Linking carbon emissions to Science-Based Targets

There is growing pressure on companies to verify that their carbon emissions reductions are real and real, writes Emily styles

Ireland’s largest companies are making steady progress toward net-zero greenhouse gas emissions targets, with companies setting Science-Based Targets (SBTs) as part of the net-zero effort.

Four years ago, Company in the Community of Ireland started his Low carbon promise, with 47 registered companies. That number has now grown to 70. Signatories span 11 sectors, with professional services, agribusiness, food and beverage, and financial services being the largest sectors represented.

The pledge requires all signatories to commit to setting SBTs and reviewing and assessing indirect and supply chain emissions by 2024 at the latest.

This must include their entire carbon footprint (Scope 1, 2 and 3) and be in line with the Paris Agreement and the latest findings of the IPCC. The ultimate goal of the pledge is to achieve carbon neutrality, and these goals are the first step toward a net-zero world by 2050.

Signatories to the Commitment include A&L Goodbody, William Fry, ABP, Gas Networks Ireland, Virgin Media, Vodafone, An Post, DHL, ESB, Tesco, EirGrid, Bidvest Noonan, Irish Rail, Irish Distillers, AIB, Allianz, Cairn Homes, Dawn Meats, RSA Insurance, Deloitte, EY, Ornua, PM Group, PwC, SSE Ireland and Veolia,

In a recent update provided by PwC for BITCI, seven out of 10 signatories to the pledge say they are “well advanced” in setting science-based targets (SBTs) by 2024, with the majority expecting to achieve their SBTs by 2030 or sooner.

SBTs offer companies a defined path to reducing greenhouse gas emissions. Targets are considered “science-based” when they are consistent with efforts to limit warming to 1.5°C.

Many climate scientists believe that achieving net-zero global CO2 emissions by mid-century is imperative to limit global warming to 1.5°C and reduce the adverse impacts of climate change.

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As a result, according to the PwC report, the concept of net zero has gained traction in recent years. Unlike SBTs, net-zero targets indicate carbon neutrality rather than direct emission reductions, and therefore carbon offsetting is permissible.

However, according to PwC, not all net zero goals are created equal. The definition of “net zero” and the way to get there are varied and often contradictory. To counteract this, the SBTi launched the first science-based global standard for net-zero targets for companies.

The SBTi Net Zero Standard defines corporate net zero as reducing scope 1, 2 and 3 emissions to zero or to a residual level consistent with achieving net zero emissions at the global or sector level .

SBTs provide the short- and medium-term milestones for alignment with the Paris Agreement, but these targets can also lend credence to companies’ net-zero commitments.

Know your scope

Scope 1 Emissions are direct GHG emissions from sources owned or controlled by the company. Scope 2 -Emissions are indirect greenhouse gas emissions from the consumption of purchased electricity, heat or steam. Scope 3 Emissions relate to the supply chain (e.g. goods and services purchased, transport and distribution, waste generated on-site) and customers (e.g. downstream transport, disposal of products sold).

Two-thirds of organizations have set a net-zero public target, with the biggest challenge to the target being cost.

Just over a quarter of respondents to the Low Carbon Pledge report have set their scope 1 and 2 net-zero ambitions for 2030 or earlier, while only one in eight have set that target date for scope 3 emissions.

Business model resilience, reputation, pressure from stakeholders, corporate and social responsibility, and policies and regulations are cited as key drivers for adoption of SBTs. Some called signing up because it was just the right thing to do.

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A third of Pledge signers use carbon offsets. Of these, 95% use offsets as part of their net zero strategy. This offsetting focuses primarily on the transportation/logistics and professional services sectors.

At the same time, the PWC report notes that there remain challenges to make meaningful changes, mainly related to the need for guidance on baseline calculations, reporting, standards, etc. and value chain engagement related to Scope 3 emissions.

PwC’s Kim McClenaghan believes that companies should define comprehensive and ambitious strategies to reach net zero.

“It is very encouraging to see the progress made by leading Irish companies and their clear commitment to decarbonising their businesses,” he says. “However, the majority needs to move quickly from memoranda of understanding to setting clear decarbonization pathways and formally signing SBTs.”

In the coming years, participation in the Low Carbon Pledge may no longer be optional for large companies. those of the EU Corporate Sustainability Reporting Guideline was recently passed by the European Parliament and requires large companies to provide reliable information on their environmental, social, governance and human rights impacts on an annual basis.

The first stage of transposing the directive into Irish law will begin in the autumn with a public consultation process. The new reporting requirements apply to companies with more than 250 employees and an annual turnover of 40 million euros, and the companies’ claims on their climate impact must be independently verified and certified.

It is envisaged that the policy will apply to companies with more than 500 employees from January 2024 and will be reduced to the 250 threshold in 2025.

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Green budget proposals

Aspects of climate change mitigation need to be financed by private investment and entrepreneurs who stimulate activity and develop the green economy. PwC believes tax policy is an important lever, from providing tax incentives to encouraging investment in certain areas to levying taxes to deter certain behaviors.

Peter ReillyTax politician at PwC, believes Treasury Secretary Paschal Donohoe can accelerate the green agenda with measures in the 2023 budget. The auditing firm demands security for investors and developers of renewable energies in the taxation of investments and disinvestments.

Reilly says the areas to focus on are the qualifying nature of grid connection costs and the application of the participation exemption to pre-trade scenarios.

Another suggestion is to improve the R&D tax credit system to support green innovation and ClimateTech development. Reilly also sees scope for Ireland to become established as a “green finance hub”. This could be accelerated by introducing a preferential tax rate for returns on sustainable investment products.

In order to put a green hue on the 2023 budget, PwC believes the Treasury Secretary should also consider:

  • A tax credit for employers who buy employee tickets.
  • Tax breaks for interest on retrofit loans, incentives for landlords to retrofit rental properties.
  • A program to support insulation and stamp duty exemption when retrofitting occurs shortly after purchase.
  • Tax breaks for interest on EV loans and tax breaks for home charging stations.

Photo: Environment Minister Eamon Ryan (right) with (from left) BITCI Managing Director Tomás Sercovich, PwC Partner Kim McClenaghan and Heidi Hopper Duffy from Iarnród Éireann. (Picture Jason Clarke)

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