As fossil fuel companies water down their climate commitments, and banks cast doubt on global warming targets, one key climate-action organization is holding firm.
The Science Based Targets initiative (SBTi) will continue to insist that corporations seeking validation under its climate-plan accreditation – considered an international gold standard – must set a 1.5°C climate target, as set out by the Paris Agreement.
Scientists have warned that the 1.5°C goal has likely already been breached, after multiple record-setting temperatures. But newly appointed SBTi CEO David Kennedy said the 1.5°C goal is the basis of a science-based approach to corporate climate planning and forms the foundation of a new SBTi corporate net-zero standard. Kennedy said the science shows that there are large planetary risks in going higher than 1.5°C. “That is why in the Paris Agreement we have agreed internationally to aim for 1.5 degrees, and that is the central scenario that underpins the draft [SBTi] standard,” he said in an SBTi webinar last week.
Speaking directly to corporate representatives on the webinar, Kennedy said a 1.5°C goal implies a range of activities and objectives for corporate transition plans. “Decarbonize heat. Decarbonize electricity. Decarbonize transport. Decarbonize those things not only in your own operations, but do that in your supply chains as well.”
By firmly supporting the 1.5°C goal, SBTi is drawing a red line against corporate and financial interests moving to loosen their climate targets and plans. The new draft standard, released in March, also addresses weaknesses in SBTi’s process that have permitted many companies to achieve validation without implementing credible climate transition plans.
The SBTi draft standard will be out for consultation until June 1 and finalized later in 2025. Its publication comes at a time when fossil fuel companies like BP are pulling back on their climate commitments, the Net Zero Banking Alliance is moving away from its target of 1.5ºC global warming and many banks are casting doubt on whether 1.5°C is achievable. In addition, many large corporations are counting carbon credits and offsets as a way to report lower emissions.
The document also settles a rancorous debate over carbon credits and offsets that gripped the organization last year.
Carbon credits rejected
Under the new standard, SBTi will not validate the use of carbon credits as offsets against a company’s carbon dioxide emissions. Carbon removals through efforts such as reforestation or direct-air-capture projects will be accepted, but only for a company’s so-called residual emissions, the estimated 10% of emissions that cannot be abated when a company reaches net-zero. Removals are different from credits from sources such as renewable-energy projects, which are based on “avoided” emissions.
Last year, the SBTi board set off a major controversy when it suggested the organization would accept credits to offset carbon dioxide emissions. After staff pushed back, the organization reversed itself, saying an earlier policy against offsets had not changed. Shortly after, SBTi published a study that cast doubt on the efficacy of credits, setting the stage for the policy released last month. “Everybody knows we had a difficult situation with the position on credits last year,” Kennedy said. “I hope you will see in the draft standard that we have moved on, and we have a very good position on credits.”
By firmly supporting the 1.5°C goal, SBTi is drawing a red line against corporate and financial interests moving to loosen their climate targets and plans.
Kennedy said SBTi welcomes companies that want to invest in credits and will recognize their leadership in this area, even if they won’t be considered as offsets against emissions. “Credits are never an alternative to reducing carbon footprints, but they can be a very useful complement.”
Validation from the London-based SBTi is recognized as the gold standard for corporate climate plans. The non-profit organization – funded with charitable and corporate donations and validation fees – has reviewed more than 10,000 companies with targets or commitments. It has validated targets for more than 7,000 companies, including 1,700 with net-zero targets, and has recognized more than 3,000 companies committed to developing targets. The SBTi validation is used extensively by investors to assess portfolio companies.
No credible transition plans
Yet, SBTi has struggled to push corporations to move from targets to firm net-zero plans. A recent study by Morningstar Sustainalytics of 1,450 companies with SBTi-validated targets found that none had a transition plan aligned with a 1.5°C scenario. Only 25% of the companies were found to be on a 1.5°C to 2°C pathway, while 56% were on a 2°C to 2.5°C pathway.
However, Morningstar said 55% of the SBTi-validated companies do demonstrate strong management practices on climate risks and emissions, more than double the 24% of the broad universe of companies in the Morningstar database that score high on climate management. Forty-five percent of SBTi-validated companies had average or weak management practices.
Changes to the standard should improve the organization’s ability to validate company transition plans, SBTi’s head of standards, Emma Watson, told the webinar.
These changes include detailed transition metrics and methods to track emissions, including the percentage of revenue that companies derive from net-zero-aligned products and services. Larger companies and those located in high-income countries will face more stringent standards, while there will be flexibility to impose less stringent standards on smaller companies and those located in low-income countries. She also said SBTi will encourage companies to start investing in removal of residual emissions immediately rather than wait until the end of the net-zero period.
Kennedy also said SBTi expects companies to start transitioning on energy use. The organization has set 2040 as the year when companies will need to rely on low-carbon electricity for their energy needs.
Kennedy said the conservative backlash in the United States has made it more difficult for all businesses and organizations to manage the net-zero transition. “The political situation in the U.S. is not helpful,” he said. “It has changed the mood music and some of the perceptions and discussions in boardrooms and C suites.”
The draft changes are meant to focus SBTi and its validated companies on executing transition plans, not just setting targets, Kennedy said. “I think SBTi can have a huge impact going forward on the net-zero transition for business. To do that, we have to focus on action and implementation.”
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).
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