Setting carbon reduction targets – The why and how

Our sustainability webinar series aims to break the complex world of sustainability down into digestible pieces to help you get on top of the fundamentals and start driving change in your organisation. At our May 2024 event, Aletta Boshoff shared key insights and examples of setting carbon targets and how to develop your decarbonisation strategy.

After delving into the rationale behind setting carbon targets, we also shared the steps involved in setting carbon targets, the importance of developing a base year and recalculation policy, and some illustrative examples of actions to reduce Scope 3 emissions. Here, we share the key takeaways.

Why set carbon targets?

The increasing global focus on sustainability, particularly climate reporting, has led many organisations to set carbon targets.

Ultimately, organisations want to reduce their carbon footprint by working towards decarbonisation and contributing to global efforts to limit global warming. The development of targets plays a crucial, strategic role in driving the reduction of greenhouse gas (GHG) emissions and helping to mitigate climate change.

Organisations are often driven by compliance, which will become more prevalent as mandatory sustainability reporting develops in Australia, or stakeholder expectations – including investors, customers and employees.

Setting carbon targets can also help to:

• Ensure the issue is factored into relevant decisions, like product and service offerings, or materials and technologies used
• Minimise and manage GHG risks
• Achieve cost savings and stimulate innovation
• Prepare for future regulations
• Demonstrate leadership and corporate responsibility.

Steps in setting a carbon target

Setting a carbon target begins with establishing a baseline carbon footprint, which involves calculating the organisation’s carbon emissions in an identified ‘baseline’ year.

To do this, it’s important to consider:

• Boundary setting for the organisation and operations
• Scope 1 and Scope 2 emissions – expected to be mandatory from the first year of reporting
• Scope 3 emissions – understood to be mandatory in the second year of reporting, and ongoing.

The GHG Protocol outlines a 10-step process for setting a carbon target:

1. Secure senior management commitment – this is particularly important at Board and CEO levels to ensure behaviour change and accountability
2. Choose the target type – absolute (i.e. reduction over time in a specified quantity of GHG emissions, typically expressed as tonnes of CO₂e) or intensity-based (i.e. a reduction of GHG emissions relative to another business metric)
3. Define the target boundaries – to determine which GHGs, geographic operations, sources and activities are covered. This may be the same as the inventory boundary
4. Select the base year – this can be a fixed target base year, or rolling target base year
5. Define the target completion date – to establish if the plan is short- or long-term
6. Determine the target commitment period – to clarify the period during which the emissions performance will be measured against the target, ending with the completion date
7. Identify the role of offsets and carbon credits –compared with internal reductions or via reduction projects to reduce emissions at the source. It’s important to note whether offsets are used, and the proportion of the reduction achieved through offsets or credits
8. Establish a target double counting policy – to specify how reductions and trades will be reconciled with the corporate target, and which types of double counting will be regarded as relevant
9. Decide on the target level – by understanding the key drivers and relationships between GHG emissions and other business metrics, while also factoring in growth plans, benchmarking and other mitigation strategies
10. Track and report progress to measure performance and maintain credibility.

Develop a base year recalculation policy

A recalculation policy is essential for tracking progress against targets. It considers organic growth and industry-specific factors that may impact target setting. The policy should also address the potential need for recalculating base year emissions due to significant changes, such as structural changes within the organisations, changes to calculation methodologies, or changes in the categories of activities included.

Within the policy, establish a significance threshold to clarify what will be considered a catalyst to recalculate the baseline, for example, a 10% change in emissions. However, organic growth or decline is excluded from recalculations to reflect actual emission changes.

By adhering to these guidelines, companies can track their emissions effectively and develop a robust decarbonisation strategy that reflects true performance over time.

Examples for reducing Scope 3 emissions

Reducing Scope 3 emissions can be difficult, as you might have influence but not control over the emissions. However, there are various actions and opportunities to approach reducing your Scope 3 emissions. Examples of approaches can include:

• Supply chain optimisation - Collaborating with suppliers for sustainable practices
• Transportation strategies - Promoting lower-emission transport and optimising networks
• Technology investments - Investing in energy-efficient and renewable technologies
• Employee engagement - Raising awareness and encouraging sustainable behaviours.

How BDO can help

Our national team of experts can help your organisation, no matter where you are on your sustainability journey, from assessing your current state to calculating your carbon footprint or developing your decarbonisation strategy. Contact us today.