How to get the most out of your Science Based Target (SBT)

What is competitive sustainability?

Put simply, it is a company's ability to compete and succeed relative to peers as part of its transition to a sustainable economy. Achieving net-zero emissions is at the heart of it, a goal which requires a competitive emission reduction pathway. In this blog we want to show you how to make the most out of going down this pathway with a science-based target (SBT) and how to embrace climate action as a competitive opportunity.

The understanding that climate action is an essential component of competitive sustainability has grown at an extraordinary pace, and recently we have seen many companies eager to announce ambitious climate targets. Unfortunately, many of these companies fail to set interim science-based emissions targets. South Pole's recent report on the state of Net Zero commitments found that only 11% of companies with a net zero target back it up with an SBT. Making bold commitments without the scientific basis to back them up not only increases the chance that a company won't meet its net zero goal, but also exposes a company to criticism for talking the talk but not walking the walk. Only with true science-based climate action is a company putting itself on the right track. This means climate action which follows the polluter-pays-principle and takes into account the fact that the world only has one carbon budget.

The Science-Based Targets initiative (SBTi) puts this logic in practice by helping companies formulate and deploy medium- to long-term emissions reduction targets that are in line with what is needed to limit global warming to well-below 2°C or 1.5°C. Here is a practical guide to get most out of your science-based climate action and use your SBT on your path towards competitive sustainability.

Turn climate action into a competitive advantage

Setting an SBT is in itself only the first step towards using climate action as an instrument for growth. For many companies, SBTs are still only viewed as a “nice-to-have." In reality, making a strong business case for having an SBT is about adapting your organization to doing business in line with climate science, taking advantage of emerging opportunities, and thriving because of it. Every company is on its own journey to identify and promote its sustainability USP in order to increase its competitive position in the market. For companies that embark on such a journey, they are offered a window of opportunity to be part of the 'smart frontrunners' that leverage their climate action to boost their competitive advantage.

There are myriad opportunities that an SBT can unlock:

• Business generation and client confidence: Clients and suppliers have a growing appetite for partners with a future-proof business model. The current pandemic has placed a greater premium on resilience. Adopting an SBT helps a company demonstrate impact in bidding and procurement processes, drives investor trust, and empowers supply partners to reduce their scope 3 emissions. In short, it brings financial co-benefits and enhanced client and supplier relations.
• Resilience against regulation: Companies that take science-based climate action are less exposed to regulatory risk, as they are aligned with high ambition. Governments are implementing measures to meet the goals set in the Paris Agreement, European Green Deal, and national energy and climate plans. Companies can prepare themselves for compliance with the host of upcoming regulations by setting an SBT. Acting on the precautionary principle can not only insulate from shocks, but in this case can also allow companies to estimate savings from avoided compliance costs and use these savings for investments in other strategic areas.
• Improve brand reputation and competitiveness: SBTs incentivise innovation and improve efficiencies, which in turn boost brand reputation and contribute to outperforming peers. A responsible and resilient company will also attract talent more effectively, while cost savings can be realised from efficiencies and the transition to new business models. Reputation benefits as a sustainability leader can also lead to enhanced business development.

Locking in long-term competitiveness

So when should a company start its SBT journey? It is time to start thinking about setting a SBT once a company has both accepted the inherent need for science-based climate action and started planning its decarbonisation pathway. At this point it becomes vitally important to ask a few fundamental questions before committing to an SBT in order to start off on the right track. Addressing the following five topics will help a company understand how to make the most out of its SBT:

• Materiality: How do my stakeholders value science-based climate action, did my company receive requests to disclose data, disclose targets and reduction initiatives from investors, partners or supply chain partners, and how do I measure the importance as time goes by relative to other topics?
• Compliance: What new regulatory obligations are coming my way, are there financial risks of inaction, and how can science-based climate action help prepare for new obligations to be a step ahead of competitors?
• Baseline: Is my business model aligned with the Paris Agreement, and if so, with which climate change scenarios?
• Optionality: What impact do different decarbonisation pathways have on my bottom line in the short, medium, and long term?
• Strategy: What do the answers to all of the above imply for my long-term sustainability strategy in terms of ambition, duration, and return-on-investment calculus?

By answering these fundamental questions, a company can find its own unique path to a successful and beneficial integration of sustainability into its business model. As a north star for any business strategy, the SBT can be broken down into internal targets and governance processes in order to achieve the optimal outcome: a resilient business model that guarantees competitive sustainability.

Does it all seem a bit daunting? To start, it is really simply a matter of just getting going. You will only discover your specific challenges and uncover the opportunities once you begin your climate journey. Once you have started, it is important to gradually bring your actions in line with climate science, ensuring that the effort you invest is proportional to your impact.

Once your target is set and you have begun your journey, implementing your SBT and institutionalizing it in the core of your business is the next step. For any company serious about climate action, this is all part of achieving sustainable competitiveness, in itself a prerequisite for success in the marketplace of tomorrow.