The 1.5 degree pathway is linear, not compound, and once the company grows, the intensity it implies has to fall far faster than the absolute number.
An SBTi near-term absolute target at the 1.5 degree minimum cuts scope 1 and 2 emissions by 4.2 per cent of base-year emissions for every year between the base year and the target year. For an illustrative portfolio company at 24,000 tonnes of CO2e in 2024 with a 2033 target, that is a 37.8 per cent cut, to 14,928 tonnes, or 1,008 tonnes a year. Compounding the 4.2 per cent instead gives 16,312 tonnes, which would not pass validation.
Worked in full in The ESG Manager in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The Science Based Targets initiative accepts several target-setting methods. The one most portfolio companies use is the cross-sector absolute contraction approach: emissions fall by a fixed share of the base-year figure every year, so the pathway is a straight line. The near-term criteria set the minimum ambition at 4.2 per cent a year for scope 1 and 2, the 1.5 degree pathway, and 2.5 per cent a year for scope 3, the well-below 2 degree pathway. The target year must sit between five and ten years after the date of submission.
Target emissions = Ebase × (1 − r × (T − B))
r = 4.2% for scope 1 and 2, 2.5% for scope 3; B = base year; T = target year
Excel: =Base*(1-Rate*(TargetYear-BaseYear))
These are the minimum ambition levels in the SBTi near-term criteria as published at the time of writing. The criteria are revised periodically; check the version in force on the day you submit.
A fictional industrial services company, owned by a mid-market buyout fund since 2024, plans to submit a target in 2026. The fund expects to exit in 2029. Figures are illustrative.
| Input | Value |
|---|---|
| Base year | 2024 |
| Scope 1 and 2 emissions in base year, tCO2e | 24,000 |
| Scope 3 emissions in base year, tCO2e | 90,000 |
| Submission year / chosen target year | 2026 / 2033 |
| Minimum linear reduction, scope 1 and 2 / scope 3 | 4.2% / 2.5% |
| Revenue in base year, EUR m | 120.0 |
| Revenue growth in the value creation plan | 7% a year |
Step 1, years covered. 2033 less 2024 is nine years. The target year is seven years after submission, inside the five-to-ten-year window.
Step 2, the cut. 4.2 per cent times nine years is 37.8 per cent of base-year emissions.
Scope 1 and 2 target = 24,000 × (1 − 0.042 × 9) = 24,000 × 0.622 = 14,928 tCO2e
Annual reduction = 24,000 × 4.2% = 1,008 tCO2e a year, every year
Scope 3 target = 90,000 × (1 − 0.025 × 9) = 69,750 tCO2e, a cut of 22.5%
Step 3, scope 3. Scope 3 is 78.9 per cent of the company's 114,000 tonnes, well above the 40 per cent threshold at which the criteria require a scope 3 target. It must fall by 2,250 tonnes a year, mostly in the supply chain the company does not operate. The criteria also set coverage floors: the scope 1 and 2 target must cover almost all of those emissions and the scope 3 target at least two thirds of scope 3; this case covers the whole of both. Scope 2 here is measured on whichever method the company reports against, and the choice moves the base year, as shown in location-based vs market-based scope 2 emissions.
| Year | Cumulative cut | tCO2e | Revenue, EUR m | t per EUR m |
|---|---|---|---|---|
| 2024 | 0.0% | 24,000 | 120.0 | 200.0 |
| 2026 | 8.4% | 21,984 | 137.4 | 160.0 |
| 2029 (exit) | 21.0% | 18,960 | 168.3 | 112.7 |
| 2031 | 29.4% | 16,944 | 192.7 | 87.9 |
| 2033 (target) | 37.8% | 14,928 | 220.6 | 67.7 |
Two readings matter to a private equity owner. First, by the 2029 exit the company must already have removed 5,040 tonnes; the buyer inherits the remaining 4,032 and will diligence whether the pathway is on track, not whether a target exists. Second, the company is growing. If it grows 7 per cent a year at constant intensity, emissions reach 44,123 tonnes in 2033, so the target is 66.2 per cent below business as usual, and intensity per million of revenue must fall from 200.0 to 67.7, about 11.3 per cent a year. The absolute number hides the real ask. Pricing the measures that deliver it is worked in how to calculate abatement cost per tonne.
| Target year | Years from submission | Scope 1+2 cut | Scope 1+2 target, t | Scope 3 cut | Scope 3 target, t |
|---|---|---|---|---|---|
| 2030 (not eligible) | 4 | 25.2% | 17,952 | 15.0% | 76,500 |
| 2031 | 5 | 29.4% | 16,944 | 17.5% | 74,250 |
| 2033 | 7 | 37.8% | 14,928 | 22.5% | 69,750 |
| 2034 | 8 | 42.0% | 13,920 | 25.0% | 67,500 |
| 2036 | 10 | 50.4% | 11,904 | 30.0% | 63,000 |
The annual rate is fixed; only the length of the line changes. A later target year does not make the company's job easier in any given year, it only makes the headline percentage larger. An earlier target year is not available: 2030 falls inside the minimum five years.
Compounding the rate. Applying 4.2 per cent to each year's declining balance gives 24,000 × 0.9589 = 24,000 × 0.6797 = 16,312 tonnes, a cut of 32.0 per cent. That is 1,384 tonnes short of the linear target, and the gap widens every year. The second error is moving the base year to a lower-emitting year after an acquisition or a disposal: base-year emissions must be recalculated for structural changes under the company's recalculation policy, which in a buy-and-build portfolio happens often. The third is setting the target on intensity alone for a growing company and presenting it as 1.5 degree aligned: an intensity target must still deliver the absolute cut.
The exit-value model, the abatement curve and a blank set for your own company are in the free workbook for this book.
Linear. The absolute contraction approach reduces emissions by 4.2 per cent of base-year emissions each year, so the cumulative cut is 4.2 per cent times the number of years. Over nine years that is 37.8 per cent. Compounding 4.2 per cent a year on the declining balance gives only 32.0 per cent, and on a 24,000 tonne base leaves 1,384 tonnes above the target.
Near-term targets must cover between five and ten years from the date the target is submitted. A company submitting in 2026 can choose 2031 to 2036. With a 2024 base year, the scope 1 and 2 cut runs from 29.4 per cent for 2031 to 50.4 per cent for 2036 at the 4.2 per cent linear rate.
Under the near-term criteria, a scope 3 target is required when scope 3 is at least 40 per cent of total emissions, with a minimum ambition of 2.5 per cent a year linear. In the worked case scope 3 is 78.9 per cent of the total, so a 2033 target means cutting 90,000 tonnes by 22.5 per cent, to 69,750.
This article is one calculation from The ESG Manager in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: private equity and private markets → · All 681 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.