Will the SBTi’s new net zero standard push companies to walk the talk?

As far as vetting corporate net zero targets go, the Science Based Targets Initiative (SBTi) has a scale not many accreditors can claim to rival. Currently, over 7000 companies across the world have set SBTi approved targets. Ten years ago, there were ten. Its popularity has risen quickly amongst corporates and regulators alike. At last count, there was a 113% increase in first-time approvals.

The SBTi’s corporate net zero standard governs its endorsement of corporate transition plans. A much awaited revised draft is now out for public consultation.

The SBTi has branded the new standard as both innovative and pragmatic. At the heart of the proposed changes is a focus on incentivising and enabling companies to walk the talk.

End of the combined targets era

One such change is a separation of direct and indirect emissions reduction plans. In effect, this would mean ending the use of combined Scope targets by corporates – which the previous standard permits.

Frédéric Ducoulombier, climate regulation and policies programme director at the EDHEC Climate Institute says this is a step in the right direction.

“The proposed standard would end this practice — a quiet but significant structural shift. It closes a longstanding and under-appreciated weakness: the possibility to meet headline targets, such as combined Scope 1+2 targets, by offsetting a shortfall in one Scope with progress in another”, Ducoulombier told Net Zero Investor.

Ducoulombier contends that it also channels the pressure on companies to demonstrate progress into more productive areas.

“In the absence of clearer guardrails, the pressure to demonstrate progress may lead companies to rely on accounting manoeuvres rather than real emissions reductions — the setting of separate targets for each emissions Scope would support real-world action”, he adds.

Decarbonising the value chain

In case the new draft’s most subtle change does not attract attention, its most contentious - Scope 3 targets - might do the job.

In the context of Scope 3 emissions reduction, the new draft standard prioritises action based on emissions-intensity and increases flexibility.

“It is a good move to require companies to act on the largest categories and activities associated with emissions first. It is also helpful to provide companies with some additional tools (namely, direct mitigation using “insets” via activity pools, and indirect mitigation like SAF certificates)”, says Nathan Truitt, executive vice president of climate funding at the American Forest Foundation.

The draft’s proposed flexibility also comes in the form of alternative metrics such as procurement criteria and share of product revenue to identify and address value chain emissions.

EDHEC climate institute’s Ducoulombier welcomes the change:

“These metrics are often more accessible and more closely aligned with corporate levers of influence. This represents a welcome evolution: from requiring illusory exhaustiveness and precision in Scope 3 data to enabling action where it matters most”, he says.

Carbon credits – the big question.

The new draft also proposes a formal recognition for companies investing in mitigating emissions beyond their own value chain. It could incentivise companies to look into what the SBTi refers to as “options for consideration to address unabated and residual emissions” – including the use of ‘high integrity’ carbon credits.

Whether and to what extent the SBTi endorses the use of carbon credits has become a topic of fervent debate over the past few years.

“This should clarify an area of confusion on the part of buyers, many of whom were under the impression that SBTi actively discouraged the use of carbon credits”, notes Truitt.

Beyond the ‘high integrity’ phraseology, the SBTi seems to have distanced itself from the issue of quality and reliability of credits. In so doing, the draft maintains the SBTi board’s position – that it is not for the SBTi to assess the quality of carbon credits.

“SBTi will not embark in validating carbon credits quality. Other entities are better positioned to deal with this activity”, the board’s April 2024 statement reads.

All in all, the proposed changes address a lacuna that characterises the current standard – accountability. Consequently, there were growing concerns over the integrity of SBTi approved targets. Concerns that seem to have reached the doors of the SBTi.

In that sense, the SBTi’s new draft could be a game changer. As Ducoulombier concludes, “The v2.0 consultation draft marks an attempt to consolidate progress while restoring confidence”.

More on this:

The multi-billion dollar question: SBTi rows back on carbon credits