- Science-Based Targets
- sustainability initiatives
- Corporate Sustainability
Aligning Efforts: Science-Based Targets and TCFD
This blog was coauthored by Nicole Labutong.
The Taskforce on Climate-related Financial Disclosure (TCFD) and science-based targets (SBTs) are increasingly important for companies and investors. Through Guidehouse’s deep involvement in supporting companies with these efforts, it has found that TCFD and SBTs align. With this blog, we show how companies can address both initiatives simultaneously.
SBTs define how much and how quickly individual companies need to reduce their emissions to keep global warming to less than a 1.5°C increase above pre-industrial levels, in line with the Paris Agreement. The Science Based Targets initiative (SBTi) is considered the leading authority in developing guidance and assessing targets. The Financial Stability Board (FSB) established the TCFD in 2015. TCFD is intended to help companies understand what information financial markets need to effectively measure and respond to climate-related risks. Together, SBTi and FSB-TCFD can guide companies in their efforts to reduce corporate emissions.
TCFD recommendations are classified under four core elements: governance, strategy, risk management, and metrics and targets. Below, we describe how setting science-based targets helps companies align with these recommendations.
To join SBTi, companies must sign a commitment letter. Making this commitment urges companies to have a clear governance structure and often requires board and/or top management involvement.
SBTi requires companies to publicly disclose their companywide greenhouse gas emissions inventory and progress against their targets on an annual basis, holding management accountable to their SBTs (i.e., climate-related issues).
This demonstrates alignment with the TCFD recommendation to have climate-related governance at management and/or the board level.
By developing SBTs, companies gain extensive insights into climate scenarios and how their sector will transition to a low carbon economy. These insights enable companies to identify climate-related risks and opportunities in the short-, medium-, and long-term timeframes.
The Sectoral Decarbonization Approach (a methodology developed by Guidehouse and SBTi) defines sector-specific company targets. The pathways in this methodology can be used to build a robust climate strategy.
Developing an effective strategy requires identifying the climate-related risks and opportunities that would be determined through a scenario analysis, which is part of the TCFD process.
Committing to SBTs usually follows a company acknowledging and understanding the risks posted by climate change. After setting an SBT, a company must reduce its emissions to mitigate climate change and associated risks. These activities can be part of a company’s risk management process. Ensuring that climate-related risks are part of this process is a key TCFD recommendation.
Metrics and Targets
SBTi requires companies to measure its scope 1, 2, and 3 emissions and to disclose performance against SBTs publicly on an annual basis. TCFD also recommends disclosing emissions in these scopes and the specific metrics/targets used to determine performance and related risks.
SBTi and FSB-TCFD recommendations are strongly aligned. We recommend that both initiatives make this relationship visible in their guidance, and that companies consider taking action on both fronts at the same time.