, but can enable further reductions to be achieved beyond that of energy efficiency alone.
Combining these three approaches allows the development of an investment programme which balances the strengths and weaknesses of the individual approaches to deliver the carbon savings required by science while providing financial returns. This can be invaluable in securing agreement to set science-based targets.
A further option for organisations looking to build a business case for carbon reductions is the use of an internal carbon price as a tool to influence their decision-making processes. This can help businesses to hedge longer-term risks from legislative and regulatory change, such as increases in energy costs, or an external carbon price that might affect capital investments over their lifetimes. It can also be used as a way to fund improvements in energy efficiency, as Microsoft has done through its internal carbon fee.
Although companies may not know how they will reach the final destination, having a detailed map for the first stage of the journey can provide decision-makers with the confidence needed to set out in the first place.
In the fifth and final part of this series, we consider some limitations to science-based targets, exploring why they are not the only solution large companies need to adopt.