The Science Based Targets initiative (SBTi) has unveiled a preliminary update to its Corporate Net-Zero Standard, aimed at assisting companies in establishing and achieving science-based emissions reduction objectives. The release of the Corporate Net-Zero Standard Version 2.0, a comprehensive 132-page document, introduces crucial modifications emphasizing flexibility, accountability, and alignment with global temperature targets. The draft is now open for public feedback until June 1, 2025, before undergoing further refinements prior to final endorsement.
SBTi Chair Francesco Starace underscored the significance of this net-zero standard overhaul, stating, “The draft standard tackles intricate, emerging issues and lays the groundwork for enabling more companies to progress swiftly towards net zero. By collaborating closely with stakeholders across various sectors to solicit and consider a diverse array of perspectives, our objective is to develop a standard that is both robust and practical, serving the interests of businesses and the environment. Given the limited carbon budget remaining, this endeavor is more critical than ever.”
The Major Revisions in SBTi’s Net-Zero Standard
The updated draft introduces several significant changes, including enhancements in Scope 3 emissions accounting, carbon removal targets, and governance expectations. Notably, Scope 3 emissions, which encompass indirect emissions within a company’s value chain, have historically posed a challenge for corporations. More than half of the surveyed companies by SBTi identified Scope 3 emissions as the primary obstacle to achieving net zero. The revised draft proposes new regulations concerning these emissions:
Large companies, with earnings exceeding $450 million, are now required to establish Scope 3 targets, irrespective of their total emissions contribution. Firms must identify high-emission activities representing at least 1% of their Scope 3 footprint or exceeding 10,000 metric tons of CO₂ annually. The previous fixed-percentage rules for Scope 3 targets have been replaced by a flexible system emphasizing high-impact emissions categories. Companies are urged to leverage their influence to ensure key suppliers set net-zero targets, either through emission reduction commitments or procurement practices aligning with net-zero objectives. This approach aims to strike a balance between achievability and ambition, enabling companies to concentrate on the most significant emission sources in their value chains.
New Approach to Carbon Removal Targets
The draft also introduces carbon removal targets to aid in reducing residual emissions. Companies can integrate high-integrity carbon removal endeavors into their path towards net zero. The updated standard considers three pathways:
Mandating carbon removal targets in conjunction with emission reduction commitments. Recognizing voluntary carbon removal initiatives in corporate strategies. Providing flexibility in addressing residual emissions. This proposal signifies a notable shift, intending to incorporate more carbon removal solutions into corporate net-zero strategies, potentially fostering investment in technologies like direct air capture and nature-based solutions.
Tighter Governance and Monitoring
In a bid to enhance credibility and accountability, SBTi is implementing stricter governance measures:
Large companies are now mandated to establish net-zero targets within 1 year of commitment, down from the previous 2-year timeframe. Organizations will undergo random audits to verify compliance. Companies must annually review their baseline emissions and adjust targets in response to significant changes, such as mergers or acquisitions. A formal climate transition plan must be published within 12 months of target validation. These measures are designed to combat greenwashing and ensure companies remain on course towards fulfilling their commitments.
What Is the Potential Impact on Carbon Markets?
The new SBTi standard is anticipated to influence voluntary carbon markets, corporate sustainability strategies, and regulations. Notably, the revised standard’s evolving stance on carbon credits has sparked considerable debate. SBTi is exploring avenues to incorporate Beyond Value Chain Mitigation (BVCM) in offsetting Scope 3 emissions, despite its limited current usage. This concept allows companies to finance emissions reduction projects beyond their operational scope, such as reforestation or carbon capture. Should SBTi endorse specific high-integrity carbon credits, demand could surge, prompting companies to fund significant mitigation projects outside their immediate operations. However, concerns persist regarding the integrity and permanence of these credits.
Implications for Corporate Climate Strategies
The proposed revisions necessitate companies to adopt a more strategic and data-driven approach towards managing emissions, moving beyond overarching emissions targets. Businesses are advised to:
Enhance supply chain transparency and engagement to meet stringent Scope 3 requirements. Invest in renewable energy and zero-carbon electricity procurement. Incorporate carbon removal projects earlier in their net-zero planning, rather than as a last resort. Pressure on Regulators to Align Standards
As SBTi’s framework intensifies, regulators may face mounting pressure to align their policies with the standard, potentially resulting in:
Stringent mandatory reporting requirements for large corporations. Heightened scrutiny of corporate climate assertions and carbon offset utilization. Greater integration of voluntary carbon market mechanisms into national and regional climate policies.
The Key Challenges and What Comes Next
While the proposed updates represent progress for corporate net-zero strategies, challenges persist:
Balancing ambition with feasibility can prove challenging, particularly for businesses navigating the new regulations, especially concerning Scope 3 emissions tracking. Ensuring the integrity of carbon removal efforts hinges on stringent verification and permanence criteria. Industry adaptation will require time and resources to acclimate to the updated reporting and compliance standards. SBTi is currently soliciting feedback from corporations, NGOs, policymakers, and other stakeholders until June 1, 2025. Following this consultation phase, a second draft will be published, with final approval expected by 2026. Companies setting new near-term targets in 2025 and 2026 can adhere to the current Corporate Net Zero and Near-Term Criteria methodologies. However, starting from 2027, all targets must align with Version 2.0 of the standard. SBTi’s revised net-zero standard marks a significant milestone in corporate climate governance, aiming to accelerate tangible climate action by reinforcing Scope…
