Hi this is the last part.

It's number five. Five of my science based targets lecture.

On to a couple of things I want to suggest

a really easy approach to setting a science based target.

And then I want to talk through an idea I'm working

on that will address some of the weaknesses we've found in the various methods.

So first the easy easy approach.

Look for a certified science based target

so a company that has been approved or certified by

the science based target and initiative that's in your sector and mimic it,

make adjustments for starting values.

So if your company has higher emissions or

emissions intensity than a comparable company the certified company,

then you need to increase emissions a little bit or have a higher reduction rate.

But this may be the easiest way to do it from the the back end of.

What it takes to be certified and then just modify it for your company.

Now I want to talk through a little bit for trying to improve the various approaches.

And this is just me kind of thinking aloud.

So probably you can end this video now and not miss thing.

Here's my goal, the criteria I'd like to satisfy is

that we can get

on a two degree or one and a half degree carbon budget pathway.

We can recognize sectoral differences in terms of

growth and emissions reduction opportunities that companies bear costs fairly.

So that initial low emitters don't have to make

more costly reductions than initial high emitters,

and that all companies make some reductions.

So this is a list of criteria that I'd like to satisfy and

here's at least an idea of how to do it and I'll

look at and appreciate any comments you make and

maybe over the course of this course or a couple of years you can

fine tune this enough to come up with a really good approach for science based target.

First I think we should use

the 3 percent solution sector reduction targets

to acknowledge the sectoral difference in capacity to reduce emissions.

So that's the work that McKinsey and Company has done.

And we saw that in the video for lecture about sector based target setting.

So within a sector we're going to find the company with the best carbon intensity ratio.

Now that company has done the most work to reduce carbon.

We also know that every other company in that sector ought to

be able to reach that company's carbon intensity.

So if one company has done it others should also.

So we've got sort of you could think of it as the baseline reduction.

Being able to mimic the best carbon intensity company in a sector.

Then we compute that companies expected

2030 2050 carbon intensity by using

historical rates of energy efficiency improvement

and that's on next slide I'll show you in a second.

So the idea is that economy wide there are some inherent efficiency gains that

the best companies should be able to incorporate and so that moves

the target that other companies in the sector are trying to reach.

It doesn't ask the best company to do anything

more than what's happening across the entire economy.

And then as I've already alluded to other companies in the sector have to converge to

that intensity ratio by whatever the horizon date is 2030 2015 and so on.

I mentioned global energy efficiency or energy intensity and here's what we know.

We know that energy intensity has been decreasing by

about one and a half percent per year over the past 20 or 25 years.

We also know that carbon intensity has been decreasing

by about 0.8 percent so a little less than 1 percent per year.

These seem to be organic efficiency gains or improvements

and this would be the path that the best company in a sector would follow.

So we expect decreases of about 1 percent a year in

carbon or one and a half percent in

energy use just naturally because that's what the entire economy is doing.

So we think that that should be a pretty good baseline to achieve.

Now if we just looked at

energy intensity without choosing the best company in a sector that

would have to decrease at about 2.6 percent per year to meet

that 2 degree centigrade climate target.

But we're using the very best company.

And so a slower rate of reduction or lower rate or reduction will work.

Now how do you deal with growth?

So my approach hasn't addressed growth yet but here is a way that I think we can do it.

The blue line is the one and a half percent decline.

So that's what the best company is going to follow using

the organic energy and efficiency improvements that

the economy seems to be able to produce every year.

Now instead of using one and a half percent

the best company uses three or two and a half percent initially.

And so we get a concave curve and let me see if I can do this.

The area between the curves this gold area is available for growth.

Remember that you know we were on a two degree path.

With one and a half percent.

The best company at one and a half percent.

So if the best company does better than that.

That will leave some room for growth

for companies in that sector or maybe in other sectors.

So I've still got a ways to go to get this all sorted out.

For one thing I have to make sure that the one and a half degree energy efficiency is

actually going to put the best company on a two degree path and a bunch of other stuff.

But this is what I'm thinking about,

And since all companies including the best company are improving their performance,

that means everybody is reducing that was my last criteria.

So final comments of this lecture science based target setting is new.

There's a lot of approaches that need to be designed and tested and created.

I don't think we've seen the full range of what can be done.

Approaches do need to consider reduction opportunities to be fair.

They need to be able to allow some growth.

So we've got some innovation.

We can't foresee what the economy's going to

do and what the needs will be so we need some flexibility in there.

I think that if your company sets a target

that satisfies a rigorous reduction pathway or budget.

So two degrees one and a half degrees,

if it shows that it's absolute and its intensity metrics are decreasing over time.

And then you explain what you did,

that should be more than enough to satisfy stakeholders whether it is

certified by the science based target initiative folks or not.

I think you've done a really good job and you've done

exactly what the spirit of science based target setting is all about.

I think that science based targets need to

be flexible enough to allow a couple of things.

Increased emissions for developing countries and the other thing we need to

consider for value added metrics using something other than gross profit.

If we use gross profit that means that companies and perfectly competitive markets with

highly differentiated goods are going to get most of the emissions but companies

producing commodities won't necessarily get a fair share of emissions.

And I don't think that's exactly what society values may be what the dollar say.

Society values but I don't think that's really what we should be looking at.

I think we need to consider more flexibility in terms

of those companies that enhance our health,

our nutrition, our education, our well-being.

And create more room fFinish transcribingor them to

grow because they're so crucial to our society.

Well this ends the lecture right at the cutting edge of

current corporate carbon management in terms of target setting.

I hope you have a good feel for science based target setting

and some of the things that need to be resolved yet.

Thanks. Bye bye.

Science-Based Target Lecture Part 5

Sustainable Business: Big Issues, Big Changes

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