Setting corporate targets aligned with a 1.5°C pathway
Companies should set targets with an overall objective of reducing total cumulative greenhouse gas (GHG) emissions in line with global reductions needed to limit warming to 1.5°C. In this context it is important for companies to follow recommendations for setting targets as provided by the Greenhouse Gas Protocol, including in its new Land Sector and Removals Guidance (forthcoming in 2022).
Companies can support this objective through several key target design elements, including:
Set a comprehensive target boundary that includes all greenhouse gas emissions and all scopes (scope 1, scope 2, and scope 3 emissions, including all scope 3 reporting categories), with separate targets by scope. Scope 1 emissions are the direct emissions from company owned or controlled operations. Scope 2 emissions are indirect emissions related to consumption of purchased electricity, and scope 3 emissions are all other emissions in the company’s value chain.
Set separate targets for emissions and removals, rather than setting a single net target, to maintain a focus on reducing cumulative emissions to the atmosphere, while separately increasing CO2 removals.
Avoid leakage or negative spillovers, where actions taken to reduce emissions or increase removals within the company’s target boundary lead to increases in emissions or decreases in removals outside the target boundary. For companies in land-based sectors, this includes reducing pressure for deforestation globally by reducing land occupation and improving land use efficiency.
Set a GHG emission-reduction target to decarbonize scope 1, scope 2, and scope 3 emissions in line with a 1.5°C pathway. Set a separate removal or net target in line with the global need to increase removals as part of a 1.5°C pathway.
External compensation or contributions
In addition to meeting GHG reduction targets and separate removal or net targets through internal mitigation across the company’s scope 1, 2, and 3 inventory, companies should invest in external compensation or contributions to achieve additional mitigation outside the scope 1, 2 and 3 target boundary. This should only serve as a supplement to the company’s GHG reduction and removal targets, to help reach the global 1.5°C goal. Additional principles for carbon credit use are described in the next section.
Use of natural climate solution credits aligned with a 1.5°C pathway
Natural climate solutions (NCS) may support up to one-third of the required mitigation for a below 1.5°C pathway by 2030 at cost-effective prices, while simultaneously providing multiple social and environmental benefits, including critical ecosystem services.
Despite this potential, current financing for NCS remains woefully inadequate to reach the estimated USD 10 to 100 billion needed for deployment by 2030. As countries and companies race to reach net zero by 2050, corporate investments in voluntary carbon markets will play an increasingly important role in scaling up the finance needed for NCS.
Ensuring positive outcomes that enhance climate ambition and increase overall mitigation while protecting, restoring, and sustainably managing natural ecosystems through corporate carbon finance will be contingent on two overarching principles:
- Demand for NCS credits must accelerate, not dilute, the pace of global emissions reductions by supplementing and not substituting for own operations and value chain emissions reductions.
- The supply of credits must represent emissions reductions and removals that meet high standards of social and environmental integrity. This entails Paris-aligned levels of ambition, additionality, permanence, avoidance of negative spillovers and double counting, and respecting the rights and livelihoods of indigenous and local communities while safeguarding biodiversity.
To meet these principles, corporations seeking to purchase NCS credits should apply “guardrails” related to:
- demand (ensuring credits enhance the pace of global emission reductions)
- supply (ensuring good results on the ground, including via the preferential sourcing of jurisdictional credits once available)
- transactions (supporting the development of market mechanisms with high integrity and robust governance that avoid double counting between countries, companies, or other entities)
Application of these guardrails will enable corporations to confidently invest in NCS credits, providing critical financing to real, additional, and verified mitigation outcomes, while making credible and widely acceptable associated claims. For companies on a science-based reduction pathway aligned with 1.5°C, we envision two broad categories of NCS credit use:
- To compensate for annual unabated emissions through the purchase of high-quality credits backed by a corresponding adjustment from the host country.
- To contribute to the climate ambition of the host jurisdiction through the purchase of high-quality credits which are not backed by a corresponding adjustment.
Neither should detract from the company meeting its own value chain GHG reduction targets, but these should allow for additional recognition related to compensation or contributions. The former necessitates application of all guardrails, and the latter requires supply-side guardrails at minimum. Corporations should not seek to merely reduce their own inventory, but to contribute to broader global efforts to limit warming below 1.5°C. In either case, companies should pursue emissions reductions or removal credits, depending on which has the greater marginal benefit globally.
One requirement for companies compensating annual unabated emissions is the need to secure a corresponding adjustment from the host country (necessary to avoid the risk of double claiming). This entails reaching a successful outcome in the ongoing Paris Agreement Article 6 negotiations. Until countries can issue corresponding adjustments, all credits should be considered de facto mitigation contribution credits beyond a brief transition period (for example, after 2025). Companies wishing to pursue compensation should therefore urge governments to reach agreement on Article 6 at COP26 or reframe their ambition toward contributing to global net-zero efforts. The World Resources Institute will soon be providing further related guidance, including additional details on the guardrails described above.
This paper represents the views of the authors, based on ongoing and evolving work. It is not intended to represent the views or positions of the Greenhouse Gas Protocol or the World Resources Institute.