Principles for setting climate targets
Chapter Zero New Zealand’s 2024 Impact Report highlighted the need to help boards bridge the gap between climate strategy and action.
With increasing investor and stakeholder demands for organisations to address climate change, building transparency and accountability to stakeholders is becoming critical. One of the key ways to address this is by setting targets.
Setting targets can involve aligning with long-term strategies, managing risks, capitalising on opportunities, meeting regulatory requirements or market practices, or addressing stakeholder pressures. Targets also help to focus the attention and resources required to drive board decision-making and organisational progress.
A report addressing climate in the boardroom by Heidrick and Struggles found that 43 per cent of boards were yet to set targets for reducing carbon emissions. Yet there are challenges for those who have set targets, with organisations often lacking robust plans for achieving them due to investment, technology and/or regulatory barriers.
The appropriateness and applicability of targets will vary depending on a range of factors, including the materiality of climate change to the organisation.
Measuring your organisation’s baseline emissions is important for setting informed, meaningful and time-bound targets. Organisations should aim to set ambitious – and realistic targets – building momentum towards change, as taking a ‘wait and see’ approach can be too slow to make the necessary changes to support the transition to a low-emissions climate resilient economy.
For organisations trying to find the balance between all of the competing demands, it can feel impossible to get the targets right, especially with increasing demand for disclosure of targets and reporting on progress towards them.
Written in conjunction with the Insurance Council of Australia and Herbert Smith Freehills, Climate Governance Initiative Australia has developed a new guide to support boards in setting climate targets which are aligned with organisational strategy. They provide 10 guiding principles for target setting and navigating associated risk organised around the four key phases of the target setting process – development, implementation, communication, and review.
The guide emphasises the need for transparency throughout the target setting process as to what assumptions, estimations and dependencies targets are based upon. It also addresses the need to update targets and disclosures where those elements shift materially – positively or negatively.
The guide uses the insurance industry as a case study; an industry which is considered the key ‘shock absorber’ of climate change.
Target development phase
1. Collect reliable baseline data
2. Develop targets that meet ambition and align with strategy, while recognising key dependencies e.g. emerging technology
3. Undertake verification and assurance
4. Establish a record-keeping system
Target implementation phase
5. Clarify executive accountability
6. Identify and allocate required resourcing
7. Develop and implementation plan
Target communication phase
8. Communicate targets clearly and consistently
9. Disclose underpinning assumptions, contingencies, uncertainties and risks
Target review phase
10. Establish a monitoring system
