In the method and tool, we look at the emission reduction ambition on S1+S2 and on S3 as well as on S1+S2+S3 basis and over the short (less than 5 years), medium (5-15) and long term.
Also, important to keep in mind is that we:
- rate target ambition first and then
- aggregate these to a company level and then
- aggregate this to the portfolio level.
You have a chart showing the process on page 154 of the current guidance and a more detailed explanation in on page 21 of the methodology white paper.
This means that you get a matrix of 9 different targets. For each cell, a company can have a valid target or not. In case of a valid target, we calculate a temperature score and if the company don’t have a valid target the company gets a default score in that particular cell, currently 3.2C. In the case of cells with combined S1+S2+S3 targets we weight the scores based on the emissions profile.
So, if some companies have not set valid targets for scope 3, in the cells for S3 they will get a 3.2C rating and when looking at targets including S1+S2+S3, the score will be weighted depending on GHG emissions profile across the scopes. On page 22 of the methodology you see an example how this works for a company.
For portfolio aggregation you then just use one of the currently approved aggregation methods (see page 24 in the methodology) for the chosen timeframe and scope. For setting targets to submit to SBTi for validation and approval you should use mid-term S1+S2 and S1+S2+S3 targets, preferably using the ECOTS, AOTS or ROTS aggregation methods.
If you then have companies with no valid targets in S1+S2, S3 or just partly valid targets for S1+S2+S3 they will naturally be included in the aggregation with the default score or weighted average score respectively.
So, here comes the important part. It is now it is up to you to decide on your strategy to get your portfolio to your target, well-below 2C or 1.5C, preferably through engagement with the companies with no targets or targets which needs to be more ambitious, to get them to set more ambitious targets or indeed set targets in the first place to get your portfolio temperature score on the right path towards your target.
In the SBTi Finance Tool, we have created some example what-if-scenarios that would help you to design your engagement strategy where it has the opportunity to be most effective. Have a look at this Colab Notebook that shows how the tool can help you to design your engagement strategy.
Alternatively, you can naturally change the portfolio composition, but that is our least preferred method, as it simply moves the problem to someone else’s portfolio. And often you find that the financial reward can be substantial in helping to transition an investee into a more sustainable and profitable business model. So, portfolio shifting may look like a short-term solution to your temperature score but may prove to be a longer-term poor investment decision.