A look at the SBTi’s new corporate net-zero standard
Experts discuss new rules for transition plans, Scope 1, 2 and 3 targets, and the use of carbon credits under V2.0
After two years of discussions, the Science Based Targets initiative (SBTi) launched its new corporate standard on Thursday.
The changes are sweeping, with updates on everything from baseline years and re-validation cycles, through to transition plans and carbon credits.
SBTi now distinguishes between companies based on size and location: a new ‘Category A’ comprises large firms from all countries, and medium-sized companies from high-income countries.
A new ‘Category B’ comprises small companies from all countries and medium-sized companies from lower-income countries.
The latter has looser expectations to account for size and geo-economic context.
Will V2.0 make life easier for companies?
SBTi says the standard, known as ‘V2.0’, is its “response to a world that has changed considerably in recent years”.
It marks a major shift in the role that SBTi wants to play in the climate transition: it’s no longer positioning itself as the uncompromising arbiter of net-zero targets. Instead, it wants to be “a transition partner”.
“That means providing guidance not only on target setting, but target implementation,” said SBTi’s chair Francesco Starace in a letter this week.
In reality, SBTi knows it must be more pragmatic in its next phase, otherwise companies will simply stop using it.
“This new update represents more flexibility for businesses in terms of how they’re setting their targets,” says Kate Jones, sustainability strategy director at London-based consultancy SB+CO.
“That’s a reflection of the growing number of delayed [corporate] targets we’ve seen over the last couple of years, as companies deal with headwinds around net zero, as well as the need to reflect the nuances that different businesses are facing.”
But, she stresses, that doesn’t mean firms are off the hook.
“In order to give them more flexibility, SBTi has also upped the ante on accountability, so it won’t necessarily get easier – there’ll be a lot more reporting.”
So what are the game changers in V2.0?
Net Zero Transition Plans
The draft proposal wanted companies to issue transition plans within 12 months of having their targets validated, but that’s now been extended to 15 months.
“It says that transition plans are required to be published, and they should include things you’d expect like the target details, the actions being taken, and whether you’re phasing out revenue from fossil fuels,” explains Jones.
Companies are also required to identify their assumptions and dependencies.
“That reflects SBTI’s new, more nuanced approach, but also increasing expectations that businesses should be clear on their externalities,” she continues, adding that these are coming through in regulation like the EU Corporate Sustainability Reporting Directive.
Scope 1 and 2 emissions
“The separation of Scope 1 and 2 targets is a big thing,” says Göran Erselius, head of analysis at Swedish sustainability consultancy 2050.
Under SBTi’s original net-zero standard, Scope 1 and 2 were bundled together, whereas they will now be treated as distinct goals.
“Previously, a company with a small, hard-to-reduce Scope 1 footprint could achieve its Scope 1 & 2 targets entirely by purchasing market-based certificates to reduce its Scope 2 emissions,” Erselius notes.
“Now, they will have to work on their Scope 1, too.”
In the draft of V.20, SBTi also wanted to get stricter on how market-based certificates were used for Scope 2, proposing that companies should only be able to use energy attribution certificates that mirrored the time and place of the energy they’re actually consuming.
Ultimately, it decided this rule should only apply to the largest electricity consumers, meaning those with more than 10GWh.
Scope 3
The first change to Scope 3 targets under the new SBTi standard is coverage.
Previously, a Scope 3 target would have to capture at least 67% of all Scope 3 emissions, meaning a company would have to choose two-thirds of its value-chain emissions to tackle.
Under the new version, the 67% threshold is scrapped, and Scope 3 targets must now cover any source of emissions that accounts for more than 5% of the total.
“So, for example, a company might have 50% of its Scope 3 emissions coming from purchased goods, 20% from transport, 10% from waste management, 8% from use of sold products, and everything else under 5%,” explains Erselius.
“Under the old system, that company could focus just on goods and transport, because they contribute more than 67% together, but now they also need to reduce the emissions coming from waste management and the use of sold products.”
Importantly, over time the Scope 3 target will have to address 100% of emissions, which wasn’t the case under the previous standard, and means even the smallest drivers of emissions must be dealt with.
Carbon credits
The biggest source of consternation for SBTi over the past two years has arguably been its approach to carbon offsetting and associated instruments, which it clarifies in V2.0.
“SBTi is basically splitting the role of carbon credits or commodity certificates into three, so they can be used in different ways to solve different problems,” says Kaya Axelsson, a research and policy fellow at the University of Oxford.
Unsurprisingly, none of them function as conventional offsets.
The first role is similar to what was briefly known as ‘insetting’ in the market: using activity-linked certificates to address stubborn parts of the value-chain.
“So, if a company has trucks in its value chain, but can’t easily trace exactly which ones, it can buy certificates that come from low-carbon trucking projects in the area it knows its fleets operate,” Axelsson explains.
Even though it might not result in its specific trucks decarbonising, the certificates are clearly linked to tackling the same problem, and can be counted towards an SBTi target if a company can demonstrate it’s exhausted its more direct levers first.
The second way certificates can be used is for tackling residual emissions.
Just like in the first standard, high quality removals can be used to compensate for emissions slated to be left over after a company has fulfilled its long-term net zero target.
Now, however, the rules are more specific: from 2035, companies must buy long-lived removals equal to at least 10% of their long-lived emissions, rising to 100% by their net-zero target years.
SBTi plans to launch a Call for Evidence on whether shorter-lived removals can also deliver “climate equivalent permanence”.
The third way is for carbon credits to be used to reflect a business’s current and ongoing emissions.
Under the new standard, those credits can’t be counted towards a target, but companies will be encouraged to buy them through formal league tables.
Next steps
SBTi has moved the implementation of V2.0 forward from its original proposal, meaning it will take effect in February 2027.
Companies with targets already validated by SBTi don’t have to wait until then, though, Erselius points out.
“This means a company that’s just about to submit its target with the old standard, but would rather use book-and-claim systems, for example, can do that,” he says, even if they aren’t using V2.0 wholesale.