SBTi: A week of controversy and clarification

This past week has been particularly stormy for the Science Based Targets initiative (SBTi), a cornerstone in corporate climate action. The initiative found itself at the centre of a heated debate following a statement suggesting an increased allowance for carbon credits to account for Scope 3 emissions—those not directly produced by a company but related to their wider operations and supply chain. The reaction was swift and fierce, both internally and from the broader environmental community, leading to a rapid clarification from the SBTi that no changes to its standards had been made yet.

What is the Science Based Targets initiative (SBTi)?

The SBTi is an influential entity that collaborates with businesses to set ambitious targets for reducing greenhouse gas emissions. Its goal is to align corporate action with the most recent scientific findings on climate change, necessitating significant emission reductions across all scopes—including indirect Scope 3 emissions—by 90% by 2050 at the latest.

Scope 3 emissions and the role of carbon credits

The crux of last week’s announcement involved Scope 3 emissions, which are notoriously difficult to measure and mitigate. The SBTi’s Net-Zero Standard, launched in late 2021, currently permits companies to use carbon credits to fulfil no more than 10% of their Scope 3 emission reduction targets.

Carbon credits are seen as a tool for offsetting emissions by investing in environmental projects that reduce emissions elsewhere. However, accurately tracking and planning reductions for Scope 3 emissions has proven challenging for many large businesses, prompting the SBTi to reconsider the extent to which carbon credits could be used.

Internal discontent and public reaffirmation

The initial statement regarding a potential increase in the use of carbon credits led to backlash not only from external campaign groups and sustainability leaders but also from within the SBTi itself. Members of its scientific advisory group and technical advisory group voiced their concerns through a letter, expressing disappointment over the lack of consultation and transparency, and even called for leadership changes. This internal strife prompted the SBTi to issue a clarifying statement on Friday, reassuring that there had been “no change” to its standards.

Debate over carbon offsetting

The reliance on carbon offsets rather than direct emissions reductions is at the heart of the controversy. Critics argue that offsets, although potentially useful in limited contexts, should not detract from the primary goal of reducing emissions at their source. This is particularly pertinent as the integrity of some offsetting projects can vary, and over-reliance on such schemes might allow companies to avoid making more significant, direct changes to their operations.

Discussion and drafting phases

The SBTi board has outlined plans to release a discussion paper in July about the potential changes. This paper will precede the drafting phase of the updated standard, ensuring any amendments undergo a thorough review process in line with the organisation’s Standard Operating Procedure.

In light of these developments, the WWF, one of the SBTi’s founders, underscored the limited role of offsets in climate strategy. While acknowledging the utility of carbon credits for addressing residual emissions, the WWF emphasised that these cannot substitute for comprehensive emission reductions across company operations, products, and value chains.

For fund managers and industry watchers, the recent developments serve as a reminder of the dynamic nature of climate governance and corporate responsibility. As the SBTi navigates these challenging waters, the broader financial and business communities will be watching closely, assessing how these standards and debates influence market trends and investment opportunities. The ongoing discourse about the balance between using carbon credits and achieving actual emissions reductions will undoubtedly continue to shape corporate climate strategies in the years to come.

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