SBTi Corporate Net Zero Standard 2.0: granularity, Scope 3 flexibility and climate target monitoring

The Science-Based Targets Initiative (SBTi) has released a much anticipated draft update of its Corporate Net Zero Standard, which introduces more granularity in target setting and a requirement to disclose progress against climate targets.

Sustainability leaders have waited for this draft with high anticipation ever since the SBTi suggested that it might allow for a greater use of carbon credits to meet Scope 3 decarbonisation goals in April 2024.

Scope 3 target-setting and offsetting

After publishing “mixed findings” from its research on carbon credit effectiveness last July, the organisation has indeed amended target-setting requirements for Scope 3 emissions, from a mandatory minimum reduction of 67% for near-term and 90% for long-term to an unspecified boundary “focused on most relevant emission sources”.

Instead of having to reduce the wide majority of their Scope 3 emissions, companies will now be able to choose the percentage of reduction they plan to achieve, while largely focusing on Tier 1 suppliers. The draft also gives them the options to set targets related to green procurement and revenue generation, instead of setting an emissions reduction target. Beyond reductions, target-setters will be able to rely on carbon removals, with SBTi consulting on a potential requirement to set removal targets.

At the same time, the organisation is looking to reward companies going above and beyond their science-based targets to offset historical emissions and those being produced over the course of their net zero transformation, as a way to scale up corporate climate finance for carbon removal initiatives.

In an effort to recognise varying levels of advancement across the corporate world, the new Corporate Net Zero Standard draft introduces two company categories: one of large corporations operating in high-income countries and another of smaller firms operating in lower-income countries. The first will now be mandated to set a Scope 3 target, while the second will be able to do so voluntarily.

Corporate Net Zero Standard 2.0: Monitoring and renewal requirements

While the draft introduces more flexibility around Scope 3 emissions, it also strengthens the framework around climate target progress monitoring. 

Where the current version requires firms to annually report progress against targets (without a definition of how to assess progress) and revalidate targets every five years “if necessary”, the new standard requires a progress assessment and the setting of new targets at the end of each target cycle.

In addition, it defines the criteria for progress assessment, requiring “robust evidence that substantiates mitigation outcomes”. For instance, companies cannot count carbon credits, emissions avoided through sold products and the purchase of unbundled environmental attribute certificates originating from activities outside the company’s value chain towards the achievement of their abatement targets.

Significant organisational boundary, methodological and data changes should also be addressed by conducting a target base year recalculation, and not be counted as emissions reductions towards the achievement of targets.

More granularity in target setting

The Corporate Net Zero Standard 2.0 draft also includes a new requirement to set separate Scope 1 and 2 targets “to reflect the unique challenges decarbonising each of these categories”, as well as a net zero transition plan.

Francesco Starace, Chair, SBTi said: “The draft standard addresses complex, emerging issues and lays the foundation to enable more companies to move further and faster towards net-zero. Working hand-in-hand with stakeholders across the ecosystem to seek and consider a diverse range of views, we aim to produce a standard that is both rigorous and practical, and works for businesses and the planet. With a limited carbon budget left, this is more important than ever. Companies can unlock long-term growth, drive transformation and build investor confidence by acting at pace to accelerate climate action.”

The consultation on the draft is now open and will run until June 1.