- Fresh data shows that the number of companies obtaining approval from the Science Based Targets initiative (SBTi) for carbon reduction plans has more than doubled since 2020.
- Companies that signed up more recently have more ambitious targets. Four in five targets approved in 2021 were in line with a 1.5°C pathway, compared with 46% in 2020.
- High-emitting sectors, including electric utilities, mining and construction materials make up a larger proportion of companies signing up to the SBTi in 2021-2022 than previously.
The number of companies receiving approval from the Science Based Targets initiative (SBTi) for proposals to cut carbon emissions has shot up. As of 4 May, the number has reached 1,356 – more than double that of 2020 – while a further 2,940 companies worldwide have committed to establishing targets through the initiative.
As an independent, regulatory body that approves companies’ carbon-cutting plans, the SBTi is widely considered one of the most reliable benchmarks for tracking them. It helps companies set emissions reduction targets – for example, by providing sector-specific pathways for them to follow. Once a company has committed to the SBTi, it has two years to establish an emissions reduction strategy in line with SBTi guidance.
A total of 591 companies had their targets approved last year, a 143% rise from 243 in 2020 (see chart below). The number of companies with approved targets judged in line with 1.5°C has also greatly increased, making up 79% of all approved companies in 2021 Capital Monitor’s analysis reveals. This compares to just 45% in 2020.
When short-termism is good
While it's more common for companies to adopt long-term net-zero pledges, the SBTi requires companies to set short-term emissions reductions targets, typically within the next five to ten years. While it has now started approving longer-term targets, only nine companies have so far set such goals.
Following the Intergovernmental Panel on Climate Change's (IPCC) sixth assessment report published last August, the SBTi decided to push for greater adoption of 1.5°C-aligned targets, while phasing out its approval of companies that present well-below 2°C on Scope 1 and 2 targets. Scope 1 covers direct emissions from owned or controlled sources by the reporting company, while Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling.
From July 2022, companies will only have their targets approved by the SBTi if they are demonstrably in line with a 1.5°C pathway.
Companies with targets approved during 2020 or before will have until 2025 to update them. Those approved after that will be required to review and update targets at least every five years. Capital Monitor finds that 480 companies had their targets approved within or before 2020, making up less than 40% of the total.
Companies headquartered in Europe make up the lion’s share of those with approved science-based targets (SBTs), accounting for 63% of the total – a 22 percentage point increase from 2020. Asia-based companies make up 26% of those with targets approved in 2022. Roughly two-thirds were Japan-based firms.
Scaling up SBTi ambition
Not only are companies’ targets becoming more ambitious, but they are also being adopted by a wider range of industry sectors, finds Capital Monitor’s analysis of the SBTi’s data. Financial institutions, for example, only started having their targets approved in 2021.
While just 23 have had their targets approved so far, 117 have made commitments to the SBTi. Unlike other companies, which set Scope 3 as well as 1 and 2 targets, financial institutions state how much of their lending and investment activities will be covered by the targets.
Crucially, Capital Monitor finds that high-emitting sectors, which include electric utilities and cement (which falls into the wider category of construction materials) are seeing an uptick in SBTi target approvals. For example, mining companies, ground transport and electric utilities were among those that make up a higher proportion of companies in 2021-22 when compared with the previous five years (see chart below).
Down the supply chain
Within the electric utilities sector, 14 companies signed up between 2015-2020, making up just under 3% of all the sectors with approved targets. Between 2021 and 2022, 34 electric utilities companies signed up. Electric utilities include independent power producers and energy traders, many of whom make up other companies’ Scope 3 emissions.
Across all sectors, Scope 3 emissions make up a larger proportion of emissions than Scope 1 and 2. Within the MSCI world index, the utilities sector has the highest proportion of its overall emissions falling under Scope 1 and 2.
This means that, while some sectors generate most reported emissions from their relationship with companies within the supply chain, emissions generated by utilities are high to begin with. At the other end of the scale, Scope 1 and 2 targets make up the lowest proportion of overall emissions within the consumer discretionary sector, which includes entertainment groups like Netflix or clothing companies such as Nike.
The “first wave” of companies signing up included more consumer-facing brands and retailers, which often “don’t actually make anything” but rather buy and sell produce made by other companies, says Nate Aden, senior associate with the World Resources Institute’s Business Center and sector manager at the SBTi.
Aden describes how in the early days of the SBTi these sectors would set Scope 1 or 2 targets, followed by a ‘supplier engagement target’ for the companies in their supply chains. This led to further waves of their suppliers signing up.
“This is part of our theory of change: working through value chains is how we get to those large Scope 1 emitters,” says Aden, highlighting the importance of companies in higher-emitting sectors joining the race to net zero.
If the most recent SBTi data is to be believed, then this theory of change is working out rather well.