Science-based targets – The new ‘must have’ in sustainable finance?

As momentum in the sustainable finance space picks up, more and more companies are committing to increasingly ambitious sustainability targets. Greenhouse-gas-related targets in particular are in vogue and, with that, a focus on aligning them with the Paris Agreement and the Science-Based Targets (SBT) initiative. In this article, we look at the corporate take-up of SBTs and ask, what is next?

In a previous article, we highlighted the increasing pressure investors are putting on companies to adopt ambitious targets related to climate change mitigation. Asset managers, including BlackRock and Amundi, stated earlier this year that they will push for companies to set SBTs, and that the highest-emitting sectors need to set ambitious short-, medium- and long-term targets for their greenhouse gas (GHG) emissions.

Launched in 2015, the Science-Based Targets initiative (SBTi) aims to increase corporate ambition on climate action by helping the private sector set science-based GHG emission reduction targets. A science-based target aligns with the latest climate science on what actions are necessary to limit global warming to well below 2°C.

As the pressure on corporates to take action on climate-related issues has increased from not only investors but a broad range of stakeholders, including customers, regulators and society overall, the SBTi has gained momentum over last couple of years. Nordea’s Sustainable Finance Advisory team has done a deep-dive into the SBTi and the companies taking a science-based approach to their target setting.

Europe is going strong

European corporates are at the forefront of committing to a science-based approach when setting their climate-related targets. Since the initiative started to gain real momentum, Europe has held the leading position in terms of number of companies setting science-based targets.

The European Commission has in recent years been pushing for action on climate issues, and created a rigorous regulatory landscape for European corporates. This was further enhanced on 21 April when the Commission released its final version of the EU taxonomy as well as other regulatory updates for disclosing non-financial information. The EU’s actions to boost transparency on corporates’ impact is likely contributing to the strong development of SBTs in Europe.

Number of companies committing to SBTi globally (Cumulative numbers)

Turning to the Nordics, it is clear that the Nordic companies have, since 2017, been following the global trend of committing to the SBTi. Sweden is a pioneer, with several large, international companies such as Volvo Group, H&M and Tetra Pak committing to and setting SBTs. We expect SBTs to continue to gain momentum in the Nordic region in the coming years, as investors are demanding more ambitious targets and large international companies are starting to adopt them.

Number of Companies committing to SBTi in the Nordics (Cumulative numbers)

Growth across industries, but driven by consumer-centric industries

The companies committing to and setting science-based targets come from a broad range of industries, where corporates within the consumer goods sector are represented the most.

Sectoral breakdown of companies with Science-Based Targets

On a more granular level, within the consumer goods sector, corporates in the food and beverage business are the most frequent users of SBTs.

Breakdown of industries within the consumer goods sector

Science-based targets play an increasingly important role in sustainable finance

The growth in companies committing to SBTs bodes well for the sustainable finance space, in particular for sustainability-linked debt instruments, such as sustainability-linked loans (SLLs) and sustainability-linked bonds (SLBs), where companies commit to achieving certain sustainability-related targets during the lifespan of their loan or bond.

Key to these structures is that targets are ambitious, and that the overall indicator is considered material to the borrower. It is for this particular reason that the SBTs come in handy, as the process for defining what constitutes “ambitious” and “material” is not always straightforward. The SBTs allow for a smoother process as it is recognized that commitments to the SBTi meet this threshold. Indeed, the International Capital Market Association (ICMA) last year released a Climate Transition Finance Handbook with specific reference to climate transition strategies being science-based.

With the ever increasing focus on sustainability, not least represented by the new Biden administration in the US, it is fair to expect that the number of companies of committing to SBTs will increase. However, only a fraction of corporates in the world have climate impact mitigation targets based on science. According to SBTi’s own report, the initiative only covers a minority of private sector emissions, and the distribution of industries is uneven. There is still a large growth and scale-up ambition for the initiative in high-emitting sectors.


Johanna Björk, Nordea Sustainable Finance Advisory


Johanna Björk, Sustainable Finance Advisory, Nordea



Oskar Hagman, Nordea Sustainable Finance Advisory


Oskar Hagman, Sustainable Finance Advisory, Nordea



Jacob Michaelsen, Head of Nordea Sustainable Finance Advisory


Jacob Michaelsen, Head of Sustainable Finance Advisory, Nordea



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