Shifting the narrative

Common sense prevails as SBTi approves credits for Scope 3 abatement

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The Science Based Targets initiative (SBTi) has been the go-to arbiter of corporate climate action.

Setup in the aftermath of the 2015 Paris COP, the SBTi recently demerged from its founding partners - the CDP, the United Nations Global Compact, the We Mean Business Coalition, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF) - to become an independent registered UK charity. SBTi’s role is to help companies and organisations set net zero targets in line with the 2015 Paris Agreement, while also defining and promoting best practice in emission reductions and carbon removals.

By the end of 2022, companies representing over one-third (34%) of global market capitalisation had either set an SBTi approved target, or had committed to setting one over the next couple of years. By the end of 2023, over 6,000 companies had either set a target or had committed to doing so. Analysis by Trove using the MSCI AWCI IMI as a proxy for the global economy indicates that companies covered by SBTi (approved or committed) now represent ~45% of the global economy. Other organisations offer similar types of support and accreditation as the SBTi, but none has yet been able to supplant the SBTi as the dominant player in this market.

SBTi’s commanding position means that it has not been without critics in recent years. More broadly, companies have been concerned that SBTi has not been sufficiently transparent in its analysis and decision making process, are worried about potential conflicts of interest, and often exasperated at the time necessary to assess and approve individual companies net zero plans.

Its methodology has come in for particular criticism. For example, many companies feel that SBTi has failed to make allowance for companies historical emission reductions, a move that some companies say puts pioneers at a disadvantage versus the laggards who are just getting started. Other methodological criticisms include not rewarding products that help others avoid emissions, so-called ‘Scope 4 emissions’.

One of the biggest criticisms has been levelled at the SBTi’s opposition to the use of carbon credits.

Things may be starting to change.

This week, the SBTi’s board of trustees announced that “when properly supported by policies, standards and procedures based on scientific evidence,” they now believe that “environmental attribute certificates, including but not limited to voluntary carbon markets” could be used for abatement purposes limited to Scope 3 emissions.¹

The announcement, posted on the SBTi’s website, came unexpectedly and left many critics of the use of carbon credit bewildered and angered as to why the SBTi had apparently eschewed its normal governance and technical processes. Civil society groups such as Carbon Market Watch called the plan a “blow to the SBTi’s credibility”. Reuters reports that even SBTi staff have sent a letter calling for the CEO to be ousted and for the plan to be overturned.²³

Scope 3 challenge

To recap, Scope 3 emissions typically account for three-quarters of a company’s emissions, according to estimates from the CDP. However, this varies considerably by sector and can vary from as low as 16% of a company’s emissions for the cement industry, and approach 100% for firms involved with transport, capital goods and financial services. Companies covered by SBTi targets and commitments emit more than 30 Gt CO2e per year, of which 27 Gt CO2e is estimated to be Scope 3 emissions.