Unlocking the power of SBTi Temperature Scores: A new way to measure corporate climate targets

A new way to measure corporate climate targets

How ambitious are reduction targets for a technology company compared to those of a shipping conglomerate? And how do we contextualise commitments stated in total GHG reduction in tonnes to climate outcomes?

This is where the Science Based Targets initiative (SBTi) Temperature Score comes in. Developed and managed by World Wide Fund for Nature (WWF) and CDP, translates corporate emission reduction targets into an equivalent rise in global temperatures, providing a simple yet powerful way to indicate whether companies are on track to meet global climate goals.

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1. What works

The SBTi Temperature Score offers a transparent way to evaluate climate performance by aligning corporate targets with the latest climate science. Here’ is why this approach is resonating with sustainability experts and asset managers:

• Simplicity and comparability: The Temperature Score distils complex emissions data into a single figure, enabling comparisons across sectors and geographies. For asset owners managing portfolios, this is particularly useful as it turns abstract decarbonisation efforts into actionable insights.
• Alignment with global goals: By linking corporate targets to a specific temperature rise, the score immediately shows whether a company is aligned with the Paris Agreement’s ambition to limit warming to well below 2°C. It allows for the benchmarking of individual companies against this critical global objective.
• Open-source transparency: The Temperature Scoring method, developed through the SBTi and managed by WWF and CDP, is built on open-source principles, ensuring transparency. This is critical for building trust in the metric, as stakeholders can understand the calculations behind the score, making it easier to integrate into broader sustainability assessments.

2. What doesn’t work

While the SBTi Temperature Score is a powerful tool, it has limitations that sustainability experts should consider. These limitations are not flaws of the tool itself, but rather areas where the scope of the SBTiTemperature Scoring is restricted

• Focus on ambition over action: One key limitation is that the score is based solely on a company’s stated targets - what they say they will do - rather than what they have already accomplished or are currently doing. This means that while the score reflects ambition, it may not fully capture the company’s actual decarbonisation progress or historical efforts.
• Default scores and data gaps: Another challenge is the current lack of comprehensive corporate climate targets. Many companies have yet to set formal targets, leading to a situation where they receive a default temperature score. At Matter, we’ve addressed this by refining the default scoring system, allowing for different default scores depending on the sector. This improvement helps better reflect which companies are the worst offenders have the biggest negative effect on climate change, giving a more accurate picture of where urgent action is needed. This is also an excellent opportunity for engagement with companies, as it makes it clear which companies have yet to act on their target setting.

3. How this translates to companies decarbonising

The ultimate goal of the SBTi TemperatureScore is to encourage corporate decarbonisation by making it easier for asset managers and owners to identify leaders and laggards. But how does it fit into the broader picture of decarbonising the global economy?

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Score visibility and investor access: TheTemperature Score allows investors to use it as a private metric for engagement with companies, opening up conversations around climate action and target-setting.

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Short-term, mid-term, and long-term targets: The tool does more than just provide a single score; it outlines short-term, mid-term, and long-term scores across the different scopes, offering a clear view of how companies are approaching decarbonisation across different time horizons. This helps investors identify which companies are setting clear, actionable targets for today and which ones might be delaying action by pushing goals further into the future.

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Driving engagement beyond capital allocation: While the score is certainly useful for guiding capital allocation, it is also a powerful tool for engagement. It provides investors with the context they need to assess whether a company’s targets are ambitious. By understanding the nuances of a company’s score, investors can more effectively engage with them, ask the right questions, and drive the conversation toward meaningful decarbonisation strategies.

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Final thoughts

The Matter Temperature Score, developed and managed by WWF and CDP, and enhanced by Matter, offers a valuable tool for translating complex emission targets into a globally relevant metric. While itis not without its limitations, it offers transparency, simplicity, and a much-needed link between corporate decarbonisation efforts and global climate goals. As we continue to refine the methodology and address challenges, the Temperature Score has the potential to become a crucial metric aligning capital towards a sustainable future.

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_{Publication Details}

_{Author: Cedric Olivares-Jirsell}

_{Date: October 7, 2024}

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