The Science Based Target initiative (SBTi)’s latest progress report found that “a typical SBTi-approved company has reduced its annual Scope 1 and 2 emissions at a linear rate of 8.8% since setting its targets, while 4.2% is the annual reduction required by SBTi for a 1.5°C trajectory alignment.” The progress report also found that companies with validated SBTs are achieving reductions at a faster and more ambitious pace than the economy as a whole. It is encouraging to see that companies are on average over-achieving their targeted reductions. This report examines what mitigation strategies are being pursued to achieve these ambitious reductions.
This report provides insights on how companies are reducing emissions – what initiatives they’re pursuing, how impactful different projects are, and how reduction strategies differ across Scope 1, 2, and 3 emissions. To provide insight on these critical questions, this report reviewed CDP data from 440 high-impact disclosing companies with validated science-based targets.
While the data analyzed for this report comes from companies around the world, the focus will be on companies headquartered in North America, featuring case studies from AECOM, Canadian National Railway and PepsiCo who describe their decarbonization strategies, successes and challenges.
In total, the organizations included in this report disclosed 1,561 MtCO2e in Scope 1 and 2 emissions. When Scope 3 emissions are included, total emissions are 14,049 million MtCO2e, which is equivalent to the emissions of China and India combined. Broken down by scope, the sample’s total reported emissions are:
|1,219 million MtCO2e
|342 million MtCO2e
|12,488 million MtCO2e
CDP’s climate change questionnaire asks companies to describe emissions reduction initiatives implemented in their respective reporting years. Nearly all companies (99% of our sample) provided details of these initiatives in their 2022 responses. Companies reported an average of five initiatives implemented in their reporting year, for a total of 2,199 emissions reduction initiatives. For each initiative implemented, companies are asked to disclose details such as estimated annual emissions savings in MtCO2e, the estimated lifetime of the initiative, annual monetary savings, investment required and more.
Across almost all industries, the most common initiatives are "energy efficiency in buildings" and "energy efficiency in production processes." These represent 624 and 626 initiatives, respectively, out of the 2,199 total initiatives from the sample. While these are the most common projects, the data shows that larger emissions reductions can be found in other interventions.
The projects in the “waste reduction and material circularity” category have higher reported annual MtCO2e savings per year than energy efficiency initiatives. Examples of these projects include switching from virgin to recycled materials for materials like plastic and aluminum, wastewater and gas recovery for reuse, packaging redesign and reducing waste going to landfill.
Based on the average emissions savings per initiative, the most impactful projects are hard to classify and are reported under “Other, please specify.” The largest projects reported include design adjustments, route optimization and other engine efficiency initiatives within the marine, air, and rail transportation sectors. These initiatives are critical for the transportation services sector to reduce emissions in the short term.
Finally, low-carbon energy consumption and generation are both popular and impactful initiatives.
The popularity of energy efficiency projects and switching to low-carbon energy reflects the fact that these, to an extent, are the low-hanging fruit. Taking these actions does not require fundamental changes to a company's business model and often offers straightforward cost-savings. In contrast, a project reported under ‘Other, please specify’ involved a new design and building method for large container ships. This resulted in significant emissions savings but required investment in a new production method and design technology.
Companies are using a variety of methods to drive investment in emissions reduction initiatives. The most common methods involve a dedicated budget — for energy efficiency, low-carbon product R&D and/or other emissions reduction activities. Investments in emissions reduction are also commonly driven by compliance with regulatory requirements and/or standards.
Importantly, organizations are experiencing a return on their investment. A total of US$9 billion was reported in annual monetary savings from emissions reduction projects in 2022.
The following analysis, examples and corporate case studies provide additional insights into decarbonization plans and help illuminate how these differ across business models and Scope 1, Scope 2 and Scope 3 emissions.
Scope 1 includes direct GHG emissions from sources that are owned or controlled by the company. This includes emissions resulting from the stationary combustion of fossil fuels, the operation of other stationary heating and cooling systems, the manufacturing or processing of chemicals and materials, the operation of company-owned fleets and fugitive emissions (intentional and unintentional) from equipment leaks, methane emissions from mining or venting, refrigerants and other sources.
These emissions can be reduced by implementing energy efficiency in buildings, as well as energy and resource efficiency in production. They can also be reduced by electrifying machinery and heating/cooling systems, tackling fugitive emissions, optimizing transportation routes for company-owned fleets and ultimately electrifying fleets. Electrifying a fleet is more accessible for certain transportation methods where the technology is largely available, such as car fleets. Other modes of transportation, such as aviation, are faced with fewer opportunities for immediate reductions and must drive investment to increase the availability of the necessary solutions.
While some Scope 1 emissions reductions represent low-hanging fruit, other Scope 1 emissions can be among the most challenging to reduce. Scope 1 can be particularly challenging where it represents the majority of a company’s overall footprint (for example, freight and passenger transport). Addressing these emissions depends on developing alternative production methods, transitioning to electrified equipment that is not yet on the market, or in the case of airlines and rail, new fuels that are not yet available at scale. These are great examples of where investment in research & design should be directed in the short- and long-term to ensure technology is available in the future.
Scope 2 accounts for the GHG emissions from purchased electricity, heat, steam and cooling. Emissions in this scope can be reduced by implementing energy efficiency initiatives in company-owned buildings including insulation, solar shading, efficient lighting and efficient HVAC systems. Scope 2 emissions can also be reduced via energy efficiency in production processes such as reuse of water and steam, smart control systems and machine/equipment upgrades and replacements. As opportunities for efficiency are exhausted and equipment is electrified, the reduction lever shifts to the energy source.
This scope offers enormous potential for reductions given the advancements in renewable energy technology. On average, these 440 organizations are procuring 18% of their energy from renewable sources. Meanwhile only 3% of the sample, or 15 organizations, are procuring more than 90% renewable electricity.
If the utility that companies source electricity from is not offering a high enough percentage of renewable energy for these companies to progress towards their science-based targets, they must generate their own renewable energy on-site or proactively procure it. There are various ways to procure renewable electricity including site-specific energy contracts (green tariffs), energy attribute certificates (EACs), power purchase agreements (PPAs) and virtual power purchase agreements (VPPAs). When sourcing EACs, companies must ensure it meets the Scope 2 quality criteria detailed in the GHG Protocol’s Scope 2 Guidance.
By total volume, unbundled energy attribute certificates are the most common procurement method, but the average energy procured per certificate implies these are smaller individual contracts. The higher averages per sourcing method are from direct procurement from an off-site grid-connected generator (e.g., power purchase agreement, or PPA) and the default delivered electricity from a grid that is 95% or more low-carbon.
While energy attribute certificates are the most popular procurement tool, there is growing concern about how much, or little, impact is achieved via contractual instruments since they can vary widely in their use case and technical details. The following examples show how companies are prioritizing energy efficiency and on-site renewable energy generation before moving to high quality contractual instruments:
"Our renewable electricity strategy includes onsite generation, reducing demand through efficiencies, direct purchase of green power and virtual power purchasing agreements (VPPAs). This marks a shift toward more impactful purchasing, actively exploring direct purchasing and options for VPPAs that can help expand the market for renewable energy. Where necessary, Biogen also purchases unbundled renewable energy credits (RECs). In 2021, Biogen sustained our 100% renewable electricity commitment. Our 2021 progress includes: 1) Sourcing directly from a hydropower plant for our site in Solothurn, Switzerland, which we began last year; 2) Continuing to source hydropower directly from the Harriman Hydro Plant in Readsboro, Vermont to power our corporate headquarters in Cambridge, Massachusetts; and 3) Beginning the VPPA process in 2021, with the intention to execute in 2022."
"Crown plans to achieve targets for Scope 1 and 2 emissions through energy efficiency projects and sourcing renewable energy. Energy efficiency projects being implemented at manufacturing sites around the world include upgrading outdated equipment, process optimization and improvement, and heat recovery and reuse. A 15-year virtual power purchase agreement (VPPA) generates more than 440,000 megawatt-hours (MWhs) of electricity from a Texas-based wind farm. This helps prevent over 310,000 metric tons of carbon emissions annually. Comparable projects are being considered in other regions of operation. Crown also currently has on-site solar panels at sites in the US and Europe and contracts to receive renewable energy credits in Brazil, Turkey, Mexico, Ireland and the United Kingdom. By the end of 2021, Crown had reached 21% of the 50% reduction target for Scope 1 and 2. The emissions reduction initiatives which contributed the most to achieving this target in 2021 included procuring renewable energy and allotting a sustainability CAPEX budget for energy efficiency improvements."
"We plan to achieve our 1.5 degree-aligned Scope 1 and 2 science-based target (SBT) through energy efficiency initiatives and renewable energy procurement efforts. These combined efforts have contributed to an overall 12% reduction in Scope 1 and 2 GHG emissions in 2021 from a 2019 baseline. In 2021, we achieved data center energy efficiency of 1.48 annual average power usage effectiveness (PUE), with a 5.5% year-over-year reduction, built on our renewable energy procurement efforts which include signing a 35 MW wind deal in Finland (Jan 2022) and joining a load aggregation consortium in Australia to jointly purchase renewable energy. During this same period, 205 of Equinix’s 240+ data centers were covered by 100% renewable energy, made possible by purchasing 6,770 GWh of renewable energy to cover 95% of our global operations. We are also deploying onsite solar PV technology to further improve our total renewable energy consumption. To achieve our goal of sourcing from 100% clean and renewable energy by 2030, Equinix applies four principles to purchasing decisions: (i) Utilize renewable and low carbon energy; (ii) Secure local sources of renewable energy where possible; (iii) Seek new or recently build generation sources; and (iv) Advocate for favorable renewable energy policies and consider renewable energy availability when locating new data centers."
"To achieve our 1.5 degree-aligned Scope 1 and 2 SBT, we will seek to advance energy and process efficiency, source 100% of our electricity needs from renewable sources by 2025 and source renewable heat. We have completed approximately 260 renewable energy and energy efficiency projects since 2005. Through our CO2 Capital Relief Program, we allocate up to $40 million per year for energy efficiency programs at our most energy-intensive manufacturing and R&D sites. Each project must show the potential for both emissions reductions and a financial return of at least 15%. In 2021, 19 efficiency and on-site renewable energy projects were completed through the CO2 Capital Relief Program. Currently, over 50% of our electricity is sourced from renewable technologies. We have built more than 50 on-site renewable energy systems on our properties in 14 countries and have executed 15 deals for off-site renewable electricity procurement. In 2021, we finalized multiple deals that are expected to provide the equivalent of 100% of our electricity in the US, Canada and Europe from renewable sources by 2023. We are also developing renewable heating systems and investigating low/zero carbon fuel opportunities."
"As Macerich works to achieve our science-based targets, key steps include: Developing and implementing operational efficiency programs, technology and practices to reduce consumption; Implementing on-site renewable generation where technically and economically viable and exploring off-site investment for renewable power opportunities; Directly procuring renewables via third-party-owned generators and direct or virtual power purchase agreements (PPAs) and indirectly procure renewables via utility retail options, Community Choice Aggregation, and other indirect power providers; Developing carbon accounting practices and pricing to appropriately include carbon cost in development cost assessments; and finally, Establish a program and strategy for procurement of renewable energy credits (RECs)."
“We have seen great progress with Scope 2 emissions. In FY21, NIKE made strides toward our target to reach 100% renewable electricity in NIKE-owned or operated facilities. In September 2020, NIKE's groundbreaking virtual power purchase agreement (vPPA) in Spain went live, covering our owned or operated electricity footprint in Europe. Iberdrola, S.A.'s Cavar wind project provides NIKE's European operations with 110,000 MWh per year of renewable electricity. This project, along with PPAs delivering power across the US and Canada and various onsite solar projects globally, brings NIKE to 78% of our 100% renewable energy target in owned or operated facilities. NIKE continues to explore and develop renewable energy solutions. Our countries of focus in FY21 included Australia, China, Japan, Mexico and Vietnam. We continued to expand the generation and use of onsite renewable energy at our distribution centers globally. At our Tepana distribution center in Mexico, a rooftop solar array went live. The solar array is estimated to produce 1,000 MWh annually, covering ~50% of the facility's electricity needs and representing more than 10% of NIKE's load in Mexico. In Belgium, at our Converse European Logistics Campus, a rooftop solar array also went live and is estimated to produce 3,000 MWh annually, covering a significant portion of the facility's electricity needs.”
Scope 3 emissions are those that result from a company’s activities but occur from sources not owned or controlled by the company. The Greenhouse Gas (GHG) Protocol provides 15 distinct reporting categories in Scope 3 to evaluate emissions embedded in the company's value chain. These categories provide companies with a systematic framework to measure, manage and reduce emissions across a corporate value chain.
The reduction levers for Scope 3 emissions are varied. They include policy changes, such as adjustments to procurement or business travel policies and behavioral changes, such as influencing employee commuting behavior. Scope 3 emissions can also be reduced via circular economy initiatives to reduce the raw materials needed per product either by designing for resource efficiency or building systems for end-of-life collection and reuse.
As these emissions are indirectly controlled by the company, they present unique reduction challenges. The SBTi accommodates these challenges by providing more target-setting options on Scope 3 targets, including absolute targets, physical or economic intensity targets and supplier or customer engagement targets. Many companies leverage more than one target-setting option to cover the requisite percentage of Scope 3 emissions. In 2022, 372 companies reported either an absolute or intensity Scope 3 target; 302 of the 440 companies reported absolute reduction targets while 98 reported intensity reduction targets.
Companies can set an overall Scope 3 target covering all categories or specify which Scope 3 categories their target covers. The data reported to CDP shows companies are setting more targets on upstream Scope 3 categories (1,495 targets) than on downstream Scope 3 categories (747 targets). Overall, the most common Scope 3 category for target coverage is category 1: purchased goods and services, with 286 targets representing 13% overall. This is closely followed by category 6: business travel (216 targets) and category 3: fuel-and-energy related activities (215 targets).
The other Scope 3 target-setting option is an engagement target whereby an organization is asking their supplier or customer to set a science-based target. Sixty companies in the sample reported an engagement target. The majority of these were supplier engagement targets, while six reported a customer engagement target. Whether a company is pursuing an absolute, intensity or engagement target, engagement with value chain partners is required to achieve it. There are multiple strategies to influence and engage your value chain.
Total numbers from this group show that engagement and incentivization is the most popular strategy to influence upstream emissions, implying that companies are leveraging contractual agreements and developing incentives for suppliers to improve their performance and reduce emissions.
Downstream, companies are prioritizing education and information sharing with customers as they try to reduce value chain emissions to achieve their science-based reduction targets.
A recent SBTi & BCG Scope 3 survey explored the challenges presented by Scope 3 target-setting and tracking. Most organizations find the lack of primary data availability and ability to influence suppliers in their value chain to be key challenges. CDP Supply Chain is a tool organizations can use to ask suppliers to provide primary emissions data, as well as to foster collaboration on emissions reduction initiatives.
While there remain challenges to account and influence Scope 3, it is critical for companies to get started with the resources and tools currently available as Scope 3 represents a significant portion of emissions. Two company case studies illuminate the opportunities and provide advice for those just getting started.
While some reduction levers, such as energy efficiency initiatives, are more accessible today, this report also highlights the need to focus investments where technology is needed to achieve the deep decarbonization required to meet our collective global goals. Every organization that joins the SBTi with a validated science-based target contributes to a positive feedback loop to scale the solutions we need.
While the number of companies setting science-based targets and making commitments with the SBTi is increasing exponentially, it is critical that high-impact companies that are not yet taking science-aligned climate action join their peers to ensure we achieve the near-term reductions upon which our net-zero future depends. Companies and financial institutions need value chain partners and portfolio companies to set targets in order to achieve their own. More target-setting will enable more policy and a greater flow of capital to SBTi-aligned firms.
A science-based target has the added benefit of defining how much and how fast an organization must reduce emissions, while catalyzing the organization-wide efforts needed to achieve it.
Done right, an SBT can provide an incentive for an organization to strategize and lay out a path to become a more sustainable and climate-friendly organization. This plan becomes the blueprint for the organization as it aims to transition toward lower emissions and ultimately net-zero. From executives to senior leaders, alignment and buy-in for the plan is critical for implementation and goal achievement. Setting an SBTi -validated emission reduction target is a milestone in the journey toward the broad and deep change needed within the organization to address climate change.Roberta Barbieri, VP Sustainability- Climate and Water, PepsiCo
This report was authored by Diana Farmer with support from Akash Sivah, Vishakha Hedau & CDP North America.