Climate Targets

How Do Companies Set GHG Reduction Targets? A Step-by-Step Guide

Tracy Bourgon

Tracy Bourgon

— 7 min read
How Do Companies Set GHG Reduction Targets? A Step-by-Step Guide
Businesses around the world are increasingly prioritizing GHG reduction as part of their sustainability goals. By leveraging precise data insights, organizations can make informed decisions, track their progress effectively, and align their operations with global environmental objectives.

In an era where ESG data reporting is a business imperative, a stark reality emerges: only 10% of companies can accurately measure their carbon emissions, according to a 2023 study by Boston Consulting Group (BCG). This gap between reporting and precise measurement underscores a critical challenge: companies must bridge this gap to enable tangible climate action and achieve meaningful emissions reductions.

Structured approaches are needed to turn data into action. Frameworks like the Greenhouse Gas Protocol (GHGP) provide a foundational system for categorizing and managing emissions, enabling companies to identify and address key sources. Tools like the Science-Based Targets Initiative (SBTi) validate alignment with climate science. This article combines insights from the GHGP, SBTi, and real-world case studies into a step-by-step guide for businesses to set, implement, and achieve GHG reduction goals.

Why Setting GHG Reduction Targets Matters

Setting clear GHG reduction targets provides measurable advantages that directly impact business performance:

  • Regulatory Compliance: As climate regulations evolve, companies with clear targets are better positioned to meet policy requirements, minimizing the risk of penalties or reputational damage.
  • Improved Financial Performance: Companies that actively address climate risks are more likely to attract ESG-focused investors, contributing to enhanced financial stability and long-term growth.
  • Strengthened Stakeholder Trust: Clear emissions targets signal transparency and accountability, building confidence among customers, investors, and partners while reinforcing a company’s commitment to sustainability.
Manufacturing facility with solar panels, wind turbines, and employees planting trees, representing corporate GHG reduction efforts and environmental stewardship.
Setting GHG reduction targets is not just a corporate responsibility—it’s a strategic imperative. Companies that integrate sustainability into their operations, such as transitioning to renewable energy and offsetting emissions, not only reduce their environmental impact but also gain a competitive edge by appealing to eco-conscious consumers, talents and investors.

By framing GHG reduction targets as a strategic opportunity rather than a compliance burden, businesses can not only reduce emissions but also unlock financial, operational, and reputational benefits.

Step-by-Step Guide for Setting GHG Reduction Targets

Setting greenhouse gas reduction targets is a systematic process that involves measuring emissions, defining goals, creating action plans, tracking progress, and communicating commitments. By following a structured approach, companies can effectively identify key emission sources, set ambitious yet achievable targets, and implement strategies to drive meaningful reductions. The following 5 steps process outlines the critical components of setting and achieving GHG reduction targets.

A circular flowchart illustrating the five-step process for setting GHG reduction targets.

Step 1: Develop a Comprehensive Emissions Inventory

Creating a detailed emissions inventory is the first and most critical step. This process involves categorizing emissions into Scope 1 (direct emissions from owned operations), Scope 2 (indirect emissions from purchased energy), and Scope 3 (indirect emissions from the value chain) using the GHGP framework. Accurate classification ensures companies understand where their emissions are coming from and which areas need prioritization.

Step 2: Define and Set Targets

A critical first step in setting GHG reduction targets is defining the scope of the target, choosing the right target type, and establishing a baseline year. These foundational decisions set the boundaries for tracking progress and ensure that reduction efforts are measured against a reliable point of reference.

Determining the Scope of Targets

Companies must first decide which emission sources to include in their targets:

  • Scope 1: Direct emissions from owned or controlled operations.
  • Scope 2: Indirect emissions from purchased energy.
  • Scope 3: Indirect emissions throughout the value chain, such as supplier operations and product use.

Scope 3 is particularly significant for businesses with extensive supply chains, as it often accounts for the largest share of total emissions. However, including it requires more detailed data collection and analysis. Addressing all three scopes is crucial for organizations aiming for comprehensive and impactful emissions reductions.

Choosing the Right Target Type

The choice of target type significantly impacts how companies measure and achieve emissions reductions. Two common approaches—absolute targets and intensity targets—offer distinct advantages depending on a company’s goals and operational context.

  • Absolute Targets: Absolute targets focus on reducing the total volume of emissions, regardless of changes in company size or output. This approach is ideal for organizations committed to making significant, system-wide emissions reductions.
A screenshot from IKEA Sustainability Report FY23 depicting the company's target to reduce GHG emissions
For example, IKEA has set an ambitious absolute reduction target, aiming to halve its Scope 1, 2, and 3 emissions by 2030, demonstrating a comprehensive commitment to decarbonization across its value chain. Source: IKEA Sustainability Report FY23
  • Intensity Targets: Intensity targets measure emissions relative to a specific business metric, such as emissions per unit of output or per revenue dollar. This approach is particularly effective for rapidly growing companies, as it allows them to balance business expansion with emissions reduction efforts.
A screenshot from Coca Cola's website (sustainability webpage) depicting the company's target to reduce GHG emissions
Coca-Cola exemplifies this strategy, employing intensity targets to lower emissions per liter of beverage produced while addressing Scope 1, Scope 2, and supplier-related Scope 3 emissions. Source: Coca Cola Company Sustainability Webpage

Establishing a Baseline Year

A baseline year provides the reference point for measuring emissions reductions over time. Selecting a representative year with complete and reliable emissions data is critical for accurate tracking. By grounding their targets in a well-documented baseline, companies can effectively measure progress and adjust strategies as needed.

Step 3: Create and Implement an Action Plan

An action plan outlines how a company will achieve its reduction targets. This includes implementing renewable energy initiatives, optimizing supply chain practices, and fostering employee engagement.

A screenshot from Microsoft's Decarbonization Plan depicting the company's action plan to reduce GHG emissions
For example, Microsoft’s action plan includes a commitment to becoming carbon negative by 2030. It has secured 100% renewable energy for its global data centers and launched a Carbon Removal Program, focusing on reforestation, soil carbon sequestration, and direct air capture. By integrating sustainability metrics into supplier engagements, Microsoft also tackles Scope 3 emissions, using real-time data for continuous progress monitoring.

Step 4: Monitor Progress and Adjust Strategies

Regular monitoring ensures companies stay on track with their emissions targets and enables them to make timely adjustments. Real-time data tracking and visualization tools can help identify underperforming areas and optimize processes.

A screenshot from Google's 2023 Environmental Report depicting Google’s global data center carbon-free energy map
Google’s approach to monitoring involves real-time tracking of energy usage and emissions across its global operations. Through its 24/7 Carbon-Free Energy initiative, Google reports on the share of its operations powered by renewable energy on an hourly basis. This detailed reporting enables Google to make data-driven adjustments, such as optimizing renewable energy procurement and improving energy efficiency in its data center. Source: Google 2023 Environmental Report

Step 5: Publicly Commit to Climate Goals

Publicly announcing climate targets builds transparency and accountability, fostering trust with stakeholders. Companies may choose to validate their targets through frameworks like the Science-Based Targets initiative (SBTi), which aligns goals with global climate standards.

A screenshot from Nestle's Net Zero Roadmap depicting the company's roadmap and action plan to reach net zero by 2050.
Nestlé committed to halving its greenhouse gas emissions by 2030 and achieving net zero by 2050. By transparently reporting its progress, Nestlé demonstrates accountability and builds trust with stakeholders. This includes efforts to reduce emissions across its entire value chain, showcasing its commitment to measurable climate action. Source: Nestlé’s Net Zero Roadmap, March 2023

Public commitments can take various forms based on a company’s unique strategy. Whether validated through external frameworks or set independently, these announcements emphasize accountability and signal long-term dedication to reducing emissions.

Applying the Framework: A Practical Example

Here’s how Ms. Green, a Sustainability Manager at a small company specializing in plant-based consumer goods, implemented the five-step framework to set her company’s GHG reduction targets:

A sustainability manager analyzing energy efficiency data on a tablet in front of a facility with solar panels and an electric delivery van, demonstrating real-world GHG reduction efforts.
Practical frameworks for GHG reduction come to life when businesses take actionable steps to minimize emissions. Through energy-efficient machinery and regular monitoring, small enterprises can contribute meaningfully to global sustainability goals while achieving operational efficiency.

Step 1: Develop a Comprehensive Emissions Inventory

Ms. Green began by categorizing emissions into Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (value chain emissions) following the Greenhouse Gas Protocol. She worked with procurement teams to gather data on supplier operations and transportation impacts, ensuring an accurate and complete inventory.

Step 2: Define and Set Targets

Using platforms like Tracenable, Ms. Green compared her company’s emissions data against industry benchmarks to understand how peers in her sector formulated their targets. This analysis helped her team set ambitious but achievable goals, including a commitment to reduce total emissions by 50% by 2030, with 2020 as the baseline year.

Step 3: Create and Implement an Action Plan

Ms. Green’s action plan included transitioning to renewable energy sources, adopting electric vehicles for logistics, and optimizing supply chain practices. Additionally, she launched an internal engagement program to align employees with the company’s sustainability objectives.

Step 4: Monitor Progress and Adjust Strategies

Ms. Green implemented real-time visualization tools to track emissions and identify areas that exceeded targets. When specific sites fell behind, she collaborated with operations teams to adjust energy use and refine processes.

Step 5: Publicly Commit to Climate Goals

To demonstrate transparency and build stakeholder trust, Ms. Green worked with senior leaders to publicly announce the company’s targets and align them with science-based frameworks. This public commitment reinforced the company’s accountability and credibility in achieving its goals.

Charting a Path to Meaningful Climate Action

As businesses worldwide confront the urgent need to reduce their carbon footprint, setting GHG reduction targets is more than an operational necessity—it’s a call to leadership in the fight against climate change. Setting and achieving GHG reduction targets is no small task, but with the right frameworks, tools, and commitment, it becomes an attainable goal. By leveraging structured approaches like the Greenhouse Gas Protocol and aligning with initiatives such as the Science-Based Targets Initiative, companies can transform ESG data into actionable strategies that not only reduce emissions but also foster innovation, build stakeholder trust, and drive long-term value.

Whether you’re an investor seeking robust data for climate-aligned portfolios, a startup building impact-driven solutions, a corporate leader aiming to benchmark your ESG performance, or a data analyst/research enthusiast exploring the impacts of GHG emissions—Tracenable’s mission is to empower your efforts with reliable, traceable ESG data.

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