Science-based targets: A guide for commodity traders

Published on May 17, 2022

Commodities

Science-based emissions reduction targets are fast becoming a business norm. More and more investors, customers and policymakers are calling for them and using them to judge a company’s ESG leadership. The number of businesses setting targets has skyrocketed (reaching over 3,000 as of May 2022), in response to the urgency and business case for climate action.

Targets aren’t just a signal of a company’s ambition. They work. Companies with science-based targets cut emissions by 29% from 2015-2019.

What is a science-based target?

A science-based target is an ambitious target to reduce greenhouse gas (GHG) emissions. The Science Based Targets initiative (SBTi) validates companies' and financial institutions' targets as science-based if they’re in line with decarbonizing at the pace and scale needed to meet the Paris Agreement.

Why should commodity traders set science-based targets?

The commodities industry is at the heart of the climate challenge, contributing to the majority of the world’s greenhouse gas (GHG) emissions.

As part of these high-emitting value chains, commodity traders need to set and work towards emissions reduction targets. This helps address the risks of disruption in the climate emergency (from stranded assets to carbon regulation) and helps respond to demands from trade finance providers and buyers.

How to set science-based targets

Commit: Commit to setting a target, via the SBTi website.
Develop: After committing, you’ll have 24 months to develop and submit your target to the SBTi for validation (see more below about developing your target, including measuring your emissions).
Submit: Submit your target to the SBTi for approval.
Communicate: If your target is approved as science-based, it will be published on the SBTi website, and you can publicize it on your own channels.
Disclose: You’ll be expected to report your annual progress against your targets, via CDP or your own public channels.

Rules for fossil fuel companies

It’s important for commodity traders to be aware that the SBTi currently doesn’t accept targets (or commitments to set targets) from the fossil fuel industry.

This applies to you if:

1.1 Your company has “any level of direct involvement in exploration, extraction, mining and/or production of oil, natural gas, coal or other fossil fuels, irrespective of percentage revenue generated by these activities, i.e. including, but not limited to, integrated oil and gas companies, integrated gas companies, exploration and production pure players, refining and marketing pure players, oil products distributors, gas distributors and retailers and traditional oil and gas service companies.”
1.2 Or your company is a subsidiary of “any companies that fall under 1.1.”

This doesn’t apply to you (you can currently join the SBTi and set a target) if:

2.1 Your company derives “less than 50% of revenue from a) sale, transmission and distribution of fossil fuels, or b) providing equipment or services to fossil fuel companies (see 1.1).”
2.2 Your company derives “less than 5% revenue from fossil fuel assets (e.g. coal mine, lignite mine, etc.) for extraction activities with commercial purposes.”
2.3 Or your company is an “electric utilities that mine coal for its own power generation.”

This rule will be in place until the SBTi releases a tailored target-setting method and guidance for the fossil fuel industry (the launch date hasn’t been announced yet).

Developing your target

At the Develop stage, you’ll need to start generating a target that's ambitious enough to be science-based:

Temperature: Your near-term (5-10 year) target needs to be aligned with limiting global temperature rise to 1.5°C? (Note: Prior to 15th July 2022, companies were able to choose to align with limiting temperature rise to well below 2°C instead)
Net zero: You'll need to decide whether you'll set a net-zero target (for 2050, 2040 or earlier)? See more below on the criteria for science-based net-zero targets.

The highest level of climate ambition is a 1.5°C, net-zero target.

To develop your target, you’ll need to choose a method (Sectoral Decarbonization Approach, Absolute Contraction, or Economic Intensity). Start by referring to the SBTi’s how-to guide for near-term targets, and the how-to guide for net-zero targets.

You’ll also need to calculate your emissions inventory (according to the GHG Protocol) to set your baseline. Include your direct operational emissions (scope 1), emissions from purchased energy (scope 2) and emissions in your supply chains (scope 3). CarbonChain’s software can help you save time and get accurate, comprehensive scope 3 calculations, which are the most challenging to obtain.

Targeting your supply chains

Your target itself should cover scopes 1, 2 and 3. This is essential for commodity traders: your biggest carbon hotspots and risks are more than likely in your supply chains.

Officially, companies only need to include scope 3 in their science-based targets if it accounts for 40% or more of their total emissions. The exception is companies involved in the sale or distribution of fossil fuels (they must set scope 3 targets for the use of sold products).

But, with the race to halve global emissions by 2030, action on scopes 1 and 2 alone is not enough. Corporate climate leaders know this; 96% of science-based targets currently include scope 3.

Your targets for your supply chain emissions can be either:

Absolute reduction targets. These should be 1.5°C-aligned, meaning at least 4.2% linear annual emissions reduction. However, a weaker ambition for scope 3 emissions is officially accepted (well-below 2°C, or 2.5% annual reductions).
Or: Supplier engagement targets. There are targets for your suppliers to set their own science-based targets).

See pages 20-36 of the SBTi Corporate Manual for full guidance on scope 3 targets. Keep in mind that the SBTi is reviewing its scope 3 criteria in 2022.

Any updates will likely be more, not less, stringent, despite the challenges of measuring and addressing supply chain emissions. We recommend commodity traders get ahead now, by getting accurate calculations and setting the most ambitious targets.

Net-zero targets: dos and don’ts

If your net-zero target isn't grounded in science, it can bring reputational risks. If you want your science-based target to be in line with net zero, you need to follow the SBTi’s new Net Zero Standard. The key principles are:

Deep, rapid emission cuts across your entire value chain (for most companies, this will be 90-95% decarbonization)
Near-term (5-10 year) targets to halve emissions by 2030, and reach close-to-zero by 2050 at the latest
Don’t make claims to be a net-zero company until those long-term targets are met
Take action beyond your value chain (e.g. make investments outside of your scopes 1-3 targets to tackle climate change)
Use permanent carbon removals to neutralize residual emissions - on average 0-10%
Offsets and other forms of removal mechanisms don’t count as progress towards science-based net-zero targets.

Build sustainable supply chains for the net-zero future

Save time and make your science-based targets more robust by letting CarbonChain calculate your scope 3 emissions — quickly and accurately.

As you work towards your target, CarbonChain's platform provides automated emissions tracking, so you can measure progress across your supply chain, review strategies, and share results with stakeholders.