As public awareness of the need to reach net-zero emissions globally has grown, the number of companies committing to reach net-zero emissions has increased rapidly in recent years. Especially over the last year, we have seen a surge in the popularity of carbon neutrality and net-zero announcements. Companies and governments have been lining up to declare their climate aspirations, however, there is no common or standardized approach. The organizations have been announcing and implementing a wide range of activities with a variety of timeframes. For example, some only consider activities within their direct influence, while others have committed to carbon trading without serious reduction efforts.
Varieties of net-zero approaches – Source: SBTi , “Foundations for science-based net-zero target setting in the corporate sector”
According to the SBTi, Corporate net-zero targets to date differ across three important dimensions: (1) the range of emission sources and activities included; (2) the timeline and most importantly; (3) how companies are planning to achieve their targets. Consequently, there is a lot of uncertainty about what constitutes credible net-zero targets and a need to build a common understanding about what net-zero means.
The Missing Piece
The Science-based Target Initiative has filled the missing piece of the puzzle by launching a process and establishing a basis for setting a global standard for science-based corporate net-zero targets. Acknowledging the growth in net-zero target setting, the SBTi is developing a science-based framework for the formulation and assessment of net-zero targets in the corporate sector. The recently released paper “Foundations for science-based net-zero target setting in the corporate sector” provides guidance and initial conceptual foundations for science-based net-zero target setting.
So far, the SBTi has been the only organization providing a reliable approach with a broad acceptance through a robust science-based framework for companies to align their emission reduction targets with the Paris agreement. The Science Based Target Initiative was founded in 2015 by four organizations, the CDP, UN Global Compact, WWF and the World Resources Institute in collaboration with the We Mean Business Coalition.
The Foundations: Reaching Net-Zero Emissions at the Corporate Level
For companies to reach net-zero emissions consistent with achieving net-zero emissions at the global level in line with societal climate and sustainability goals requires that two conditions are met: Achieving a scale of value-chain emission reductions consistent with the depth of abatement achieved in pathways that limit warming to 1.5°C with no or limited overshoot and; Neutralizing the impact of any source of residual emissions that companies are unable to eliminate through permanent removal of an equivalent amount of atmospheric carbon dioxide.
The paper proposes three guiding principles for the formulation and assessment of net-zero targets:
- – The inclusion of all GHG emissions of the company along the complete value chain
- – The transition towards net-zero shall be in line with mitigation pathways consistent with the 1.5°C Goal of the Paris Agreement
- – The mitigation of exposure to climate-related transition risks and ensure that the business model of the company is viable in a net-zero economy.
The Role of Offsetting
Emissions abatement, i.e. the prevention, reduction and elimination of GHG emissions within the company’s value chain in line with climate science is crucial. As the term “net”-zero, indicates, next to this emissions abatement, offsetting also plays an important role in helping companies achieve their net-zero targets. The SBTi differentiates between actions that companies take to help society avoid or reduce emissions outside of their value chain (compensation measures) and measures that companies take to remove carbon from the atmosphere within or beyond the value chain (neutralization measures). Companies use both neutralization and compensation measures to offset emissions.
Offsetting can play two roles in science-based net-zero strategies: In the transition to net-zero, companies can compensate or neutralize emissions that are still being released into the atmosphere while they transition toward a state of net-zero emissions. Once they have reached net-zero, companies with residual emissions can neutralize those emissions with an equivalent amount of carbon dioxide removal. While reaching a balance between emissions and removals is the end goal of a net-zero journey, companies should consider undertaking efforts to compensate unabated emissions in the transition to net-zero as a way to contribute to the global transition to net-zero. Companies shall follow a mitigation hierarchy that prioritizes emission reduction within the value chain over compensation or neutralization measures.
The difference between science-based GHG reduction targets and science-based net zero targets:
Science-based GHG emission reduction targets ensure that companies reduce their emissions at a rate that is consistent with the level of decarbonization required to limit warming to 1.5ºC or well-below 2ºC and are short to mid-term. Science-based net-zero targets go beyond this and are long-term: Building on science-based GHG emission reduction targets, they ensure that companies also take responsibility for emissions that they have yet to reduce or that they find impossible to eliminate.
Get Started on Your Net-Zero Journey
With the foundation for net-zero target setting established by the SBTi, you and your organization can now take action! Sphera can support you by helping you set a target, calculating your complete value chain emissions (from scope I to scope III) and helping you identify reduction measures. In addition, a shift toward a net-zero economy business model requires a suitable decarbonization strategy and the assessment of the climate-related risks and opportunities your organisation faces. This includes an understanding of your company’s financial risks and opportunities, which can be assessed via methodologies provided by the Task Force on Climate-related Financial Disclosure.
10 Recommendations for Science-Based Corporate Net-Zero Targets
The SBTi concludes the paper with the following initial recommendations for companies seeking to set and implement robust net-zero targets:
1. Boundary: A net-zero target shall cover all material sources of GHG emissions within its value chain.
2. Transparency: Companies should be transparent and clear in their communication about emission sources, target boundary, the timeframe as well as about offsetting.
3. Abatement: Companies should reduce first emissions to limit warming to 1.5°C and then neutralise and compensate residual emissions as a supplement, but not as a substitute.
4. Timeframe: Companies shall reach net-zero GHG emissions by no later than 2050.
5. Accountability: Companies shall support these targets with interim science-based emission reduction targets to drive action within timeframes aligned with corporate planning and investment cycles.
6. Neutralization: Neutralise residual GHG emissions with an equivalent amount of carbon removals.
7. Compensation: Companies should compensate unabated emissions in the transition to net-zero.
8. Mitigation hierarchy: Companies shall follow a mitigation hierarchy that prioritizes emission reduction within the value chain over compensation or neutralization measures.
9. Environmental and social safeguards: Mitigation strategies shall adhere to robust social and environmental principles.
10. Robustness: Compensation and neuatralization actions should: (a) ensure additionality, (b) are permanent, (c) address leakage and (d) avoid double-counting.
Annika Bruß, senior consultant at Sphera, also contributed to this article.