The launch of the Science Based Targets initiative (SBTi) Net-Zero Standard just before COP26 marks a significant milestone. It is the first independently certifiable standard that assesses a company's net-zero targets, and importantly it clearly grounds them into 1.5°C-aligned short-term and long-term action.
Experts from civil society, corporates, and academia worked together over the past year to develop the standard, which was then piloted by more than 80 companies. The result brings much-needed clarity to corporate net-zero targets—a rapidly evolving, and sometimes criticized, topic.
The standard finally invites climate science to the net-zero conversation and, importantly, distinguishes between near-term and long-term science-based targets.
Near-term science-based targets focus on a short timeframe (5-10 years). They require companies to align their Scope 1 & 2 targets with a 1.5°C goal, while Scope 3 ambitions should retain a threshold of well below 2°C.
Setting longer-term targets is an important development. It requires companies to achieve 1.5°C-aligned decarbonization by their net-zero target year, but by no later than 2050. Achieving that ambitious goal translates to reducing greenhouse gas (GHG) emissions by at least 90 percent for the vast majority of Scopes 1, 2, and 3.
These changes are significant in that they provide a mechanism for increased accountability in the near term, but also for the longer term, when a company pledges to reach net zero. With this robust new framework, the question for businesses is no longer “by how much should I reduce emissions and on what scopes?” but rather “how do I transform my business to align with the 1.5°C ambition?”
And that is why this new SBTi standard is so important: it enshrines 1.5°C across scopes as the minimum ambition, in alignment with the UN Race to Zero initiatives. And, as a standard, it provides a pathway to independent verification. This is a much-needed and welcome development, which provides companies with a clear framework for action.
The standard also clarifies the meaning of the "net" in net zero. The mounting criticism of net zero has focused on companies claiming net zero by simply offsetting emissions without decarbonizing.
The new standard addresses this critique by clearly stating that a company will not be able to claim it has achieved a net-zero goal until the long-term decarbonization target is met. When companies reach such deep decarbonization across Scopes 1, 2 and 3 at their target year, they are required to net their emissions by balancing out residual emissions with permanent carbon removals.
This means that in their target year, companies should reach net zero by netting a portion of emissions by investing in technological or nature-based solutions that effectively remove GHGs from the atmosphere. What this also implies is that avoided emissions or reduced emissions credits will not be part of the "net" of net zero.
Companies will need to plan for their carbon removal strategies. Companies should expect additional guidance on this topic in 2022, both from SBTi and initiatives such as the Voluntary Carbon Markets Integrity Initiative (VCMI).
The standard also provides initial guidance on climate solutions beyond companies’ value chains. While the standard insists on the essential importance of deep decarbonization, it recommends that companies also step up action beyond their Scopes 1, 2 and 3 by investing in appropriate climate solutions; e.g., by investing in forest conservation to eliminate deforestation by 2030 on their way to net zero.
The urgency of the climate crisis could not be more acute, and immediate action is needed. The new SBTi standard makes science-based decarbonization across scopes the baseline for businesses. Climate leadership will increasingly require companies to concurrently look beyond their value chain, with additional investments to slash methane emissions and scale nature-based solutions, on the way to net zero.
Further guidance and clarity on the role of SBTi to encourage climate action beyond the value chain is needed. Here are a few things to look out for in 2022:
- Increased company uptake of the SBTi Net-Zero Standard: SBTi had validated the targets of seven companies by launch, including Transform to Net Zero member Wipro. Early signs suggest more than 70 companies are already interested in validation, and this is poised to grow further.
- Increased clarity: Two main SBTi projects are in the works. A review and development of long-term Scope 3 target-setting methods will help build confidence in comprehensive Scope 3 decarbonization targets; the cited "beyond value chain mitigation" project will bring clarity on expectations for climate investments to supplement decarbonization efforts.
- Guidance on forest, land, and agriculture: The forest and agriculture sector especially requires additional guidance; e.g., accounting rules for land-based removals. The release of the forest, land, and agriculture (FLAG) methodology will help and likely trigger updates in the standard.
- Net-Zero Standard for financial institutions: It is worth noting that a separate process is ongoing for financial institutions, with more information available here.
As we recently wrote after COP26, it is very clear that net-zero corporate commitments are here to stay, and so is the pressure to define what good looks like.
The key pillars of the SBTi Net-Zero Standard delineate the backbone of robust corporate net-zero implementation. We encourage businesses to embrace them and think strategically about the business transformation needed to achieve them.
The publication of the SBTi Net-Zero Standard is a start and not an end, as some topics need additional guidance—but we now have the "what." The challenge ahead lies in the "how" companies will reach those targets through business transformation in a just and equitable way.