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Linking carbon emissions to Science-Based Targets

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Pressure is mounting on corporates to verify that their carbon emissions reductions are genuine and real, writes Emily Styles

Ireland’s largest businesses are making steady progress on meeting net zero targets for greenhouse gas emissions by companies setting Science-Based Targets (SBTs) as part of a drive to move to net zero.

four years ago, Business in the Community Ireland launched its Low Carbon Pledge, with 47 companies signed up. That number has now grown to 70. The signatories span 11 sectors, with professional services firms, agribusiness, food and drink, and financial services being the largest sectors represented.

The pledge requires that all signatories commit to setting SBTs no later than 2024, and review and assess indirect and supply chain emissions.

This must include their entire carbon footprint (Scope 1, 2 and 3) and be in line with the Paris Agreement and the latest IPCC findings. The ultimate goal of the pledge is to achieve carbon neutrality, and these targets are the first step towards a net zero world by 2050.

The pledge signatories include A&L Goodbody, William Fry, ABP, Gas Networks Ireland, Virgin Media, Vodafone, An Post, DHL, ESB, Tesco, EirGrid, Bidvest Noonan, Irish Rail, Irish Distillers, AIB, Allianz, Cairn Homes, Dawn Meats , RSA Insurance, Deloitte, EY, Ornua, PM Group, PwC, SSE Ireland and Veolia,

In a recent update prepared for BITCI by PwC, seven out of ten of the Pledge signatories claimed to be ‘well progressed’ to setting Science-Based Targets (SBTs) by 2024, with the majority set to achieve their SBTs by 2030 or earlier.

SBTs provide a defined pathway for companies to reduce greenhouse gas emissions. Targets are considered ‘science-based’ if they are in line with pursuing efforts to limit warming to 1.5°C.

Many climate scientists believe that it is imperative to reach net-zero global CO2 emissions by mid-century in order to limit global warming to 1.5°C and to reduce the negative impacts of climate change.

As a consequence, says the PwC report, the concept of net-zero has risen in prominence over the last few years. In contrast to SBTs, net-zero targets indicate carbon neutrality, rather than direct emissions reductions, and therefore carbon offsetting is allowed.

However, not all net-zero targets are equal, according to PwC. The definition of ‘net-zero’, as well as the path to get there, are diverse and often inconsistent. To address this, the SBTi launched the first science-based global standard for corporate net-zero targets.

The SBTi net-zero standard defines corporate net-zero as reducing scope 1, 2, and 3 emissions to zero or to a residual level that is consistent with reaching net-zero emissions at the global or sector level.

SBTs provide the short and medium-term milestones to align with the Paris Agreement, but these targets can also give credibility to companies’ net-zero commitments.

Know your Scope

Scope 1 emissions are direct GHG emissions from sources that are owned or controlled by the company. Scope 2 emissions are indirect greenhouse gas emissions from consumption of purchased electricity, heat or steam. Scope 3 emissions related to the supply chain (eg purchased goods and services, transportation and distribution, waste generated in operations) and customers (eg downstream transportation, end-of-life treatment of sold products).

Two thirds of the organizations have set a public net zero target, with the biggest challenge to the target cited as cost.

Just over a quarter of respondents in the Low Carbon Pledge report have set their scope 1 and 2 net zero ambitions to 2030 or earlier, while only one in eight have set this target date for scope 3 emissions.

The main drivers cited for adopting SBTs are business model resilience, reputation, stakeholder pressure, corporate and social responsibility, and policy and regulation. Some cited signing up because it was simply the right thing to do.

One third of pledge signatories are making use of carbon offsets. Of these, 95% use offsets as part of their net zero strategy. Such offsetting is primarily focused in the transport/logistics and professional services sectors.

At the same time, the PWC report states, challenges remain to make meaningful change, mainly around the need for guidance on base line calculations, reporting, standards etc., and value chain engagement with regard to scope 3 emissions.

PwC’s Kim McClenaghan believes that companies should define comprehensive and ambitious strategies to achieve net zero.

“It is very encouraging to see the progress of leading Irish firms and their clear commitment towards decarbonising their businesses,” he says. “However, the majority must quickly move from statements of intent to mapping out clear decarbonisation pathways and formally signing up to SBTs.”

In future years, joining the Low Carbon Pledge may no longer be optional for large firms. The EU’s Corporate Sustainability Reporting Directive was approved recently by the European Parliament, and it will require large businesses to provide reliable information annually in relation to their impacts on environment, social and governance matters, as well as human rights.

The first stage of transposition of the directive into Irish law begins in the autumn with a public consultation process. The new reporting requirements will apply to companies with more than 250 employees and a €40m annual turnover, and the information companies provide about their impact on climate will have to be independently audited and certified.

It is envisaged that from January 2024 the directive will apply to companies with more than 500 employees, reducing to the 250 threshold in 2025.

Green budget suggestions

Aspects of climate change mitigation will need to be funded by private investment and entrepreneurs that will stimulate activity and develop the green economy. The view from PwC is that tax policy is an important lever, from tax incentives to encouraging investment in particular areas or the imposition of taxes to discourage certain behaviors.

Peter Reillytax policy leader at PwC, believes that finance minister Paschal Donohoe can accelerate the green agenda with measures in Budget 2023. The accountancy firm has called for certainty for investors in and developers of renewable energy in the taxation of investment and divestment.

Reilly says the areas in need of focus are the qualifying nature of grid connection costs, and the application of participation exemption to pre-trading scenarios.

Improving the R&D tax credit regime to support green innovation and ClimateTech development is another suggestion. Reilly also sees scope for establishing Ireland as a ‘Green Finance Hub’. This could be accelerated by the introduction of a preferential rate of tax for returns generated from sustainable investment products.

To stamp a green hue on Budget 2023, PwC believes the minister for finance should also consider:

  • A tax credit for employers who buy transportation tickets for employees.
  • Tax relief for interest on retrofit loans, incentivizing landlords to retrofit rental properties.
  • A ‘help to insulate’ scheme, and stamp duty relief where the retrofit occurs shortly after purchase.
  • Tax relief for interest on EV loans, and tax relief for home charging points.

Photo: Environment minister Eamon Ryan (right) with (from left) BITCI chief executive Tomás Sercovich, PwC partner Kim McClenaghan, and Heidi Hopper Duffy of Iarnród Éireann. (Pic Jason Clarke)

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