Defining climate targets: Transparency of future sustainability reporting

published on 22 May 2023 | reading time approx. 2 minutes

Almost all countries in the world have signed the Paris Agreement, which was adopted in 2015. The common goal of the agreement is to limit global warming to well below 2 degrees Celsius compared to pre-industrial levels. To achieve this, the European Union (EU) and many countries have set themselves climate targets. Targets related to climate are also increasingly expected at the corporate level and are becoming much more transparent through the Corporate Sustainability Reporting Directive (CSRD).

Known targets as orientation

For a company to make a credible and meaningful contribution to the Paris Agreement and the climate targets of the EU and Germany, it needs targets. Thus, the future reporting according to the European Sustainability Reporting Standards (ESRS) E1 provides for transparent reporting on climate targets, policies, action plans and resources. But what goals should a company set regarding the climate? As a starting point, the goals presented below can be a good orientation for your own definition of climate goals. They help to evaluate how companies can contribute to the overall goals with their own climate goals.

Source: European energy and climate targets I Federal Environment Agency

How are climate targets defined

MEASURE: Before companies define their target, greenhouse gas (GHG) emissions should be recorded. The Green-house Gas Protocol serves as a standard for this purpose. Without an understanding of one's own emission sources, it will be difficult to set valid targets and meaningful time horizons.
SET A BASE YEAR: To estimate how much of a reduction in greenhouse gas emissions is necessary, a baseline reference is needed. For example, the EU and Germany have chosen 1990 as the base year. Companies do not need to go back that far and are free to choose their base year.
SET A TARGET: A distinction can be made between a reduction target and a neutrality target. The reduction target indicates the percentage reduction from the base year for a specific target year. The neutrality target, on the other hand, indicates the year in which a company will be climate neutral. For a realistic target setting, major emission factors (e.g., fossil energy sources) in the company as well as the duration of the measures to reduce them should be included. For example, one framework for target setting is the Science Based Target initiative (SBTi). An important feature of the SBTi is that it provides a science-based framework for ambitious and effective targets, and greenhouse gas reductions through offsets are not to be included.

Reporting on climate targets with ESRS E1

In future, companies affected by the CSRD will have to report on climate targets and their achievement. ESRS E1 addresses this in Disclosure Requirement E1.4. First of all, it must be disclosed whether the company has a climate target. If there is one, it must be described how the targets were set (e.g., based on the SBTi). Subsequently, the base year and the value of the base year as well as the target for 2030 (and if possible, also for 2050) must be stated.

Conclusion

Successful reduction of global warming also depends on the contribution of individual companies. This is both a challenge and a catalyst for new perspectives and economic success. In this context, an overview of company-wide greenhouse gas emissions is an important step towards change. A transparent view of the largest sources of emissions in the company provides information on where the appropriate levers for reduction lie. With the new ESRS sustainability standards, the EU has provided a decisive incentive in the direction of greenhouse gas reduction by obligating the companies concerned to report transparently.