The Science Based Targets initiative’s first major overhaul of its influential Corporate Net Zero Standard includes significant changes that prioritize five-year decarbonization milestones and provide additional options for reducing value-chain emissions.
Today’s release of Version 2 of the standard, the de facto rulebook for many companies’ decarbonization efforts, arrives close to five years after the original was published and is the second key document in the tenure of former EY consultant and U.K. government climate advisor David Kennedy, who has led SBTi for around a year.
The initiative’s new strategic plan, released last month, signaled a shift in emphasis from an enforcer of target-setting rules toward a more business-friendly “transformation partner.” Over 96 pages, the new net-zero standard details what that approach will look like in practice. Here are some critical takeaways.
More options for Scope 3
The current standard acknowledges that companies need more options when setting targets to reduce indirect emissions generated by suppliers, product usage and other activities beyond their direct control. The update expands the paths for dealing with these Scope 3, or value-chain, emissions.
- In addition to existing options for targets based on emissions and supplier engagement, companies can tie goals to purchases or sales of low-carbon products, from green cement to electric vehicles.
- When low-carbon goods cannot easily be accessed, companies can use environmental attribute certificates to fund supply-chain decarbonization and claim the associated Scope 3 benefits.
- The current standard requires Scope 3 targets to cover 67 percent of value-chain emissions. Exclusions under new rules focus instead on specific categories of Scope 3 emissions: Only those that make up less than 5 percent of the company’s Scope 3 total can be omitted from a target.
Emissions from products that a company lacks “practical influence” over can also be excluded from targets, provided the company demonstrates other efforts to decarbonize the relevant sector. Kennedy gave the example of a retailer that operates gas stations: The company can’t be expected to control fuel demand, but it could earn SBTi validation for its target by committing to installing EV charging facilities.
Long-term targets no longer required
Companies seeking SBTi validation under the current net-zero standard are required to pair a near-term target, often for 2030, with a long-term commitment to reach net zero by 2050 or earlier. The new standard eliminates the requirement for long-term goals in many cases and shifts the emphasis toward compliance with cycles of near-term five-year targets.
“Companies are often reluctant to make commitments that go 20 years into the future,” explained Kennedy. “That isn’t common business practice, which is why we’re not requiring it.”
To maintain SBTi validation, companies will commit instead to what the standard calls a “continuous cycle of target setting, implementation and ongoing progress reporting.” In practice, this will mean reporting annually on progress toward the target. At the end of each five-year cycle, that assessment must be backed by an assurer.
Companies that fail to meet targets at the end of five years can expect to retain SBTi validation, provided they can demonstrate they have used “every lever” within their control, have been transparent about decarbonization challenges and described how they will overcome those barriers. “You can’t have a binary approach to meeting targets in the real world of uncertainty and dependency,” said Kennedy.
No call on hourly matching for electricity
The Greenhouse Gas Protocol’s proposal to change how companies account for emissions from electricity purchases — which fall under Scope 2 — is one of the most contested issues in corporate sustainability today. Almost all companies follow the protocol when estimating emissions, and the organization is considering tightening the rules so that they must match electricity use with local low-carbon supply on an hourly basis.
Perhaps because the protocol is yet to make a final decision, the SBTi is charting a middle course, at least for now. Hourly matching is “probably a good thing” because of the price signal it creates for utilities, said Kennedy. “But the evidence base is really thin on that.”
SBTi has issued a call for evidence on the topic. Meanwhile, it is adding reporting and voluntary recognition criteria to the updated net-zero standard:
- Companies with “significant” annual electricity use — 10 gigawatt-hours or greater in any area of business — are required to report the proportion of that electricity that was matched with renewable sources on an hourly basis.
- To earn recognition under the SBTi’s Scope 2 Hourly Matching program, companies must match at least 50 percent. The threshold increases to 75 percent in 2030 and to 90 percent in 2035.
Responsibility for ongoing emissions
Hourly matching is not the only area where the SBTi is offering a new form of validation: Companies can now be acknowledged for using carbon credits and other forms of support for climate solutions to tackle ongoing emissions.
The new Ongoing Emissions Responsibility recognition program spans three levels:
- Engaged companies are those that purchase carbon credits equivalent to 1 percent of their total annual emissions or apply an internal carbon price to the same quantity of emissions and use the proceeds to support climate solutions.
- Advanced businesses must cover 10 percent of emissions and, if using a carbon price approach, set it at least at $20 per metric ton of carbon dioxide equivalent (tCO2e).
- Leadership status goes to large companies that cover 100 percent of emissions with credits and apply an $80/tCO2e price to the same amount. (The bar is lower for smaller companies.)
After 2035, a related mandatory requirement will kick in: Companies must purchase carbon removal credits to cover 1 percent of ongoing emissions, with coverage rising linearly until it hits 100 percent in 2050 — or earlier, should the company opt to commit to reaching net zero before that date.
What happens next
Companies with 2030 target dates should plan for their next cycle — 2030 to 2035 — using the standard that was released today. But those that have only committed to setting targets and have been working with Version 1 need not change course: The current standard will remain available until the end of 2027.
SBTi is also working on additional resources that will flesh out the standard. A “Methods and Pathways” document containing technical details for target-setters was opened for consultation today; companies have until July 31 to provide feedback. A final version of the document, together with other guidelines on how companies should prepare for target submission and validation, is due in the fourth quarter of this year.
That will be followed in the first quarter of 2027 by information on how to obtain assurance during end-of-cycle assessments and communicate claims about SBTi targets. Validation against the new standard will then begin in February 2027.