Module 19 – Science-based target setting

Science-based targets (SBTs) are GHG emissions reduction goals set by companies or institutions, in line with the latest climate science. They aim to align emissions pathways with the Paris Agreement objective of limiting global temperature rise to 1.5°C or well below 2°C. Financial institutions should consider SBTs in two ways: 1) helping portfolio companies set targets and 2) setting institution-wide targets at the FI level.

  • The link between emissions and global temperature rise
    At a global level, meeting these targets requires achieving net zero emissions by 2050 and staying within a limited global carbon budget – defined by science-based calculations and assumptions – to stay within 1.5°C with an associated confidence interval. Financial institutions are encouraged, at a minimum, to align with national climate targets, such as NDCs and national climate strategies.

    Human activities currently produces around 40 gigatonnes of CO2 (GtCO2) per year. As of 2020, the estimated remaining carbon budget for limiting warming to 1.5°C was around 250-400 GtCO2, while the budget for staying below 2°C was approximately 1,000-1,350 GtCO2. These figures suggest that achieving global net zero by 2050 or sooner is essential to keep temperature increases well below 2°C.


Emissions are not evenly distributed across countries, sectors or technologies, and reductions will not occur at the same pace everywhere. Scientific models use specific methodologies to estimate how, and how quickly, each sector can decarbonise. Several internationally recognised organisations provide credible reference benchmarks for setting science-based targets, including:


The importance of credible selection criteria, transparent disclosure and independent assurance of science-based targets cannot be overstated. Verification providers typically require institutions to supply detailed internal documentation and regular progress reports. As a general rule, only validated science-based targets should be included in public disclosure statements.

  • The SBTi process involves the following steps:

    1) Commit

    Sign the SBTi commitment letter pledging to set targets within 24 months.

    2) Develop

    Calculate Scope 1, 2 and 3 emissions, select an appropriate target-setting method and develop science-based targets aligned with 1.5°C pathways.

    3) Submit

    Send targets to credible validators for validation against SBTi criteria.

    4) Communicate

    publicly announce validated targets and engage stakeholders to promote transparency and accountability.

    5) Disclose and track progress

    Report annually, recalibrate targets as needed and maintain long-term accountability.

Considerations for selecting a science-based pathway

Although referred to as ‘science-based,’ setting SBTs is not a uniform process. It requires interpretation and context-specific judgement, taking into account different data sources, assumptions, priorities and sectoral coverage.

SBTi-recommended target ambitions for corporates (such as clients of FIs) include:

  • C15 – Level of ambition for Scope 1 and 2 targets:
    At a minimum, Scope 1 and 2 near-term targets must be consistent with the decarbonisation required to limit global temperature rise to 1.5°C above pre-industrial temperatures.
  • C16 – Absolute targets:
    Absolute reduction targets for Scope 1 and 2 are eligible when at least as ambitious as the lower end of the approved range of 1.5°C-aligned emissions scenarios.
  • C17 – Intensity targets:
    Intensity targets for Scope 1 and 2 emissions are only eligible if they are modelled using an approved 1.5°C sector pathway relevant to the company’s business activities.
  • C18 – Level of ambition for Scope 3 emissions reductions targets:
    At a minimum, near-term Scope 3 targets (covering the entire value chain or individual Scope 3 categories) must be aligned with methods consistent with the decarbonisation required to limit global temperature rise to well below 2°C compared with pre-industrial temperatures.

SBTi-recommended target ambitions for FIs include:

  • FI-C10 – Base and target years:
    Scope 1 and 2 targets must span at least five years and no more than ten years from the date they are submitted to the SBTi for validation. The chosen base year should represent the FI’s activities and must be no earlier than 2015. Scope 1 and 2 targets must use the same base year.
  • FI-C12 – Level of ambition:
    At a minimum, Scope 1 and 2 absolute emissions reduction targets must align with the of decarbonisation required to keep global temperature rise to 1.5°C above pre-industrial temperatures. Both the timeframe and the forward-looking ambition level must meet this criterion. Intensity-based targets for Scope 1 and 2 emissions are eligible only when modelled using an approved 1.5°C sector pathway.

From an FI perspective, the vast majority of emissions footprint comes from Scope 3 sources. According to the World Resources Institute (WRI), more than 95 per cent of emissions in the financial services sector fall under Scope 3. Therefore, FIs should focus their science-based targets on portfolio emissions (Scope 3) rather than their operational emissions (Scopes 1 and 2).

  • When selecting an appropriate pathway, consider the following:

    Probability of success

    Scenarios differ in the likelihood of achieving their temperature target within a defined carbon budget, typically ranging from a 50-67 per cent chance of limiting warming below the stated threshold.

    Overshoot assumptions

    Some scenarios allow target temperatures to temporarily exceed carbon budget limits, followed by later reductions.

    Carbon budget period and size

    A given carbon budget may be distributed over different time horizons, for example, ten years, 30 years or more than 50 years, which affects the implied ambition level for emissions reduction.

    Scope of emissions

    Scenarios vary in whether they account for all GHGs or focus only on CO2.

    Sector and regional coverage

    Some frameworks are global and cross-sectoral, while others offer granular projections for specific countries, sectors or value chains.

    Reliance on future technologies

    Many scenarios assume deployment of carbon capture and storage (CCS) and direct air capture (DAC), despite significant current technological and economic barriers.

    Policy assumptions

    Underlying assumptions about carbon pricing, regulatory alignment and technology deployment rates can differ widely, affecting how realistic or applicable a scenario is, particularly in emerging market contexts.

Reference 1: Examples of reference pathways

Reference pathways describe global decarbonisation trajectories consistent with limiting warming to specific temperature goals, most commonly 1.5°C. They also outline related carbon budgets, sector assumptions and timeframes. The examples in Reference 1 are widely recognised reference pathways, often used in sector alignment assessments. General SBTi guidance on pathway selection can be found here.

CLICK TO VIEW REFERENCE 1: Examples of reference pathways.

Diagram 5 and Tool 6: : A step-by-step process for developing science-based targets

Diagram 5 and Tool 6 offer a step-by-step process for developing SBTs. While SBT frameworks offer useful structure and comparability, their direct application in emerging markets requires careful contextualisation (see black box in diagram). As highlighted in the caveats below, these markets often face structural and developmental constraints, such as limited low-carbon infrastructure and competing economic priorities. A phased and pragmatic approach can therefore help set achievable near-term targets, use best-available technologies and context-appropriate benchmarks, and complement emissions-based targets with engagement-based indicators, such as the proportion of clients supported to develop transition plans.

CLICK TO VEW DIAGRAM 5: A step-by-step process for developing science-based targets (PDF)

 

CLICK TO VEW TOOL 6: A step-by-step process for developing science-based targets (Word)

 

These resources can help with developing SBTs:

  • SBTi Finance Tool WB2C for FIs: an open source, data-agnostic tool for assessing how portfolios align with temperature pathways consistent with the Paris Agreement goals.
  • RMI PACTA: an open source tool offering forward-looking, science-based scenario analysis to guide climate-aligned financial decision-making and regulatory reporting.
  • GFANZ Portfolio Alignment: a methodology for measuring and improving how investment, lending and underwriting portfolios align with net-zero goals.

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