SBTi releases updated Corporate Net-Zero Standard: Items to Watch

Last week, the Science-Based Targets Initiative (SBTi) released a highly-anticipated consultation draft of their Corporate Net-Zero Standard, Version 2.0 (CNZS V2.0). Green Strategies has been closely watching SBTi’s treatment of key issues (see Ballentine 2023; Ballentine 2024) with the hope that SBTi’s next standard will better maximize real climate action and emissions reductions.

While SBTi has included an excellent comparison of the draft Version 2.0 and the older Version 1.2 (see page 10 of the consultation draft with narrative), Green Strategies reviewed CNZS V2.0 for its treatment of key issues facing our clients, including Scope 2, Scope 3, and investment in carbon dioxide removals.

We are happy to see that:

  • SBTi has embraced the idea that a science-based climate action framework should incentivize action and progress, as opposed to primarily goal-setting ambition. In the draft standard, the new SBTi validation model is an “end-to-end” framework that better tracks and substantiates progress by: assessing and communicating progress at the end of the target cycle (a fixed 5-year time period, at least for Scopes 1 and 2); establishing new targets for the next cycle; and requiring companies to communicate transition plans.
  • SBTi-target setting companies will now make public Net-Zero commitments in line with the UN High Level Expert Group recommendations. This is a step towards unifying practices for corporate net-zero attainment and avoiding duplication of definitional and reporting efforts.
  • SBTi newly acknowledges the “urgency of addressing emissions released into the atmosphere today and the critical role companies can play in mobilizing finance for mitigation activities beyond their value chain.” As such, SBTi will examine provisions to require or reward companies for pursuing beyond value chain mitigation (BVCM) ahead of the net-zero target date.
  • SBTi has allowed the purchase of removals to occur earlier than the net-zero target deadline, which is crucial to avoiding emissions overshoot and to providing finance for the carbon removals market that will need to scale up between now and net-zero target dates.
  • SBTi has indicated greater tolerance for indirect mitigation, acknowledging the importance of investment in mitigation actions crucial for the net-zero transition even if the action cannot be physically traced back to sources within the company’s value chain.
  • SBTi will now allow emissions data and interventions at the ‘activity pool’ level to assess performance and progress towards targets in cases where traceability to specific emissions sources in the value chain cannot be established, but where interventions in the likely supply shed are possible and impactful.
  • SBTi has adopted a “technology-agnostic” stance, introducing zero-carbon electricity targets as a revision to the concept of renewable electricity targets. This rightly acknowledges the need for a broad array of zero-carbon electricity generation, including firm and dispatchable resources.

We applaud SBTi for being responsive to stakeholder feedback and making strides towards these changes. However, certain criteria in the draft CNZS 2.0 may need further consideration:

  • Scope 2:
    • SBTi will now require companies to set location-based Scope 2 targets in addition to either a market-based or a zero-carbon electricity target. We hope SBTi will further elaborate on how companies will make progress against location-based Scope 2 targets. Currently, companies use the market-based method to reduce Scope 2 emissions because they have limited control over location-based emissions other than through electricity conservation. We are concerned that achieving a location-based Scope 2 target may not be possible in many areas due to the realities of the electrical grid and regulatory frameworks.
    • SBTi provides a provision for when sourcing zero-carbon electricity (ZCE) within the grids in which the company powers its operations is not possible. In this case, companies shall “contribute to zero-carbon electricity in other grids as an interim measure to address the corresponding portion of scope 2 emissions.” We would like SBTi to specify the threshold for when a company many conclude that procuring ZCE is “not possible” and to define the boundary of “other grids.”
  • Scope 3:
    • SBTi states that it has adopted a more focused approach for the Scope 3 boundary, indicating that companies should set Scope 3 targets on “the most emission-intensive categories within their value chain and those where they have the greatest influence.” SBTi defines the most relevant Scope 3 categories to be those that comprise 5% or more of total Scope 3 emissions. We feel that this is not sufficiently narrow and does not fully capture which Scope 3 emissions are most relevant to a sector.
  • Direct and Indirect Mitigation:
    • SBTi outlines distinctions between direct and indirect mitigation approaches, which are both distinct from BVCM. SBTi should provide greater clarity on the time limitations and reporting for indirect mitigation including book and claim and mass balance systems. We feel that these approaches should be eligible to make progress against SBTs. If not, we would like SBTi to specify how it will incentivize companies to invest in indirect mitigation. We also caution that reporting indirect mitigation measures separately from direct mitigation, as SBTi currently instructs, runs the risk of making these valid climate interventions into a second-tier approach and once again poorly incentivize needed investment in markets supported by book-and-claim approaches.
    • SBTi should clarify the “direct mitigation” threshold for demonstrating physical connectedness, and whether chain of custody approaches like mass balance count as direct or indirect mitigation.
  • Non-emission metrics and targets:
    • SBTi states that CNZS V2.0 places greater emphasis on non-emission metrics and targets, for example the procurement from suppliers aligned with global climate goals. We support allowing companies to receive credit from actions that may not impact their inventory but are beneficial to the climate. SBTi should provide further guidance on how SBTi will incentivize and validate these non-emissions metrics and targets. Will there be a standard level of ambition, or standard ‘menu’ of non-emissions metrics to choose from? Will companies need to set a net-zero goal in order to be eligible for an SBTi-approved non-emissions target?
    • SBTi should discuss whether consequential accounting, or the assessment of the carbon impact of certain decisions, is a valid non-emissions metric. SBTi should also consider requiring a discussion of impact and optional quantification of impact, such as for procurement of zero-carbon electricity or other low-emissions products and services.

The public consultation period will be open until June 1st, 2025, and feedback can be submitted via an online survey.

Dual Ledger Climate Impact Accounting: New Article Published in Journal of Carbon Management

Another Nerd Alert: The third in Roger Ballentine’s series of peer-reviewed articles on the urgency of updating greenhouse gas accounting and corporate climate leadership programs to better optimize the role that companies can play in meeting the challenge of the climate crisis was published yesterday in the Journal of Carbon Management. This paper is about incentivizing, reporting, and rewarding what matters most: impact.

Corporate climate decision-making is guided by a complex “rules and rewards ecosystem” of voluntary greenhouse gas accounting rules, disclosure platforms, and target setting frameworks. If assessed by the increase in the number of companies participating in these voluntary accounting, disclosure, and target-setting programs, the system has been a remarkable success. However, when assessed against metrics more closely tied to climate science – the amount of capital being deployed to fund the net zero transition as well as societal progress in reducing atmospheric greenhouse gases – the rules and rewards ecosystem is falling short. More than two decades on, the rules and rewards ecosystem remains focused on the creation and disclosure of corporate greenhouse gas “inventories”. The theory of change under these voluntary “attributional” accounting and disclosure systems is that “what gets measured gets managed”. While flawed, the incumbent approach largely serves the first step of “measurement”, but it is not well designed to incent the “management” of GHG emissions. It is time to finish the job and focus on management by elevating impact accounting, disclosure, and incentives and improve how companies are asked to set and execute against climate targets. Done properly, a “dual ledger” approach can better incentivize and reward corporate expenditures that provide actual climate benefits while reducing the significant non-impactful expenditures that companies are asked to make under the current – and unfinished – rules and reward ecosystem.

Read the full journal article –  The unfinished business of corporate greenhouse gas accounting and target-setting frameworks: incentivizing, enabling, and counting impact through a dual ledger

 

 

 

2024: A Year in Review

2024 brought many exciting opportunities for the Green Strategies team to impact and advance progress for a better climate future. Our team worked with clients across diverse sectors to solve complex business sustainability problems. As we look ahead to 2025, we are excited to continue doing what we do best – helping our clients do good and do well by bringing environmental impact and solutions to the marketplace.

Keep reading to see some of our highlights from this past year.

 

Developing an Expansive Net Zero Framework

Companies and standards setters are grappling with the issue of how to account for and incentivize Net Zero, both at the company and global level. Key questions include: How can we fund crucial nature-based solutions like conservation and ecosystem remediation? What should a company do if it can’t reduce all emissions in its value chain? Should companies take a larger role in spurring systems change, and how can they get credit for this if it doesn’t fall within their emissions inventory?

The conversation around Net Zero is shifting to climate transition plans and actions, in addition to accounting for emissions in an inventory. We are working with a group of climate leaders to propose solutions to these problems, and spur meaningful action to eliminate emissions through a more expansive Net Zero framework.

The concept of ‘Net Zero’ is not a marketing term. It is derived from the reality that we need to eliminate emissions to stabilize our climate, and we need to leverage all decarbonization opportunities as soon as we can by moving beyond the narrow scope of corporate boundaries as we currently think of them. In 2025, we expect versions of a more expansive approach to Net Zero, including policy advocacy, enabling decarbonization technologies, and an evolution in company purpose to move more towards the forefront.

 

Going ‘Beyond Value Chain Mitigation’ to Reduce Emissions

With the release of SBTi’s reports on beyond value chain mitigation (BVCM), our clients have started to ask how to pursue BVCM by supporting nature-based solutions with carbon credits. While it is unclear if standard-setters like SBTi will formally allow carbon credits to ‘count’ towards science-based targets, there is increasingly clear recognition that companies should do what they can to mitigate ongoing emissions on their way to net zero – and protect nature, with its biodiversity and carbon sequestration benefits at the same time. As noted by the IPCC in 2022, natural climate solutions like ecosystem protection and restoration, are crucial cost-effective approaches to limiting warming that can be implemented now.

We are helping our clients develop high-integrity carbon credit strategies to help reduce global emissions while simultaneously reducing their own share of those emissions. As part of this best practice strategy, our clients are focused on carbon credits that will deliver co-benefits like biodiversity, and limit planet-warming emissions starting this decade.

In to these nature-based credits, we have counseled our clients on emissions avoidance projects that are aligned with their businesses, including actions such as refrigerant destruction and methane emissions avoidance. Avoiding these climate super-pollutants is another solution that can be implemented now and reduce the chance of overshooting mid-century emissions targets and stabilize the climate. For our clients, funding the destruction of these emissions demonstrates stewardship beyond their role in climate change, while simultaneously working to stop the emissions in the first place.

We anticipate that beyond value chain mitigation will become more popular as we recognize the value of pulling all levers to reduce emissions as soon as possible.

 

Advancing Company-wide Sustainability Strategies to include Packaging, Water, Waste, and More

This year, we worked with a mid-sized, private company develop its first companywide strategy on sustainability. Working closely with a greenhouse gas accountant, we gave expert insights and counsel as they calculated their first greenhouse gas inventory and began efforts to increase efficiency to reduce their inventory numbers. Moving beyond greenhouse gases, this client has made great strides to reduce the amount of plastic in its packaging, set a business-wide policy for water efficiency in buildings, and is working to divert waste from landfill in its headquarters and manufacturing facilities. These efforts also included starting a composting program and instating reusable containers at its cafeteria.

We had a ton of fun working on a diverse range of sustainability projects with this client and look forward to continued progress in the new year.

 

Promoting Conservation and Clean Energy on Public Lands

Despite both offering significant climate and environmental benefits, sometimes conservation and clean energy end up at odds with one another. This year, the Green Strategies team worked closely with a consortium of conservation groups and clean energy companies to find agreement in the need to balance essential renewable energy projects for a climate-safe future with a responsibility to protect some of our most ecologically sensitive and important lands across the US.

In May, the Bureau of Land Management published its Conservation and Landscape Health Rule (aka the Public Lands Rule) which advances the agency’s mission to protect public lands. The rule will ultimately help conserve important wildlife habitat and intact landscapes, maintain unique cultural resources on public lands, and improve the health and resilience of lands impacted by a changing climate, all while expanding outdoor access and recreation alongside thoughtful and responsible development.

 

Expanding Clean Energy Procurement

This year, the Green Strategies team worked to advance clean energy procurement from both the buyer and the developer sides. In one case, we helped a major manufacturer and buyer of renewable electricity craft a strategy to modernize its procurement approach in response to growing stakeholder interest in maximizing the climate and social impacts of renewable buying as well as navigating anticipated changes to Scope 2 accounting rules.

We also worked closely with solar developers who were looking to better understand the clean energy procurement landscape from the buyer perspective, and helped develop practical strategies for honing their approach in order to successfully launch new clean energy projects and products for buyers of clean electricity.

 

See something that sparks your interest? Get in touch with the team to see how we can work together.

A Note from Green Strategies’ President

What is one of the most asked questions we have been getting the past few months? Not surprisingly, it is about what the changed political landscape in the United States means for corporate sustainability and corporate climate action.  Will companies abandon their climate goals? Will they deprioritize sustainability? The people who ask me these questions are worried that the answers will be yes. In our view, nothing fundamentally will change.

That’s not to say nothing will change.

Companies may change how – and how much – they talk about climate and environmental sustainability. And some companies might revise their goals “downward” – we have already seen a little of that happening over the last year or so – but not because of a changed political landscape. Many companies set ambitious 2030 goals at the beginning of this decade and four years in are facing some real challenges in the marketplace in achieving the progress expected and we are seeing some level-setting going on. But in most cases, in our view, those changes are less about a reduction in ambition or political sensitivities and more about the realities of executing on, versus setting, tough goals.

Why don’t we think there will be fundamental change? Because we believe what we have been saying at Green Strategies for the past 23 years: sustainability is not a trend or a task. Sustainability is a tool for unlocking value. In the climate context we call this “climate capitalism”, which holds that by incorporating climate considerations and emissions mitigation strategies into their businesses companies can spur innovation, mitigate risk, aid in hiring and retaining top employees, and provide valuable reputational benefits. We don’t think that changes, even in these turbulent times.

We will continue to help our clients out-compete their peers and become more profitable by reducing their environmental impact. We will continue providing solutions to climate change and other environmental challenges.

Best wishes for the New Year.

Roger