SBTi’s updated Net Zero standard: what you need to know

This article was written by Chloe Parkin, of recent SLR acqusition Corporate Citizenship. Corporate Citizenship provides ESG strategy, reporting, social and environmental impact and other sustainability consulting services to multi-national companies. Visit the Corporate Citizenship website to learn more.

On 28 October, on the cusp of COP26 commencing in Glasgow, the Science Based Targets Initiative (SBTi) released their much-anticipated Net Zero Standard, which represents the first global standard for corporate Net-Zero target-setting in line with science. Below, we summarize the key updates contained within the standard, and why the SBTi framework is so important at a time when not all net zero targets are equal.

What is the SBTi standard?

As the concept of ‘Net Zero’ has gained increasing popularity in recent years, corporate commitments to decarbonise their operations have multiplied, but often with inconsistent approaches, language, scope and criteria. This has led to some scepticism of ‘Net Zero’ as a concept, with particular concerns around a potential over-reliance on emission ‘offsetting’ as a distraction to achieve Net Zero in the distant future, rather than organisations reducing their own emissions as soon as possible. The SBTi aims to combat these concerns, by providing a unified framework to businesses to set emission reduction targets that align with climate science set out by the Intergovernmental Panel on Climate Change (IPCC).

6 key updates from the SBTi’s Net Zero Standard

• Stronger emphasis on remaining within 1.5°C pathways. The Standard includes a strengthening of requirements to align with 1.5°C. While previous guidance for absolute near-term SBTs required scope 1 & 2 targets to align with a ‘Well-below 2°C’ (WB2C) pathway, and scope 3 targets with a 2°C pathways at a minimum, from 15 July 2022 onward, these minimum ambition levels ramp up to a 1.5°C pathway (scope 1 & 2) and well-below 2°C (scope 3).
  
• Acceleration of near-term SBT timeframe. The science-based targets that SBTi have been guiding and validating since 2015, have been rebranded as ‘near-term SBTs’, in contrast with the introduction of additional ‘long-term SBTs’ (below). From 15 July 2022, the maximum timeframe for companies to set a near-term SBT will shrink to 5-10 years (down from 5-15 years previously), to ensure a renewed focus on immediate actions to tackle emissions.
  
• Introduction of long-term SBTs, including neutralisation criteria, to achieve ‘Net Zero’. A long-term SBT must include at least 95% of scope 1 & 2 and 90% of scope 3, and demonstrate alignment with a 1.5°C pathway. Importantly, the new standard also indicates that most companies[1] will be required to achieve a 90% reduction across all emission scopes from the baseline year, before using carbon removal mechanisms to deal with any hard-to-abate residual emissions and claim ‘Net Zero’. This represents a significant step up in long-term ambition, particularly for scope 3.
  
• ‘Expansive’ approach to increasing scope 3 ambition over time. While near-term SBTs will continue to allow a WB2C-aligned pathway or supplier/customer engagement targets for scope 3, the ambition must increase to a 1.5°C pathway focused on absolute reductions for long-term targets. Additionally, companies must increase the target boundary from including at least 67% of a company’s full scope 3 emissions for near-term targets, up to over 90% for long-term targets. The SBTi has acknowledged that the new Standard’s long-term increase in scope 3 ambition is likely to challenge companies, and they plan to release a Supplier Engagement Toolkit along with targeted support for scope 3 approaches in late 2021.
  
• Launch of a Net Zero target setting tool and validation service. The SBTi has launched a tool to help companies set their Net Zero targets; in future, this will be merged with the existing tool for setting near-term SBTs. A validation service has also been launched from January 2022 onwards for companies to have their Net Zero targets verified, for a service fee of $9,500.
  
• Guidance around near- and long-term actions around ‘beyond value chain mitigation’. The updated Standard includes little new information around ‘offsetting’, which SBTi terms ‘beyond value chain mitigation’. The Standard notes that the SBTi’s 2020 paper, Foundations for Science-Based Net-Zero Target-Setting in the Corporate Sector remains the most detailed outline of best-practice approaches to these types of mitigation. The focus is clear, companies must reduce emissions first, and remove residual emissions through neutralisation projects once their long-term SBT is achieved. In the meantime, companies are encouraged to optionally support compensation and/or neutralisation projects, as a means of helping protect natural carbon sinks and accelerate development of carbon removal technologies. Further guidance on how companies can accelerate the transition beyond their value chain is expected in due course.

What do these updates mean for businesses?

For companies with an SBT: No immediate changes are required to existing SBTs which have already been validated; these companies will only be expected to update their ambition for their 5-yearly revalidation cycle. Meanwhile, they need to decide if they want to complement their near-term target with a long-term Net-Zero SBT, in order to demonstrate their commitment and ambition.

For companies with an existing Net-Zero target: they should assess if their target meets the stringent new criteria, to be considered “science-based”. We expect SBTi to become the de-facto standard for Net-Zero targets very quickly, so aligning and getting validation will enable stakeholder confidence companies are doing this the right way.

For companies with no ambitious targets: Stakeholders are demanding action. Companies must start measuring, reporting and reducing their value chain emissions. This standard provides a robust guide as to what to include to ensure your strategy is legitimate, and can be clearly communicated to stakeholders without risking any accusations of greenwashing.

Our team have extensive experience working across all sectors and stages, to help companies develop their Net Zero strategies. Please get in touch if you would like to talk through how to ensure your target is keeping pace as the climate agenda moves at an ever-quickening pace.

--------------------------------------------------------

[1] The Forest, Land and Agriculture (FLAG) sector is currently required to achieve at least an 80% reduction, with other specific sector pathways still in development.