A Retailer's Guide to Meeting SBTs

March 4, 2019 Keith McHugh

The apparel industry just took a leap, and it’s a big one: at the end of 2018, 31 companies in the fashion industry joined the UN Climate Change's Fashion Industry Charter for Climate Action (Charter). The goal of the Charter is to achieve net-zero emissions within the fashion industry by 2050. To achieve this goal, signatories are expected to set an interim target to reduce GHG emissions by 30% by 2030 and set a decarbonization plan drawing on methodologies from the Science-Based Targets Initiative (SBTi).

This charter is one of many calls from investors and consumers alike in the past year for organizations to reduce GHG emissions and increase resource efficiency (see Fast Food). And this is more than a PR stunt… it’s about answering the call to address the most catastrophic impacts of climate change, and in doing so, meeting the pressures of watchful consumers and investors looking for substantive action. But the pathway to meet ambitious goals isn’t always clear.

Schneider Electric brought our experts together to discuss an action plan retailers can use to set and meet Science-Based Targets (SBTs).

How to set a science-based target

Get Started – Target Setting and Implementation Planning

SBTs are linked tightly to the scientific and policy conclusions of the 2015 Paris Accord. Thus, an SBT isn’t just scientific, it’s also scrutinized like any good piece of science. This is a big difference between your traditional emissions targets (e.g., 20% by 2020) and SBTs: you’ll need to get these goals verified. Prepare your organization to think deeply not only about your emissions, but also your supply chain, your customers use of your products and how your business might change over the life of your long-term (usually 2050) target.

Retailers should also strive for ambitious targets. You might inform your ambition by aligning with the IPCC’s 1.5 degree pathway rather than the default 2 degree of the SBTi. Or, benchmark your biggest competitors and go further than their targets. For Scope 3, you might consider how aggressive you’ll be with your supply chain (some options illustrated below).

Once you have a good idea of ambition, retailers should become familiar with the tools and data requirements for setting targets. For Scope 1 & 2, the typical methodology to use is the Sectoral Decarbonization Approach (SDA) which asks for emissions and square meter of space (current & future) and provides you with an absolute or intensity target. Scope 3 targets, however, are more varied. You could encourage your suppliers to set SBTs, conduct a customer engagement campaign to encourage responsible product use, or commit to explicit absolute reduction targets similar to your Scope 1 & 2 targets. More on Scope 3 later.

After understanding what is required to set targets, it’s time to update your baseline. Companies are encouraged to use the latest year for which you have complete data as the Charter asks a baseline to be “no earlier than 2015.” Our final recommended step in setting your target might just be the most important: design a plan to achieve it. The best way to get your target internally approved and ensure success is to build a comprehensive plan to meet your new emissions targets. Efficiency in operations and your supply chain, investments in clean and renewable technologies and innovation in your business model will all play important roles.

Now’s let’s unpack the achievement plan starting with Scope 1 & 2 targets.

Financially Optimize Your Scope 1 & 2 Plan and Incorporate Efficiency

Companies that find the most value from setting operational emissions goals are able to self-fund the accomplishment of these targets. It is vital to involve each area of energy and sustainability within a company – procurement, efficiency, renewables and sustainability. A sustainability initiative such as onsite solar pulls double duty for procurement’s financial needs and increases sustainability benefits. Look for the initiatives that can count across the board and help the program self-fund its way to success. If done well, an SBT program should drive ROI and elements of the program should provide value to multiple stakeholders.

Efficiency initiatives are sometimes the unsung heroes of emissions reductions projects. Quick wins and low-hanging fruit such as lighting upgrades can help companies meet targets quickly but also scale cost-effective, ROI-positive projects across your footprint. Take it a step further by implementing building management systems and metering through software to better understand energy usage at sites and inform prioritization & implementation of initiatives.

Explore Renewable Energy Strategies

Wind, solar, battery storage, microgrids and other clean technologies—supported by unique value propositions and innovative financing structures— have allowed retailers to clean up their emissions footprint and optimize financial returns at the same time. There are still a few renewable energy myths to bust, but numerous examples of how renewable energy helped a company meet environmental sustainability (and financial) goals exist!

Retailers can use a combination of energy attribute certificates (EACs), onsite renewable energy power purchase agreements (PPAs) or capital investments, offsite PPAs and green tariffs to reduce emissions and drive the greening of the grid. An increasing number of global companies have set aggressive renewable energy procurement targets, sometimes in parallel with their SBTs, in order to fully mitigate the emissions impact from their purchased, indirect energy. A combination of clean technology and efficiency will help meet your new Scope 1 & 2 SBT.

But what about that tricky Scope 3?

Decarbonize at Scale: Tackle Scope 3 Emissions within your Supply Chain

With your operational emissions (Scope 1 and 2) targets and achievement plan developed, it’s time to turn to Scope 3 and your value chain. Scope 3 is a diverse category of emissions with the common thread for sources being that they occur outside of a company’s direct control or ownership.

In other words, a Scope 3 SBT and reduction strategy will need to address emissions within a retailer’s supply chain, logistics network, product footprint and customer use of sold products or services. This can be a tall order for retailers, as Scope 3 is 1) traditionally the hardest data to collect, 2) hard to directly or quickly impact, and 3) complex; requiring numerous stakeholders.

But there’s good news! Thanks to some research conducted by the SBTi based on data from CDP (Value Change in the Value Chain; pg. 16), we have a good depiction of the usual Scope 3 hotspots for retailers. The major Scope 3 culprits for a typical retailer’s value chain are:

  • Products and services
  • Upstream transportation and distribution
  • Capital goods
  • Downstream transportation and distribution
  • Use of sold products

These indicative figures do not give retailers a pass on calculating Scope 3 emissions, however. Targets need to be unique to your emissions values. Screening tools, such as economic input/output models or the Quantis Scope 3 tool, can help you get a quick understanding of your unique footprint, while supplier product life-cycle assessments can help steer you to the highest emitting products on your shelves.

To reduce Scope 3, companies will have to focus on collaboration, innovation and engagement. For products and services, you might look at ways to increase product lifespans or develop cradle-to-cradle recycling programs. For logistics, you might partner with SmartWays or the Low Carbon Freight program. For suppliers, you might participate in a CDP Action Exchange and encourage the deployment of efficiency and renewables within your supply chain.

Cascading your goals throughout the supply chain and partnering with suppliers and vendors, like the approach Walmart’s Project Gigaton has taken, can provide opportunities for collaborative action, and scale, that goes beyond the reach and influence of a single retailer or brand. Collective action through industry-specific supply chain platforms (such as Sustainable Apparel Coalition’s Higg Index in the apparel industry) can also provide rich data for identification of hotspots and collaboration on reductions.

The Buddy System: Landlord & Tenant Engagement

Retailers have a unique challenge when setting Scope 1 and 2 targets: landlords. While there may be a landlord/tenant relationship in place, this should be viewed as an opportunity for partnership not as a headache. Drive data sharing between your landlord and stores to improve your emissions reductions and help your landlord save money.

Another opportunity to work with your landlord would be encouraging them to pursue Property Assessed Clean Energy (PACE) financing for renewables or efficiency projects. While the financing scheme is geared more toward the building rather than the tenant or landlord, it still helps both in meeting goals.

Where there’s an opportunity, drive collaborative action. For example, are there other stores or peers within commercial spaces that are looking to achieve the same goals? Combine efforts and investigate opportunities for clean energy procurement. This could be a collaborative action between multiple tenants to the landlord, tenant to tenant or tenant to landlord. Go back to your benchmarking exercise during your target setting to identify your retailer partners!

By engaging with a partner like Schneider Electric, your company will gain the tools to move forward with setting and achieving SBTs. To learn more about if setting SBTs is a viable option for your company, and next steps for moving forward, contact us now.

Contributed By: Keith McHugh, Client Development Manager, Schneider Electric ESS

 

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