Natural Blush Cosmetics:

Setting a Science-Based Carbon Reduction Target

The owners of Natural Blush Cosmetics have asked you to help them with some of the sustainability
aspects of the company. Something they are particularly interested in is setting a reduction target for
the company’s carbon emissions. They have read a little about science-based targets, so want a target
that recognizes ecological limits. They would also like the target to acknowledge that developing
countries should have less of a reduction burden placed on them than industrialized countries.

ABOUT NATURAL BLUSH

Andrea Windham and Linlin (Lydia) Ji met in college where they both studied chemistry. When
Andrea had a bad reaction to some cosmetics they teamed up for a senior project to identify the
irritants in the cosmetic cream that Andrea had used. Their study found parabens and BHA in the
cream. As they examined more cosmetic products they were surprised to find an array of chemicals in
cosmetics, ranging from DEA compounds, which in small amounts can be a skin irritants but higher
use levels can cause precancerous changes in skin cells, and formaldehyde-releasing agents, which is a
known human carcinogen. The women were shocked. A friend in the theatre department, Cherisha
Rai, said it was not uncommon for actors to react to make-up. She had started looking for natural or
benign alternatives to the cosmetics that the theatre department had been using, but they were
expensive and many were not appropriate for the type of make-up actors needed on stage.

Soon the three women started talking about business opportunities. Maybe they could test products
and create a web-based business with cosmetics recommended for theatre use or set-up some sort of
certification label. They finally realized that what they really wanted to do was create products with
no potentially harmful chemicals, including a product line that was specifically designed for use on
stage. The theatre product line would be developed to work with the lighting typically used in stage
productions, which can sometimes alter the effect of cosmetic colors. Cherisha had great contacts in
the regional theatre world and had studied marketing. These would be the products they would start
with. They thought they could use chemistry to test cosmetics rather than the animal-testing that
many firms used. Also, their chemistry background would help them identify botanical or other
*
John Byrd (john.byrd@ucdenver.edu) and Elizabeth Cooperman. This case is about a hypothetical
company for classroom use. This is version 1, July 2017. For more information about the various
science-based target setting approaches and details on computing their reduction rates see, John Byrd
and Elizabeth Cooperman, A Note on Setting Science-Based Carbon Reduction Targets. A supporting
spreadsheet and case worksheet are also available.
natural products with the qualities they needed to make high quality cosmetics. In 2005 they started
Natural Blush cosmetics.

After eleven years, Natural Blush had seven distinct product lines. Several of these were for actors on
stage and in front of cameras. Initially sales had been to theatre groups that Cherisha knew, then more
general regional sales built on free trials lots of customer interaction. Customers particularly liked
dealing with a local or regional company, especially one that asked for and responded to feedback. In
a few cases customers wanted a special shade or type of product that the women were able to create
fairly quickly. Slowly sales grew as satisfied customers shared information with colleagues and the
company’s marketing efforts spread out-of-sate then nationally.

By the end of 2016 the company had sales of $6.7 million and sales representatives covering 22 sates
in the US and 3 Canadian provinces. As the company has grown some customers have begun asking
about its sustainability efforts. The quality of the ingredients in its products and no animal testing
have been a good foundation, but questions about energy and climate impacts have been asked. The
founders want to address the climate issue in the best possible way, so would like a reduction target
that fits within the 2°C target agreed to at the 2015 Paris climate summit. Moreover, Cherisha is a
first generation American. Her parents immigrated from Nepal in the 1980s. The company sources
some raw materials from Nepal as well as Brazil and Ecuador. The women would like to make a
statement that the company is sympathetic to developing countries.

SETTING NATURAL BLUSH’S CARBON EMISSION TARGET

Natural blush computed its carbon footprint for the first time in 2012. Since then its Scope 1
emissions have grown steadily. In 2014 the company moved into a larger space, which was much
more energy efficient than its older facility. There was a marked drop in Scope 2 emissions that year.
Since then Scope 2 emissions are slowly rising again. See Table 1 for emissions and financial data.
Table 1: Emissions and Financial data for Natural Blush cosmetics.

Ave. Annual
Year 2012 2013 2014 2015 2016* Growth Rate
$5,612.7 $5,877.1 $6,434.8
Revenues ($000s) 0 2 $6,100.72 8 $6,738.60 4.7%
Gross Profit $3,479.8 $3,702.5 $4,247.0
($000s) 7 9 $3,965.47 2 $4,548.56 6.9%
Scope 1 emissions
Kg CO2e 14,856 15,079 16,204 16,312 16,920 3.3%
Scope 2 emissions
Kg CO2e 51,070 50,749 45,910 46,480 47,360 -1.9%
Total Scope 1 & 2 65,926 65,828 62,114 62,792 64,280 -0.6%
*The 2016 data is preliminary.
The company’s owners would like you to compute targets using different methods. They are
interested in using the 85% reduction by 2050 that the Intergovernmental Panel on Climate Change
(IPCC) mentioned for industrialized countries.

The company’s gross profits have been growing at about 7% a year and are likely to continue to grow
at that rate for the next several years if not longer. The owners are concerned that some methods of
target-setting won’t consider this growth. Their final request is for you to use a value-added approach
that accommodates a company’s growth rate when that rate is higher than global GDP growth. They
are sure that their company will grow much faster than the 3.5% that the global GDP has been
growing at over the last few years.

They would like emissions targets for 2020 and 2030 (in mtCO2) and the annual reduction rates for
the various approaches. The 2016 emissions and financial data are preliminary, so the appropriate
baseline to use is 2015. The targets should be for Scope 1 and Scope 2 emissions combined.

A bonus would be if the target could be verified by the Science-Based Target Initiative. The criteria
for verification are available in a report from the SBTi titled, SBTi Criteria and Recommendations. It
may be downloaded at: http://sciencebasedtargets.org/wp-content/uploads/2017/02/SBTi-criteria.pdf

Finally, they would like you to recommend the most appropriate target and explain your thinking. It
should be in line with targets proposed by other companies in the Consumer Staples sector. The
Appendix shows some of these targets.
The table will help you organize your answers
Method 2050 end- Compound Annual Emissions Emissions target
point target Growth Rate target 2020 2030 (mtCO2e)
(mtCO2e)
Absolute Contraction:
85% reduction by
2050
Value-Added: 85%
reduction by 2050;
7% Company Growth;
3.5 Global GDP

Key equations
Finding the 2050 end-point target: If a company has 2015 emissions of 100 mtCO2 and wants to
know its 2050 75% target, it would compute how much emissions must fall (100 mtCO2 x 0.85 = 85
mtCO2e), then subtract that reduction amount from the starting amount (100 – 75 = 25 mtCO2e).
Finding the CAGR: To compute the Compound Annual Growth Rate (CAGR) for this decrease over
the 35-year period the Excel Rate function inputs would be:
=RATE(NPER,PMT,PV,FV,TYPE,GUESS)
=RATE(35,0,100,-25,0,) = -3.883%
where:
NPER: Number of periods, in this case the 35 years from 2015 to 2050.
PMT: Payment is not relevant to this calculation, so enter zero.
PV: Present Value or Today’s Number (in this example 100 for the 100 mtCO2e in 2015).
FV: Future Value or our 2050 target entered with a negative sign, (in this example –25mtCO2e).
Note: This negative sign is important. The PV and the FV have to be signed differently for
the calculation to work.
TYPE: This is when a payment is made – at the start or end of a period, so isn’t relevant. Enter
zero.
GUESS: You can omit this.

Note: The CAGR must be negative since the emissions are going down instead of growing.
Computing Future Emissions Target Levels Using the CAGR: The CAGR it can be used to find
emissions level targets for 2020, 2030 or any desired future date. For example, the 2020 emissions
using the compound annual growth rate (CAGR) of -3.883% so a company’s emissions in Year =
Baseline + t will be:
t
Emissions (Year Baseline + t) = Baseline Emissions x (1 + CAGR)
 t
Emissions (Year Baseline + t) = Baseline Emissions x (1 – 0.03883)
Year 2020 = 2015 + t so t = 5 years from 2015
5
Emissions (2020) = 100 x (1 – 0.03883) = 82.033 mtCO2

Finding the 2030 target follows the same steps:

Year 2030 = 2015 + t, so t = 15 years from 2015
5
Emissions (2020) = 100 x (1 – 0.03883)1 = 55.204 mtCO2

Computing Future Emissions Target Levels using the Value-Added Method:

The equation for computing target levels of emissions using the value-added approach is:

t(1+CAGR)t
Emissions ( Baseline Year + t ) = Baseline Emissions x (1+ g) x
(1+ G)t
Where:
 g = the company’s annual growth rate of gross profit
 G = the annual growth rate of global GDP
 CAGR = Compound Annual Growth Rate of carbon emissions to reach the desired 2°C target.
The CAGR should be negative, so (1+CAGR) < 1.0.

For the example we have been using, and assuming the company’s Gross Profit is growing at 6% per
year and that global GDP is growing at 3.5% per year, the 2020 emissions would be:
(1−.03883)5
Emissions ( 2020 ) = 100 x (1+ 0.06)5 x
( 1+ 0.035)5
=92.433 mtCo2
Compare this to the Absolute Contraction 2020 target of 82.033 to see that the value-added approach
does accommodate growth.
Appendix 1.
Power Forward Supplement: Climate and Energy Targets Set by Fortune 500 Companies in Consumer Discretionary Sector  
Company Greenhouse Gas Targets - Absolute Greenhouse Gas Targets - Intensity Verified
Colgate- Scope 1+2 (market-based): Reduce absolute emissions 25% from Scope 1+2 (location-based): Reduce emissions SBTi-verified
Palmolive 2002 levels by 2020. Reduce absolute emissions 50% from 2002 intensity 20% per metric tons CO2e/metric ton
levels by 2050 of product from 2005 levels by 2015
PepsiCo Scope 1+2+3: Reduce absolute emissions across value chain at None SBTi-verified
least 20% from 2015 levels by 2030
Wal-Mart Stores Scope 1 + 2: Reduce absolute emissions 18% from 2015 levels by None SBTi-verified
2025
Scope 3: Reduce emissions from upstream and downstream
sources by 1 GTCO2e between 2015 and 2030
General Mills Scope 1, 2 and 3: Reduce absolute emissions 28% from 2010 Scope 1+2 (location-based): Reduce emissions SBTi-verified,
levels by 2025 intensity 20% per metric tons CO2e/metric ton
of product from 2005 levels by 2015

Kellogg. Scope 1+2 (location-based): Reduce absolute emissions 65% from Scope 1+2 (location-based): Reduce emissions SBTi-verified,
2015 levels by 2050 intensity 15% per metric tons CO2e/metric ton
of product from 2015 levels by 2020
Procter & Gamble Scope 1+2 (market-based): Reduce absolute emissions None SBTi-verified,
30% from 2010 levels by 2020
Avon Products Scope 1+2 (location-based): Reduce absolute emissions 40% from None  NA
2005 levels by 2020
Scope 1+2 (market-based): Reduce absolute emissions 100% from Scope 2 (location-based): Reduce emissions  NA
2008 levels by 2020 intensity 20% per metric tons CO2e/unit revenue
Estée Lauder.
from 2008 levels by 2015