One of the first things we look at when evaluating the environmental, social and governance (ESG) features of an investment decision is the company’s current and future commitments to reduce greenhouse gas (GHG) emissions. The number of companies making such commitments has grown rapidly in recent years. But how do we evaluate their impact? How do we benchmark these commitments not only against other companies, but against the massive shared challenge they attempt to confront?
First and foremost, we consider how specific the commitment is. Is it measurable, and does it have a deadline? In our opinion, sustainability commitments that lack either measures or deadlines are worth very little. Comcast, for example, stated in its 2019 sustainability report that “we have set long-term, aspirational goals: zero emissions, zero waste, and 100% renewable energy.” But without any detail whatsoever on timing, Comcast and its stakeholders are left unable to hold the company accountable to this lofty goal.
Reporting is also critical: does the company already track and publicly share its emissions data with CDP, or via other standards-based protocol such as those from the Task Force on Climate-Related Financial Disclosures (TCFD) or the Sustainability Accounting Standards Board (SASB)? A company like Salesforce, with a 10-year history of reporting emissions to CDP and receiving progressively higher scores, checks this box almost immediately. For other, smaller companies that may not have even set emissions goals yet, we’ve held dialogues where we recommend gathering multiple years of emissions data before target-setting, to establish a confident baseline. In most cases emissions can be measured retroactively, meaning companies can collect this data without simply waiting for it to accrue.
Assuming a commitment is both measurable and time-bound, and the company has established a transparent baseline of emissions reporting, we typically dig deeper for specific, achievable milestones. If a company says it will be carbon-neutral by 2040, where will it be by 2030? Even better, what are the actual changes it believes will help it get there? The more detailed and transparent a company is in planning for emissions-reduction goals, the more likely it will be to achieve them.
In September, for instance, Alphabet (aka Google) declared a massive, “stretch goal” of operating on carbon-free energy 24/7 by 2030. In 2007, Google was one of the earliest major companies to go carbon neutral; more recently, the company declared it had “wiped out” its entire carbon footprint for the life of the company, by buying high-quality carbon offsets. But with this new goal, Google has set itself an unprecedented challenge. While 61% of the company’s global electricity sources are already renewable, in locations such as Singapore it uses as little as 3% renewables. To achieve 24/7 renewable power, the company has set wide-ranging milestones such as helping develop 5 gigawatts of renewable energy near suppliers and partnering with hundreds of governments. Google’s CEO, Sundar Pichai, said the company had spent a year modeling the goal before it was publicly announced.
While the climate benefits of Google’s goal may be relatively clear, others can be less obvious. If an emissions-reduction goal meets the criteria we describe above, but appears incremental in scope, how do we know if it will work? One answer is the Science-Based Targets initiative, or SBTi. A joint effort of CDP, the UN Global Compact (UNGC), World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), the SBTi provides companies a framework not only for setting or evaluating climate commitments that are science-based, but for determining whether these commitments are in line with the 1.5°C warming limit that scientists say is necessary to avoid global catastrophe. General Mills, for instance, has committed to reduce its absolute scope 1 and 2 GHG emissions (those generated by the company through operations and energy use) 42% by 2030, and scope 3 GHG emissions (those generated in supply chains and by customers while using products) 30% by 2030, with both goals against a 2020 baseline. By certifying that these goals are consistent with reductions needed to keep warming to 1.5°C, SBTi helps investors and consumers better understand which corporate climate commitments are truly meaningful in a global, environmental context.
Such a science-based target is just one commitment of several overseen by the We Mean Business coalition, which also tracks the RE100 (companies that have committed to 100% renewable power), the EP100 (energy efficiency commitments), EV100 (electric vehicle commitments) and more. Together, these organizations not only help us track which companies have made the most serious commitments to flight climate change; they provide a set of highly visible expectations and standards that serve as an on-ramp for more and more companies to make their own commitments. Because ultimately, this should be our goal: that every company establishes an ambitious, science-based emissions target, allowing us as investors and consumers to push for ambitious new norms and goals on other, related issues—human rights, good governance, waste, water management—because the global community, in which corporations now figure so prominently, has finally and fully risen to its responsibilities on climate.