A Review of Climate Science Based GHG Target Setting Methodologies for Companies

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Most companies are currently not setting the emissions targets necessary to meet the global goal of a 2⁰C temperature increase from pre-industrial levels. Science-based target setting methodologies attempt to quantify the “fair share” of emissions each company is responsible for reducing. This report compares different methodologies available for this purpose. It focus on three main approaches: linear reductions from base year to a pre-defined target (LEHRY); value added methods (GEVA and C-FACT); and the Sectoral Decarbonization Approach (SDA). The analysis consisted of comparing emissions reductions trajectories for different methodologies and sectors as well as case studies examining what company targets would be by applying these methodologies. The way emissions are allocated to the company level creates a number of issues regarding determining the appropriateness of targets and how progress towards those targets can be tracked. The science-based targets methodologies analyzed fell into two types: compression and convergence. LEHRY, GEVA and C-FACT use compression target methods, which define absolute emission reductions to companies based on generic 2⁰C pathways applied to all companies. The SDA uses both compression and convergence target setting. For sectors with homogenous activities it uses a convergence method which establishes convergence intensity pathways as a preliminary step to absolute emission targets. For sectors whose activities are heterogeneous, it uses a compression approach. The specific 2⁰C scenario used as an input parameter is highly relevant. GEVA and C-FACT use the same formula but different scenarios as the starting point. The SDA approach discriminates 2⁰C scenarios on a sector/activity level. This is likely to be more acceptable by energy-intensive industries as it should produce more realistically achievable targets for companies. This paper will inform decisions on changes to CDP climate change questionnaire to track and incentivize science-based targets starting in 2016.

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... They also independently validate targets set by companies, certifying them as correctly following prescribed methodologies ( To further entrench SBTs within private sector climate governance, in 2016 the CDP added SBT disclosures to its already vast climate disclosure questionnaire and scoring system (Faria & Labutong, 2015). As of June 2019, according to the SBTi website, 568 businesses globally have committed to setting an SBT through the SBTi platform, with 222 of those having a third-party-validated target in place. ...
... Three main approaches toward setting SBTs exist, the absolute-based approach, the economic-based approach, and the sector-based approach (see Faria and Labutong (2015) for a technical discussion of each). The first, absolute-based SBTs, is the most straightforward. ...
... To account for economic growth, scholars and practitioners have devised economic-based SBTs, viewed as more business friendly. Underlying this method is an apportioning of the remaining carbon budget under the 2 C warming scenario relative to a company's expected or anticipated future contributions to global gross domestic product (GDP) (Faria & Labutong, 2015, 2019. Two key methodologies comprise economic-based approaches, C-FACT, and GEVA (GHG emissions per unit value added). ...
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With the retreat of the United States from the Paris Climate Agreement, the campaign to enroll corporations and other private sector actors into the climate governing arena has accelerated. The tools used by such actors in addressing climate change are similarly expanding. While carbon footprints and carbon offsets have been previously underscored as the chief climate action tools to date, climate risk assessments and science‐based targets have been proposed as new quantitative tools to mobilize corporate action against climate change. This article presents a review of these two tools, arguing for more comprehensive and sustained scholarly investigation into each. Following overviews on the early developments of each tool, related academic research is considered in an effort to point toward future research priorities. These priorities emphasize generating empirical data around each tool's origins, diffusion, and impacts (social, economic, and environmental) so that more robust academic debates might occur on the role of science‐based targets and climate risk assessments in advancing effective polycentric climate governance. This article is categorized under: Social Status of Climate Change Knowledge > Knowledge and Practice Policy and Governance > Private Governance of Climate Change
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Climate change is a subject that has been largely addressed from both macroeconomic and energetic standpoints. Integration of climate variables and natural capital into the traditional economic framework can appear conflicting with the notion of infinitely growing economies exploiting finite resources, which questions the sustainability of neoclassic economic growth models. Moreover, the temporal dimension is of paramount importance and the integration of inter-temporal utility is not a trivial issue. The construction of complex general equilibrium models is a way to model the response of economic systems to shocks. Their use is somewhat limited because of their lack of transparency, computational scaling issues and non-equal attitudes toward uncertainty. If they are properly calibrated to model scenarios of interest, these models can however constitute an additional module for assisting short-and medium-term decisions. The dynamic integrated climate economy (DICE) seminal model of William Nordhaus allows to set an optimal global control trajectory with respect to a set of constraints and assumptions. Similar and more sophisticated macroeconomic models can provide the optimal allocation with respect to long-term constraints. The complexity of the academic literature might have clouded a rather simple question. Will we efficiently reduce the negatives implied by our economic activity or face the consequences? Consequently, the two aspects an investor wishes to assess is to what extent his portfolio contributes to the reduction of social and environmental negatives, and how it contributes to the improvement of global resiliency. The first dimension can be approached with integrated assessment models (IAMs) similar to the DICE, with clear and fair expression of trajectories required from each sector and region. The remaining pitfalls are to set commonly accepted abatement cost curves and to obtain full disclosure of the research and development investment dedicated to climate change and to set issuer-specific deviation from the optimal path. Similarly, commonly accepted accounting techniques are required to meet this goal. Regarding the second dimension and the question of adaptation, there is a lack of behavioral modeling and indicators of the resiliency dimension where huge uncertainty remains and will not be dealt without the consideration of the social dimension.
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Climate change mitigation scenarios are finding a wider set of users, including companies and financial institutions. Increased collaboration between scenario producers and these new communities will be mutually beneficial, educating companies and investors on climate risks while grounding climate science in real-world needs.
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This article reviews and assesses the outcome of the 21st Conference of the Parties (COP-21) to the United Nations Framework Convention on Climate Change (UNFCCC), held in Paris in December 2015. It argues that the Paris Agreement breaks new ground in international climate policy, by acknowledging the primacy of domestic politics in climate change and allowing countries to set their own level of ambition for climate change mitigation. It creates a framework for making voluntary pledges that can be compared and reviewed internationally, in the hope that global ambition can be increased through a process of ‘naming and shaming’. By sidestepping distributional conflicts, the Paris Agreement manages to remove one of the biggest barriers to international climate cooperation. It recognizes that none of the major powers can be forced into drastic emissions cuts. However, instead of leaving mitigation efforts to an entirely bottom-up logic, it embeds country pledges in an international system of climate accountability and a ‘ratchet mechanism’, thus offering the chance of more durable international cooperation. At the same time, it is far from clear whether the treaty can actually deliver on the urgent need to de-carbonize the global economy. The past record of climate policies suggests that governments have a tendency to express lofty aspirations but avoid tough decisions. For the Paris Agreement to make a difference, the new logic of ‘pledge and review’ will need to mobilize international and domestic pressure and generate political momentum behind more substantial climate policies worldwide. It matters, therefore, whether the Paris Agreement's new approach can be made to work.
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The Paris Agreement constitutes a political success in climate negotiations and traditional state diplomacy, and offers important implications for academic research. Based on participatory research, the article examines the political dynamics in Paris and highlights features of the process that help us understand the outcome. It describes battles on key contentious issues behind closed doors, provides a summary and evaluation of the new agreement, identifies political winners and losers, and offers theoretical explanations of the outcome. The analysis emphasizes process variables and underscores the role of persuasion, argumentation, and organizational strategy. Climate diplomacy succeeded because the international conversation during negotiations induced cognitive change. Persuasive arguments about the economic benefits of climate action altered preferences in favor of policy commitments at both national and international levels.
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Can firms deceive their stakeholders, by failing to deliver on their commitments to undertake sustainability practices without being detected? Extant theory posits that, due to information asymmetry, stakeholders struggle to comprehend the actual change in firms’ practices. In contrast, we advance a cognitive-linguistic perspective to explain why stakeholders are sometimes misled. Accordingly, we propose that firms’ deception does not appear in the content of their communication, but in its linguistic properties, which derive from how managers cognitively construe the sustainability challenge. Thus, firms cover the same points of content in their reports, but firms that practice what they preach use more complex styles of language than do firms that decouple their action from their statements. Moreover, we theorize that generalist stakeholders and stakeholders with conflicts of interest are unable to detect these linguistic nuances, whereas specialist stakeholders can. We find evidence for this cognitive-linguistic perspective in a textual analysis of grammatical structure in 261 interviews conducted in a large field study of 12 multinational corporations and their stakeholders. This lens advances our understanding of how firms deceive and how stakeholders can detect such deception and opens a new and promising avenue for research on firm-stakeholder relations.
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Climate change poses a significant threat to future social and economic activities. This article seeks to understand how corporations respond to climate uncertainties and threats through the performance of different ‘risks’, including market, reputational, regulatory and physical risks. In doing this, we demonstrate how these risks are performative and political. Based on interviews and document analysis, we show how climate change risks are naturalized within market conventions through processes of reiterating climate change as risk, codifying the risk in monetary value, entangling the risk in market conventions and cementing the frame through political activities. We also show how these risk frames have political effects in that they fail to fully account for, or represent, the complexities of climate change. Indeed, the social and natural consequences of climate change undermine the risk models that seek to explain and predict these events. The consequences of these ‘misfires’ highlight the political nature of risk frames in that their effects are unequally distributed among less powerful actors. Importantly, however, these misfires also have the potential to provide space for new interventions in responding to climate change.
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We investigate alternative hypotheses for a company’s choice for an intensity-only (carbon emissions relative to sales, production, etc.) versus an absolute carbon emissions goal. The hypotheses include: (1) a high growth firm hypothesis whereby high growth companies select an intensity goal, to continue to grow without an absolute emission reduction; (2) a high emissions industrial sector hypothesis where firms in industries with large carbon emissions prefer an intensity goal that is easier to reach; (3) a green window dressing hypothesis whereby firms tied to consumer acceptance select an easier to meet intensity target. Utilizing maximum likelihood logit regressions, we find a higher likelihood for firms with high growth potential, in high emission industries, and in the consumer eye to use easier to meet intensity versus absolute reduction goals. Firms with stronger brands, however, are associated with more transparent, absolute emission targets.
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How much must I reduce my greenhouse gas (GHG) emissions if I want to do my fair share to contribute towards the global effort to keep global warming below a 2 °C rise in average temperature over preindustrial times? This paper suggests an answer for nations and corporations that want to move ahead of legislation on a voluntary basis.If all nations reduce their “GHG emissions per unit of GDP” by 5% per year, global GHG emissions will be 50% lower in 2050 than in 2010 as long as the global economy continues to grow at its historical rate of 3.5% per year. The suggested 5% per year decline can be translated into a corporate resolution to reduce corporate “GHG emissions per unit of value added” (GEVA) by 5% per year.If all corporations cut their GEVA by 5% per year, the same global result will be achieved. The suggested 5% per year decline can be used as a guideline for responsible action on a voluntary basis. The guideline is unlikely to be made mandatory soon, but compulsory publication of the necessary emissions and productivity data by nations and corporations could help civil society highlight top performers.
Although the Paris Agreement's goals (1) are aligned with science (2) and can, in principle, be technically and economically achieved (3), alarming inconsistencies remain between science-based targets and national commitments. Despite progress during the 2016 Marrakech climate negotiations, long-term goals can be trumped by political short-termism. Following the Agreement, which became international law earlier than expected, several countries published mid-century decarbonization strategies, with more due soon. Model-based decarbonization assessments (4) and scenarios often struggle to capture transformative change and the dynamics associated with it: disruption, innovation, and nonlinear change in human behavior. For example, in just 2 years, China's coal use swung from 3.7% growth in 2013 to a decline of 3.7% in 2015 (5). To harness these dynamics and to calibrate for short-term realpolitik, we propose framing the decarbonization challenge in terms of a global decadal roadmap based on a simple heuristic—a “carbon law”—of halving gross anthropogenic carbon-dioxide (CO2) emissions every decade. Complemented by immediately instigated, scalable carbon removal and efforts to ramp down land-use CO2 emissions, this can lead to net-zero emissions around mid-century, a path necessary to limit warming to well below 2°C.
Transnational climate actions have come to constitute a distinguishable sphere of climate governance. Reflecting on the Paris outcome, this article discusses the role of non-State and subnational actors – especially on the road to the Paris climate change conference. It argues that the intergovernmental and transnational spheres of global climate governance could mutually reinforce each other by continuing mobilization efforts to engage non-State actors and by harnessing greater ambition, both from State and non-State actors. For such mutual reinforcement to take effect, however, the United Nations Framework Convention on Climate Change should engage non-State actors consistently and systematically. The article also argues that the Paris outcome and, above all, the building blocks that are part of the decision on enhancing pre-2020 action, constitute the most comprehensive framework of non-State engagement yet, offering a promising basis for mutual reinforcement of the intergovernmental and transnational spheres of global climate governance.
The 2015 Paris Climate summit consolidated the transition of the climate regime from a "regulatory" to a "catalytic and facilitative" model. A key component of this shift was the intergovernmental regime’s embrace of climate action by sub- and nonstate actors. Although a groundswell of transnational climate action has been growing over time, the Paris Agreement seeks to bring this phenomenon into the heart of the new climate regime. This forum article describes that transition and considers its implications.
Corporate climate action is increasingly considered important in driving the transition towards a low-carbon economy. For this, it is critical to ensure translation of global goals to greenhouse-gas (GHG) emissions reduction targets at company level. At the moment, however, there is a lack of clear methods to derive consistent corporate target setting that keeps cumulative corporate GHG emissions within a specific carbon budget (for example, 550-1,300GtCO2 between 2011 and 2050 for the 2°C target). Here we propose a method for corporate emissions target setting that derives carbon intensity pathways for companies based on sectoral pathways from existing mitigation scenarios: the Sectoral Decarbonization Approach (SDA). These company targets take activity growth and initial performance into account. Next to target setting on company level, the SDA can be used by companies, policymakers, investors or other stakeholders as a benchmark for tracking corporate climate performance and actions, providing a mechanism for corporate accountability.
: Targets are an integral component of management control systems and play a significant role in achieving desirable performance outcomes. We focus on a key environmental performance objective—reduction of carbon emissions—as a setting in which to examine how target difficulty affects the degree of target completion in long-term non-financial performance. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) and find that firms setting more difficult targets complete a higher percentage of such targets. We also find that this effect is negatively moderated by the provision of monetary incentives. We corroborate this evidence by showing that target difficulty is more effective for carbon reduction projects requiring more novel knowledge and in high-pollution industries. We discuss limitations and suggest avenues for future research.
The commentary by Schendler and Trexler (2015) strikes us as an intriguing paradox. Schendler and Trexler see responses to the threat of global climate change beginning to move forward in the corporate world, but they fear these corporate initiatives will be a distraction from what is ultimately required. They emphasize the need for “greater government intervention.” An earlier text by Schendler and Toffel (2013) notes, and we agree, that “we're failing to deal with the problem at anywhere near sufficient scale.” But we feel that the article by Schendler and Trexler does not adequately acknowledge the importance of these corporate efforts as elements of initiation and leadership. Schendler and Trexler express the impatience that many of us feel regarding the continued failure of political progress at the national and international levels. But they do not embrace the thoughts attributed to the sixth century B.C. Chinese philosopher Lao Tzu: “A journey of a thousand miles begins with a single step.” They fail to acknowledge that, in democratic governments, there is the need for grass-roots support in order to develop and implement effective policy. Rather than distractions, individual and corporate efforts are generally necessary prerequisites for implementation of and receptiveness to government action.
A new kind of climate politics is emerging, as national actions prove insufficient to address the changing climate. Subnational actors [mdash] ranging from provinces and cities, to civil sector organizations and private companies [mdash] are acting alongside nation states, making up for lost ground and missed opportunities.
We advance a multilevel argument that challenges and qualifies existing explanations of firms' responses to institutional pressures. In an in-depth study of 17 multinational corporations involving 359 interviews with internal and external actors, we find that firms facing identical pressures decouple policy from practice in different ways and for different reasons. When firms' responses are generated locally, without firmwide coordination, these responses can be either intentional or emergent. In the presence of information asymmetry between firms and their stakeholders, we find that managers' responses are intentional ("faking it") and depend on how they perceive their interests. In the presence of competing stakeholder expectations, responses are emergent ("muddling through") and depend on the degree of consensus among managers in their readings of the environment. These findings suggest that theories of decoupling need to be broadened to include the role of "muddling through" and the interplay of internal managerial and external stakeholder dynamics.
Carbon emission trading is an effective measure to reduce greenhouse gas emissions worldwide. China has publicized plans to initiate the demonstration of carbon emission trading in seven regions as of 2013. Initial allocation is fundamental, but it proposes difficulty in the mechanism design of the carbon emission trading system. Benchmark, grandfathering and the Shapley value have been employed to simulate a specific case, which consists of the initial allocation of carbon emission allowances of three power plants in Shanghai, China. The results of the Shapley value are regarded as a theoretical equitable reference. The results of benchmark are similar to those of the Shapley value. However, it is apparent that the allocation regarding grandfathering is inequitable. Considering other factors, we proposed the following: At the introduction of experimental stage, free allocation pertaining to grandfathering can be adopted; meanwhile, benchmark should be prepared and adopted at the appropriate time. Furthermore, a portion of the initial allowances can be reserved for auction, and this portion for auction will escalate to the extent of 100% upon entering the formal stage. In addition, the tiered price mechanism and the subsidy policy are also suggested.
Energy management and carbon accounting schemes are increasingly being adopted as a corporate response to climate change. These schemes often demand the setting of ambitious targets for the reduction of corporate greenhouse gas emissions. However, only limited empirical insight is available regarding the companies’ target-setting process and the auditing practice of certification agencies that evaluate ambition levels of greenhouse gas reduction targets. We studied the target-setting process of firms participating in the CO2 Performance Ladder. The CO2 Performance Ladder is a new certifiable scheme for energy management and carbon accounting that is used as a tool for green public procurement in the Netherlands. This study aimed at answering the question ‘To what extent does the current target-setting process in the CO2 Performance Ladder lead to ambitious CO2 emission reduction goals?’. An exploratory research design was used as the main research approach for this study. Data were collected through interviews with relevant stakeholders (companies, consultants, auditors and scheme owner), document reviews of the certification scheme, and monitoring reports. The research findings indicated that several certification requirements for setting CO2 emission reduction targets were interpreted differently by the various actors. Conformity checks by the auditors did not always include a full assessment of all certification requirements because of the lack of well-defined assessment criteria. The research results also indicated that corporate CO2 emission reduction targets were not ambitious. The analysis of the target-setting process revealed that there was a semi-structured bottom-up auditing practice for evaluating the corporate CO2 emission reduction targets, but the final assessments of whether target levels were sufficiently ambitious were not very well defined. The main conclusion is that the current target-setting process in the CO2 Performance Ladder did not necessarily lead to the establishment of the most ambitious goals for CO2 emission reduction. Other approaches for setting target levels, such as minimum performance levels, must be considered to maintain the CO2 Performance Ladder as a valid tool for green public procurement.
Twenty-one coherent major initiatives could together stimulate sufficient reductions by 2020 to bridge the global greenhouse-gas emissions gap.
{textlessptextgreatertextless}br/textgreaterThe 20th anniversary issue of Global Environmental Change provides an important opportunity to address the core questions involved in addressing "global environmental" problems--especially those related to climate change. Climate change is a global collective-action problem since all of us face the likelihood of extremely adverse outcomes that could be reduced if many participants take expensive actions. Conventional collective-action theory predicts that these problems will not be solved unless an external authority determines appropriate actions to be taken, monitors behavior, and imposes sanctions. Debating about global efforts to solve climate-change problems, however, has yet not led to an effective global treaty. Fortunately, many activities can be undertaken by multiple units at diverse scales that cumulatively make a difference. I argue that instead of focusing only on global efforts (which are indeed a necessary part of the long-term solution), it is better to encourage polycentric efforts to reduce the risks associated with the emission of greenhouse gases. Polycentric approaches facilitate achieving benefits at multiple scales as well as experimentation and learning from experience with diverse policies.textless/ptextgreater
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