What the SBTi Battle Portends: The Decisive Decade Becomes the Dilemma Decade

Transcription

David Stearns:
Welcome to BSR Insights, a series of conversations on emerging and cross-cutting business, economic, and social issues. Drawing on BSR's expertise from more than three decades of leadership in sustainable business, we'll help practitioners and decision makers to navigate today's increasingly complex world. I'm your host, David Stearns.

We're joined today by Aron Cramer, President and CEO of BSR. Welcome Aron, nice to see you again.

Aron Cramer:
Hi David. Good to be with you.

David Stearns:
Thank you. Today we are going to chat a little bit about a blog that you recently published titled “What the SBTI Battle Portends: The Decisive Decade Becomes the Dilemma Decade.” I wanted to start with a level-setting question for the audience. What is this public battle that's currently taking place over the direction of the Science-Based Targets Initiative, where is the point of conflict, and what's its larger significance for business?

Aron Cramer:
The SBTI has been looking at the question of whether and how carbon offsets, and other things, but carbon offsets in particular, should be included for a company to make its targets. That's the nub of the question. There have been two points of view expressed. One is that yes, so long as the offsets and other mechanisms have integrity, and there are a lot of efforts underway in other areas to define what integrity looks like, then yes, they can be used for things that cannot quite be mitigated, at least in the short or medium-run.

There's a point of view which has been expressed in public by the SBTi staff to say that this is no good because it lets companies off the hook and distracts them from real mitigation. That's the nub of the debate. It's played out pretty publicly with different points of view being expressed by the SBTi board, by the SBTi leadership, by the SBTi staff, and by a great many companies who are trying to figure out what's expected of them with respect to the SBTi, as well as trying to make sure that they actually achieve their targets for carbon reduction.

David Stearns:
Thanks for that. That's really helpful. Can you help us understand how is this debate over the future of SBTi connected to the broader conversation around corporate action on sustainability? You've talked about the fact that we're in this decisive decade for climate change, meaning that we have a limited window of opportunity for action and that those actions will, in many ways, decide the future of life on our planet. How is this discussion around SBTi significant more broadly to the world of sustainable business?

Aron Cramer:
As I have been reflecting on this debate over the, I guess now, about two months since it erupted into the public, it occurred to me that it is very important on its own terms, given that this question of offsets is important and so on. But it actually is symbolic of a more fundamental challenge that I think all of us are trying to come to terms with and act in the context of, which is that there's a lot of activity being undertaken by companies. That investment, collaboration, innovation and so on, is indeed starting to have an impact on company's emissions. That's great. We also know from the science that we are behind, and in fact we've seen some companies excluded from the science-based targets because their progress isn't fast enough. But as a planet, as a species, we are not making enough progress. The Paris Agreement and science both tell us that we need to have a 35% reduction in emissions from a 1990 base by the time 2030 rolls around, and we are just not close to being on track.

We find ourselves in a place where pragmatism and ambition are in some ways finding themselves in conflict. That the pragmatic approach to make as much progress as we can, which I think is widely held inside companies right now, is running up against the fact that it's just not good enough, that we're just not making enough progress. The question is how do we reconcile these things? I think we're going to see this dilemma come up more and more and more because I don't see us all of a sudden deciding that action on climate, "Oh, it's not that important." We're not going to say that. I also don't think we're going to find, aha, we're there, we're on track. We're getting where we need to be. This is a dilemma that is going to be with us for some time to come, and it's going to force companies to have, I think, harder discussions than the discussions they had when deciding whether to set science-based targets in the first place.

David Stearns:
You have framed this in some ways as the decisive decade morphing into what you've already alluded to here as becoming the dilemma decade and specifically for companies, and you've talked a little bit about why you think it's becoming the dilemma decade. Can you give us some of the specific dilemmas or trade-offs that companies are currently grappling with and some of the factors that are contributing to them?

Aron Cramer:
Some of them have to do with alternative means of getting to 1.5, and that includes offsets, it includes nature-based solutions of other sorts. It includes, at least in the minds of some, carbon capture storage use and direct air capture, things like that. Tools that are available but are not yet either tested, economically feasible for widespread adoption, et cetera, et cetera. That is the number one dilemma, I believe.

But there are a couple of other things that I think are worth calling out. One is on scope three in particular, and the reality is to meet your science-based targets for most companies, that means making major, major, major reductions on scope three emissions. If you look at companies that do a lot of their manufacturing in Southeast Asia, for example, the availability of clean energy is nowhere close to being sufficient to allow them to reach those goals even if they were ready, willing and able to spend what they need to spend on that. That is another real dilemma. We have a lot of scope three commitments, but our ability to make good on those commitments is currently hindered by a whole lot of forces. But the most practical one, the most immediate one, is a lack of availability of low-carbon solutions to maintain that level of manufacturing. So scope three is one of them.

Another one has to do with reporting and disclosure. Every time at BSR we talk with our member companies individually or collectively, as I did in Copenhagen and London over the last week, we are hearing that resources, and that's both time and money, are being diverted to the new reporting and disclosure requirements that are out there. Now, I'd love to be able to say, "Well, we've got to be able to walk and chew gum at the same time, do both of those things." But the reality is that's not quite happening. And because the stakes are high for reporting and disclosure, it has to be done under new requirements.

The last thing I would say is depending on your point of view, what you think of, in Donald Rumsfeld's famous or infamous statement about facing up to unknown unknowns, what we've seen even just in the last three years, and maybe even just the last two years, is the eruption of generative AI is creating the need for much larger data centers, a lot of computing power, and it is causing a lot of companies to find that they're going in reverse with respect to progress towards their climate goals because they're having to hoover up to find a lot more computing power that brings a lot of emissions with it, at least right now. We would not have necessarily understood the magnitude of that question five years ago. Now, it is a clear and present danger, so how do we work through all of these things?

Now, in some ways, these are the right problems to have because they are all about getting real and turning ambition into action, turning commitments into delivery. But there's some very real dilemmas, technical, logistical, financial, of all sorts that right now companies are frankly struggling to work through.

David Stearns:
Thanks for that, Aron. We had a great conversation with our colleague Ameer recently about some of the environmental impacts of AI, a great deep-dive conversation, so glad that you've surfaced that. Again, it's an important one for our members to think about.

We keep circling back to this question of ambition versus compliance and the tension that exists. You and I have talked about this before in previous series. There is this tension between ambition and compliance that is facing companies amidst this complex thicket of new and evolving regulations. Within the context of this dilemma conversation that we're having today, what recommendations might you have for companies, and in particular the chief sustainability officers or other sustainability decision makers within companies who are navigating in this environment, and particularly in an environment where we do need to see rapid progress to achieve the emissions reductions that you've rightly pointed out, we are trailing behind in terms of the Paris targets?

Aron Cramer:
Look, compliance is not optional, that's why they call it compliance, these are legal requirements. And by the way, these regulations while currently expensive and time-consuming to figure out, are valuable. They raise the floor, they create a level playing field. So I think the benefit of the regulations outweigh the detriment, the cost. That said, there are some unintended consequences, and one is that they do seem to be hindering ambition.

Let me start by saying that companies have to deal with compliance on a whole range of topics. Compliance on environmental health and safety performance in a factory. That doesn't lead to a productive or engaged workforce, that just means that a baseline of performance is required to ensure that there aren't dangers. That's one example.

Compliance and bringing new products to market, that's great, that's good for all of us, but it doesn't create an innovative culture, so you don't comply your way into performance on any other aspect of business. We should not for a moment think that we stop at compliance when it comes to sustainability. The spirit of the laws has to be embraced and taken up and not just the letter of the law. That's one way of thinking about it.

The other thing I would say is, let's stick to climate for the time being, the climate science is speaking very loudly to us. We know that we are way off track, and that means more extreme weather, that means more volatility of natural resources, both availability and price. It means a whole lot of things that interfere with business. Now, these are old arguments, but we have to keep them in mind. Climate is not going to take a three-year holiday from changing because we need three years to get ready for the CSRD and be fully comfortable with it. The world just doesn't work that way. I think the ambition remains crucially important. Yes, there's more cost. Yes, there's more time, but to coin the phrase that many have said, we don't have time when it comes to climate action, so we can't allow this to get in our way. It's just clear and objective fact in my view.

David Stearns:
Well, thank you for that, Aron. That's really important insight, and I think we will probably continue to be having this conversation around this tension between compliance and ambition, but I think you've laid out some really great points.

I'm going to take a slight detour here, in the news this week, obviously, there was some significant political news out of Europe and obviously some significant shakeups in the European Parliament. We've seen snap election called in France as a result of this. Curious if you have any thoughts on how this political shakeup might in any way impact business engagement on sustainability or sustainability policy more generally?

Aron Cramer:
Well, first I would say that while business gets criticized for being a short-term actor, and often businesses are, governments come and go, but companies don't, so I think companies have to take the long-term view.

Look, what's happening in 2024 is there is a lot of populist backlash against all aspects of the just and sustainable business agenda. Not only climate, but also certainly DEI and so on. I think the European Parliament, there will be a shift, but I don't think it will be an earthquake at least right now that CSRD is in place, the CSDDD is in place, the Green Deal might face some trimming of its sales depending on how the parliament ultimately shakes out. My take on that is a little bit like what I saw when Donald Trump was elected in the US in 2016, where I thought it was a speed bump, but not a brick wall, for sustainability. And I think in retrospect, that's exactly what happened. I don't think it was positive, but I also don't think it was an existential crisis with respect to this. I think you can say the same with respect to the European Parliament elections.

Now, that said, I think businesses are maybe missing the memo a little bit because this backlash, which we saw in the Greens losing a lot of support in the parliament, the right and the far right, doing a bit better, the populist revolt is because broad segments of our public do not believe that a globalized economy is working for them. They feel very vulnerable, they feel like their economic standing is at risk. If the economic model that businesses like to operate in is not resonating with the public's, that's a real problem. So I think it's important for businesses. Let's put climate to the side for a minute, businesses really need to look in the mirror and say, "Why are people so upset? What can we do with respect to people seeing themselves in the economy in a time of immense change?" I think it's going to the cause of some of the election results and not focusing solely on the symptom that came from the election results. That's the key to making progress here. I don't think by and large, the business community is doing enough of that right now.

David Stearns:
Well, thanks for that, Aron. I know that you talked briefly about the impact of the many elections happening around the world in 2024 in your curtain raiser earlier this year where you posed seven critical questions facing business and sustainable business in 2024. I know you are giving yourself a bit of a report card and look back on where are we on those seven questions in a piece that you're working on. We'll look forward to seeing that from you next month.

Aron Cramer:
Great. It's a bit of a midterm report we'll try and do. So looking forward to that.

Thank you, David.

David Stearns:
Thank you, Aron. Take care.

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