Unpacking SBTi’s New Net Zero Guidance

Contents

• The New Guidance
• The Key Updates
• 5 Key Messages

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Standing in the gap between Climate Week 2021 and the commencement of COP26, it is evident that there is an exponential increase in the level of awareness, corporate and national commitments to deep reductions in greenhouse gas  (GHG) emissions, and the proliferated use of nature-based and technological solutions to minimise the impact of climate change. What was once a niche topic of the elite scientific few, has achieved sophisticated understanding by the masses, becoming accessible at the household level and is a key political issue globally.

The clarion call of the Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment Report has strongly signalled a “code red for humanity”, meaning that there is an even greater urgency for our world to rapidly shift to a zero carbon economy now. Already global warming has created irreversible changes to the Earth’s systems and without limiting global temperature rise to 1.5°C above pre-industrial levels, our planet is on the brink of catastrophe. Those forest fires, droughts, tornadoes, hurricanes, floods, heat waves, that have become all too familiar will get considerably worse. Higher global temperatures will correspondingly accelerate already major ecological and economic impacts such as destroyed livelihoods, damage to physical assets and infrastructure, disrupted supply chains, ecosystem devastation with biodiversity loss and impairment of food systems. The immediacy is further prompted by the fact that we are already close to this 1.5°C threshold or possibly exceeding it in the near-term. We are well-past the luxury of convincing, business-casing, cajoling and toe-dipping – finding ourselves now at the point of decisive action.

A current model by the National Academy of Sciences indicates that, in addition to the abatement activities, 10 gigatonnes (i.e., 10 billion metric tonnes) of carbon dioxide will need to be removed globally each year through 2050 to meet the goals of the Paris Agreement and a further annual 20 gigatonnes will need to be removed from 2050 to 2100.

Big numbers and certainly big consequences, but how do we practically tackle this problem?

The New Guidance

Over the past six years, the Science Based Targets Initiative (SBTi) has become the de facto organisation to guide this decisive action by providing clear guidance to enable businesses to set ambitious GHG reduction targets, aligned with the latest climate science. In that period, close to 2,000 organisations have committed to set science-based targets (SBTs) including almost half with targets in place. As climate science continues to evolve, SBTi continues to annually refine its core guidance and expand its offering of sector-specific guidance. Following the lead of the IPCC, SBTi is now offering the next phase of guidance, which allows organisations to set longer-term SBTs with the aim of achieving net zero GHG emissions by 2050 or earlier.

Today, SBTi officially launched four documents and a tool which provides a credible, harmonised, but ambitious approach to longer-term SBTs and common “rules” around what it means for an organisation to achieve “net zero” emissions and guidance for target setting:

• SBTi Corporate Net-Zero Standard: Provides guidance, criteria, and recommendations to support corporates in setting net-zero targets through the SBT
• Net-Zero Standard Criteria: The criteria companies’ net-zero targets must meet to be approved as science-based by the SBTi
• Net-Zero Getting Started Guide: A quick, simple, step-by-step flow chart that allows companies to understand how to set net-zero targets in their specific situation.
• Beyond value chain mitigation FAQ: The SBTi is continuing its work on its role in incentivising beyond value chain mitigation after the launch of V1 of the Standard. This FAQ will be used to provide information and updates during this process.
• Net-Zero Tool: Target-setting tool to calculate long-term SBTs in line with the Net-Zero Standard. In a future update, the Net-Zero Tool and the current SBTi target-setting tool for near-term SBTs will be combined.

In SBTi’s own words, it is “the world’s first framework for corporate net zero target setting in line with climate science.”

The Key Updates

In reading this new guidance, one important change is the terminology – what SBTi has generally called “SBTs” are now near-term SBTs to distinguish from long-term SBTs.

The next critical piece is that there are four main components of this net zero standard:

1. Near term SBTs
2. Long term SBTs
3. Neutralisation of residual emissions using carbon removal offsets
4. Compensation of emissions outside a business’ value chain

	WHAT	WHY
Near Term	Previously known as “science-based targets” or “interim science-based targets”. 5-10 year emissions reduction targets in line with 1.5°C pathway.	Galvanise the action required for deep emissions reductions to be achieved by  2030. Deep near-term emissions reductions are critical to not exceeding the global emissions budget. Are not interchangeable with long-term targets..
Long Term	Show companies how much  they must reduce value chain emissions to align with reaching net zero at the global or sector level in 1.5°C pathway. Cannot claim to be net zero until the long-term SBT is achieved.	Drive economy-wide alignment and long-term business planning to reach the level of global emissions reductions needed for climate goals to be met based on science.
Neutralisation	Achieving a scale of value chain emissions reductions consistent with the depth of abatement at the point of reaching global net zero in 1.5 ̊C pathways (i.e., achieving the long-term SBT). Neutralising the impact of any residual emissions by permanently removing an equivalent volume of CO2.	Most companies will reduce emissions by at least 90% through their long-term targets, but some residual emissions may remain. Residual emissions must be neutralised to reach net zero emissions and a state of no impact on the climate from GHG emissions.

Both near-term and long-term SBTs rely heavily on abatement of GHG emissions aligned with 1.5° C pathways. Most companies seeking SBTi validation of their net zero (or long-term SBTs) will need to achieve at least a 90% reduction in their GHG emissions before engaging neutralisation (i.e., utilising nature-based or technology-based carbon removals) to drawdown the residual 10% of their emissions. SBTi has also further reduced the timespan for near-term SBTs to 5-10 years (basically shaving off the additional 5 years that was previously allowed). This touches on three of the four main activities to address an organisation’s operations and its value chain GHG emissions.

Recognising that action is required to support the growth and market proliferation of nascent carbon removal technologies and to address historical or pre-baseline emissions, SBTi strongly encourages organisations to purchase high-quality carbon emission offsets (e.g., jurisdictional REDD+ credits, or direct air capture and geological storage) as the mechanism for beyond value chain mitigation. While this fourth compensation component is optional, it does extend corporate (and moral) responsibility to help win (or at least advance) in our common race to zero and do what we can to minimise the worst effects of climate change. Compensation activities can lead to broad global benefits (e.g., accelerating fuel switching, energy efficiency or renewable developments) and when linked to the United Nation’s sustainable development goals (UN SDGs) this has the potential to create significant common good. It also places further responsibility on business in asking them to be judicious and equitable in this support by also considering the overall sustainability impact on local communities, within the context of climate justice.

So now that we have unpacked these changes, what does it mean for your business and what are your next steps? How should your business respond?

5 Key Messages for Business

Be uncomfortable

• To be perfectly blunt – this information is uncomfortable. The prognosis of climate change on our current pathway is bleak. The climate risks to business operations and value chains are accelerating at a rapid pace. It is time to face it headlong and it will not be easy. Near-term and long-term SBTs are only a part of the solution to a planetary-scale problem, and time is against us. In alignment with the latest climate science, SBTi’s Net-Zero Standard and Criteria are necessarily ambitious but should be viewed as the minimum for your business.

It’s not too late . . . but don’t wait

• Changes to reduce, avoid and replace the highest sources of GHG emissions is priority #1. SBTi requires 90% abatement to be achieved for most companies before relying on removal technologies to address the remaining emissions. Within abatement strategies, companies are allowed to utilise Renewable Energy Credits (RECs) to address operational emissions, but others could require significant capital investment. Value chain emissions management is even more challenging (but not impossible). While the scale required for businesses to abate their emissions is formidable, the future costs of carbon removals might come with a much bigger price tag. The financial and reputational risk is significant – act now!
• It should be noted that the use of emission reduction or avoidance offsets [outside of your value chain] are not allowed to meet near-term or long-term targets.

Jump in all the way

• Make the most ambitious commitments that your business will allow. Challenge internal stakeholders and leadership to “go beyond” their comfort level in not only making bold commitments (sourcing inspiration for what is possible from corporate climate leaders), but also to actively pursue the deepest possible cuts to your operational and value chain emissions.

You’re a citizen of the planet, so be a good neighbour – and take some credit for it

• Support expansion of nascent carbon removal solutions, technologies and business models (adjacent to or directly relevant for your business) by investing in these to help decarbonise broadly outside your value chain. This space provides an incredible opportunity for innovation and investment.
• Climate change’s effects are disproportionate, meaning some will suffer more than others. Be rigorous in your research and judicious in your investments using the framework of equity and justice as your north star.
• As a parallel to a net zero commitment, your business may leverage compensation activities, tying it to a carbon neutral target to address historical emissions or those not covered by near-term or long-term SBTs.

Keep an eye out as this space changes – a lot!

• Climate science and our understanding continues to evolve. There’s no reference manual so we are constantly learning and need to be agile in our response.

To be clear – net zero is not the end of the story, and certainly not a checkbox within a climate or business strategy. It is simply the next critical step in future-proofing business in delivering sustainable performance and the potential of a habitable planet and SBTi’s guidance will help to do so in alignment with current climate science. There is still an immense amount of work to be done to get to net zero and even more to further minimise global warming before the end of the century. We should not be deceived by the apparently long time horizons, as our near term decisions and actions could significantly accelerate climate change and reduce our window of opportunity.