The Corporate Net-Zero Standard Review Process

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The SBTi is undergoing its first major revision of the Corporate Net-Zero Standard since it was released in 2021, through a robust and research-informed consultative process.

On the 30th of July 2024, the SBTi released research papers on considerations for evolving its approach to scope 3 emissions. These include insights into pathways for updated scope 3 target-setting options, as well as potential uses and effectiveness of environmental attribute certificates (EACs), in particular carbon credits.

  • Note: Future releases will provide results on the use and effectiveness of other types of EACs.

SBTi’s papers review thousands of pieces of submitted evidence on scope 3 challenges and appropriate use of carbon credits in net-zero targets.

For now, guidance remains unchanged, and it is too early to tell what updates to the Net-Zero Standard will take place.

Scope 3 Targets:

  • Scope 3 target setting may undergo potentially substantial revisions to provide more flexibility in target setting with a focus on optionality, boundaries and influence.
  • Interested stakeholders can share their feedback with the SBTi through this form.

Effectiveness of Carbon Credits:

  • Available evidence on the use of carbon credits indicates a clear need for improved methodologies to ensure the intended mitigation outcomes are met.
  • Some evidence points to a lack of effectiveness in meeting the intended mitigation outcomes, while others display positive outcomes, including both outcomes within specific programs (in particular, REDD+). More research is needed to understand the effectiveness across various types of carbon credits to control for methodologies and activity types.
  • Offsetting differs from beyond value chain mitigation (BVCM). BVCM has the potential to increase climate finance and improve the net-zero transition by complementing (not substituting) emissions reductions within the value chain. Evidence suggests that the use of carbon credits for the purpose of offsetting can, instead, limit climate finance and hinder the net-zero transition by diverting funding from in-value chain reductions.

Insights from the research indicate that, moving forward, in evolving its standards and guidance, SBTi will seek to ensure the following:

  • Improved ways to recognise and reward companies’ current efforts and corresponding contributions to net-zero.
  • Development of guard-railed scope 3 market mechanisms to scale decarbonisation throughout value chains.
  • Completion of additional research into appropriate pricing and structures for carbon credits to further incentivise commitments to decarbonisation.

What happens next:

  • The SBTi is expected to release additional synthesis reports on the effectiveness and use of other types of EACs for corporate climate targets during Q3 of 2024.
  • In Q4 2024, the SBTi will release a consultation draft of the revised Corporate Net Zero Standard, followed by pilot testing in Q2 2025 and release of the final Corporate Net Zero Standard (V2.0) in Q4 2025.
  • In this critical period, with less than six years until 2030, Anthesis encourages companies to continue to set ambitious targets, take action, and participate actively in this process by submitting feedback to the SBTi through their form.

Introduction

The practice of scope 3 target-setting and value chain decarbonisation has evolved significantly, as has the ecosystem of actors, knowledge, and tools supporting this important component in combating climate change. This advancement has not only expanded the number of companies setting scope 3 targets, but has also pushed the boundaries of knowledge and increased understanding of the challenges and opportunities associated with decarbonising corporate value chains as companies shift from setting to tracking and implementing these targets.

In an impressive and robust consultative process, the Science Based Targets Initiative (SBTi) has released its first set of documents in its Corporate Net-Zero Standard (CNZS) revision process.[1] Having received a near continuous barrage of feedback from companies, partners, and various external stakeholders, particularly with many corporate targets coming to the end of their first refresh cycle in 2025 (see our latest insights on revalidating Science Based Targets (SBTs) here: 5 Years On: Revalidating Science-Based Targets), the SBTi seems to be at an inflection point.

By the end of 2023, companies with SBTs or commitments represented 39% of the global economy by market capitalisation.[2] Furthermore, companies with SBTs were found to have made considerable progress on their Scope 1 & 2 targets, reducing these emissions by a linear annual rate of 5.9%.[3] Companies prioritise emission reductions through various methods, with 64% focusing on reducing absolute emissions. And while over 97% of companies had included scope 3 emissions in their targets, progress on scope 3 remains elusive for many.

To this end, the SBTi has embarked on a major revision of its CNZS with the stated aims to:

  1. Align with the latest science and best practice.
  2. Enhance the SBTi’s approach to addressing value chain emissions (Scope 3).
  3. Integrate continuous improvement and assessment of target achievement.
  4. Improve structure and interoperability.

The intended outcomes are a revised final CNZS (version 2.0), an accompanying Net-Zero tool, and finalised revisions to the Criteria Assessment Indicators. In addition, the SBTi plans to release a claims guidance to facilitate credible claims made by companies with validated SBTs.

Timeline:

The July release of documents is intended to provide a summary of the evidence received to-date along with the potential revisions being explored by the SBTi. The documents should not be interpreted as updated guidance or signposting of predetermined changes to come.

Documents Released

Scope 3 Discussion Paper

The Scope 3 Discussion Paper was developed from stakeholder feedback received from a survey of over 230 organisations (including 85% with validated SBTs or commitments) published by the SBTi in 2023, a focus group session in early 2024, and a review of available literature and emerging best practice.

The SBTi recognises the challenges faced by companies in meeting their scope 3 targets, with 50% of respondents reporting being “off track” for delivering targets due to limitations in aggregated emissions metrics, target-setting methods, boundaries, levels of influence, and progress measurement hindering effective implementation. In this Discussion Paper, the SBTi proposes three main areas of exploration for potential changes to target-setting criteria:

  1. Providing more target-setting options, such as:
    • Category-specific targets, rather than aggregating scope 3 targets under a single metric of tCO2e reduced for all of scope 3.
    • Alignment targets, aimed at tracking positive actions rather than emission reductions (existing examples include supplier engagement targets and portfolio coverage targets).
    • Policies, such as sustainable sourcing and product innovation, which can drive value chain decarbonisation.
  2. Amending target boundary requirements away from the overarching 67% coverage for near-term targets and 90% for long-term targets to a more nuanced approach.
  3. Exploring the role of influence, through two proposed options:
    • Proposal 1: prioritise emissions sources with most influence to be addressed in the near-term.
    • Proposal 2: differentiate interventions based on level of influence (e.g., set targets on emissions with influence, while addressing the impact of emissions with less impact through other means).

In addition, this paper explores the potential role of certification and environmental attribute certificates (EACs) for meeting scope 3 targets. In doing so, the SBTi lays out five potential scenarios for the use of different EACs:

  1. Commodity certificates from in value chain activities with high traceability (e.g., Rain Forest Alliance Certified Coffee),
  2. Commodity certificates from in value chain activities with low traceability (e.g., SAF from book-and-claim system),
  3. Carbon credits within the value-chain (e.g., emission reduction units from within the supply shed),
  4. Carbon credits to support neutralisation of residual emissions (e.g., removal credits retired to address remaining emission in Net-Zero target year),
  5. Carbon credits to support beyond value chain mitigation (BVCM) (e.g., landfill methane reduction credits).

The SBTi draws the distinction between offsetting (whereby carbon credits are used to net out emissions), and BVCM (which is intended to support contribution or compensation claims, but not be reflected as a net reduction in reported emissions).

Evidence received on the effectiveness of Environmental Attribute Certificates

This document contains all evidence received by SBTi during its call for evidence between September 2023 to November 2023. No SBTi assessment or commentary is provided within this document.

Synthesis report of evidence on the effectiveness of Environmental Attribute Certificates in corporate climate targets – Part 1: Carbon credits

This is the first in a series of to-be-released synthesis reports on the effectiveness of EACs, focused solely on carbon credits. The SBTi received 111 unique pieces of evidence, with 71 deemed relevant to the topic. The evidence was grouped into three tiers: A, B, and C, with A and B perceived to have less risk of bias than C. The SBTi evaluated the evidence for insights across three main themes:

  1. Mitigation outcomes and conditions for effectiveness: The SBTi found the results from tiers A and B to suggest that “various types of carbon credits are ineffective in delivering intended mitigation outcomes.” However, it should also be noted that evidence from Tier C did produce more mixed results, with SBTi caveating that: “[g]iven the heterogeneity of carbon credits across various project types, methodologies and other conditions, the findings in this section should be understood as findings specific to the pieces of evidence submitted to SBTi and not generalized beyond this.”
  2. Corporate Use Cases for Carbon Credits and Implications for Net-Zero Aligned Transformation and Climate Finance: The SBTi found three primary uses for carbon credits by corporations:
    • Offsetting – purchasing and retiring credits generated from activities outside the corporate value chain as a substitute for reducing their own emissions.
    • Insetting – purchasing and retiring credits generated from activities within the corporate value chain.
    • Beyond Value Chain Mitigation – purchasing and retiring credits generated from activities outside the corporate value chain as a supplement to reducing their own emissions, to make either compensation or contribution claims.

The SBTi notes clear risks of using carbon credits for offsetting, including hindering net-zero progress and potentially reducing climate financing.

  1. Claims: Findings show that the sheer number and differing claims made by corporations led to confusion in the marketplace. With increasing regulation relating to green claims, the risk associated with making imprecise claims cannot be understated. (See our Green Claims White Paper for more on making credible claims.)

Findings of independent systematic review on the effectiveness of carbon credits in corporate climate targets

The independent review by Evidensia found that the sample size of credible studies on the effectiveness of carbon credits in corporate climate targets was too limited, stating: “A systematic review of results cannot be conducted on such a small sample of papers as it would not produce a strong synthesis basis to draw robust conclusions.” This further underscored the need for more research on carbon credits, including their use and effectiveness under various conditions and frameworks.

Looking Ahead

It is imperative for SBTi and its partners to develop a system that both maintains credibility and scales climate action. With this process, the SBTi has taken important steps in advancing the conversation around corporate commitments to net-zero, including the challenges around scope 3 decarbonisation and the role of EACs within that paradigm, in a comprehensive and consultative manner. The decision to work through stakeholder feedback and transparently provide a robust and research-informed process is welcomed.

While this release is an important step in the process, it is too early to tell what changes will be coming to the Corporate Net-Zero Standard. Despite demonstrating a lack of effectiveness on the use of EACs, the research is still limited with regards to the variety of crediting frameworks and programs within which they are developed and retired. Moreover, the SBTi draws a distinction between offsetting and beyond value chain mitigation (BVCM), whereby the former risks hindering the net-zero transition and climate finance while the latter has the potential to support these aims by complimenting, but not substituting, emission reductions within the value-chain.

The SBTi process and documents, as well as industry reports and practical expertise from corporate stakeholders, indicate the need for more decarbonisation incentives that are recognised, measured, and standardised where possible.

For example, recognition of value chain decarbonisation efforts that currently are not reflected in stakeholder inventories and are critical in the transition to net-zero is a key issue on the agenda. Similarly, the debate around the effectiveness of carbon credits raises the need for these to evolve as decarbonisation measures also evolve. Current carbon credit prices may be appropriate for initial decarbonisation efforts, but as higher investments are needed for harder to abate emissions, markets must reflect this as well. Updated market mechanisms to increase climate/decarbonisation finance are beginning to prove more critical.

However, standards need due process to function properly. The SBTi has presented adequate avenues to inform and improve the guidance. Now, stakeholders must ensure decarbonisation is at the forefront of climate action and continue to collaborate and set actionable decarbonisation targets. The SBTi is requesting stakeholder feedback on the Scope 3 discussion paper. You can share your feedback here.

How Anthesis Can Help

Anthesis encourages companies continue their decarbonisation journeys. We offer comprehensive support to organisations throughout the inventory, target-setting, revalidation, and decarbonisation process, and throughout their net-zero journey.  

Partnering with Anthesis ensures that your organisation’s SBTs remain credible, ambitious, and aligned with the latest climate science, mitigating your climate risk and ensuring your business’ future relevancy and resiliency in a net-zero economy.

OUR NET ZERO & DECARBONISATION SERVICES

[1] Version 1.0 of the CNZS was released in October 2021, following a multiyear stakeholder process. The CNZS has undergone minors revisions in the past, currently on version 1.2, released in March 2024. In May 2024, the SBTi released its Terms of Reference which laid out the objectives, scope, and timeline for the first substantial revision of the CNZS (version 2.0).

[2] SBTi Monitoring Report 2023

[3] SBTi Monitoring Report 2022

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