Insights
ELI5 (explain it like I’m 5): Science Based Target Initiative (SBTi)
The SBTi is a framework that helps companies complete a 5 step process designed to deliver carbon emission reductions.
The SBTi is a framework that helps companies complete a 5 step process designed to deliver carbon emission reductions.
The private sector produces, and therefore can help reduce, carbon emissions.
The SBTi supports companies do this in a way that’s credible and beneficial to both stakeholders and shareholders.
This is their 5-step framework:
Commit: submit a letter establishing your intent to set a science-based target.
Develop: work on an emissions reduction target in line with the SBTi’s criteria.
Submit: present your target to the SBTi for official validation.
Communicate: announce your target and inform your stakeholders.
Disclose: report company-wide emissions and track target progress annually.
Each company’s targets are scientifically confirmed requirements that set out pathways for transitioning to a low (preferably net zero) carbon economy.
It’s less like saying “we’re committing to net zero” and more like saying “we’re committing to reduce our carbon emissions by this amount, by this date, by these methods – and we will report on our progress, so we’re held to account.”
Having a credible, tangible pathway towards emissions reductions holds companies accountable, and helps us achieve the goals set in the Paris Agreement. You can see the difference in emissions for companies that have no climate policies vs those that have policies vs those who have an SBTi on the graph to the left (Global Greenhouse gas emission pathways).
Why Pathfinder thinks SBTi’s show a company is taking climate change seriously:
If a company commits to the SBTi then it must, within 24 months, develop and submit clearly defined organizational pathways or targets for reducing emissions. Across Pathfinder’s entire portfolio, 53% of the listed equities we invest in are committed to SBTi. These targets can be broken down into different categories, as shown here:
| Number of Listed Companies | Percentage of Listed Companies | |
|---|---|---|
| Total Committed | 137 | 53% |
| 2 degree target | 2 | 1% |
| 1.5 degree target | 97 | 38% |
| Target well-below 2 degrees | 11 | 4% |
| Committed without a target | 27 | 11% |
| No commitment | 120 | 47% |
| Number of companies we own | 257 | 100% |
Source: The SBTi's target dashboard, as at 30 June 2024
By the end of 2023, over 6,000 companies worldwide (not just the ones in our portfolio) had set science-based targets through the Science Based Targets initiative (SBTi). This represents a remarkable 102% increase in the number of companies with science-based targets during 2023 alone compared to all previous years. It’s a positive sign that businesses are taking global warming seriously. And it provides a bigger pool of potentially climate friendly companies for ethical investors, like Pathfinder, to consider investing in.
SBTi is one of many ethical metrics we use to assess the environmental and social impact of our portfolios, check out our Ethical Scorecards in the Investor Documents section for each fund.
Learn more about SBTi's 5 steps in cutting corporate GHG emissions here
