We eagerly awaited the Science Based Targets initiative’s (SBTi’s) new Net-Zero Standard which was published on October 28th. Since Sphera provided feedback to SBTi during their public consultations on the standard development and held one of the first webinars together with CDP (Climate Disclosure Project) on the new Science-based Net-Zero Target, we had different touchpoints and angles to add to the criteria.
Similar to the announcements of political leaders at climate summits, commitments can be fact-based including a tangible implementation, or vague statements without a real commitment pathway. Will the highly anticipated new standard keep up the promises to align corporate decarbonization and net-zero announcements?
What SBTi’s New Net-Zero Standard Means for Businesses
With the launch of the Science Based Targets initiative’s (SBTi’s) new Net-Zero Standard, there’s going to be a dynamic shift in how companies set, measure and report climate targets / carbon reduction targets. The basic premise is to provide the first global framework for corporate net-zero target setting in line with climate science.
While the number of businesses adopting net-zero targets and committing to net-zero emissions reduction has been growing, not all net-zero targets are equal, which means their collective impact was also strongly limited. A common understanding of “net zero” in a corporate context will help companies invest in business models aligned with the Paris Agreement goals.
Quick Overview of the SBTi Net-Zero Standard
The standard speaks about short-term and long-term science-based targets aligned with reaching net zero by 2050 at the latest. Near-term science-based targets, previously known as science-based targets are 5-10 years GHG mitigation targets in line with 1.5°C pathways. These targets provide accountability by indicating clear milestones during a company’s transition to net zero. Long-term science-based targets show reduction pathways to align with reaching net zero in eligible 1.5°C pathways by 2050 or sooner.
Source: SBTi; the relationship of science-based targets (near-term targets) and the new net-zero targets (long-term targets)
Promising Criteria – Scope of Activities
A promising message is that the new standard requires the inclusion of emissions reductions across all three GHG (Greenhouse Gas) Protocol scopes to achieve global net-zero goals: A companywide coverage of Scope 1, 2 and 3 emissions. 95% has to be covered for Scopes 1 and 2. For Scope 3, 90% needs to be covered, which is a significant increase from the current 67% near-term SBTs (Science Based Targets) boundary. This could be challenging for companies, but it will also drive major opportunities to collaborate across the value chain and help suppliers and customers decarbonize. For the current near-term SBTs, Scope 3 needs to be included if it represents more than 40% of a company’s total emissions. But with the new net-zero targets (long-term science-based targets), this is no longer valid. Now, Scope 3 must be considered for every net-zero target submission.
Further, the standard encourages companies to focus on rapid, deep emission cuts and follow the principles of the mitigation hierarchy. This means that they first implement strategies to reduce their value chain emissions. Emissions which cannot be reduced in a reporting year need to be mitigated beyond a company’s value chain, such as through purchasing carbon credits from certified providers or CCUS (Carbon Capture, Utilisation and Storage) schemes. The Net-Zero Standard requires neutralizing any residual emissions that are not possible to eliminate long-term through efforts such as permanent removal and carbon storage. Effectively that means that companies should set science-based targets to reduce their value chain emissions and implement strategies to achieve these targets before engaging in neutralization and compensation activities.
Steps for Setting a Science-based Net-Zero Target
Source: SBTi; steps for setting a science-based net-zero target
Step 1-Base Year
First, companies need to establish a base year to track emissions performance consistently and meaningfully over the target period. A base year, according to the standard, requires that Scope 1, 2, and 3 emissions data should be accurate and verifiable. Base year emissions should represent a company’s typical GHG profile; it should be chosen so that targets have sufficient forward-looking ambition and must be no earlier than 2015.
Step 2-GHG Inventory Calculation
Companies need to ensure that their target boundary is aligned with the GHG inventory boundary by choosing a single GHG Protocol defined method to determine its organizational boundary. Companies are not allowed to include carbon credits or avoided emissions within their inventory considerations. This means that companies cannot account for emissions a product avoids relative to another product providing an equivalent function. Since these are outside of the product’s life cycle, they cannot count as a reduction of the Scope 1 to Scope 3 inventory. It is important for companies to include all mandatory Scope 3 emissions in the inventory and review sector-specific guidances.
Step 3-Target Boundary
As stated, companies must cover at least 95% of company-wide Scope 1 and 2 emissions and 90% of Scope 3 emissions. It is important for companies that sell, transmit, or distribute natural gas or other fossil fuel products to set emission reduction Scope 3 targets for the “Use of sold products” category. They should be at the minimum consistent with the level of decarbonization required to keep the global temperature increase to 1.5°C compared to pre-industrial temperatures.
Step 4-Target Year
Net-zero SBTs shall have a target year no later than 2050; for the power sector it is 2040.
Step 5-Calculate Targets
For Scope 1 and 2, absolute contraction or physical intensity coverage is required. Renewable electricity sourcing (Scope 2) needs to be 80% by 2025 and 100% by 2030. For Scope 3 emissions, absolute contractions, physical intensity, and economic intensity pathways (with 97% reduction) are allowed. A variety of mitigation pathways is also allowed.
Finally, targets should be formulated and communicated publicly, clearly indicating the magnitude of emissions reductions to be achieved. Science-based targets shall include a base year that is used to assess progress against the target. Companies shall publicly report information pertaining to progress against published targets, including separately reporting emissions and removals in the annual GHG Inventory, as specified by current SBTi Criteria.
Missing Pieces to Complete the Net-Zero Puzzle
Like the political statements made during a climate summit, the Net-Zero Standards contains some criteria which can be seen in a critical light. The Scope 3 minimum boundary coverage has been reduced from 95% to 90% during the development of the standard, and a Scope 3 screening is accepted as minimum requirement. This opens the door for bad quality quantifications or the use of high-level economic input-output data for carbon quantification of critical Scope 3 categories such as around “Purchased Goods and Services” which reflects a company’s supply chain. The data quality gap for quantifying a company’s carbon inventory as well as reduction measures have not yet been specified and addressed for committing to net zero. While this might be suitable for committing to a standard, it will not be sufficient for a true carbon reduction strategy. Only high-quality Scope 3 detail studies, based on primary data or emission factors from LCIA (Life Cycle Impact Assessment) data sources, lead to a holistic picture and a consequential decarbonization roadmap with the analysis and quantification of carbon reduction measures.
Another topic which needs to be addressed lies in the field of beyond value chain mitigation and neutralization including the position on carbon insetting. The Net-Zero Standard requires neutralizing any residual emissions that are not possible to eliminate. The SBTi defines beyond value chain mitigation as actions that companies take to help avoiding or reducing emissions outside of their value chain or removing and storing greenhouse gases from the atmosphere. The SBTi classifies neutralization as measures that companies take to permanently remove carbon from the atmosphere and permanently store it to counterbalance the impact of emissions that remain unabated. The SBTi is currently conducting further research to inform its approach on these measures.
We can get a final clear picture of the standard once all sector-specific pathways and guidance are available. These will be published by the SBTi from December 2021 throughout to June 2022. Sector-specific pathways are available or in development for the built environment sector, heavy industry sectors including cement and steel, transport, energy supply and sectors with significant forestry, land-use and agriculture (FLAG) emissions.
The sectoral differentiation will be essential due to the challenges each sector faces on the path to decarbonization, their varying timeframes and their impact on the environment. This is why the SBTi expects to see a mixture of long- and short-term targets with different strategies based on strategic planning practices.
How to Set Net-Zero Targets?
Through the SBTi, setting validated near-term and long-term science-based targets will help drive the global transition to net zero. But to do that, companies will need help.
Calculating a corporate carbon footprint baseline can be challenging for organizations. Data spread across many disparate systems, the quality of data used, and neglected emissions in Scope 3 prevent a holistic view of an organization’s carbon footprint. But net zero and decarbonization challenges can be overcome with the right software, high-quality and centralized data, and expert help.
Our long-term relationship with the SBTi allows us to help organizations set up a robust science-based net-zero target that is measurable, actionable and audible. To learn more, get in touch with Sphera today.