01-12-2021 13:47

Science Based Targets initiative launches new net-zero corporate standard

Net-zero commitments from companies have taken off in recent years. Now, the Science Based Targets initiative has launched a new science-based certification for those corporate targets. Can it make net-zero pledges more credible?
Windmills-at-sea

Net-zero pledges have not just seen enormous popularity among corporates, they were also a key topic at the COP26 in Glasgow last month. According to the Net Zero Tracker, 33% of the G20’s largest companies by revenue have set net-zero targets until 2050 and while net-zero pledges covered just 19% of the global economy in 2019, they now cover nearly 70%. So far, formal standards surrounding the target and the ways to reach it have been lacking, which led to the Science Base Targets initiative’s (SBTi) development of the Net-Zero Standard, which was officially launched mid-November.

What is the difference from the existing 1.5°C trajectory?

In order to align with the standard, it is mandatory to commit to carbon neutrality by 2050, as detailed by the Paris Agreement. While the existing SBTi 1.5°C Standards only defined an emission reduction trajectory until 2030, the new Net-Zero Standard distinguishes between near-term (until 2030) and long-term targets (until 2050). This distinction between short and long-term targets is a much needed development following the rapid growth in corporate net-zero pledges in recent years, allowing companies to begin to credibly align with and verify long-term commitments while retaining accountability for shorter-term progress.

Furthermore, net-zero targets must encompass emissions along the whole value chain, including indirect Scope 3 emissions, in the long term targets. As for short term targets, scope 3 emissions should continue to be included if they constitute more than 40% of total emissions. Only a small share of remaining emissions can be compensated through carbon offsets which permanently remove equivalent volume of CO2. The SBTi provides guidance on the maximum permitted use of offsets as between 5-10% of total emissions, which should be limited to residual emissions which are not possible to eliminate.

Source: Science Based Targets initiative

For most companies, the new standards will require a deep de-carbonisation (90-95% across scopes 1, 2 and 3) and a structured approach to target-setting both for the near as well as the longer term. This could pose particular challenges to sectors that are currently heavily reliant on carbon offsets and those for which the GHG protocol guidance is currently being updated, including forestry, land-use and the agricultural sector. Lastly, the Net-Zero Standard implores companies to follow the mitigation hierarchy, prioritising reducing their own emissions and those of their value chain ahead of investing in climate change mitigation projects elsewhere.

We expect the standard to become essential when making net-zero claims in the future.

During the pilot phase, a handful of companies have committed to the standard, including Ørsted as the only company in the Nordics. We expect the standard to become essential when making net-zero claims in the future, greatly improving transparency of pledges and furthering accountability to commitments. The SBTi will begin validating Net-Zero Targets from January 2022 but will continue to refine the standard in 2022.

Related articles:

Companies face growing pressure to set science-based climate targets

Science-based targets – The new ‘must have’ in sustainable finance?

What will SBTi-verified net-zero targets require?

  • Emissions reductions in line with a global temperature increase of 1.5°C before 2050
  • Near-term targets and rapid action to reduce emissions over 5-10 years in line with 1.5°C
  • Long-term deep decarbonization of 90-95% across all scopes before 2050
  • A limited dependence on carbon removals to neutralize emissions that cannot yet be eliminated (maximum of 5-10%)
  • External verification of corporate net-zero targets and annual progress reporting

Authors

Name:
David Ray
Title:
Nordea Sustainable Finance Advisory
Name:
Lea Gamsjäger
Title:
Nordea Sustainable Finance Advisory
 

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