The SBTi Calls for Greater Corporate Emissions Transparency in New Corporate Climate Responsibility Monitor 2023 Report
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The following release below is from the SBTi:
As the leading standard-setter and certification body for ambitious corporate climate action, the Science Based Targets initiative (SBTi) values feedback from climate experts, civil society and other key voices. Our goal is to enable ambitious, collective action from the private sector at scale so that the global economy can avoid the worst effects of climate change. Collaboration is integral to the way we develop our standards, guidance and methods.
We welcome the publication of the Corporate Climate Responsibility Monitor (CCRM) 2023 report from New Climate Institute and Carbon Market Watch. The report evaluates the climate strategies of 24 companies and notes that the SBTi Corporate Net-Zero Standard provides a framework for setting credible long-term targets.
However, there are some key methodological differences between the approaches used by the SBTi and the authors of this report and, contrary to our own findings, the CCRM report suggests that the climate strategies of some SBTi-validated companies are ‘low integrity’.
Below, we provide a more detailed technical assessment, highlighting the differences between the CCRM and SBTi methodologies and clarifying some misunderstandings of our standards and validation process relating to: 1) transparency and accountability; 2) legacy targets; 3) target coverage; 4) scope 3 targets; and 5) offsetting. We have included this detail to shed light on the reasons why our findings differ, as well as some of the ongoing challenges faced in the field of corporate decarbonization target-setting and how the SBTi is acting to address them.
1. Transparency and accountability: The SBTi has a robust approach and is continually improving
As a mission-oriented organization, the SBTi is continuously improving the information we provide publicly about companies that set science-based targets or commit to set targets, as well as progress made toward achieving targets.
Unlike most other voluntary climate initiatives that define best practice without a mechanism to assess compliance, the SBTi’s target validation provides robust and independent assessment of targets. This plays an important role in ensuring businesses conform to the criteria included in our publicly-available standards, guidance and protocols. The materials used in this process have all been developed through rigorous, transparent multi-stakeholder consultation processes.
When assessing companies’ science-based targets, the SBTi conducts an in-depth assessment that involves reviewing far more information than is available publicly due to commercial sensitivity. This differs from the assessments made as part of the CCRM report, which are based solely on a review of the information that companies share externally.
Reviewing information that is made public is important for increasing transparency and accountability of corporate climate action. It’s clear that companies have a responsibility to ensure that their external communication (i.e. the information reviewed in the CCRM report) accurately reflects their climate strategies.
The SBTi is working to drive increased transparency and accountability in a number of ways:
- Annual reporting: We require that companies publicly report their greenhouse gas (GHG) emissions inventories and progress against validated targets on an annual basis. (SBTi Criteria and Recommendations V5.0 p 12-13, Criteria C25-27, R11-13).
- The SBTi Target Dashboard: This tool provides weekly updates on companies’ science-based targets and commitments. To increase transparency and accountability, the SBTi released a new Commitment Compliance Policy in October 2022. This policy came into effect on January 31 2023. Prior to the implementation of this policy, companies that missed our 24-month commitment time frame were simply removed from the Target Dashboard. Now, all companies and financial institutions that miss the timeframe will have their commitments marked as ‘Commitment removed’ on the dashboard.
The dashboard is also being refreshed following extensive stakeholder engagement in September 2022, which indicated that the SBTi should communicate information about companies’ targets and commitments more clearly, and in a more user-friendly format. In response, we are launching several updates to the Target Dashboard in the coming months and will continue to seek regular feedback to facilitate insight and drive action.
- Progress tracking: The SBTi develops annual progress reports that assess the progress of science-based targets. We are also working on an enhanced accountability framework as part of our measurement, reporting and verification (MRV) project. This project is providing guidance on how to openly and consistently track progress against corporate science-based targets in line with science. The MRV project is currently underway, with a Technical Foundations Paper planned for publication by the end of 2023.
- Communications guidelines: We provide communications guidelines to companies to assist them in communicating accurately about their science-based targets and commitments.
See related article: The SBTi Appoints Maria Outters as First Chief Impact Officer
2. Legacy targets: Evolution of climate science and SBTi criteria
The SBTi has been driving the adoption of science-based climate targets since 2015. The underlying pathways, target setting methods and criteria have significantly evolved since then. In 2015, the best available pathways were aligned with 2°C. After the release of the IPCC’s Special Report on 1.5°C (IPCC SR15) in October 2018, 1.5°C became the new recommended level of climate ambition.
Responding to the new science and urgency highlighted by the IPCC, in April 2019 the SBTi released new guidance to enable companies’ targets to be validated in line with 1.5°C. In July 2022, we increased ambition again and now companies’ targets can only be validated in line with 1.5°C.
Acknowledging that climate science is constantly evolving, the SBTi introduced a mechanism to ensure that targets are revised every five years. This mechanism provides sufficient stability to early movers that set science-based targets based on the best-available science at the time, while ensuring targets are regularly revised to align with the latest science.
The CCRM assessment of some early ‘legacy’ targets against today’s expectations (i.e. 1.5°C, as stated in the current SBTi Criteria and SBTi Corporate Net-Zero Standard) accounts for some of the discrepancy between our findings and their suggestion that those businesses’ targets are not ambitious enough.
3. Target coverage: High ambition through explicit and precise requirements
The CCRM report states that companies should explicitly set out the coverage of their headline climate pledges to avoid misinterpretation and ensure accountability. The SBTi is fully aligned with this view and the SBTi Corporate Net-Zero Standard has explicit and precise requirements for target coverage (p. 22-24 and 40-41, Criteria C1-C7).
Specifically, net-zero targets must cover at least 95% of company-wide scope 1 and 2 emissions and 90% of scope 3 emissions. Before setting targets, companies must develop a full GHG emissions inventory across all scopes in line with the Greenhouse Gas Protocol, so that all activities that generate emissions are captured. The decision to cover 95% of scope 1 and 2 and 90% of scope 3 was taken following a robust multi-stakeholder engagement process aimed at pin-pointing the most impactful level of coverage while being efficient, feasible and effective.
Unlike the CCRM methodology, the SBTi follows an expansive boundary approach for scope 3 targets, recognizing the challenges with Scope 3 accounting and value-chain decarbonization that exist today. Through this approach, companies are required to cover at least two-thirds (67%) of scope 3 emissions in their near-term targets. This allows companies to focus efforts on activities that represent the largest climate impact in the near-term, while incentivizing deep decarbonization across the entire value-chain in the long-term.
This different approach for scope 3 target coverage represents another difference between the CCRM and SBTi assessments and findings.
4. Scope 3 targets: Catalyzing value-chain decarbonization
Scope 3 represents more than 75% of companies’ emissions. Cutting these is essential to achieving economy-wide net-zero. Science-based target setting has already played a critical role in mainstreaming the adoption of scope 3 targets. When we began, only a handful of companies had meaningful and comprehensive scope 3 inventories and targets. Now, all companies that submit a target for SBTi-validation have to complete a scope 3 inventory, and the Corporate Net-Zero Standard also requires companies to set targets that cover 95% of scope 3 emissions. This means that today 96% of all targets validated by the SBTi include scope 3 emissions.
Despite this important progress, scope 3 accounting and target-setting is still relatively new and evolving. Scope 3 is much more complex than scopes 1 and 2, as it involves the quantification and aggregation of emissions of a very distinct nature: From the life-cycle emissions of the materials embedded into a product, to the projected lifetime emissions that arise from the use of products, to emissions associated with investments and financial portfolios, among many others.
Considering the complex nature of scope 3, and the challenges and uncertainties that surround the accurate quantification of these emissions, the SBTi recognizes different methods and indicators that can be effective in driving value-chain decarbonization.
In addition to absolute emission reduction targets, our current criteria recognize emissions intensity targets, supplier and customer engagement targets, and even non-emission based targets, when appropriate. For example, the SBTi’s Forest, Land and Agriculture Guidance (FLAG) requires companies to publicly commit to zero deforestation in addition to their emission reduction targets. When absolute reduction targets are set, we assess those targets against benchmarks that align with a well-below 2°C minimum ambition.
Despite this, due to the complex nature of scope 3 and the different methods and indicators used in value-chain emission reduction targets, the SBTi doesn’t currently temperature classify scope 3 targets.
In contrast, the CCRM report assesses scopes 1, 2 and 3 emissions against 1.5°C sector-specific benchmarks in most cases. In the absence of more nuanced sector-specific indicators, the report assesses aggregate scope 3 emissions against a cross-sector 1.5°C global trajectory (i.e. reducing global GHG and CO2 emissions by ~43% and ~48% respectively by 2030 from 2019 levels).
This different treatment of scope 3 targets is the other key difference that we observe between SBTi and CCRM target assessments.
We are committed to continuing to spearhead the adoption and implementation of scope 3 targets and find new ways to ensure they are both ambitious and actionable.
Also, recognizing that scope 3 target-setting is an evolving practice, we are keen to consider the recommendations from the CCRM report, United Nations High Level Expert Group on Net-Zero and others, to continue to evolve our framework and criteria. This is being considered as part of the scope 3 review and guidance development that SBTi started at the end of 2022.
5. Offsetting: SBTi’s standards provide clarity amidst confusion in the ecosystem
The CCRM report incorrectly states that the SBTi Corporate Net-Zero Standard and the SBTi’s FLAG guidance include a role for offsetting. While there is confusion in the corporate climate ecosystem around the definition of different terms (e.g. ‘offsetting’, ‘compensation’ and ‘neutralization’ etc.), our standards are clear: science-based abatement targets cannot be met through offsets of any type.
The SBTi Corporate Net-Zero Standard (page 6) and SBTi Corporate Net-zero Standard Criteria (page 6, C12 and C13) state that only emission reductions within a company’s value chain count towards companies’ near- and long-term abatement targets. Businesses cannot use any activities outside the value chain to meet their science-based targets, including any type of offsetting activity.
The Standard makes it clear that companies must reduce emissions by >90% before neutralizing the final <10% of emissions with permanent removals. This position is in line with the United Nations’ High Level Expert Group on Net-Zero.
The confusion arises because the SBTi FLAG guidance is based on 1.5°C emission trajectories that reflect both gross emissions and removals from biogenic sources, as is common in Agriculture, Forestry, and Other Land Use (AFOLU) emission pathways. Therefore, to ensure consistency with the underlying pathways, the SBTi uses net-emissions accounting for FLAG targets.
Net-emissions incorporated in FLAG targets are not offsets or insets, as incorrectly stated in the CCRM report. SBTi FLAG targets must remain separate from industry/energy (non-FLAG) targets. This is to ensure that companies do not use biogenic value chain removals to meet their energy/industry (non-FLAG) targets. Furthermore, the SBTi FLAG Guidance (p. 28) clearly indicates that “no company can purchase offsets to meet its near-term FLAG or energy/industry target”.
Companies with FLAG-related emissions that total less than 20% emissions across scopes are recommended (not required) to set a FLAG target. For companies that fall below this threshold and choose not to set a separate FLAG target, FLAG emissions must be accounted for separately and included in the traditional energy/industry target. Removals cannot be used in this case.
Further information on the SBTi’s corporate decarbonization mission
More information on the SBTi’s position on these areas can be found in our blogs:
- Carbon removals in Forest, Land and Agriculture (FLAG) Pathways
- Going Above and Beyond to Contribute to Societal Net-Zero
- Net-Zero: Urgent Beyond Value Chain Mitigation Is Essential
While there is more for the global community to collectively achieve, the SBTi has already made an enormous impact in enabling companies to take climate action, leading to significant emissions reductions across some of the most polluting industries. There are now more than 2,250 companies with validated science-based targets. These SBTi-validated companies are cutting scope 1 and 2 emissions faster than their peers and by 12% year on year on average, greater than the 7.6% year on year reductions required to achieve 1.5°C.
We are improving our governance processes with a series of initiatives, including a new commitment compliance policy to drive transparency and accountability, an independent Technical Council to support the ongoing enhancement of our methodologies, and guidance that will measure and report on companies’ progress to drive accountability. We welcome ongoing dialogue with experts outside the initiative, through our Expert Advisory Groups and open consultations as we look to provide actionable insights on the latest climate science. It is through this collaboration and improvements that the SBTi will continue to deliver on its commitment to drive meaningful corporate decarbonization.