Why target fulfillment is the wrong measure of corporate climate ambition

The opinions expressed here by Trellis expert contributors are their own, not those of Trellis.

Corporate climate reporting is splitting emission inventories and corporate interventions. On the one hand, there are emissions inventories tied to a company’s activities, from its own operations, its supply chain and the use of its products. On the other hand, there are interventions a company takes to reduce emissions without it affecting their physical inventory. 

It’s long been unclear how these two categories should square with each other when it comes to reporting and target fulfillment. But the dust is settling with clear separation being the winner. The Greenhouse gas protocol, for example, is moving towards explicit distinction keeping interventions outside of the inventory, instead using a multi-statement reporting architecture. This is also the approach of other initiatives such as the The Task Force for Corporate Action Transparency introducing a multi-statement framework where different types of interventions are reported separately. 

Once inventory and interventions are separated, reporting and target fulfillment becomes two different questions. The Greenhouse Gas Protocol clearly states that they deal with the former, leaving the question of “what counts” to standards setters such as the Science Based Targets initiative and the International Organization for Standardization. 

Target counting

This separation means sustainability professionals  need to rethink what emission reductions- and net zero target fulfillment mean. Virtually no companies will be able to reach net zero if no outside-of-inventory interventions can count towards targets. If you accept this, it becomes clear that what “corporate net zero” means is inherently a political compromise, not a fact based on the laws of physics.

There are different opinions on to what degree interventions should count against targets, ranging from permissive to strict to none at all, presented as three camps:  

• Most interventions are target-fulfilling

On the most permissive end, frameworks like The Climate Pledge set high-level commitments, but leave most target decisions to companies. Remaining emissions can be neutralized with carbon credits, but without a prescribed hierarchy of what types qualify. 

• Some interventions are target-fulfilling, under strict rules

A middle path is to agree on standardized rules for what counts as corporate target fulfillment, through a negotiated hierarchy of interventions. For example, allowing bundled power purchase agreements but not renewable energy certificates.

The process of reaching agreement for this is complex because there are no rules dictating that environmental attribute certificates are better than carbon credits, that renewable energy credits are better than supplier investments, and so on. It’s a political process with a lot of diverging interests and opinions. 

• Interventions are only contributions

On the other end, the “contribution approach” lets go of net zero as a concept to be achieved by individual companies. Instead, companies set physical reduction targets and then choose among a wide range of actions for the remaining emissions. Interventions are disclosed and reported, but not counted against targets.

An upside of this approach is that it could incentivize companies to fund crucial interventions such as policy and advocacy work that often are underfunded because companies only want to fund activities that count toward their target fulfillment. This approach also lowers the need for consensus as companies can fund what they wish. The downside is that some companies may choose to fund endeavors that look good but are ineffective. An answer to this is transparency, requiring companies to publish what they fund and how much they spend. 

Net zero is conditional

Wherever you sit on this spectrum, reaching corporate net zero is still conditional on external change for many companies. Even on the most permissive end, many low-profit, high-emission companies wouldn’t  be able to afford full net zero target fulfillment unless the bar was set ridiculously low, or policy makers forced them to pay. Companies should be transparent about what their external conditions for reaching net zero are, and help enable them. 

Those that want to make claims of reaching net zero should be allowed to as long as they match their remaining emissions with high-integrity instruments such as bundled power purchase agreements, energy attribute certificates and durable carbon removal. But reaching net zero isn’t the only way to be a high climate ambition company. The high-profit, low-emission company buying carbon removal for all their remaining emissions isn’t necessarily more ambitious than the low-profit, high-emission company that’s  investing heavily in R&D and lobbying for more ambitious climate policy.

Companies should be incentivized to do whatever is most effective at mitigating climate change regardless if it counts towards their targets or not. We shouldn’t  force companies to only fund countable things. Ambition should be measured by what a company does to solve the problem, not by whether its accounting adds up to zero.