Science Based Targets Initiative (SBTi ) controversy - what’s going on?

The Science Based Targets Initiative (SBTi) has established itself as the key standard setting body for corporate climate targets. Recent weeks have seen a number of SBTi-related news articles sparking animated debate. In this article, Consultant Esther Stoakes reviews what’s going on.

Last week, a statement from SBTi's trustees was published which was widely interpreted and reported as confirmation that companies would be able to use carbon offsets to meet Scope 3 targets. This elicited strong reactions, not least from SBTi staff who issued an open letter accusing the trustees of side- stepping governance processes, disagreeing with the statement position and calling on the CEO to resign. SBTi was in the news a few weeks earlier after it removed the target commitments of a number of high-profile companies from its website.

What did the SBTi Trustees statement say?

The SBTi Trustee statement implied that in future, carbon credits might be used to meet Scope 3 targets, but stated that the conditions around this would be contained in the updated scope 3 standard expected in July 2024, and that there would be "guardrails and thresholds" around the use of credits. A clarification statement was subsequently issued downgrading the July publication to “a discussion paper with a draft proposal from SBTi about potential changes to Scope 3 will be published which will feed into the standard draft (drafting phase)”. The statement also says that the future standard will respect the "mitigation hierarchy" - the concept in which companies must seek to take all the actions within their control to reduce emissions before they turn to market-based methods like carbon credits. This is a slightly more nuanced position than some of the commentary around the issue has reported.

Currently, the GHG protocol (which SBTi refers to), COP27 UN High Level Expert Group (HLEG), ISO climate accounting standards, and EU ESRS frameworks all explicitly rule out the use of carbon credits in reporting GHG inventories. If SBTi were to accept the use of credits to meet Scope 3 targets, this would currently be misaligned with these frameworks, and might lead to companies having to report their inventories and target progress in multiple formats.

The EU's Green Claims Directive, which includes green claims about a corporate entity, was just confirmed by the EU parliament. It bans green claims only based on carbon offsetting, but will allow the use of credits certified under the EU's forthcoming Carbon Removals Certification Framework for companies to offset residual emissions if they have reduced emissions as much as possible. (see Greenwashing: how EU firms can validate their green claims | News | European Parliament (europa.eu)). Companies operating in the EU which are thinking of using carbon credits in their climate strategy, whether for target achievement or not, will need to adhere to these rules or face penalties.

What are the implications of SBTi removing companies from its website?

There are two phases to getting an SBT - commitment, and target validation. A target commitment is not a target, it's an announcement by a company that they will work on target setting and have a validated target within 2 years. What was removed from the SBT website in March 2024 were commitments, rather than targets; a fact that some of the reporting around the issue did not make clear.

These removed commitments should be understood in context; many of the commitments were made before the standards by which the target would be validated were published by SBTi. Companies committing at this time had not seen the detail of what target setting would entail or been able to analyse its potential business impacts. SBTi validated targets can be either near-term or long-term. The majority of the companies with a commitment removed have set a target for one of these options, but not both. The removal of commitments was also not a surprise as the deadline for converting commitments to targets had been explicit from the outset, was effectively extended by SBTi, and then was re-communicated to companies in advance of it taking place.

What now for companies thinking about setting targets?

Companies are still seeking to set credible net zero targets, both near-term and long-term, to demonstrate their own climate commitment or to meet requests from investors or customers. The SBTi's guidance remains the most comprehensive available source for guiding credible target setting. The SBTi, with its mission to define best practice in corporate climate target setting, remains the only target validation option for companies in most sectors, with no clear alternative.

Since developing and validating a SBT can be a lengthy process, making a public SBTi commitment can still be a useful interim step to illustrate to stakeholders requesting target setting that the process is underway. As part of a target setting process, companies should analyse the potential impact of the target on their business strategy, for example by developing a net zero roadmap to guide internal engagement and sign-off.

GHG accounting has been continually evolving over the past 20 years and continues to evolve at pace. We can expect updated guidance over the next 18 months from the GHG Protocol, SBTi, the International Standards Organisation (ISO) and the EU. This will likely include clearer rules on how market- based environmental instruments like carbon credits can be used as part of corporate climate strategies. Nearly all proposals on these rules maintain the principle of the “mitigation hierarchy” - that companies should seek to reduce their direct and indirect emissions within their control as much as possible before considering market based solutions. For companies seeking to develop a climate strategy, this should remain a priority.

Nothing has changed yet

Ultimately the SBTi has been filling a void left by governments who have failed to offer a practical framework for ‘non-state actors’ to play their part in meeting the global goals of the Paris Agreement. The SBTi is clearly under intense pressure from multiple interests, as you expect for proposals that will help shape the global economy for years to come. The extent to which the current standards may change remains to be seen – we shall have to wait until the promised July 2024 discussion paper to find out more, and then the updated standard itself sometime later for the definitive answer. Hopefully the SBTi decision makers will take on board the title of the UN’s net zero guidance - Integrity Matters - especially when the organisation’s purpose is to bring integrity to corporate climate action.