In recent years, commercial real estate organizations have started to develop ESG strategies and invest more heavily in sustainability thanks to market demand for concrete climate action. This demand was spurred by the Paris Agreement, an international treaty on climate change adopted by countries all over the world in 2015. This global effort to stave off the worst effects of climate change requires limiting the increase in Earth’s temperature to 2°C, rather than the projected increase of 3.7 to 4.8°C. 

Due to these efforts, chances are you’ve come across the term “science-based targets” but may not really understand what it means and why it matters for commercial real estate. Major real estate companies such as Boston Properties, Commonwealth Partners, CBRE, JLL, and Prologis, among others, have already committed to setting science-based targets. 

Companies that choose to set science-based targets rather than incremental targets build resilience, increase competitiveness, and are better prepared for regulatory shifts. Here’s what you need to know.

What are science-based targets?

Science-based targets (SBT) are a vehicle for making global goals actionable at the corporate, or in our case, portfolio, level. Targets adopted by companies to reduce greenhouse gas (GHG) emissions are considered “science-based” if they are in line with the level of decarbonization required to keep global temperature increase below 2°C compared to pre-industrial temperatures, as described in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

The Science Based Target initiative (SBTi) promotes science-based target setting and officially approves these targets. It drives climate action in the private sector by enabling companies to set science-based emissions reduction targets. The SBTi is a partnership between CDP, the United Nations Global Compact, World Resources Institute and the World Wide Fund for Nature. 

How do science-based targets work in practice?

While there are several approaches available for setting science based targets, SBTi recommends the Sectoral Decarbonization Approach (SDA) for the commercial real estate industry. The SDA uses scenarios from the International Energy Agency to model the carbon reduction pathway for different sectors and emissions scopes to maintain warming within the 2°C limit. It is based on the establishment of business-level emission trajectories that support the 2°C global warming threshold.

Generally speaking, there are three components to any SBT-setting method.

1. A carbon budget which defines the overall amount of GHGs that can be emitted to limit warming to within well-below 2°C or 1.5°C.
2. An emissions scenario which represents a way of distributing the carbon budget over time, defining the magnitude and timing of emissions reductions.
3. An allocation approach which defines how the carbon budget underlying a given emissions scenario is allocated among similar companies.

Here is a basic step-by-step approach for setting emissions targets using the Sectoral Decarbonization Approach.

1. Determine a finite commitment period by selecting a base year (past) to measure against your target year (future). 
2. Identify emissions for your base year by converting energy use into CO2e. Categorize by emission scope (more on this below).
3. For each scope, forecast what emissions will look like in your target year if business proceeds as usual without any change. 
4. For each scope, forecast the emission reduction needed to align your target year with the global 2°C carbon reduction target. This becomes your SBT.
5. Compare your business-as-usual scenarios to your science-based targets for each emission scope to create a comprehensive portfolio-wide plan to meet your targets and track progress over time.

It is important to note that all SBT-setting methods are complex and should be considered in the context of each portfolio’s operations and value chains. For SBTs to be truly effective, they should cover a minimum of 5 years and a maximum of 15 years from the date the target is publicly announced. Companies are also encouraged to develop long-term targets (e.g., up to 2050). Because of their multiyear nature, SBTs should be periodically reviewed and updated to reflect changes that would compromise their relevance and consistency.

Understanding Emissions Categories

Before you can establish science-based targets for your portfolio, you have to understand its carbon footprint. The most widely-used international accounting tool, the Greenhouse Gas Protocol, categorizes GHG emissions into three groups. Using this framework to collect data is your first step toward reducing these emissions.

• Scope 1 GHG emissions are direct emissions from sources that are owned or controlled by an organization, such as on-site fossil fuel combustion and fleet fuel consumption.
• Scope 2 GHG emissions are indirect emissions from sources that are owned or controlled by an organization, such as emissions that result from the generation of purchased electricity, heat or steam.
• Scope 3 GHG emissions are from sources not owned or directly controlled by an organization but occur as part of its value chain, such as employee travel and commuting or waste disposal.

Setting meaningful reduction targets for your portfolio is reliant on the ability to accurately measure and monitor GHG emissions across all three categories, though beginning with a focus on Scope 1 and 2 is common. A key challenge for commercial real estate organizations is collecting building-level data that can be aggregated and analyzed at the portfolio level. 

Key Takeaways

• SBTs are more effective than incremental emissions reduction targets and offer a number of strategic advantages.
• SBT-setting methods are complex and should be considered in the context of each company’s operations and value chains.
• To ensure their rigor and credibility, SBTs should meet a range of criteria.
• Getting internal stakeholders on board through all stages of the target-setting process requires careful planning.

Additional Resources:

• Science-Based Target Setting Manual
• A Quick Guide to the Sectoral Decarbonization Approach
• GHG Protocol Corporate Accounting and Reporting Standard