Updates to SBTi Net Zero Standard

High stakes amidst faltering ambition

Earlier this month the Science Based Targets initiative (SBTi) released an initial draft Corporate Net-Zero Standard for consultation. The draft represents the first major overhaul of the standard since its release in October 2021.

The SBTi’s net zero standard is the long-term counterpart to near-term science-based targets. Participating firms align with the Paris Agreement to pursue efforts to limit global warming to 1.5C by committing to reduce their emissions by at least 90% by 2050.

To date some 1,500 companies have successfully validated their net zero targets. Yet the standard has only been a partial success. Hundreds of firms that initially committed to net zero have fallen by the wayside - failing to validate their targets within the specified timeframes.

Initial enthusiasm for setting ambitious long-term net zero goals has waned. Where firms might once have considered their net zero objectives to be aspirational, an increased focus on greenwashing has (rightly) forced a more sober analysis. With mounting political headwinds undermining policy ambition and still high technology costs, many firms are quietly backing off.

The SBTi is not entirely blameless. It has faced repeated criticism over the robustness of its standards and validation processes and the independence of its governance structure. Major missteps (notably last year’s controversy around carbon credits) have raised serious doubts about its suitability to be the (de facto) standard setter for corporate emissions reductions targets.

A whole host of changes

So, the SBTi has a lot riding on this update. And judging by this initial draft, it has not shied away from the challenge. The draft proposes sweeping changes across the whole standard setting architecture.

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There is too much here to do justice to in a single newsletter, but some headlines include:

• New size and geography-based categories. Full requirements will apply to all large firms and medium-size firms in high income countries (denoted as “Category A”), while smaller companies and medium-size firms in lower income countries (“Category B”) will face a lighter barrier. For example, the latter will not be required to set any scope 3 or long-term targets.
• New targets structure. Companies will be required to set separate targets for each scope. Combined scope 1 and 2 targets will no longer be allowed. Near-term targets will also be limited to five years and/or oriented on milestone years (2030, 2035, 2040, etc.). Companies that miss their targets will need to make up the gap in future target setting rounds.
• Shifting focus from ambition to progress. The scope of the standard has also widened to provide supplementary guidance around preparation and implementation of targets.

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• Some highlights include proposals for
  • Making base target year performance more transparent and representative. Including requirements for category A companies to have base target year emissions assured.
  • Addressing ongoing emissions that are released while companies work to reach net zero, providing a potential route for carbon credits to play a role.
  • Communicating progress more clearly and making appropriate claims.

For the remainder of this edition, we’ll focus on the proposals for scope 3.

Striking a balance on scope 3

As we discussed in detail in our November newsletter, the success of this update will largely depend on the SBTi’s ability to strike the right balance on scope 3. The standard must both deliver credible and substantive decarbonisation while also incentivising and addressing the challenges firms face in demonstrating progress. No mean feat.

The draft standard proposes to tackle this in two ways:

1. What to target: prioritising relevance and influence

(i) Relevance: Under the current standard, companies must set targets covering at least 67% of their scope 3 emissions for near-term targets and 90% for long-term targets. This fixed threshold has resulted in targets excluding significant emissions sources or unintuitive groupings of diverse sources under a single umbrella making them hard to track.

To address this, the SBTi proposes companies include relevant scope 3 emissions at a company and global level in their targets. Scope 3 categories must be included if they represent 5% or more of a company’s total annual scope 3 emissions. Additionally, emissions-intensive activities must also be included if they are over 1% of scope 3 emissions or generate more than 10,000 tCO2e per year. The SBTi has drafted a list of such activities for companies to use.

(ii) Influence: The draft also proposes that companies focus their target setting efforts on where they can have the most influence. The SBTi suggests that companies start with their Tier 1 suppliers and particularly focus on those providing emissions intensive activities e.g. suppliers of energy or land-intensive products and services.

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2. How to target - alignment and substantiation

(i) Alignment: The SBTi is also proposing to broaden the way in which companies can measure progress by allowing the use of alignment metrics. These metrics would complement emissions data and provide a more immediate way to capture the outcomes of a company’s scope 3 interventions, which might not immediately be captured in primary emissions data.

Examples include metrics that represent the share of spending aligned to net zero suppliers and activities or the share of revenue from net-zero aligned products. Companies would be able to choose whether to set targets using absolute emissions, intensity or alignment methods.

Connected to influence, companies would be specifically required to set alignment targets for their tier 1 suppliers in emissions-intensive activities. This would mean requiring tier 1 suppliers to set science-based targets and then demonstrate progress against those targets.

(ii) Substantiation: The draft standard also introduces flexibility for companies to demonstrate progress against scope 3 targets. Specifically, for situations where companies engage in actions to reduce their emissions but lack the ability to trace a physical relationship to the original emissions source and therefore to claim a reduction in their inventory emissions.

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We discussed this issue in detail in our December newsletter.

The bottom line is that the SBTi is willing to give companies flexibility when claiming responsibility for emissions reductions even when it is not possible to trace emissions reductions to a single source or group of suppliers. This opens the way for companies to use market-based instruments such as Sustainable Aviation Fuel acquired via book and claim systems to demonstrate progress - though not offsets as these instruments must be associated with value chain reductions.

Next steps

The consultation is due to close on 1 June 2025. The SBTi will then review all feedback and prepare a second version of the standard, which will also be put to consultation.

The new standard is expected to come into force for companies setting targets in 2027. Firms intending to set targets in 2025 and 2026 are advised to use existing standards. Though it’s worth bearing in mind that all companies will be expected to move over to the new standard by 2030 - or earlier if their targets are up for renewal beforehand.

The Minimum Line

The exam question for SBTi is a toughie. They need to find a way of designing a net zero standard that drives meaningful decarbonisation (which is stretching and challenging) but is not infeasible for companies to deliver. Set the bar too high and for many it will feel like mission impossible. Put the bar too low and it is little more than a fig leaf.

Absent a sufficiently supportive policy environment, the best that might be hoped for right now is to keep the ball rolling. The 1.5C objective looks increasingly forlorn but - as the SBTi notes - the marginal benefit of every 0.1C of warming that’s prevented is substantial.

The SBTi and GHG Protocol revisions look set to coincide in 2027. Most would say this is not fast enough. But whereas the GHG Protocol has yet to pronounce on its overall position, the SBTi has nailed its colours to the mast.

In a nutshell, companies will be asked to focus action on the most emissions intensive areas of their footprint, which will necessitate a high quality and specific carbon inventory. In return, the SBTi is willing to give some flexibility in how these outcomes are measured and substantiated.

Have they got the balance right? The consultation is an opportunity to have your say.

Interested in building future-proof carbon inventories with Minimum?

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