SBTi Releases Draft Update to Corporate Net-Zero Standard

The Science Based Targets initiative (SBTi) has published a draft revision of its Corporate Net-Zero Standard with new demands for corporations to set and report decarbonization targets. The new standard, Corporate Net-Zero Standard V2, aims to advance corporate net-zero commitments with more precise Scope 1, 2, and 3 emissions targets, encouraging the adoption of zero-carbon energy, and with clearer reporting of progress. Public comment on the draft standard will stay open until June 1.

Since its inception in 2015, the SBTi has been a driving force for setting science-based targets to lower emissions for companies. The inaugural Corporate Net-Zero Standard, published in 2021, provided companies with a roadmap to align their climate action with global climate objectives. But increased concerns regarding Scope 3 value chain emissions and the possibility of using carbon credits resulted in serious internal conflicts within the organization. In April 2024, SBTi’s proposal to allow carbon credit use for addressing Scope 3 emissions sparked backlash, resulting in leadership changes, including the resignation of CEO Luiz Amaral in July.

The revised draft retains the ban on offsetting with carbon credits that are not within a company's value chain towards reduction targets. Instead, it adds provisions for balancing residual emissions, such as interim carbon removal targets and incentives for funding companies Beyond Value Chain Mitigation (BVCM), or funding projects reducing or eliminating greenhouse gas emissions outside of a company's immediate operations.

The biggest modification in the draft is that it mandates separate Scope 1 and Scope 2 targets. Before, these greenhouse gases—Scope 1, direct emissions from operations, and Scope 2, indirect emissions from purchased heat or electricity—were usually tackled as a whole. The new standard directs companies to shift to zero-carbon electricity by 2040. Interestingly, it substitutes renewable energy targets with targets for zero-carbon electricity, with scope left for nuclear and other low-carbon power.

The proposed standard also adds new Scope 3 emissions requirements, which contribute most of the carbon footprints of companies. Large and medium-sized corporations in developed economies will have to have Scope 3 reduction targets under the proposed rules. The standard is also more flexible since it enables companies to achieve goals through green procurement and revenue-based strategies instead of just emissions reductions. Emphasis will then be put on high-emitting sector suppliers, especially on direct suppliers where firms have the greatest influence.

Greater focus on tracking progress is another key feature of the draft. In contrast to the prevailing standard that compels reporting on aggregate alone, the new standard provides standardized mathematical formulae to quantify net-zero progress. Other than that, firms will also be asked to reaffirm targets at the conclusion of the cycle, incorporating past achievements into it.

As climate anxiety expands and regulatory pressure intensifies, the new SBTi standard seeks to encourage businesses to commit to science-based, measurable action on the path to net zero and not make generic declarations. By strengthening Scope 3 targets, increasing accountability, and encouraging zero-carbon energy, the new standard is trying to move business climate action in a scientific direction.

The consultation period will enable stakeholders to comment on the draft prior to publication of the final standard. SBTi intends to offer a transition path to enable companies to implement the new framework once published.

Source: ESG Today