Companies can set science-based climate targets to prepare for risks and opportunities from climate change. The new Sectoral Decarbonization Approach (SDA) methodology divides the remaining global carbon budget between sectors based on their mitigation potential. It then sets targets for companies based on their sector's emissions trajectory. Over 100 major companies have already committed to setting science-based targets using this approach.

1. 15 March 2016
Forward-looking companies
set science-based targets
Climate targets based on long-term global trends and
science will prepare better for risks and enable to
proactively respond to future opportunities
©flickr/theredmission

2. © ECOFYS & SITRA | |
SITRA foreword
Climate change and global warming are among the most severe challenges facing
humanity. In order to prevent further climate change, greenhouse gas emissions need to
be reduced in ways that are economically viable. For this, industry leaders need valid
methods to create a long-term vision towards a carbon-neutral future.
Sitra wants to help Finnish industries in improving their strategic competitiveness and
in finding their path to carbon neutrality. Sitra provides them with facts, methods and
models to be used in the transformation. We find that setting company and sectoral
emission reduction targets based on science, provides companies an effective tool to show
their leadership and to integrate emission reduction into business development.
Sitra commissioned Ecofys to describe the science-based targets methodology and to
provide information about the process. This report explains why and how companies can
set their own science-based emission reduction targets and show the benefits at company
level. In connection to this report, two leading Finnish companies have demonstrated, how
the process works and what kind of benefits they have gained by setting science-based
targets.
215 March 2016 Science-based targets

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This report highlights why and how companies can set science-
based targets and benefit from the opportunities
Companies with a
long-term vision based
on global trends and
climate science can
prepare better for
risks and benefit from
future opportunities
Improving a
company’s long-term
vision starts with
setting science-based
targets by allocating
the global carbon
budget in a fair and
transparent way to
the company
The newest and most
specific science-based
targets methodology
is the Sectoral
Decarbonization
Approach (SDA)
developed by CDP,
WRI, WWF
and consultancy
partner Ecofys
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• Increase credibility
• Demonstrate leadership
• Outperform sector peers
• Long-term guidance to
steer
• Save money and
increase competitiveness
• Insight in required
transformations and
position for policy
regulations
Introduction
New science-based
targets methodology
Benefits of science-
based targets
Long-term vision
and targets
At the COP21 in Paris (2015) 195 countries made the binding agreement to limit global warming well below
2 °C and to pursue efforts to limit the temperature increase to 1.5 °C, which means taking actions sooner,
faster and bigger. The Paris Agreement will lead to robust policy frameworks and huge flows of climate finance
to drive the massive transformation in all sectors, creating risks and opportunities for companies.
Allocating global
carbon budget
Science-based targets are targets to reduce Greenhouse Gas (GHG) emissions in line with
the level of decarbonisation required to keep global warming well below 2 °C. This report
highlights why and how companies can set science-based targets and is structured
according to the following chapters.
15 March 2016 Science-based targets

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COP21 raised the sense of urgency
Picture
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©iisd
15 March 2016 Science-based targets

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At the COP21, 195 countries made the binding agreement to limit
global warming well below 2 °C and pursue efforts towards 1.5 °C
> Global absolute Greenhouse Gas (GHG)
emissions are still increasing, more mitigation
actions are needed to limit global warming well
below 2 °C and to prevent catastrophic impacts
of climate change.
> Staying well below 2 °C implies net zero CO2
emissions around 2070. Pursuing efforts
towards 1.5 °C even means net zero CO2
emissions around 2050.
> Staying within the 1.5 °C temperature increase
implies decisions very similar to the ones
needed for a 2 °C pathway, but they need to be
taken sooner (early action), achieve their
targets faster (net zero by 2050) and scale it
bigger (more reductions; more negative
emissions after 2050).
5
Source: adapted from Rogelj et al., 2015
Assessment of scientific
mitigation scenarios
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The Paris Agreement will lead to robust policy frameworks and
huge flows of climate finance to drive the massive transformation
The massive transformation of all sectors creates risks and opportunities for companies.
6
Risks Opportunities
Companies with a long-term vision based on global trends and climate science
can better prepare for risks and benefit from future opportunities.
>Globally fragmented and non-uniform
energy and climate policies
>Increasing prices for purchased goods
and services
>Increasing production costs
>Increasing pressure from
shareholders, value chain partners
and NGOs
>Changing demand patterns for
materials and products
>Policies supporting the transformation
towards a low carbon society
>Increasing financial flows for climate
solutions
>Large uptake of low carbon
technologies and solutions
>Market growth of products and
services in a circular and sharing
economy
>Various platforms and events to show
leadership
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Long-term vision and targets
Picture
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©flickr/lee-yoshi
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Companies that want to prepare for risks and to benefit from
future opportunities, set science-based targets
Current target setting practices Science-based target setting practices
To support companies in setting science-based targets and to make this a common
business practice, CDP, UN Global Compact, World Resources Institute (WRI) and
WWF have launched:
Science Based Targets initiative
www.sciencebasedtargets.org
Current target setting practices Science-based target setting
> 81 percent of the Global 500
companies have targets
> Companies have difficulties setting
credible and sustainable emission
reduction targets
> Common target setting practices:
 Bottom-up targets (focus on
incremental change)
 Targets based on peers
 Not aligned with science
 No full coverage of companies’
emissions
 Short-term
Source: Mindthescience.sciencebasedtargets.org, 2015
> A long-term vision based on global
trends and climate science
> Targets aligned with global growth
of population and wealth and with
the Paris Agreement to keep
global warming well below 2 °C
> Targets which allow for decoupling
of emissions from economic
growth
> Long-term instead of short-term
targets
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Over 100 companies have already committed to setting
science-based targets
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Amongst others:
Americas
• Avery Dennison
• BanColombia SA
• Coca-Cola Ent., Inc.
• Colgate Palmolive
Company
• Dell Inc.
• General Mills Inc.
• Hewlett-Packard
• Kellogg Company
• Mars
• Novex Delivery
Solutions
• Procter & Gamble Co.
• Pfizer
• Walmart
• Xerox Co.
Europe
• Acciona S.A.
• Alpro
• Atos SE
• AXA Group
• BillerudKorsnäs
• BT Group
• Carrefour
• Correos (Grupo Sepi)
• Danone
• Enel
• Energias de Portugal
• Intern. Post Co.
• Gas Natural Fenosa
• GlaxoSmithKline
• H&M AB
Asia
• Aditya Birla
Chemicals
• ASICS
• China Steel Co.
• CLP Holdings
• Delta electronics
• Honda Motor
Company
• Konica Minolta
• Sony Co.
• Toyota Motor Co.
• Yingli Solar
Oceania
• Infigen Energy
• Bank Australia
• Australian Ethical
Investment
Africa
• Pick ‘n Pay Stores
• Safaricom Ltd.
• Tiger Brands
• Woolworths Holdings
• ICA Gruppen
• IKEA
• Kingfisher
• L’Oréal
• Nestlé
• Novartis
• Panalpina
• PUMA
• Pukka Herbs
• Renault
• Royal Philips
• Sofidel
• Stora Enso
• TAV Airports
• Unilever
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The remaining global carbon budget needs to be divided in a
fair and transparent way
Picture
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©flickr/conanil
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Limiting global warming to well below 2 °C corresponds with a
remaining global carbon budget of 1,000 GtCO2
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> According to the IPCC, approximately 1,000 Gigatonnes (Gt) of carbon dioxide (CO2)
remain to be emitted in order to keep global warming well below 2 °C (=global carbon
budget, the green surface in the graph)2.
> This remaining global carbon budget should be allocated over the companies in a fair
and transparent way.
2 The global carbon budget is expressed in only CO2 emissions, since the increase of global CO2 is the main contributor to global GHG emissions rise. However, in
determining the global carbon budget the reduction of non-CO2 emissions are taken into account as well.
0
10
20
30
40
50
60
70
80
90
100
2010 2020 2030 2040 2050
Annualgreenhousegas
emissions(GtCO2eq/yr)
Non-CO2 emissions
CO2 emissions
BAU
Global carbon budget
Non-CO2 emissions
CO2 emissions
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How to correlate the global carbon budget with corporate
carbon accounting and targets
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Source: Greenhouse Gas Protocol, 2011
According to Greenhous Gas Protocol Corporate Value Chain Accounting and Reporting Standard:
• Scope 1 emissions are the direct emissions from sources that are owned or controlled by the company (including emissions from fleet)
• Scope 2 emissions are the indirect emissions of a company from the generation of purchased or acquired electricity, steam, heating, or
cooling
consumed by the company
• Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including
both upstream and downstream emissions
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In the past, two methodologies have been used for allocation of
the global carbon budget to a company
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0
10
20
30
40
50
60
2010 2015 2020 2025 2030 2035 2040 2045 2050
GtCO2e
Global 2 °C scenario
ABSOLUTE REDUCTION1 ECONOMIC ALLOCATION2
Target calculation: each company reduces its
absolute emissions with the same percentage as
in global/regional 2 °C pathway or linear
reduction per year (-1.5 percent per year)
Name of method: C-Fact and The 3% Solutions
Applied by: Mars, Autodesk
0%
50%
100%
150%
200%
250%
300%
350%
400%
0
10
20
30
40
50
60
2010 2015 2020 2025 2030 2035 2040 2045 2050
GDPgrowth
GtCO2e/US$valueadded
Global 2 °C scenario
GHG (GtCO2eq)
GHG intensity (GtCO2eq / GDP contribution)
GDP index
Target calculation: each company reduces its
emission intensity (CO2eq/value added value or
gross profit) with the same percentage as the
reduction of global/regional emission intensity
(-5% per year, expressed in CO2eq/GDP)
Name of method: GEVA, CSO, CSI
Applied by: BT, Ben & Jerry’s
Main disadvantage of these methodologies is that they do not take into account the differences
between sectors/companies in growth and emission reduction potential. Therefore Sectoral
Decarbonization Approach has been developed.
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Sectoral Decarbonization Approach:
the new science-based targets methodology
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©sxc.hu
15 March 2016 Science-based targets

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The new methodology was developed to translate the global
carbon budget to company targets, based on a sectoral approach
For the Science Based Targets initiative a new
methodology, called the Sectoral Decarbonization
Approach (SDA) was developed.
There are several reasons why to use the SDA:
> SDA was developed with CDP, WRI and WWF with
technical support from Ecofys, and is the most recent
and most detailed method
> SDA is transparent, well documented, reviewed
through an extensive stakeholder consultation
process and published in Nature Climate Change
> SDA takes into account sectoral differences (i.e.
differences in mitigation potential, mitigation costs
and growth)
> SDA is the only method that differentiates between
Scope 1 and Scope 2
> SDA will be refined and updated on regular basis and
more and more sector-specific decarbonization
pathways will be added over time (like for
agricultural commodities, freight transport etc.)
Source: www.sciencebasedtargets.org, 2014/2015
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The SDA methodology is based on a least-cost modelled 2 °C
scenario of International Energy Agency (IEA 2DS)
> The SDA methodology combines sectoral emissions pathways with sectoral activity
projections from IEA 2DS to construct sectoral intensity pathways for homogeneous
sectors, i.e. power, cement, iron and steel, aluminum, pulp and paper, service buildings,
and passenger transport.
> For three heterogeneous sectors physical allocation is not possible, and absolute reduction
is used to allocate the remainder of the carbon budget. Heterogeneous sectors are
chemical and petrochemicals, other industry and other transport.
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0
5
10
15
20
25
30
35
2010 2020 2030 2040 2050
DirectCO2emissions(GtCO2)
Sectoral breakdown of global carbon budget
Service buildings
Other transport
Aviation passenger transport
Rail passenger transport
Heavy road passenger transport
Light road passenger transport
Other industry
Pulp and paper
Chemicals and petrochemicals
Aluminium
Iron and steel
Cement
Power generation
(Source: modified by Ecofys based on IEA, 2014)
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The SDA methodology uses physical allocation for homogeneous
sectors and absolute allocation for heterogeneous sectors
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Homogeneous sectors
Heterogeneous sectors
Physical allocation:
The SDA methodology assumes that
the carbon intensity for the
companies in all homogeneous
sectors tends to converge in 2050.
The rate of convergence depends on
the difference between the carbon
intensity of the company and the
2 ºC carbon intensity of the sector in
2050 and the predicted change in
market share of the company.
Absolute allocation:
For heterogeneous sectors, the SDA
methodology is based on the
compression of absolute emissions,
which means that the absolute
emissions of all companies in the
sector will be reduced by the same
percentages as the sector in the
target year.
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In the SDA, each activity of a company is allocated to one of
the SDA sectors to define the intensity and absolute targets
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Activities and footprint
company X3:
A. Offices: … m2
Scope 1+2 … tCO2
B. Manufacturing
Scope 1+2 … tCO2
SDA sectors:
Service buildings
Other industry
Allocation method and
indicators:
Physical allocation
CO2/m2
Absolute allocation
ktCO2
A. Offices
0
2
4
6
8
10
2010 2020 2030 2040 2050
CO2/m2
Company Sector
0
2
4
6
8
10
2010 2020 2030 2040 2050
ktCO2
Company
B. Manufacturing
-
2
4
6
8
10
12
14
16
2010 Target 2020 Target 2050
ktonCO2e
Absolute emission targets
Scope 1+2 Offices Scope 1+2 Manufacturing
-20%
-90%
3 According to GHG Protocol:
Scope 1 emissions are the direct (on-site) emissions from sources that are owned or controlled by the company (including emissions from own fleet)
Scope 2 emissions are the indirect emissions of a company’s from the generation of purchased or acquired electricity, steam, heating, or cooling
consumed by the company
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Benefits
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Nokia and KONE have experienced the value
of performing the analysis on science-based targets
“Testing this new methodology was interesting. A method that is based on scientific
facts and can be applied in various industries helps companies set meaningful long-
term reduction targets for greenhouse gas emissions.”
Pia Tanskanen, Head of Environment at Nokia
“We are delighted to be among the forerunners of industrial companies in testing this
new method. We found SBT provided us with useful insight into the role of climate
science in setting long-term carbon reduction targets.”
Hanna Uusitalo, Environmental Director at KONE
©nasa
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Key benefits of setting science-based targets
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1. Increase credibility of climate targets, get recognition and exposure by NGOs.
2. Demonstrate leadership and build on a green reputation to increase stakeholder
value and attract excellent talents.
3. Outperform sector peers in benchmarks, increase rating scores and
attractiveness for investors.
4. Get long-term guidance to steer investments, drive innovation and transform
business practices.
5. Save money and increase competitiveness by gaining insight in company
performance and improvement potential.
6. Gain insight in the required sector transformations and position for upcoming
policy regulations.
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How to get started in setting science-based targets
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1
2
3
4
Adopt a
science-
based target
and gain the
benefits
Explore the
science-based
target
methodologies
and gain insights
in 2 °C scenarios
Gather GHG
emissions,
activity and
growth data to
perform analysis
and get insights in
own data limitations
and improvement
possibilities
Analyse (absolute
and/or intensity)
targets for
company’s
activities by using
online tools on
www.sciencebased
targets.org or by
getting external
support
Start internal
discussions on
outcome of
science-based
targets analysis
and use outcome
for guidance in
internal target
setting process
15 March 2016 Science-based targets

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Ecofys
Giel Linthorst
Programme leader Science-based targets
T: +31 (0)30 662 3322
M: +31 (0)6 11 366 935
E: g.linthorst@ecofys.com
22
Sitra
Jaana Pelkonen
Leading Specialist, Carbon-Neutral Industry
M: +358 (0)40 540 9775
E: jaana.Pelkonen@sitra.fi
www.sitra.fi/en/ecology/carbon-neutral-industry
15 March 2016 Science-based targets