Science Based Targets: what charities need to know

Many charities are working hard to set responsible investment objectives, mindful of how these decisions can help push forward their climate related intentions. What some charities find unclear is how to compare their underlying holdings on a like for like basis and ultimately how to measure the effects of these choices on their investment portfolio. 

This is where Science Based Targets (SBTs) could help provide objective insights for charity investment committees.

SBTs are a simple, accessible way of measuring the commitment of individual companies to the Paris Climate Agreement.  The Science Based Target Initiative (SBTi) is an entity that assesses and approves a company’s emissions reduction targets. Specific guidance must be followed to achieve their external verification, thus giving legitimacy to the target.

A key reason why Science Based Targets are favoured is they always contain an interim target, not just a distant, “net zero by 2050” proclamation. This is typically committing to a halving of emissions within a decade of the base year, resulting in a decline of about 6% per year (Covid years not withstanding). This matters because due to the scale of historic cumulative emissions we have a limited budget left to avoid the worst climate effects: acting in the near-term matters most.

From October this year, the number of companies seeking or receiving validation is around 9,000 and these figures are updated weekly on the SBTi website. The extraordinary demand for corporate decarbonisation standards and target validation services has prompted a major scale-up in operations.

The SBTi is now a UK charity (no. 1205768), which aims to enable ‘companies and financial institutions worldwide to play their part in combatting the climate crisis.’ The charity has benefited from two $18 million donations, one from the IKEA Foundation and the other from the Bezos Earth Fund, that should help improve guidance on specific standards in six high-impact areas, including apparel, automotives, and oil and gas. 

It has already created sector specific guidance for some of the most carbon intensive segments of the global economy. This matters because there are seismic differences in carbon intensity between sectors: a cement or utility company may generate Scope 1 and 2 carbon emissions that are thousands of times that of an insurance company using the equivalent measure (tonnes per million dollars of revenue). 

Charities have the option to set their own operational emissions target, though if it is a largely grant-based organisation, these may be minimal. A net zero target covering Scope 3 emissions could include a charity’s investment portfolio, and this could be where emissions for it are highest. Setting a future target for the proportion of portfolios invested in companies with SBTs can help to measure a portfolio’s alignment with the Paris Agreement.

A YouGov survey of corporate executives in early adopter SBTi committed businesses was conducted in 2018 to assess the impacts on companies with targets. A series of benefits were highlighted by the respondents:

All investment managers should be able to provide you with the proportion of your portfolio in equities, corporate bonds and collectives with SBTs. The measure transcends customised reporting by each manager, though it is not possible to produce for sovereign bonds.

It is also open-source data, so trustees can look up every company they own and view their commitments using the “Meet the Companies” function on the SBTi website. 

Your charity could consider what you want to achieve and in what time frame. Next, consider where you currently are in relation to those objectives. Perhaps your board could start by asking:

1. What proportion of our portfolio is currently in companies with SBTs?
2. Do our investment managers’ investment processes consider SBTs? 
3. Could we consider setting SBTi aligned targets across our investment portfolio?
4. Do our investment managers engage with companies on our behalf to increase ambition in target setting? 

Our Charities Investment Team of 33 operates out of eight offices providing a local contact for all charity clients. Currently, we manage more than £3.3 billion in charity investments for over 1,230 organisations.

For more information on how Evelyn Partners works with charities please contact charity@evelyn.com.

Evelyn Partners is a UK leader in wealth management, providing personalised, expert financial planning and investment management advice to clients across the country. Everything we do is driven by our purpose of placing the power of good advice into more hands. With investing, your capital is at risk.

Evelyn Partners Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Services may be provided by other firms in the Evelyn Partners group. The Financial Conduct Authority does not regulate all the products and services referred to in this document such as tax, accounting and business services. More information on our services can be found at evelyn.com.

Fast facts about Evelyn Partners
•    We have £3.2 billion in charity investments managed for over 1,230 organisations
•    We have 33 Charity specialists operating from eight offices