SBTi opens consultation on the Corporate Net-Zero Standard V2

The SBTi

The SBTi was founded in 2015. Its mission is to “drive science-based climate action in the corporate sector consistent with limiting warming to 1.5°C”, aligned with the lower target for the rise in average global temperatures established by the Paris Agreement.

Its role includes publishing standards, tools and guidance to encourage corporations and financial institutions to set best-practice targets. From the SBTi’s Target Dashboard, 7,000 companies have now had their targets validated.¹

Recent controversy

The SBTi was the subject of controversy last year after its Board of Trustees announced on 9 April 2024 that using environmental attribute certificates (EACs) for abatement purposes of Scope 3 emissions could function as an additional tool to tackle climate change. In this announcement, the SBTi stated that it had decided to extend the use of EACs for these purposes beyond the current limits.²

The SBTi defines EACs as instruments that certify and communicate the environmental and/or climate-related attributes associated with commodities, activities or projects.³ The SBTi considers that EACs fall into two broad categories:

• Carbon credits (which include credits for emissions avoidance/reduction and carbon removal).
• Energy and commodity certificates (such as renewable energy certificates).⁴

The Board of Trustees’ announcement caused concerns with many in the climate space being divided on the proper balance between mitigating one’s emissions and using EACs (even if as an interim measure to fund abatement elsewhere whilst working towards absolute emissions reductions).

In July 2024, the SBTi released its “Scope 3 Discussion Paper” which proposed different options to enhance scope 3 target setting, including “a more nuanced approach to target-setting boundaries” away from fixed percentage targets and towards an approach that targeted the “most climate-relevant activities”. It also presented scenarios on different potential uses of EACs.⁵

In total, the SBTi received over 230 responses to this discussion paper,⁶ and the Draft Standard now contains many of its proposals.

Consultation on the Draft Standard

The SBTi first published its Corporate Net-Zero Standard in 2021. It has stated that this latest update was made to “align with the latest science and emerging best practice, and in response to stakeholder feedback”.⁷

The Draft Standard contains the following key revisions:

Use of EACs (including carbon credits)

The Draft Standard contains updated provisions on the use of EACs. The approach as set out in the Draft Standard can be summarised as follows:

Scope 2

As in the existing standard, reporting entities will be able to use energy EACs to substantiate direct mitigation for scope 2 market-based targets.⁸ Now however, the Draft Standard proposes that entities must “procure contractual instruments conveying a zero-carbon electricity attribute [ie zero-carbon energy certificates] that match their operational electricity use both in time and geographic location”.⁹ This approach, linking the scope 2 emissions and energy EAC temporally and spatially, has been taken to increase the effectiveness of permissible EACs.

Scope 3

The Draft Standard proposes a more “nuanced approach” to scope 3 emissions mitigation to address traceability issues (see point 5). Where scope 3 emissions cannot be mitigated directly or via an “activity pool”, entities may use effective indirect mitigation measures on an interim basis.¹⁰ The SBTi’s guidance suggests this refers to energy and commodity certificates, such as Sustainable Aviation Fuel certificates.¹¹

If indirect mitigation measures are used, these must be reported separately from direct mitigation, and entities will be required to develop and implement policies to increase emissions mitigation within their value chain.¹²

Residual emissions

Whilst the existing standard requires mitigation of residual emissions in the net zero year (and beyond), the Draft Standard proposes that companies address their scope 1 residual emissions in the years up to their net zero year.

The SBTi suggests three options for doing so which each involve carbon dioxide removals:

• Requiring near-term and long-term removals targets up to the net zero year (the option currently included in the Draft Standard).
• Recognising (but not requiring) near- term and long-term removals targets up to the net zero year.
• A more flexible combination of removals and additional emissions mitigation, beyond that required by its 1.5oC aligned targets.¹³

For these purposes, removals may be from pools and sinks within the reporting entity’s value chain or by purchasing removals credits from entities situated beyond the value chain of the company. Where companies use removal credits, these will need to be reported according to the removals project types.¹⁵

The Draft Standard also introduces the concept of a “durability threshold” for removals targets, which can be applied using two options:

• A like-for-like approach in which the specific greenhouse gases emitted by the entity are matched with removals projects whose durability aligns with the atmospheric lifetime of that greenhouse gas.
• A gradual transition from less permanent removals (such as nature-based solutions), to more permanent removals (like carbon capture and storage).¹⁶

Beyond value chain mitigation (BVCM)

The existing standard recommends that companies undertake BVCM to take responsibility for emissions released whilst a company is decarbonising. The Draft Standard seeks to provide additional recognition for companies that take this step (referred to in the Draft Standard as addressing “ongoing emissions”), by enabling them to publicly report on these actions.

As with the existing SBTi guidance on BVCM,¹⁷ the Draft Standard permits the use of “high-integrity carbon credits” for these purposes. As an interesting development, if an entity does use carbon credits for BVCM, the Draft Standard recommends the entity should aim to address 100 per cent of its ongoing emissions.¹⁸

In relation to the above, the SBTi has explicitly reiterated that offsetting is still not permitted. It defines offsetting as purchasing carbon credits that do not originate from activities in the entity’s value chain to meet emission reduction targets.¹⁹

Tailored requirements depending on company size and location

There will be two categories of companies under the Draft Standard:

• Category A companies (large companies in all geographies, and medium-sized companies in higher income geographies).
• Category B companies (medium-sized companies in lower income geographies and all small companies).

The proposed thresholds to categorise ‘large’, ‘medium’ and ‘small’ companies are as follows:

*The currency for these thresholds is either US Dollars or Euros.

Category A companies will continue to be subject to the SBTi’s full criteria, however some elements of these requirements will be optional for Category B companies, in recognition of their size, resources and operating context.²⁰ For example, Category B companies will not need to set scope 3 near-term targets.²¹

Tougher initial commitment criteria

Under the current standard, as a first step, companies provide a private “commitment letter” to the SBTi in which they pledge to set science-based targets within 24 months.

The Draft Standard instead proposes that companies will need to publicly commit to being net zero by 2050 (or sooner). Category A companies then have 12 months to set their science-backed targets, whilst Category B companies will have 24 months to do this.

Improved accountability mechanisms

The Draft Standard proposes new mechanisms to recognise progress being made towards emissions reduction targets. This will involve more regular assessments, such as “renewal validations” when new targets are set at the end of a 5-year target cycle, and “spot checks”, which might be performed at any time.²²

Further, Category A companies will now need to obtain third-party assurance on their base year emissions inventory.²³

More flexible arrangements for setting scope 3 targets

While the current standard requires companies to adopt fixed scope 3 targets (67 per cent for the near-term and 90 per cent for the long-term), the Draft Standard “explicitly incentivizes companies to prioritize action on the most relevant sources of emissions in their value chain”. This means a shift away from rigid targets so that companies will have more freedom to set their own targets.

Moreover, while companies will need to continue reporting all scope 1 and 2 emissions on an annual basis, only “relevant” scope 3 emissions will need to be reported annually. Relevant scope 3 emissions are defined as: emissions sources representing more than 5 per cent of total scope 3 emissions; and emissions-intensive activities representing at least 1 per cent or 10,000 tCO2-e of the entity’s scope 3 emissions.²⁴

A more “nuanced approach” to substantiating emissions reduction progress

Although the Draft Standard requires companies to continue prioritising direct mitigation, it permits entities to rely on emissions data and interventions at the “activity pool” level, where it is not possible to identify specific emission sources along a value chain.

The SBTi provides that an “activity pool” represents a set of emissions sources that may physically serve the reporting entity but lack specific traceability to individual sources. For example, a “downstream activity pool” could be the electricity grid powering the products that a company brings to market, where it does not have the actual data on these emissions.²⁵

As above, where traceability barriers persist, indirect mitigation measures (such as energy and commodity certificates) will be permitted.

The SBTi’s consultation survey on the Draft Standard is open until 1 June 2025.

We anticipate that further amendments will be made before an additional consultation period and, eventually, final approval. It is intended that reporting entities will use the updated standard from 2027 to set their science-based targets.²⁶

Conclusion

Following the controversy over the proposed amendments to the Corporate Net-Zero Standard, it seems the SBTi wants to move ahead with its reforms. It is yet to be seen whether the Draft Standard will soothe the market’s concerns or potentially spark further debate.

If you would like further information about how you can respond to the SBTi’s survey before the 1 June 2025 deadline or would like to receive advice about SBTi or setting voluntary emissions reduction targets more broadly, please contact a member of our climate change practice.