Author:
IBC Team
06 December 2024
Prior to the COP27 summit, Indonesia submitted a 2022 Nationally Determined Contribution (NDC) of a 31% decrease in GHG emissions or 43% with international support (IBCSD, 2021). Setting targets is a crucial first step in Indonesia’s climate mitigation journey. However, this is not a step that the Indonesian government should take alone.
To achieve these national targets, the private sector must also set targets. After all, they are responsible for a large proportion of emissions as seen below (Climate Transparency, 2020).
Source: Climate Transparency, Enerdata, World Resources Institute (WRI), 2020
Across the G13 (non-G7 members of G20, including Indonesia), 1,216 companies have disclosed net zero targets but only 6% are science-based. This means that, if Indonesian companies have set net zero targets, they are most likely self-referential and not in line with Paris Agreement targets (Science Based Target, n.d.). While these targets are well intended, they have key weaknesses.
Flaws of self-referential net zero targets
Firstly, companies follow different guidelines about what emissions are considered in their targets (Rahul Tongia, 2021). Some guidelines only consider emissions within the company’s direct production process (Scope 1), while others consider emissions beyond that (Scope 2 and 3). With this lack of clarity, the company’s targets become incomparable and difficult to aggregate. It becomes challenging to check whether Indonesia’s private sector is on track to help achieve its NDC.
Secondly, companies’ self-referential emission targets rarely include near-term targets. According to Net Zero Tracker’s annual report, out of the 702 companies in Forbes 2000 with a net zero target, two-thirds have not made it clear how they plan to achieve the goal (Gloria Dickie and Simon Jessop, 2022). This is a similar issue faced by Indonesian companies. Without these interim targets, companies’ trajectory is largely unclear. Planning and evaluating thus becomes challenging and emission targets become false promises.
Finally, many self-referential emission targets include carbon offsets in their GHG accounting. This introduces a moral hazard as companies may prioritize investment into carbon neutralization projects over abatement. Although the former requires less adaptations and costs, the latter is most essential for emission reductions. Besides, offsetting has several problems in itself: it is resource heavy and takes years to have an impact (Alia Al Ghussain, 2020).
Science Based Targets (SBTs) serve as a better alternative, which tackles the above flaws.
SBT’s ability to scrutinize targets at international level
SBTs are emission reduction targets based on the latest climate science. These targets are internationally approved and highly regarded by climate scientists, companies and governments. These targets allow companies’ contribution to NDC to be more concrete and accountable.
SBTs are centered around a mitigation hierarchy of actions that companies must undertake to help governments achieve NDCs, beginning with abatement by 2030, and then ambitiously up until 2050, followed by neutralization to achieve corporate net zero while supporting societal net zero emissions. This positions SBTs as a provider of strategic “gold standard” guideline for private sector to achieve their highest possible net zero emissions ambition.
Private sector participation in the SBTi (Science Based Target) has dual bottom line: environmental and economic benefits.
Rigorous standards: SBTs must fulfil strict criteria, such as covering company-wide Scope-1 and 2 emissions (Science Based Target, 2024). Ideally, SBTs will be based on the sectoral carbon budget allocation which leads to the earliest reduction and the least cumulative emissions. This is documented in SBTi’s sectoral guidance, pathway, and climate modeling tool. Due to these rigorous standards, we can expect greater emission reductions through SBTs instead of self-referential emission targets. Between 2015-2020, companies with SBTs reduced GHG by 29% (Science Based Target, 2021).
Source: SBTI 2021 Report
Progress tracking & accountability: Having both near-term and long-term targets enables companies to monitor progress and remain on track with their emission targets. SBTi also encourages companies to report on their progress, creating accountability so emission targets are less sidelined by short-term business priorities.
Abatement over offsetting: According to SBTi’s mitigation hierarchy, companies must first cancel emissions within their value chain, and only afterwards are companies encouraged to neutralize the remaining emissions beyond their value chain via offsetting. This pushes companies to abate offset, ushering sufficient emission reductions by the target endpoint.
Appeals to customers & investors: By having SBTs, companies can demonstrate their climate commitment and be recognized for it on the SBTi global website, using proven specific communication and disclosure methods. Since consumers are increasingly climate conscious and investors now consider sustainability for businesses’ credibility, setting SBTs will improve companies’ brand reputation and investor confidence. In a YouGov survey of 185 companies, 79% found strengthened brand reputation to be one of the most significant business benefits of SBTi (Science Based Target, 2018). 52% also said their SBT commitment has boosted investor confidence (ibid).
Cost-effectiveness: By having both near-term and long-targets, SBTs front load emission reductions. Economic models suggest that front loading emission reductions overcome the inertia in economic systems and allow economies of scale, such as learning and lower technology costs, to unfold (Sam Fankhauser, et al, 2022). SBTs are thus the most cost-effective way to reach NDCs. SBTs also help companies build resilience to fossil fuel supply shocks, such as the one we are facing. By requiring long-term plans to transition away from these increasingly scarce and expensive resources, SBTs can help companies’ future proof their balance sheets. The YouGov survey indicated that 29% of company executives have seen bottom line savings from their SBTs (Science Based Target, 2018).
Innovation: SBTs encourage companies to decarbonize their production processes and products, thus driving innovation. For example, SBTs helped Sony develop a new plastic, SORPLAS, which is 99% recycled material and reduces CO2 emissions by nearly 80% during manufacture (Science Based Target, 2018).
More widely, SBTs ability to usher in effective climate action allow NDCs to be reached, which has economic benefits. According to BAPPENAS, achieving the NDC would create up to 4.4 million jobs by 2030 in Indonesia (Gianfranco Casati and Anindya Novyan Bakrie, 2022).
The best way forward
SBTs are by no means perfect. Notably, the target does not consider the company’s impact on biodiversity nor the socioeconomic side of sustainability. Some climate scientists even argue that SBTs do not go far enough and that companies should aim to be ‘carbon positive’ (taking away more carbon from the atmosphere than they put in) (Iain Watt, 2018). Nevertheless, the expansive benefits that it poses both to companies and the environment renders SBTs the best option.
Of the 2,253 companies in the SBTi program, only 11 are Indonesian and their SBTs have yet to be approved (Science Based Target, n.d.). Yet, Indonesia has the capacity to expand. It is strongly encouraged that Indonesian companies commit to and implement SBTs (Net Zero Hub, n.d.), whereby regulations on climate disclosure are currently being strengthened. Tackling this would help businesses not only future proof their operations, but also contribute to development generally, going beyond their conventional responsibilities.
