All You Need to Know About The SBTi Corporate Net-Zero Standard
The message of the most recent report from the Intergovernmental Panel on Climate Change (IPCC) is clear: we need to limit global warming to 1.5°C compared to pre-industrial levels. At (and around) the most recent COP26 in Glasgow, both, several countries and private sector organisations pledged to revise their climate targets to keep 1.5°C in reach. However, now, it is time to turn ambition into action to make this happen. The world must thrive for net-zero emissions to limit global warming and prevent the worst effects of climate change.
The good news: Over 1,000 companies have already pledged to set net-zero science-based targets through the Business Ambition for 1.5°C. The challenge that remained until recently was a lack of a global framework for companies to set robust, credible and science-based net-zero targets in line with a 1.5°C future. This urgent need for a standardized net-zero framework was now met with the long-awaited release of the Corporate Net-Zero Standard by the Science Based Target initiative (SBTi). At present, there are already more than 2,000 companies taking action under the SBTi’s Standard, including large corporations such as AstraZeneca, Ørsted and CVS Health.
Would you also like to guide your company into a net-zero future, but you’re not sure where to start and how to apply the new Net-Zero Standard? We will walk you through all you need to know in this article.
What is net-zero?
Before we dive into the new Net-Zero standard, let’s clarify what net-zero actually means.
To limit global warming, we need to reach a balance between anthropogenic emissions sources and removals. This state is known as net-zero emissions.
According to the SBTi Net Zero Standard, corporate net-zero can be defined as:
- Reducing scope 1, 2, and 3 emissions to zero (or to a residual level) that is consistent with achieving net-zero emissions in line with the 1.5 degree scenario;
- Neutralising residual emissions at the net-zero target year and any greenhouse gas emissions that are released into the atmosphere thereafter.
What is the Net-Zero Standard, and why was it so urgently needed?
The Net-Zero Standard is the world’s first science-based standard for setting corporate net-zero targets that are in line with the Paris Agreement and its goal to limit global warming to 1.5 degrees Celsius. Developed by the Science Based Targets initiative (SBTi), the Net-Zero Standard provides corporations with a common, standardised and science-based approach for their net-zero target setting by providing them with guidance, criteria and recommendations.
According to Johan Rockström, the Director of the Potsdam Institute for Climate Impact Research, and the thought leader around the planetary boundaries model, "the Net-Zero Standard gives companies a clear blueprint on how to bring their net-zero plans in line with the science, which is non-negotiable in this decisive decade for climate action. Because we are running out of time."
Who should use the Net-Zero Standard?
The Net-Zero Standard is intended for businesses with more than 500 employees across all sectors (except oil and gas), wishing to set science-based net-zero targets through the SBTi. Furthermore, the Standard is not aimed at financial institutions planning to set net-zero targets - the SBTi provides a separate framework for those.
Sector-specific pathways are available or in development for a variety of sectors, including the energy supply sector, transport sector, buildings sector and industry sectors including cement and steel (see table below).
What are the requirements/criteria for businesses?
In order to reach their net-zero emissions goals, companies are required to drastically reduce their emissions and neutralize the impact of any remaining, unavoidable emissions.
Besides that, the SBTi formulated four main requirements that the new Standard will demand from businesses:
- Set near- and long-term science-based targets: Companies are expected to focus on rapid emission cuts for the next 5-10 years. Therefore, near-term targets are obligatory for long-term net-zero pledges. For long-term targets, companies are expected to reduce their emissions to a residual level by 2050 that is in line with the 1.5 degree scenario i.e. -42%.
- Make deep and rapid emission cuts: Emission cuts in the entire value-chain (Scope 1-3) are an essential means of limiting the rise of global temperature - emission cuts are the central focus of the Net-Zero Standard, and should therefore be the highest priority for businesses. According to the SBTi, the majority of companies will actually require a deep decarbonisation of 90-95% by the latest 2050 to reach their net-zero targets under the new Standard.
- Don’t make net-zero claims until long-term targets are met: This implies that businesses will first have to achieve their long-term science-based target (-90 to 95% of emissions reductions), and neutralize the remaining 5-10% though carbon removal projects, before they can credibly claim to have reached net-zero in line with the latest climate science.
- Focus on emission mitigation outside the value chain: Another novelty is that the SBTi now strongly urges companies to not only focus on emission cuts in their own value chains, but also to take an extra step and make investments outside their targets to help with emissions mitigations outside their value chains supporting compensation projects that reduce carbon emissions around the globe. Although CO2e reduction should still be the focus - and the major point of investment - the SBTi acknowledges the role of compensation projects within climate change mitigation. Still, carbon credits cannot be counted towards target progress.
How to set science-based targets?
When companies wish to set near- and long-term science-based targets, they need to follow the SBTi’s five-step approach, consisting of the following steps:
How do you align your commitment with the Net-Zero Standard?
Companies should ensure that their targets are aligned with a minimum ambition level of 1.5°C for scope 1 and 2 and “well below” 2°C for scope 3, as from 15 July 2022 on, only near-term targets aligned with those goals will be validated. Moreover, the maximum timeframe for near-term targets will be reduced from 15 to 10 years, in order to produce deep emissions cuts until the end of this decade.
A company setting up new near-term science-based targets must meet the above-mentioned criteria from mid-2022 onwards. To assure alignment with recent climate science and the updated criteria for near-term SBTs, companies with a target that has already been validated by the SBTi but does not meet the new criteria for scope 1-3 must recalculate and resubmit targets at the latest 5 years after their submission.
Long-term science-based targets are an incremental part of a corporate’s net-zero strategy.
- If your company has not yet set a long-term emission reduction target, we at Planetly strongly recommend forming a long-term science-based target and get it validated through the SBTi.
- If your company has previously set long-term targets, but they are not ambitious enough to meet the requirements of the new Corporate Net Zero Standard, it is recommended to update your targets to a long-term science-based target and to revisit your implementation strategy for possible adaptations.
- If your company has already set a net-zero target date, but you feel like you’re unable to meet the required emission reductions in that timeframe, it is advisable to review your implementation strategy to explore additional emission reduction opportunities, cooperate within the sector and build alliances. Scope 3 emissions reductions will only be feasible, if climate action is taken at any place in the supply chain.
How to communicate the adjustments of your current targets with stakeholders?
The SBTi provides some recommendations regarding the communication process with stakeholders. Companies are free to adapt those messages according to their needs.
- Inform stakeholders that you’re working on aligning your corporate actions with climate science and assure them that this is in their best interest
- Lay out the next steps that you have identified to adjust your target(s)
- Explain that due to the urgency and scale of the climate crisis, the SBTi has increased its expectations of companies - thus it is now essential to listen to science and increase the ambition of your net-zero commitments to support this
- Engage with your stakeholders and inform them about your commitment to following a science-based net-zero pathway, and you are thus reviewing your climate strategy to understand what opportunities we have to increase our ambition
Do you need help developing and setting near- and long-term science-based targets for your business? Reach out to our climate experts at Planetly who are happy to help you.