Resources

The Science Based Targets initiative landing page

How science-based targets work

Guests

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative

Guest: Alberto Carrillo Pineda, Co-Founder and and Chief Technical Officer, Science Based Targets Initiative

Transcript

Editor’s Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:
Alberto, thank you so much for joining us here on Climate Rising.

Alberto Carillo Pineda:
Very happy to be here

Mike Toffel:
Why don't we start with an introduction? What's your role at the Science-Based Targets Initiative and how did you get there?

Alberto Carillo Pineda:
My role is chief technical officer and that means that I'm in charge of the development and the evolution of our framework, which is what is used by companies to set climate targets and what is used by our auditors to assess the ambition and the performance of corporate climate targets. And I'm one of the co-founders of the Science-Based Targets Initiative. We started working together almost 10 years ago with the idea of creating a benchmark to raise ambition in corporate climate target setting.

Mike Toffel:
Many companies are declaring targets that commit themselves to reductions of X percent of greenhouse gas emissions by some date or to a net-zero target by some date. And others are pursuing science-based targets. Can you share with us what's involved with setting a science-based target? What is science about it?

Alberto Carillo Pineda:
Climate target setting either in the form of emission reduction targets or net-zero targets or climate neutrality targets,. this creates a lot of confusion, a lot of inconsistency, and ultimately different outcomes in terms of what the target entails and the impact. And so acknowledging this, what we do in the Science Based Targets initiative is to set clear benchmarks and clear standards to ensure the ambition and the integrity in climate target setting by companies and financial institutions. one of the core features of how we do this is by using science.

And by that we mean emission reduction pathways or mitigation pathways are produced by climate scientists, by models to inform the level of reduction that is consistent with the climate goals that we have at the global level. For instance, limiting 1 to 1.5 degrees, which is a common goal that has been formalized through the Paris agreement.. There are other aspects that we also assess as part of the target setting process for companies including, for instance, making sure that targets includes all the relevant activities and all the relevant emission sources within the operations and the value chain of a company. We make sure that targets are expressed in terms that actually convey to absolute reductions. And we also make sure that targets use a robust baseline, because of course the baseline is critical to telling the mission of the target and also the targets are expressed in a timeframe to lead to action as opposed to targets that just basically delay action to the future.

Mike Toffel:
Okay, great. So let's talk through these one by one. So the first item you mentioned was mitigation pathways to achieve or to limit warming to a 1.5 degrees target. That's the Paris Accord Agreements goal agreed by many countries around the world. How do you translate that global ambition into a company target? So I imagine you can go through a sector analysis, a country analysis, and then a company analysis. How does that all fit together where you go from the global target of limiting warming to 1.5 degrees to a company's own target?

Alberto Carillo Pineda:
We need to figure out the way to continue to provide the goods and services that our economy and our population need without causing accumulation of greenhouse gases in the atmosphere. And this is what we call net-zero emissions in climate terms. And now because we're talking about basically the activities of very different nature including energy production, material production, transport, et cetera, the end goal is the same for all these different activities, but the journey is different and the type of transformation that needs to happen is different. And what climate scenarios and climate models help us understand is what is the pattern of transformation and the pace of transformation that is needed across different systems and different sectors of the economy? How fast for instance, we need to decarbonize our food production systems versus how fast we need to decarbonize our energy production systems or our transport systems.

And then it can help us derive metrics that can be used. So this is the second key element which is deriving benchmarks that are useful to assess transformation at the sector level. And then the third element is how we translate these benchmarks from the sector level to the entity level. And that's where we use allocation methods. And so an example of an allocation method is let's take one entity, and this entity may have different activities as part of their business model. They may be a conglomerate that is involved in the production of energy, in the production of materials. And so the mix of activities in the business model is different from entity to entity.

And finally, there's also elements related to the performance of the entity today. We have, for instance, power producers are already at producing most or all of their electricity from renewable sources. And of course the level of decarbonization that they need to achieve is different compared to a power producer that today is producing most of their energy or all of their energy from fossil sources.

Mike Toffel:
Let me see if I got that right. So you go from this global target of 1.5 degrees Celsius, you say, let's allocate that across the different sectors, food, energy, transportation, et cetera, to set a distinctive pace of decarbonization. So how quickly does each sector need to decline in their carbon intensity? And I'll come back to that in just a second. And then you have these sectors that you then allocate to entities or companies based on their sector mix, their country location and the economic growth of those countries and the company's own performance down their already efforts they've made so far to achieve decarbonization, how intense they are and where they are on their own journey. Is that about right?

Alberto Carillo Pineda:
That's a great summary and maybe something that I would like to add to that is we don't do this all by ourselves at the Science Based Target initiative. The climate models are produced by climate scientists part of the Intergovernmental Panel on Climate Change. Then we have part of the climate models that create mitigation pathways. And so for instance, one of the most used pathways are the ones that are created by the International Energy Agency. We also have entities that create pathways at sector level, and those are consistent with the global carbon budget that is defined by scientists that are modeling our climate system. And so we rely on all this information that is generated by different parts of the ecosystem including scientists, modelers, et cetera, and we translate this and integrate this for the development of standard. And so what we do at SBTI is to take this body of information that exists in the wider ecosystem to develop standards that can be used to set targets and to assess ambition and performance against those standards.

Mike Toffel:
Great. So if I were thinking about how do I translate it into sector benchmarks from this global ambition, and you're saying we rely on these climate models and mitigation pathways by various entities, what are the top factors that they're considering that might have one pathway for one industry and a different pathway for another? And I can imagine availability of technology might come into play, the marginal cost of abatement might come into play. Are those some of the major factors? And what else am I missing?

Alberto Carillo Pineda:
the most widely used models, what they consider is the cost of abatement of different measures in different sectors, availability of technologies are already mature enough And yes, we need to ensure that these emission trajectories are feasible. And then structural factors about the sector. For instance, there are sectors that are expected to experience significant growth because the growth of the sector is linked to population growth or economic growth. And there are other sectors where these factors are less relevant. So while the level of reduction may be different between for instance the aviation sector and the power sector, the level of effort is comparable considering these differences bringing in abatement costs.

Mike Toffel:
Let's talk about the second factor you mentioned, which was to include all relevant sources are included in the targets. And by that I imagine you mean not just the scope one onsite emissions and the scope two emissions associated with purchased electricity, but also some key scope three issues, whether they're upstream or downstream, upstream meaning supply chain, downstream meaning the use and distribution of the product. How does Science-Based Targets define relevant? That was I think the key word you used.

Alberto Carillo Pineda:
In general, we make a distinction between what is usually known as operational emissions and certified emissions that are under direct control of the target-setting entity. And so this includes, for instance, emissions related to the operations and assets that the company owns and controls. And then also we consider indirect emissions, which are usually emissions that are influenced or enabled by the company, but that are occurring in assets that are not controlled by the company. an example of indirect emissions are for instance the use of electricity. Some companies generate electricity that they use, but most companies they source electricity from the grid or from a power producer. And so those are emissions that are definitely enabled to a certain extent by the company, but they are occurring in assets that are not owned or controlled by the company.

And so based on this, basically we have set requirements for those emissions that are under control of the company components emissions. And then for indirect emissions we have materiality thresholds. And if most emissions are happening already within scope one and scope two, then we don't require companies to set also scope three targets. But when scope three indirect emissions are relevant, then companies need to set scope three targets and those targets need to also include most of the emission sources, the value chain. And as you said, in some cases we are talking about emissions that are happening upstream related to the procurement of materials. And in some cases these emissions are really basically happening at the product use space. For instance, the use of vehicles or the combustion of fossil fuels. this will lead to different targets at the entity level, but they are based on common principles.

Mike Toffel:
Absolute reductions was the third. Now I imagine here you're distinguishing absolute reductions from intensity targets, intensity targets being, well, we're going to reduce our greenhouse gas emissions per unit sold or per revenue dollar for example, and absolute targets are, well no, we're going to reduce them by X tons, absolutely regardless of growth. And you're leaning into the absolute types of targets for science-based targets. Can you explain why that is?

Alberto Carillo Pineda:
We use a combination of metrics for different types of targets as an organization, our role is to incentivize environmental outcomes. And in this case, the environmental outcome that we are focusing on is reduction of greenhouse gas emissions at a pace that is consistent with conserving our carbon budget and limiting 1.5 degrees. For some of the most carbon intensive activities like for instance, power generation or cement production, we use physical intensity metrics that help us understand what is the level of performance and level of decarbonization that is compatible with this global carbon budget for that specific facility. And then there's also transformation targets. One way to catalyze transformation for companies in their supply chain is by aligning their procurement practices and by using their procurement power to then drive transformation in their supply chain and to incentivize their suppliers to also decarbonize at a pace that is consistent with our global chemicals. And so we also have these type of targets that are more action oriented and they're ultimately leading to the same outcome, which is decarbonization, but that basically are more appropriate for the type of activity that is covered

Mike Toffel:
Got it. So can you just help make those different types of targets a little more concrete by just giving a hypothetical example of one each of those types of targets?

Alberto Carillo Pineda:
Let me talk first about an impact target. So this would be, for instance, company X commits to reduce their operational emissions components scope two by 50 per site by 2030. So it's very clear the impact that is expected and the outcome of the targeting. Now an example of an intensity target would be company X is committed to reduce the intensity of cement production by 30% by 2030. So that is linked already to a specific activity. We also have for instance, targets where companies commit to source a hundred percent of their electricity needs from renewable sources. That's an action target. That first has the same impact, which is decarbonization of our power sources and then we have these transformation targets. And so an example of these is company X commits to procure X percent of all of their procurement from entities that are decarbonizing. And this is also relevant for instance, for financial institutions that also normally set targets to incentivize entities in their portfolio to decarbonize. And so the outcome eventually can also be translated in emission reductions.

But given that the direct link between the activity and the outcome is about incentivizing or transforming entities in our portfolio or the supply chain than the entities planned around that activity as opposed to the final outcome.

Mike Toffel:
Okay, great. That's super helpful to get some concrete examples. So the last two that you mentioned of the initial five areas were robust baselines and timeframe. And why don't we talk about those together since they're both about timing. What does it mean to have a robust baseline and an adequate timeframe?

Alberto Carillo Pineda:
Yes. So they are interlinked as you mentioned. There's also an additional aspect related to baseline, which is we incentivize companies to set targets based on a representative base year, which means, for instance, when we started, a lot of companies, especially early movers had targets that were for instance, linked to baseline in 1990. That was the unit that was used in the Kyoto protocol. But of course the reality of those companies in 1990 is very different to the reality of companies today, right? And so we try to use the most recent and most represented based year to ensure that the baseline can actually be based to assess progress over time.

And then the second element that we consider when assessing baselines is to make sure that the target is so that the base year is also robust, that for instance, companies don't use base year that is an abnormality because there were higher emissions in that year or lower emissions in that year. For instance, when we were at the peak of the COVID, there was slowed down at the global level and that basically brought down emissions at the corporate level. So that year is not representative, right? Or if a company underwent, for instance, a merger or a major acquisition last year, then the emission inventory that they had three years ago is no longer representative because the structure of the company is different, right?

And then of course the other element that is important here is to make sure that the inventory of emissions that companies use to set the target is also robust and credible, that basically all the material sources of emissions that we talked about are included in the base year in the baseline. And so this is the other element that we assess. And then in terms of timeframe, there are two aspects that are important to mention. The first one is the transformation and the transition that we are talking about, which, let's say emissions is a long-term goal. It's something that we need to accomplish by 2050 at the latest. It is not something that can be accomplished overnight. And so it's critical that a target companies set are consistent with this long term goal, but in order to contain emissions we need to incentivize action in the short term.

And so for instance, these carbon models that we talked about, they normally consider that emissions need to be reduced by around 45% by 2030 compared to emissions that we had in 2019 and in order to have the chances of limiting 1.5 degrees. And so that means that we cannot wait until 2035 or 2040 to start taking action. We take action today so that by 2030 emissions are already half of what we had a few years ago. And so this is another of the elements that we include in our criteria and most of the targets that companies share today with SBTI are for instance, planned around 2030.

Mike Toffel:
Got it. And so for that 2030, do they also have to meet intermediate goals between now and 2030, or do you not get that much into their details?

Alberto Carillo Pineda:
We conduct every year a progress assessment that we communicate through our progress report. But as an initiative, we are transforming and also evolving our model from an initiative that was focused on ambition. That was the main role of SBTI when we started, with standards that basically will assess not only ambition but also progress and performance. And so this will lead to the development of criteria and assessment of performance and progress throughout the entire target setting cycle. And so this is something that is part of the evolution of SBTI and of our transformation from an initiative to a standard.

Mike Toffel:
Got it. So one of the elements of achieving a net-zero target is the use of offsets because I think even the most ambitious and optimistic views of decarbonization suspect that getting all the carbon out of your through direct reductions in your operations and in your supply chain at the final, those last X percent are going to be enormously expensive relative to the ability of other sectors to do it. And so that creates these arbitrage opportunity of an offset. Yet there's lots of concerns about the robustness of offsets, everything from the permanence and the additionality and the trading terms, double counting, overestimation and so on. So while appealing, there's also a lot of cautionary notes around offsets. Where does the Science-Based Targets standard come out with offsets? Do they not allow them? Do they allow them to some extent? Do they have restrictions on the types of offsets? Or is that something you're leaving to the companies to decide?

Alberto Carillo Pineda:
The first point that I want to mention is offsets are normally used in a very broad sense. From a carbon cycle point of view we need to basically bring down emissions to zero or close to zero. So from a scientific point of view, what we're talking about, I would say more than offsets, this is about the removal of carbon from the atmosphere.

And so the SBT initiative standard considers that basically most activities need to be fully decarbonized, but we also acknowledge that some activities will have what is called receivable emissions. And those receivable emissions need to be counterbalanced with the removal of carbon from the atmosphere to prevent accumulation of emissions in the atmosphere on a net level. Now there's the second use of offsets, which is basically emission reduction projects that are typically financed by companies or other stakeholders, for instance, consumers, through the purchase of carbon credits. And I would say our position around the purchasing carbon credits is it supports decarbonization beyond the value chain of a company in addition to what they need to do to reduce their own emissions.

Mike Toffel:
So if a company has a Science-Based Target of 40% absolute reduction, they would be required in order to meet that, to actually take it out of their own value chain and not count as carbon credits from other value chains that they might purchase towards say half that? So they can't do 20% of their own and then another 20% by buying carbon credits unrelated to their value chain. Is that correct?

Alberto Carillo Pineda:
That's correct. The targets the companies set and that we assess are abatement targets of the activities that happen within the value chain of the company. So if the intervention is happening outside of the value chain for the company, it's something we encourage, we recommend, but that is not a substitute for a cut in emissions that need to happen within the value chain of the company.

Mike Toffel:
Okay, great. Super helpful. All right. So let me step up and ask a few questions about at the organizational level, because we've been talking about the technical aspects of the standard. When companies approach Science-Based Target Initiative and say we were interested in setting a target and they submit some documents to you and you discuss them with them, and then a target emerges, are they setting their own target and then you're approving it? Or are they saying, here's a bunch of data, what is our target that's going to be blessed by the Science-Based Target Initiative? How does that process unfold?

Alberto Carillo Pineda:
We set standards for climate target setting, and these standards basically summarize the requirements for entities to ensure that targeting is ambitious, that it covers the most material transformation, with interaction in the short term, et cetera. and then we also assess conformance against this standard. We don't provide advisory services or consulting services for these companies. In our engagement with entities what we do is assess the ambition of their targets or the integrity of their targets using the standards that are developed following our strict contact process.

Mike Toffel:
So the company reviews the standard, they develop their own target based on their best understanding of the standard, then they submit it for your assessment to see whether they in fact conformed with the standard, and if so, then you give it your seal of approval? And then they can call it, what's the language around that? They call it a certified science-based target or an accredited, how does that work?

Alberto Carillo Pineda:
We call it a validated target. Normally I would say companies work with consulting firms that help them model their targets, but also that help them understand how to implement those targets and create an action plan. Once they are confident about the target and their ability to deliver their target, then they present the target formulation to SBTI. We have target validation protocols to basically specify how we assess targets and all of these documents are public. And then we receive information from the entity itself that help us estimate conformance of the target proposed by the company against the standards set by SBTI.

Mike Toffel:
So how many organizations have a validated target?

Alberto Carillo Pineda:
So we have 2,800 companies with validated targets, and we have around 5,300 companies in total considering those that have already the targets validated. And those are in the process of developing either targets or having their targets assessed.

Mike Toffel:
Wow, so you're almost going to double the number of entities that have validated targets from nearly 3000 to nearly 5,500?

Alberto Carillo Pineda:
That's great because this is a testament of this transformation that is happening in the economy, but also it is insufficient compared to the level of transformation that we need to really meet the global carbon goals.

Mike Toffel:
Do you have a sense from organizations when they set a target, whether they know how they're going to get there? They do some analysis, they think, huh, is it feasible for us to achieve this science-based target? Okay, it is, now let's go declare it? Or are they doing this more as like a moonshot where they say, let's set this target and we'll, we know where to start, but we really don't know how we're going to do it, but we'll figure it out in the ensuing years? Do you have a sense of where the majority of these thousands of companies that are setting science-based targets lie in that continuum?

Alberto Carillo Pineda:
There's a good mix of companies. It depends on many factors including how risk averse companies are, the sectors where they operate, the jurisdictions where they operate. In the early days of SBTI, we had most companies being very brave about embracing this ambition that no one knew how to get there. We didn't have the level of, for instance, policy development and technologies and investment support that we have today. That's still the case in some jurisdictions and in some sectors. In other cases, we have entities that are setting targets because they are already seeing very, very imminent regulations happening in the jurisdictions where they operate because they have pressure from their shareholders, because they have pressure from their clients, their customers.

Mike Toffel:
Let's talk about the future. What's next for SBTI? What areas are you expanding into? What reviews are you doing based on your current standards? Just give us a glimpse into the future.

Alberto Carillo Pineda:
Well, I would say the most important, most exciting transformation for SBTI is this transition from an initiative towards standard. We started as an initiative powered and supported by the different NGOs and organizations working on the climate space. we became the practice standard by the level of adoption in the market. And now we're in the process of transforming our role from a de facto standard to a formal standard. And this brings actually a lot of strengthening in the model and the governance of SBTI, formalization of or strengthening of our technical governance, formalization of our standards setting procedures and this transition that I talked about from driving ambition in target setting to enable ambition, but also progress and performance

Mike Toffel:
And as you become a standard-setting organization, will you continue to do both the standard-setting and the assessment, or is that something that will split off as often occurs in some organizations as they mature? They separate the assessment from the development of the standards?

Alberto Carillo Pineda:
Well, this is something that we are exploring as part of these transformations. Our ambition is to operate as an establishing organization that basically conforms to best practice for standard-setting and certification bodies. And we are exploring what is the best model for SBTI, but definitely this ambition of operating in now with best practice for standard-setting organizations.

Mike Toffel:
Yep. Got it. That makes a lot of sense. So, final question that we tend to ask our guests is for some advice. Some of our listeners are considering careers in business and climate change or might already have careers, but are looking for other opportunities. Where do you see the opportunities arising and what advice do you have for folks who ask you about this?

Alberto Carillo Pineda:
Well, my first advice on this would be this is the most important transformation that our economy will go through in the next three decades. We are talking about the transformation in every sector, every activity of the economy. So we need all high job skills to support this transformation. Because of the pace at which the transition is happening, especially in the past two or three years, we observe a scarcity of professionals that are experienced in sustainability and climate change. So I think there are very interesting career opportunities for people that decide to pursue this path. And I would say it's also, of course, a career choice that not only brings opportunities, it also brings fulfillment. And so I would definitely encourage everyone that is interested in this topic to join this movement because we need all kinds in there.

Mike Toffel:
Great. Well, that's certainly inspiring words from you, Alberto, to close on. Well, thank you so much for joining us and sharing your journey and a lot of interesting details about the Science-Based Targets and the Science-based Targets initiative. It's been a real pleasure talking with you

Alberto Carillo Pineda:
It has been a pleasure for me and I look forward to future conversation.