SBTi’s Move May Reshape Corporate Climate Goals

Every path has its puddle. The urgent push towards climate change action and particularly decarbonization is no exception. On April 9, 2024, the Science Based Targets initiative (SBTi) announced plans to revise its Corporate Net-Zero Standard to allow environmental attribution credits (EACs) to meet scope 3 targets, and the reactions were mixed. Some view it as a regression, while others—particularly organizations eager to enhance their climate efforts—see it as a chance to transform targets into tangible outcomes.    

SBTi is a global corporate climate action organization that aids over 4,000 businesses in setting voluntary and science-based greenhouse gas (GHG) emissions reduction commitments to combat climate change. SBTi guides companies through a process that involves committing to the initiative, developing an emissions reduction target, submitting it for validation, communicating the target and disclosing progress annually. The commitments aim to reduce emissions from the full range of a company’s direct operations (scope 1), emissions from purchased energy sources (scope 2) and emissions spanning the entire value chain of a product or service—from raw material procurement and transportation to end-use and disposal (scope 3). 

Scope 3 emissions, which fall outside a company’s direct control and require collaboration with suppliers and even consumers, are the most substantial and challenging to mitigate. Ideally, businesses can reduce emissions by enhancing their product and service operations through innovation and technological advancements, for example by deploying or contracting for renewable energy. However, businesses are currently struggling to meet their commitments. EACs, encompassing carbon credits, offer businesses an alternative path to achieve their targets. These instruments quantify, verify, and track the environmental benefits linked to climate mitigation efforts. Companies can purchase EACs to finance underlying third-party activities or projects or trade them on secondary markets. SBTi’s announcement has been criticized for potentially leading companies away from the preferred path of fostering innovation and technological solutions. Critics are concerned that the new guidelines might offer companies “shortcuts” or “cheat sheets” to achieve their environmental goals, rather than encouraging genuine progress.  

While the full implications of SBTi’s strategic pivot toward EACs remain to be seen, this move signifies a profound evolution in both corporate climate action and voluntary carbon markets (VCMs). Though details are scant, SBTi’s decision is poised to reshape how companies approach their emission goals, blending offset utilization with direct reduction methods. This approach is anticipated to reinvigorate SBTi’s net-zero commitments by potentially 20% and catalyze a surge of investment into critical climate projects focused on ecological restoration and carbon capture. Projections indicate a dramatic market expansion, soaring from $2 billion in 2022 to a projected $100 billion by 2030, underscoring the growing relevance of VCMs in the global decarbonization strategy. However, this shift has sparked debates, as the introduction of EACs has raised concerns about potentially stalling direct emission reductions, which could ultimately impede the momentum of global decarbonization efforts. The success of these markets will heavily depend on the integrity of the EACs, which is crucial for ensuring that voluntary market-based mechanisms contribute positively to the energy transition. 

For the time being, this announcement’s impact is one of numerous signals of a broader turning point. Recent calls for a more pragmatic approach to decarbonization are gaining increasing traction. Expanding the scope of acceptable practices in decarbonization might attract more players into the arena. Small and medium-sized enterprises, for instance, may lack the resources of global giants to tackle the intricacies of scope 3 emissions abatement. Moreover, this move could potentially ease the daunting climate finance gap that has stifled projects aimed at reducing greenhouse gas emissions, promoting renewable energy and scaling up promising low carbon technologies. 

As regulatory efforts intensify, it will be crucial for businesses to stay abreast of emerging developments. The plethora of climate disclosure standards poses a complex challenge. While federal action in the United States has been sluggish, the EU’s Corporate Sustainability Reporting Directive and California’s scope 3 reporting rule mandate transparency regarding offset usage. To align with global climate goals, the private sector must adhere to a mitigation hierarchy: prioritizing emissions avoidance, followed by reducing and removing emissions across operations and supply chains, before contemplating high-quality EACs as a supplementary measure. Carbon credits should complement, not replace, science-backed decarbonization strategies. When properly regulated, they can prove a potent tool for achieving net-zero emissions, propelling the momentum of corporate decarbonization efforts. 

Ultimately, the proposed flexibility in SBTi’s Corporate Net-Zero Standard offers businesses a market opportunity to drive innovation, attract investment, and inspire change. Organizations can seize this moment to revisit their climate strategies, balance their scope 1, 2 and 3 emissions, and explore the potential of the voluntary carbon market by taking the following steps: 

• Revisit climate strategies to set or enhance decarbonization targets and commitments.  
• Consider the balance between scope 1 and 2, and scope 3 emissions in its operations.  
• Invest in climate projects and solutions that prioritize decarbonization and high-quality carbon credits.  
• Prepare for market and regulatory scrutiny. 

This is a chance to turn commitments into actions, and actions into impacts.