In order to keep global temperature increase to well-below 2⁰C and meet the goals laid out in the Paris Agreement, everyone needs to take bold action to reduce their share of emissions and do so as soon as possible. Companies are responsible for the majority of global emissions and therefore play an integral role in meeting these goals.

To date, over 400 companies have joined the Science Based Targets initiative(SBTi), committing to reduce their greenhouse gas emissions in line with climate science. Over 100 of these companies already have targets approved by the initiative. Approximately 90% of these companies have scope 3 targets. Scope 3 emissions are all indirect upstream and downstream emissions that occur in the value chain of the reporting company, excluding indirect emissions associated with power generation (scope 2).

While momentum for science-based targets continues to grow, we need to move much faster to meet the ambitious goals set out in the Paris Agreement. Emissions across all scopes to be reduced and eventually reach net zero. This means more companies setting science-based targets, and more and more of those companies addressing emissions across their value chain. For the majority of sectors, the largest sources of a company’s emissions lie upstream and/or downstream of their core operations. For that reason, if scope 3 emissions represent more than 40% of a company’s overall emissions, the SBTi requires they set a target to cover this impact. There are different options for companies to set a scope 3 target.

The Sectoral Decarbonization Approach provides sector-based emission reduction pathways for corporate activities. They take into account inherent differences between sectors such as their expected growth and potential for emissions reduction activities. Using this method, a company could use multiple sector pathways to address its different activities.

Another method is absolute contraction. Under this method, the rate at which global emissions need to be reduced to stay within 2°C is uniformly applied to all companies. Unlike in the sectoral Decarbonization Approach, there is no sector differentiation or correction for business growth.

However, it is the easiest to understand and communicate and the most robust in terms of preserving the global carbon budget.

These methods are considered the most ambitious ways to set a scope 3 target because they:

• Align with GHG footprinting standards
• Quantify a clear target to strive for and achieve
• Are based on robust climate science
• Provide the opportunity to set different targets for different scope 3 categories
• Provide confidence to investors, NGOs, clients, and customers that a company is applying best practices

Guidance and criteria to set targets for different scope 3 categories are available. Based on these criteria, before setting targets, a company should first conduct a scope 3 screening to determine where the emissions in its value chain lie. This process can reveal hotspots that a company was previously unaware of. Understanding the sources of these emissions can help a company know where to focus its reduction efforts.

Science-based target setting is fast developing as a business norm, but until then leading companies setting ambitious goals reap the benefits of engaging with and managing their supply chain. They are less susceptible to unforeseen disruption and climate risk. Analyzing S&P 500 in 2014, CDP found that corporations that actively manage and plan for climate change secure an 18% higher return on investment (ROI) than companies that don’t – and a 67% higher ROI than companies who refuse to disclose their emissions. These compelling figures suggest that addressing value chain sustainability will further contribute to corporate financial and societal success.

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