Experts open up discussions on fair distribution of remaining global carbon budget.
A former advisor has accused the Science-Based Targets initiative (SBTi) of not living up to its ethical duty when choosing the target-setting methodology which defines the carbon-emission plans of participating companies.
Bill Baue, one of the instigators of the SBTi who served until recently as a member of its technical advisory group, explained: “Structurally, the public grants SBTi a ‘licence-to-operate’, trusting in its good-faith role of de facto standard setter for corporate and city GHG emissions targets in line with climate science.
“This essentially creates an ethical obligation for SBTi to operate impartially in the best interests of society — which includes to provide guidance on various target-setting methodologies,” he said.
His comments to ESG Investor came after he had issued a formal complaint to the organisation in February.
Baue decided to go public after the SBTi did not react to his informal requests for transparency around its methodology recommendations. He also saw his claim supported by new scientific evidence.
A research study, published in the scientific journal Environmental Research Letters in February, examined seven methods for science-based target setting.
It showed in particular advantages of one methodology which the SBTi has dropped from its recommendation list.
The SBTi is a partnership between CDP, the UN Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) and guides companies with science-based target setting to decarbonise their operations. Over 1,000 companies in 60 nations are working with the SBTi to reduce their emissions.
It now recommends companies to use two methods it has co-created itself, which Baue believes is a sign of its bias.
SBTi explained to ESG Investor that it takes its “methodological decisions very seriously and engages in extensive consultations to develop and update them”.
In response to Baue’s complaint, the SBTi wrote in a letter that “the reasoning behind the accusation of ‘self-dealing and conflict of interests’ is difficult for us to follow.
“Neither the SBTi nor its partner organisations derive any benefits from the use of either the Absolute Contraction Approach (ACA) or the Sectoral Decarbonisation Approach (SDA). Both methods are completely open-source.”
Flexibility and allocation principles
One major difference between the models that Baue and SBTi favour is the way they treat changes in emission trajectories.
The Context-Based Carbon Metric of the Centre for Sustainable Organisations (CSO) model is broadly able to flexibly adjust to a higher- or lower-than-expected pathway while still reaching the final warming target.
The research study wrote: “The CSO tool allows for adjustment of SBTs if the company does not follow its original SBT pathway, so that the originally calculated cumulative SBT remains fixed.”
Baue explained that the CSO model recalculates company emissions annually and also “snaps” it to the available global carbon budget every year.
Additionally, the CSO metric now applies an “equity tilt” that grants companies operating in non-OECD nations a larger slice of the carbon budget than companies operating in OECD countries (which bear greater responsibility for climate change), Baue told ESG Investor.
One of SBTi’s favoured methodologies, the ACA model, is static and calculates a linear pathway with fixed percentage reductions to reach the Paris goal – regardless of changes in the real world.
Due to the ACA model’s ‘straight line’ pathway, a modelling test in the scientific research study showed that it has led to companies undershoot the carbon budget in the near term but overshoot it in the longer term and overall.
Concerns over emission imbalance should favour a choice between the CSO and SDA methods, rather than ACA and SDA, the research said.
Currently, the SDA method has not been updated to a 1.5 °C warming scenario and its targets are a work-in-progress.
The 2° Investing Initiative (2DII), a non-profit think tank, exited a project partnership with the SBTi last year, after the initiative opted against its recommended approach to assess real-world decarbonisation instead of portfolio decarbonisation only.
The Steering Committee of the SBTi commented: “Under the ACA approach, companies set 5-15-year targets to reduce their absolute emissions in line with the absolute emission reductions that must be delivered on a global level.
“It is the responsibility of each individual company to make these emissions reductions and the SBTi requires companies to transparently report their progress against these targets on an annual basis.”
Economic intensity
Opinions also diverge on whether ‘economic intensity’ could be a reason to opt for the ACA model.
The SBTi argues that the ACA model is superior to the CSO model because it more robustly leads to absolute emissions reductions.
In its analysis, the SBTi Steering Committee found that “assessing targets using economic allocation and intensity methods (like the CSO method) revealed that they can often lead to high absolute increases in emissions when used by fast-growing companies and therefore don’t support the goals of the initiative”.
“We believe this is not consistent with a sustainable and equitable transition towards a low-carbon economy,” it said.
“Economic intensity indicators (e.g. tonne of CO2/profit) are subject to a number of variables that can lead to apparent changes in a company’s carbon intensity that have nothing to do with its environmental performance, but rather with extrinsic factors like fluctuation of commodity prices, inflation, or changes in the relative contribution of different business activities to a company’s bottom line,” SBTi explained.
Baue believes that the SBTi misapplies the term economic intensity.
The CSO model recalibrates (or snaps) company and global economic and emissions data annually, which allows companies that grow year-on-year to receive a greater ‘slice of the pie’ commensurate with their greater activity, he explained.
“Context-based metrics blend absolute measures (i.e. they require absolute emissions reductions in line with the science) while also allocating the overall carbon budget using a ratio approach that is along the lines of these other intensity approaches, such as emissions per dollar of revenue,” Baue said.
He disagrees in particular with the ACA model for front- and backloading emission imbalances until the target year 2050.
The SBTi commented: “If the authors [of the research study] had used the correct ACA formula, [it] would have received a more favourable emission imbalance score that does not exceed the desired emissions budget.”
The initiative also said that it is “committed to continuously refining its application of methods to reflect the best science and practice available”.
ESG Investor has learned that SBTi will clarify its views on its recommended models in an upcoming scientific article.
