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In October this year, the first science-based framework for companies to set net-zero targets was launched by the Science-Based Targets initiative (SBTi), named: ‘The Net-Zero Standard’. What role will this framework play in the corporate world, and how will the Standard contribute to the low carbon economy transition?
In this blog, we will introduce the new Standard and elaborate on how to set robust net-zero targets as a company and get it right.
First things first…
There is a global appeal to all societal actors to reduce greenhouse gas emissions. Through deep decarbonization, the world can be on track to limit the global temperature increase to 1.5°C above pre-industrial levels. Companies are at the heart of carbon emissions, both through their operations and the position they take in their supply chain.
To keep the license to operate in the future, companies will have to modernize their working methods. The Science-Based Target Initiative (SBTi) offers a practical pathway to grasp this situation. SBTi represents several NGOs that help companies worldwide to set reduction targets based on the latest climate science. Anno 2021, climate scientists are telling us to reach a state of net-zero emissions in 2050 to prevent the most dangerous effects of global warming. Equipped with this knowledge, SBTi provides technical assistance to companies to translate the remaining global carbon budget to concrete emission reduction pathways. Furthermore, SBTi independently assesses submissions and validates companies’ targets against strict criteria to ensure a consistent approach. This thorough process results in net-zero targets that are verifiable, limiting global temperature rise to 1.5°C above pre-industrial levels.
There has never been a clear definition of what net-zero emissions in the corporate sector means, considering there seem to be catchphrases like net-zero, zero-emissions, carbon-neutral, climate neutral. Confusing claims that gained increased merit for business strategies in recent years can come very close to greenwashing. To end this vagueness and sprawl surrounding ‘green’ business ambition, the SBTi and its partners decided to start working on one common understanding of net-zero.
The new Standard determines the scope of net-zero targets. According to SBTi, reaching net-zero emissions for a company means achieving a state in which the activities within the value-chain –including scope 3 – of a company result in no net impact on the climate from greenhouse gas emissions. Specifically, the anthropogenic emissions of greenhouse gases are equal to anthropogenic removals.
To reduce value-chain greenhouse gas emissions, it is necessary to achieve short- and long-term objectives in line with 1.5°C pathways. Only the residual emissions (the last 5-10% of the remaining greenhouse gas emissions) can be neutralized with an appropriate amount of carbon removals. In other words, net-zero targets build on the necessary reduction pathways while including approaches for neutralizing residual emissions, leading to more credible corporate climate actions.
The New Framework does not directly replace any current SBT’s that your organization has set.
As was already common, at minimum every five years, targets have to be reviewed based on the latest climate science, recommendations, and criteria of the SBTi. The newest version of the Criteria and Recommendations (V5.0) is mandatory for all submissions after 15 July 2022. Alignment with Net-Zero is not mandatory, but with the introduction of V5.0, the SBTi will only validate targets that align with the 1.5°C ambition.
From next year onward, the SBTi will support companies that align their targets to a 1.5°C ambition in 2050, including short-term commitment within ten years. One of the more significant differences within the Net-zero Framework is the roll of scope 3 emissions. For the ‘usual’ 1.5°C targets, 67% of scope 3 emissions must be included when scope 3 is larger than 40% of total emission inventory. In the net-zero framework, this remains equal for near-term targets (max ten years), but companies are required to include a reduction of 90% of scope 3 emissions for the long-term target. With this change, the SBTi and its partners strive to have more ambitious supply chain reductions for all submitters.
An organization is net-zero when it reaches the science-aligned carbon reduction of at least 90% and when residual emissions are neutralized in alignment with the framework. For organizations that fall within the boundaries of a specific sectoral decarbonization approach, like agriculture, this reduction is limited to 80%, along with neutralization. Net-zero is therefore no longer a claim an organization can make when it’s ‘on-route’ with a carbon reduction or offset strategy. However, the net-zero claim is viable when the target is reached.
At the core of the net-zero framework stands the mitigation hierarchy. First and foremost, companies are required to plan, strategize, and execute operational and value chain deep emission reductions. As is expected, companies cannot count carbon compensation as reductions for operational or value chain emissions. Meanwhile, SBTi and its partners recognize the critical role compensation can play in the transition to Net-Zero globally. After all, climate change is a global issue. Moreover, atmospheric carbon sequestered through nature-based solutions and carbon capture and storage positively impact the remaining global carbon budget, given that the solutions are well guarded on their rightful effectiveness.
With the launch of the new framework, the SBTi will eliminate the term ‘Compensation’ from use within its documentation. Meanwhile, the framework introduces two new terms: ‘Beyond Value Chain Mitigation’ and ‘Neutralization.’ The term ‘Beyond Value Chain Mitigation’ (BVCM) is used for investments in activities that avoid, reduce or capture and store greenhouse gas emissions and that fall outside a company’s value chain. ‘Neutralization’ applies to actions and investments that remove carbon from the atmosphere and permanently store it
Both definitions are used in different stages of the Net-Zero strategy. BVCM is a voluntary (yet recommended) part of the road to Net-Zero, a form of mitigating the climate impact beyond the organization’s value chain. Neutralization is regarded as the final chapter of the strategy. It allows for investments to remove and permanently store the residual emissions (the last 5% – 10%) within or beyond the value chain.
Yes. BVCM and Neutralization can be done through actions or investments beyond your organization’s value chain. It is especially encouraged to ensure that these actions or investments generate co-benefits for people and/or nature. A more throughout explanation of carbon credits and what to look out for can be found on our blog ‘To offset of not to offset’.
Check this source document for more information on the BVCM approach.
Companies are now able to set verified net-zero targets through the SBTi. The Standard provides a common, robust, science-based understanding of net-zero. It provides clarity of – and confidence in – near and long-term decarbonization plans that are aligned with climate science and will help put the world on a more sustainable pathway.
Your starting point depends on where you and your organization are in the Sustainability Journey. The first step is selecting a base year. This will be the (financial) year for which your carbon dataset is accurate and verifiable, but no earlier than 2015.
Whatever your starting point might be, we are here to help.