Target Setting & Science-Based Targets

Ambitious, science-based ESG targets demonstrate commitment to sustainability, drive performance improvement, and meet stakeholder expectations. Effective target setting transforms ESG from reporting exercise into strategic driver of business transformation.

Why Set ESG Targets?

Strategic Direction: Provide clear goals that guide decision-making and resource allocation

Performance Management: Enable tracking of progress and accountability

Stakeholder Expectations: Investors, customers, and regulators increasingly expect science-based targets

Competitive Advantage: Differentiate through leadership on climate and sustainability

Risk Management: Proactively address ESG risks (climate transition, resource scarcity, social license)

Characteristics of Effective ESG Targets

SMART Criteria:

• Specific: Clearly defined metric (e.g., "Reduce Scope 1+2 GHG emissions by 50%")
• Measurable: Quantifiable with reliable data
• Achievable: Ambitious but realistic given resources and constraints
• Relevant: Aligned with material ESG topics and business strategy
• Time-Bound: Clear deadline (e.g., by 2030)

Additional Criteria:

• Science-Based (for climate): Aligned with climate science (1.5°C pathway)
• Absolute vs. Intensity: Absolute targets (total emissions) preferred over intensity targets (emissions per unit) for climate
• Scope: Covers relevant operations and value chain (Scope 1, 2, 3 for climate)
• Baseline: Clear baseline year and methodology

Science-Based Targets for Climate

What Are Science-Based Targets (SBTs)?

Definition: Emission reduction targets aligned with level of decarbonization required to keep global temperature increase below 1.5°C or well-below 2°C compared to pre-industrial levels, in line with Paris Agreement.

Science Based Targets initiative (SBTi): Partnership between CDP, UN Global Compact, WRI, WWF that validates corporate climate targets.

SBTi Target Ambition Levels

1.5°C-Aligned Targets (Recommended):

• Reduce emissions by at least 42% by 2030 (vs. 2020 baseline) for Scope 1+2
• Reduce emissions by at least 25% by 2030 (vs. 2020 baseline) for Scope 3 (if material)

Well-Below 2°C Targets:

• Reduce emissions by at least 25% by 2030 (vs. 2020 baseline) for Scope 1+2

Net-Zero Targets:

• Reduce emissions by at least 90% by 2050 (vs. baseline) for Scope 1+2+3
• Neutralize residual emissions (<10%) through carbon removals (not offsets)

SBTi Target Types

Near-Term Targets: 5-10 years (typically 2030)

Long-Term Targets: Achieve net-zero by 2050 (or sooner)

Scope Coverage:

• Scope 1+2: Mandatory for all companies
• Scope 3: Mandatory if Scope 3 >40% of total emissions (Scope 1+2+3)

SBTi Target-Setting Process

Step 1: Measure GHG Emissions

• Calculate Scope 1, 2, and 3 emissions using GHG Protocol
• Determine baseline year (typically most recent year with reliable data)

Step 2: Determine Target Ambition

• Choose 1.5°C or well-below 2°C pathway
• Decide on near-term (2030) and/or long-term (2050) targets

Step 3: Calculate Target

• Use SBTi Target Setting Tool or sector-specific guidance
• Absolute Contraction Approach: Reduce absolute emissions by X% by target year
• Sectoral Decarbonization Approach (SDA): Align with sector-specific pathway (for energy-intensive sectors)

Step 4: Submit for Validation

• Submit target to SBTi for validation (fee-based)
• SBTi reviews target against criteria, provides feedback
• Once validated, target is published on SBTi website

Step 5: Disclose and Track Progress

• Disclose target in sustainability report, CDP, company website
• Report annual progress toward target (emissions, reduction initiatives)

Primary Source: SBTi Corporate Manual

Target Setting for Other ESG Topics

Environmental Targets

Water:

• Reduce water withdrawal by X% (absolute or intensity)
• Achieve water neutrality in water-stressed regions
• Example: "Reduce freshwater withdrawal by 25% by 2030 (vs. 2020 baseline)"

Waste:

• Achieve zero waste to landfill by [year]
• Increase recycling rate to X%
• Example: "Divert 90% of waste from landfill by 2025"

Renewable Energy:

• Source X% of electricity from renewables by [year]
• Example: "100% renewable electricity by 2030"

Circular Economy:

• Increase recycled content in products to X%
• Design X% of products for circularity (reuse, repair, recycling)

Social Targets

Diversity & Inclusion:

• Achieve X% women in leadership by [year]
• Achieve X% ethnic minority representation in workforce
• Example: "40% women in senior leadership by 2025"

Health & Safety:

• Reduce total recordable injury rate (TRIR) to X by [year]
• Zero fatalities
• Example: "Reduce TRIR to <1.0 by 2025"

Living Wage:

• Ensure 100% of employees earn living wage by [year]
• Extend living wage commitment to supply chain

Training & Development:

• Provide X hours of training per employee per year
• Upskill X% of workforce in digital/green skills

Governance Targets

Board Diversity:

• Achieve X% women on board by [year]
• Achieve ethnic minority representation on board

ESG-Linked Compensation:

• Link X% of executive compensation to ESG targets

Supplier ESG Performance:

• X% of suppliers assessed on ESG by [year]
• X% of suppliers with science-based targets

Implementing and Tracking Targets

Develop Action Plan:

• Identify initiatives to achieve target (energy efficiency, renewable energy, process improvements)
• Estimate emissions reduction / impact of each initiative
• Assign ownership and budget

Integrate into Business Planning:

• Incorporate ESG targets into strategic planning, budgeting, capital allocation
• Align business unit goals with corporate ESG targets

Monitor Progress:

• Track KPIs monthly/quarterly
• Report progress to board and executive leadership
• Adjust action plan if off track

Disclose Progress:

• Report annual progress in sustainability report
• Explain variances and corrective actions
• Update targets if business changes significantly (M&A, divestments)

Common Pitfalls

Pitfall 1: Setting Unambitious Targets

• Solution: Benchmark against peers, align with science (SBTi for climate)

Pitfall 2: Intensity Targets Without Absolute Targets

• Solution: Set absolute targets for climate (intensity targets can mask absolute growth)

Pitfall 3: Ignoring Scope 3

• Solution: Include Scope 3 if material (>40% of total emissions)

Pitfall 4: Lack of Action Plan

• Solution: Develop detailed roadmap with initiatives, owners, budgets

Pitfall 5: Not Tracking Progress

• Solution: Establish KPIs, monitor quarterly, report annually

From ESG Library

• ESG Reporting Made Simple (IFRS/SASB) — Target disclosure for IFRS S2
• ESG & GRI Reporting Made Simple — Target setting for GRI reporting

View all books →

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