Should you set SBTs?

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Transcript

Saif Hameed [00:00:00]:

You should understand what your targets are going to cost you, and that's always going to be relevant. And it may well be that a science based target is within your budget, for want of a better word. Right. It's something that your business can actually attain and it can attain it without a huge amount of incremental effort. And it's nicely synergistic with business strategy and your stakeholders want it, in which case, go for it by all means. But I think that a lot of companies looked at this as an easy way to benchmark and didn't do the math. I'm Sef Hamid and this is the State of Sustainability Podcast. If you like what you hear on our podcast, please please join us in Chicago for the State of Sustainability Summit where we discuss all the topics that we cover on our podcast and more in person.

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Saif Hameed [00:01:00]:

The signup link will be in the show notes below.

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Isobel Wild  [00:01:03]:

Hello, everyone. Welcome to the State of Sustainability Podcast. In today's episode, we'll explore science based targets and ask the question that's on everyone's lips, should we be setting them? Saif, welcome.

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Saif Hameed [00:01:16]:

Hey, Izzy, glad to be here.

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Isobel Wild  [00:01:18]:

What is happening with SBT?

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Saif Hameed [00:01:20]:

So I think there's a few things here. One is there was already a fair bit of tension associated with the SBT and with SBT targets, mostly related to how offsets or certificates of various sorts are accounted for. In addition to that, what we've seen is two is two shifts happening. One is that more and more companies were starting to appreciate and realise that the target that science would require is a very difficult target for their business. And so over the course of last year, you kind of saw this backsliding of companies running late to share their updated SPTN information, or pulling out formally or otherwise, or running behind. In addition to that, you obviously now have significant political developments such as the US Pulling out of the Paris agreement again. And so that's a signal really that not being aligned with science is okay. And so I would say that the combination of those things, to my mind, puts a lot of weight and a lot of pressure on the relationships that most companies have had or might have had with SBT or SBTs.

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Isobel Wild  [00:02:30]:

I think this, though, comes into the whole framework of, like, how do you actually set a good target? Do you want to set stretch targets and ambitious targets, or do you want to set realistic targets? Because, yes, science might be ambitious and might be hard to reach, but that is, you know, maybe that is the North Star that you want to have to kind of get the momentum and level of ambition that you want. So is it more of a question of how, as a company, you like to set targets?

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Saif Hameed [00:02:58]:

I think the dividing line really, if there is one, is are you solving for what is good for the world or are you solving for what is good for your business? And I think that within the sustainability community of practitioners, we tend to have this odd marriage of two types of factions. One is almost like the anti capitalists, those of us who really want to try and get the business community aligned with where we think it needs to be. From not quite a moral perspective, but a scientific perspective really. We feel that the business community needs to own some element, you know, its share of the global target and the global commitment. There's another group that is more like, let's say, the business pragmatists. And on that side of the fence, we think that business needs to do what makes the most sense for business and what is in the long term interest of business. And there's obviously an overlap here between these two sustainability camps. If you're in the former camp, you're more likely to think that a company has an obligation to set a science based target and that science is the only real measure or yardstick against which such targets should be measured.

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Saif Hameed [00:04:06]:

Is the target something that is in line with what science says we need to, to maintain a 1.5 degree scenario? For example, if you're in the latter camp, where you're actually on the business magnitude side, then I would say the target needs to be as high as it needs to be for your business value to materialise and no higher, because the target is going to, is going to cost incremental points on the target is just going to cost you more money. If you look at the cost curve of all the things you could be doing at a certain point, everyone's curve exhausts the stuff that makes you money and goes into the stuff that spends money or costs you money. And so overachievement is not really in any business's interest.

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Isobel Wild  [00:04:50]:

What are you seeing in terms of the pressure put on companies to set independently verified targets in comparison to perhaps external targets which aren't aligned with science based targets or even internal targets that aren't public commitments? Do you think that there is a significant upside? What are you seeing?

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Saif Hameed [00:05:14]:

So I think that the role that SBTs filled was to give everyone some form of benchmark. What is a good target? And actually I remember I started helping companies with their emissions targets around 2017, 2018, and this was one approach. Setting a target that was aligned with science was one approach that I was talking about. And there were other approaches as well. And what was nice about the SBTs was that they provided a more or less convenient benchmark that had math behind it and an approach and a methodology and some external body that could say this was a good target. I think that as companies become more and more comfortable with their sustainability programmes, the need for that external validation actually goes down. And so there's a question around whether you're being asked to set an SBT specifically, and you might be. It's very possible that your customers, for example, if you're a B2B, your customers want you to, or other stakeholders want you to set an SBT specifically.

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Saif Hameed [00:06:20]:

But if that's not the case, you might actually have quite a bit of freedom to look at alternative approaches to set a target. And alternative approaches might be you look at peers and what are they doing. You actually look at your own baseline versus previous years and what do you think is a significant jump from that? There could be other approaches that you might take as well.

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Isobel Wild  [00:06:38]:

If you take a, like, environmental purist approach, though, you're not aligning with the IPCC 1.5 or whatever it's been pushed back to now, what's going to happen to the world? Like, the reason why we're aligning to it, because there's tipping points and there's repercussions for not aligning to it. How do you. How do you rationalise that?

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Saif Hameed [00:06:57]:

I think in many ways. So if you're. If you subscribe, let's say, to a somewhat purist view of business, right, you believe that the actual purpose of the corporation is to maximise shareholder value, you might well say, well, look, to be honest, if no one is taxing me for this, and I'm not breaking any laws, it makes no sense for me to voluntarily disarm. It makes no sense for me to voluntarily pay more than I am required to pay, whether or not it is in the broader interest of the planet. And this is a decision that businesses face with all the time. Most businesses operate in a situation or context where they could always be doing more to maximise the public good and minimise public harm, but they tend to draw the line at what is required of them, either by the law or by the needs of protecting their brand, building a loyal customer base, maintaining goodwill, all of which you can incorporate into any sort of target. Science and the science of climate change is an external problem of the commons. And it is very hard from a purely capitalist perspective to say that any business should voluntarily own a share of.

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Isobel Wild  [00:08:14]:

That, yeah, we're really facing up to the hard truths of business today. So then what company is most likely to pull away from SBT? Do you have any kind of predictions there?

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Saif Hameed [00:08:28]:

So I think that it's almost easier to say what companies are for what companies are SBTs likely to always make sense as the approach to target setting. And I think that those are going to most likely be companies who are being asked specifically to sign up to SBTs. And the reason I say that is because if you're not specifically being asked to set a science based target, and you could be asked not just by customers, but also by your internal stakeholders, your talent could believe that you need to set a science based target, for example. But if not, then the decision to have an external validator of your target voluntarily and to set a target that is more ambitious than it needs to be voluntarily, is one that I don't think will appeal to most companies. And so I would expect a fairly chunky share of business that was moving towards SBTs now to sort of drift away. I don't know if a lot of them will pull away in the way that we've seen last year, but I would expect this sort of drift where a lot of companies may be on the waiting list, drop off the waiting list. A lot of companies that were thinking about it, preparing about it, defer. I would expect a lot of that.

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Saif Hameed [00:09:42]:

I think there are likely still a bunch of companies that would hold the course because the course is easier for them to hold. So, for example, depending on where we end up landing with respect to offsets, for instance, a lot of professional services businesses might stay part of it because they're not required to make big deep operational changes in their business, for example. You know, there, there could be a, there could be some pockets that stay closely aligned, but I would expect a big drift.

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Isobel Wild  [00:10:12]:

And what do you think the reaction of the press is going to be like to this? Because, you know, we at the start, well, 2024, I feel like every other week there was headlines like, you know, unilever, step back from spti, yada, yada yada. Do you think the press is going to be as on top of it or do you think that the newsworthyness of these stories has slightly diluted?

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Saif Hameed [00:10:36]:

I think big companies abandoning big commitments is still noteworthy. Some of this sort of thing, even last year, didn't actually attract that much attention though. Like if you look at the global fashion pact, I actually forget what the exact number was. I think it was like 25% of the original signatories have sort of pulled out or something of that nature. And, and I didn't even notice when that was happening. It sort of quietly happened over a couple of years. I think that the big pullouts will still attract attention. I think the drift won't.

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Saif Hameed [00:11:11]:

So I think people, for example, dropping off the waiting list, dropping off the process and not actually going ahead and kind of having their SBTs validated, I think that's probably not going to make it to any headlines.

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Isobel Wild  [00:11:25]:

So on the flip side of this, if we look at, from an SBTI perspective, what do they need to do to get people back into the fold to stop this drift? Do you think it's a dilution of targets or perhaps more entry points?

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Saif Hameed [00:11:42]:

I don't think it's actually about more entry points because that's basically just dilution. You can kind of say, well, the reason that SPTI is, you know, the real risk for SBTi you could say, is loss of credibility. And that wouldn't be wrong, right? Like there's clearly a big credibility hit and so diluting the focus on targets is just going to exacerbate that. The other thing you could say is SBTI needs more institutional heft. It needs to be owned more closely by industry and, and be shaped more actively by industry so that industry can feel comfortable owning it. And there are, I think, some good parallels for that. We talk about PACT a lot, which sort of backed by the World Business Council for Sustainable Development, which has a very good history of working with business collaboratively and creating standards that kind of everyone can adopt and work with and that are maybe less opinionated, I would say, than targets necessarily are. So it could be that actually that's part of the answer.

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Saif Hameed [00:12:44]:

I think the other thing which one has to face up to is that a 1.5 degree scenario is, is not really his stretch goal, for want of a better term for everyone. And so then does SPTI just become the kind of the institution that keeps holding the flag high on an unattainable target or that keeps lowering the target? Because actually the baseline is getting worse and worse? I actually think it's just very difficult for this sort of an organisation to long term, long term manage.

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Isobel Wild  [00:13:20]:

So do you think targets actually hold companies accountable? Do you actually think from what you've seen across your experience working in the sustainability sector that targets have helped to move the needle on a lot of initiatives or ambition? Or do you think actually they can cause a bit more of a headache and there seems to be quite a lot of admin as it were, that comes with backsliding from these initiatives. What's your personal view of it?

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Saif Hameed [00:13:52]:

I think that it all comes down to how the target was set. If the target was set somewhat arbitrarily, without any basis in business logic, then it's very unlikely that the target does much good other than make everyone feel like they've underachieved. It actually ultimately cost the business some momentum. I think that the best way to set these targets is a combination of top down and bottom up, where you have a direction of travel and that could be informed by science. And you could say this is the reduction that we need to achieve, 40% or whatever it might be. This is like the reduction that we need to achieve from a top down perspective. Let's validate this through a bottom up analysis of all the different things that we could be doing and we see what the bill is likely to come to for hitting our top down goal. And if the bill is likely to be something that breaks the bank, then we know that the top down goal is too ambitious and we need to water it down a bit.

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Saif Hameed [00:14:47]:

Or actually if it looks like something we can achieve, then let's stick with it. But you need to validate that before you go ahead and commit. I would say, and I don't think a lot of organisations have done that.

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Isobel Wild  [00:14:58]:

I think this is also kind of shown in Science Based Targets for Nature because they ran a pilot with 17 companies and actually at the end of it only three companies out of the 17 have signed up to Science Based Targets for Nature which proportionately is like, that's not great if you're looking at it. And I think it's not a great signal for the rest of the industry around target setting. Whereas I know carbon has had years and years of experience and they've got that overarching singular metric to align to because nature is a bit of a different beast. But I think as a type of target that's coming into the industry, I think that's quite a big indicator of what company's nervousness to attack targets and even align to them.

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Saif Hameed [00:15:48]:

Yeah, I think the other aspect of this issy is where's the motivation coming from and why? And so if you look at for instance, science based Targets for Nature, if the motivation is I need to increase the resilience of my supply chain and I need to minimise the risk exposure of my supply chain, I think that the target that you might derive from that might end up being very specific to your business and a result of where you need to get to on those risk measures that you want to optimise for. And it may or may not be that that is well aligned with what a global scientific target should look like for your business. But it's, you know, that seems somewhat serendipitous to me and I think it's the same with emissions as well. Because there are many reasons why you would want to might want to optimise emissions within your business. It could be about cost, it could be about providing some form of an ideological backing for a transition you want to do anyway within your business for other reasons. Maybe you want to electrify the fleet and limit your reliance on fossil fuel contracts or whatever. There could be many reasons you might want to tap into a specific customer base, for example, introduce new product lines on the back of this. This could be a lot of reasons.

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Saif Hameed [00:17:07]:

And all those reasons could give you fodder or input for a target setting process. And the idea the where to draw the line then on that target should be defined from a business pragmatist perspective by those goals that you want to achieve. Whether or not this kind of bakes nicely into what the world needs as a target is either going to be a motivation coming from outside your business, or it's going to be somewhat serendipitous.

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Isobel Wild  [00:17:39]:

Maybe. Let's park science based targets for a minute and look at the alternatives to target setting. What are people doing? Have you seen any cool examples of alternatives?

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Saif Hameed [00:17:52]:

No, the thing that I've seen most is companies setting their own targets that are kind of SBT leaning or SBTI light or like, and they usually have different names for this and just calling it their target. That's the thing that I'm most seeing.

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Isobel Wild  [00:18:11]:

And are there characteristics to those? Are they more qualitative or quantitative? Like what makes up a good alternative target?

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Saif Hameed [00:18:22]:

Very similar. I would say that there's always been a host of accompanying targets going alongside SBTs like packaging reduction and waste reduction and various others. There's often several targets that companies end up setting. And as far as the comparable to science based targets for emissions reduction goes, from what I've seen, they tend to look a lot, a lot like SBTs. The difference is that they might not be as ambitious and they won't be validated, but they will still be a target that a company sets.

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Isobel Wild  [00:18:54]:

I want to dig into your predictions for this. As we're still in January 2025, I think there was a lot of corporate backsliding that happened in 2024 and which is probably continuing to grow in 2025. But what do you think, you know, out of top line, what, what a company is going to be doing? What do you think the state of play is going to be like during.

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Saif Hameed [00:19:18]:

2025 with respect to targets?

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Isobel Wild  [00:19:21]:

With respect to targets? Yeah.

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Saif Hameed [00:19:25]:

I, I think it's going to be a difficult year for targets. So a couple of inputs into this, right, Like I am, I'm also seeing some, some data around how climate change strategies have started to generate revenue streams for businesses. And so there's a bunch of businesses, I think, that will stay the course because actually the course is working out quite well for them. But I do think that over the course of this year, we're going to see some of this drift away from targets. We're going to see some watering down of existing targets. We're going to see some expectation that underperformance is okay and that might lead to a recalibration of targets next year, for example. But I think what we need to acknowledge and face up to is that a lot of the targets that were set three years ago were either not fully thought through or came at a cost that businesses no longer prepared to pay, either because of changing political economic dynamics or interest rates being in a different place or any number of other external stimuli being, being different to where they were three years ago.

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Isobel Wild  [00:20:30]:

A lot of targets are actually requirements under CSRD as well as other regulations, which actually means that you can align, you know, you can align your efforts and have, you know, double wins. Do you see that, that having a factor to play in how target's going to pan out?

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Saif Hameed [00:20:51]:

I think that companies will have targets. I think that if you're going to be measuring it and you're going to be reporting it, I think most companies will feel that it makes sense to have a target for it. I think the question here is, do you want to have that target be something that is a big public milestone that will be noisy when you miss it? And I think most businesses don't want more of that.

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Isobel Wild  [00:21:21]:

And what's your position, Saif? If you were tackling this yourself, where would you fall on this kind of spectrum of target setting?

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Saif Hameed [00:21:30]:

If I'm completely honest, I would try and understand what is it that matters to my stakeholders, who are my stakeholders and what matters out of those stakeholders? One set might be customers, you know, and let's say I'm a B2C business. I'm a food brand, for instance, selling to consumers. What matters to the consumers? Do they know what SBT keys are? Do they know what SBTI is? For example, do my investors want me to set a target? Do they want me specifically to set a science based target? And actually, if what I'm finding based on the data is that my consumers don't really care or don't know and my investors don't really have a preference and none of the other stakeholders that I particularly am concerned with have a preference, then I wouldn't set a science based target because there's no business need. Now I may morally feel like I should be setting a science based target and that my business should be doing its fair share. That is not the business of business. If you kind of think about what the business of business is, any element of responsibility or purpose should be codified somewhere in the business strategy, the business articles, the business plan, and as B Corps do, for example, in which case, you know, I might think differently because now an important stakeholder group, which is my, my company that employs me, cares differently. But absent that sort of pressure, it just becomes an additional cost.

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Isobel Wild  [00:22:55]:

Okay, well, do you have any lasting advice for any practitioners or professionals who are, you know, having set targets or they're looking to set target?

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Saif Hameed [00:23:07]:

It would be that you should understand what your targets are going to cost you and that's always going to be relevant. And it may well be that a science based target is within your budget, for want of a better word. Right. It's something that your business can actually attain and it can attain it without a huge amount of incremental effort. And it's nicely synergistic with business strategy and your stakeholders want it, in which case, go for it by all means. But I think that a lot of companies looked at this as an easy way to benchmark and didn't do the math.

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Isobel Wild  [00:23:46]:

Awesome. Well, thank you everyone for listening. We got under the skin a little bit of what actually is happening with target setting at the moment and lots more room for conversation to continue. Thank you, Saif.

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Saif Hameed [00:24:00]:

Thanks, Izzy.

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Isobel Wild  [00:24:02]:

Bye.

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