How to design sustainability targets the right way, according to a nonprofit working with Sony and Procter & Gamble

• Science Based Targets Initiative, or SBTi, helps large companies identify sustainability targets.
• SBTi's cofounder said organizations are signing on due to growing expectations from investors.
• Here's how SBTi is helping companies set science-based greenhouse-gas emission-reduction targets.

Achieving sustainability doesn't happen overnight. It requires setting the right targets — clear short- and long-term goals for reducing greenhouse-gas emissions across all stages of a business.

Science Based Targets initiative, or SBTi, is a nonprofit that works with some of the world's largest companies — from AstraZeneca and Sony to Procter & Gamble — to identify and hit those targets. SBTi boasts being the first framework for helping corporations set net-zero targets based on the latest climate science and the 2015 Paris Agreement, a treaty on climate change.

Since its founding in 2015, companies with approved targets have seen 29% reductions. The scale is growing, too, with partner companies representing 35% of global market capitalization.

Alberto Carrillo Pineda, SBTi's cofounder and chief technical officer, said more organizations are interested in the company's services due to growing expectations from investors and regulators that companies address emissions and environmental, social, and governance (ESG) factors across their supply chains.

In 2019, the UK passed a law to achieve net-zero emissions by 2050. This March, the US Securities and Exchange Commission issued a proposed rule that would require registrants to include climate-related disclosures in reports. SBTi is a key vendor in the sustainability revolution, enabling companies to demonstrate to investors and other stakeholders that they're working toward emission reductions, filling in the gaps left by standard ESG disclosures.

"More and more investors are looking at the climate targets of companies in their portfolios, and they're engaging with companies that don't have targets in place yet to incentivize them to set targets," Pineda told Insider.

Here's a look at how the process to set science-based targets works and how businesses benefit.

Offering industry-specific technical assistance helps companies set realistic emissions targets

Setting climate-based targets alone can be difficult for businesses because many don't know where to start, Pineda said. That's where SBTi can help.

SBTi works with companies by offering clear industry-specific guidance on how to set emissions goals to achieve net-zero. The organization provides worksheets, how-to guides, and online tools, then evaluates a business' targets based on the latest climate science, Pineda said.

"The transition to a net-zero economy requires a transformation of every aspect of the economy — transportation, energy production, the food system, the industrial system, and the land-use system," he said, adding that the path to achieving net-zero often varies by industry.

Pineda said SBTi helps "translate" the transition to net-zero based on the specifics of a company or sector, such as using carbon credits and guidelines for different types of passenger, freight, and commercial vehicles in the transportation sector, so they can set more realistic targets. Companies in the oil and gas sector aren't yet able to set targets with SBTi, but the organization is developing guidance for that industry.

SBTi receives funding from companies across industries, governments, and foundations. In November, the organization raised $37 million from Bezos Earth Fund, IKEA Foundation, and Laudes Foundation to help support its growth.

SBTi helps hold companies accountable for sustainability goals

SBTi charges companies $9,500 to set and validate their targets, which starts with organizations registering on the SBTi website and submitting a commitment letter. Companies have 24 months to set and submit targets, which Pineda said may involve collecting data or conducting energy modeling. SBTi provides recommendations and industry-specific guidance to assist organizations in developing targets.

After a company submits its targets, SBTi analyzes them to ensure they cover most direct and indirect emission sources, that the target is ambitious — companies are required to pledge to reduce their emissions by at least 4.2% a year — and whether a company is setting short-term emission-reduction targets or long-term net-zero targets. Pineda said SBTi requires companies to have short-term goals for approval so that they're driving action to reach net-zero.

Once SBTi approves a target, it publishes a list of companies taking action on its website and encourages organizations to share details about their targets with stakeholders. SBTi expects companies to report progress every year and recalculate targets every five years to ensure they remain valid and align with the latest science, Pineda said.

SBTi had approved nearly 1,100 targets by the end of 2021 and saw over 1,100 commitments.

The organization is working on a new measurement, reporting, and verification (MRV) system, which will launch in 2023, to standardize how companies report progress on targets, which Pineda said will increase transparency and accountability.

Setting targets boosts a company's credibility with investors

The benefits for companies that set emission-reduction and net-zero targets include increased profits, improved investor confidence, heightened innovation, decreased regulatory uncertainty, and stronger brand reputation, according to SBTi.

For example, setting science-based targets led Sony to develop a new type of plastic made of 99% recycled materials that saves 80% carbon emissions when the company manufactures it. More than a third of companies say setting targets is helping their business become more resilient to future regulations.

Working with SBTi brings a sense of credibility to these goals, Pineda said, and it helps companies communicate their sustainability initiatives and the progress they're making. It also helps fill in gaps for investors and financial institutions seeking information about a company's ESG disclosures.

"More transparency on environmental and climate action makes it easier for investors to understand if companies are transitioning to net-zero or not," he said.