What the Heck Just Happened at SBTi?
April 15, 2024
On April 9, 2024, the Science Based Targets initiative’s (SBTi) Board of Trustees released a statement explaining that SBTi “has decided to extend [environmental attribute certificate and instrument] use for the purpose of abatement of Scope 3 related emissions beyond current limits.” The Board implies that SBTi will reverse its long-standing guidance and allow a range of environmental attribute certificates[1] and instruments (including renewable energy credits (RECs), carbon credits, and credits for low-to-zero-emission commodities like sustainable aviation fuel) to meet Scope 3 reduction targets. This announcement caught many by surprise – including SBTi staff, who a few days later wrote a strongly worded letter criticizing the Board’s actions. At the moment, the organization is clearly beset with internal turmoil.
We do not yet know how all this plays out. But because companies’ upstream and downstream value chain emissions (Scope 3) inventories are often far greater than its Scopes 1 and 2 inventories, changes to SBTi’s approach along the lines suggested by the Board’s statement could have a profound impact on how companies meet science-aligned Scope 3 targets and could drive new demand in voluntary carbon and clean energy markets.
What We Know
- While internal dissension could disrupt the timeline, there has been no change to SBTi’s announced intention to provide a first draft update to its “flagship” Corporate Net-Zero Standard by July 2024. While the Board’s signal that that guidance will include a new approach to the use of certificates and carbon credits as “a way to accelerate the decarbonization of value chains”, we will have to wait and see. In a clarification to its original statement, the Board indicates that SBTi will follow its standard operating procedures (which includes public consultation and internal technical review and approach) for updating the Net-Zero Standard and that a discussion paper will be shared along with the first draft proposal of potential changes to Scope 3 in July 2024.
- SBTi expanding the use of environmental attribute certificates and instruments would represent a significant change of course. SBTi has historically restricted the use of environmental certificates and instruments to demonstrate Scope 3 GHG reductions and meet Scope 3 targets. In its statement, the SBTi Board of Trustees expressed its view that environmental certificates “could function as an additional tool to tackle climate change.” Many stakeholders (including us) have argued that SBTi’s legacy rules were inhibiting the range of actions companies can take to address climate change.
- If SBTi does move in this direction, it will establish “basic rules, thresholds, and guardrails” regarding the use of certificates in Scope 3. In its statement, the SBTi Board of Trustees acknowledges that some stakeholders continue to object to the use of certificates and instruments in meeting science-based reduction targets and indicates that SBTi will establish provisions to ensure “the responsible use of environmental attribute certificates in target setting.”
- SBTi itself will not validate carbon credit quality. The SBTi Board of Trustees implies that SBTi will look to groups like the Integrity Council for Voluntary Carbon Markets (ICVCM) and its Core Carbon Principles (CCP) to determine the standards for instrument quality.
What We Do Not Know Yet
- What might be the full range of certificates and instruments that SBTi will permit to be used in Scope 3? In its 2023 “Call for Evidence” on the effectiveness of the use of certificates in GHG reduction targets, SBTi indicated that certificates and instruments can include: energy attribute certificates for electricity (such as RECs); energy carrier certificates for green hydrogen, green gas, and Sustainable Aviation Fuel; emission reduction credits; and commodities certified to have been produced with a given emissions profile like green steel. SBTi has not yet indicated whether all types of certificates can be used to demonstrate reductions in Scope 3, including carbon credits which depending on a project type, may reflect avoided, reduced, or removed emissions. SBTi has previously indicated that activities outside a company’s value chain, whether carbon avoidance, reduction, or removal, may not fall under the scope of its potential updates for Scope 3 (also see SBTi’s Beyond the Value Chain Mitigation report).
- Even if the Board approach prevails, to exactly what extent will certificates and instruments be permitted to meet Scope 3 reduction targets? Previously, SBTi was very clear that environmental attribute certificates and instruments could not be used to meet Scope 3 targets, and in adopting new guidance, SBTi will have to clarify how much certificates can contribute to Scope 3 reduction. For example, can carbon reduction credits be used to meet 100% of a Scope 3 reduction target or just a certain percentage? Similarly, can carbon credits apply against any category of Scope 3 emissions or just a narrower subset of categories – for example, will SBTi allow a company to apply carbon credits against a supplier’s Scope 2 emissions or just RECs? Can a company offset its emissions anywhere in the world based on reductions it achieves from one project in one location in its value chain—for example, if a company invests in methane reduction in one country, can it apply credits originating from that project to emissions that occur elsewhere? Regarding removal credits, SBTi’s current Net-Zero Standard also explains that the primary purpose of carbon removals is to neutralize a company’s “residual” emissions that are not otherwise possible to mitigate. We do not know whether removals will be allowed to contribute to mitigation targets.
- Will SBTi limit the use of instruments to only those generated within a value chain (so-called “insets”) or more broadly allow instruments to be used against targets even if generated outside a value chain (an “offset”)? Many companies have complex global supply chains and often lack visibility into their supplier base. In some instances, limited visibility has hindered company interventions in their upstream supply chains, and it is not yet clear whether SBTi will adopt greater flexibility regarding whether certain interventions do or do not fall under a Scope 3 boundary into its updated guidance. For example, a company may wish to make an investment in regenerative agriculture knowing a farm is likely in its supply shed but may not always know if that farm is in its supply chain. Similarly, a company may purchase SAF, knowing that it will displace conventional jet fuel, even if not used directly by the company. SBTi has not always accepted environmental certificates generated by these activities to demonstrate Scope 3 reductions, but given its interest in accelerating supply chain action, SBTi could address known challenges for companies in taking Scope 3 action.
- How can interested companies engage SBTi as it finalizes changes to the Corporate Net-Zero Standard? In its statement, the SBTi Board of Trustees indicated that consultations with all the relevant stakeholders would be part of the update process but has not provided any additional information. In its statement, the Board indicated the results of the 2023 Call for Evidence, which collected feedback from stakeholders on instrument effectiveness, had been shared internally and implied that external consultation had already guided its decision making.
The SBTi Board of Trustees’ announcement is welcome news to many – but a cause of great concern to others. Perhaps it means that SBTi is ready to amend its long-standing policy of limiting the use of certificates and instruments in meeting Scope 3 targets, but the extent to which it might do so remains uncertain. In our view, if SBTi decision-making is in fact guided by science and influenced by the urgency of the climate crisis, we will see change. As we and others have argued, much of SBTi’s approach is no longer well-suited to meeting the willingness of leading companies today to drive positive climate impact. Inviting and rewarding private sector investment in the reduction, avoidance, and removal of greenhouse gas emissions using the full range of credible and verified market instruments would be a step in the right direction – for companies and the climate.
References and Media
- GreenBiz (initial story); (follow-up story on staff disagreement with Board of Trustee statement)
- Bloomberg
- ESG Today
- VCMI statement
- “Scope 3: What Question are We Trying to Answer?”
[1] SBTi defines environmental attribute certificates as “instruments used to quantify, verify and track the environmental benefits associated with climate mitigation activities or projects.”
