SBTi Limits Carbon Credit Use in Latest Guidance
The standard setter emphasises internal decarbonisation, action-based targets as part of revamped net zero standard for corporates.
The Science Based Targets initiative (SBTi) has avoided endorsing the use of carbon credits to offset Scope 3 emissions in the second version of its Corporate Net Zero Standard (CNZS), following backlash last year.
The SBTi previously faced both internal and external scrutiny over its proposed extend use of carbon credits to tackle companies’ Scope 3 emissions in its CNZS, which prompted calls from SBTi staff members for then-CEO Luiz Amaral to be sacked. Amaral stepped down in July, citing “personal reasons”.
In the revised draft standard, which is open for consultation until 1 June, the SBTi says: “Companies shall not count actions resulting in mitigation outcomes outside of the company’s value chain toward progress and achievement of abatement targets.”
This includes carbon credits emissions avoided through sold products and the purchase of unbundled environmental attribute certificates, said the SBTi.
The second version of the CNZS was originally scheduled for release last July, but Amaral’s resignation delayed this.
“The SBTi has made significant improvements regarding the role of carbon credits in corporate climate accounting,” Inigo Wyburd, Policy Expert – Global Carbon Markets, at Carbon Market Watch told ESG Investor. “The draft proposes a renewed emphasis on internal decarbonisation with a seemingly much more limited role for carbon credits.
“This decision, which followed strong criticism from NGOs, civil society and even within the SBTi itself, ensures that companies must focus on actual value chain emission reductions rather than relying on questionable offsetting.”
The SBTi develops standards, tools and guidance to help companies and financial institutions to set greenhouse gas (GHG) emissions reduction targets in line with climate science and the goals of the Paris Agreement. More than 3,000 companies have announced plans to commit to net zero under the initiative, with about half having had their targets validated, representing around 40% of global companies by market capitalisation.
Carbon credits acceleration
One of the changes proposed in SBTI’s revised standard is strengthening requirements around beyond-value chain mitigation (BCVM), recommending that companies to go above and beyond their science-based targets. High-integrity carbon credits are one option, among others, in BVCM strategies.
Wyburd said that while carbon credits and removals can support the path to net zero, they “must never be a substitute for internal decarbonisation”.
In December, a survey of more than 900 institutional investors by the Morgan Stanley Institute for Sustainable Investing found that nearly 40% of asset owners used carbon offsets to mitigate portfolio emissions, while 31% of asset managers said they offered clients offsets linked to specific products or aggregated emissions.
There is no consensus on the use of carbon offsets among institutional investors, with mixed views on whether carbon offsets are suitable for broad decarbonisation efforts or targeted use for specific hard-to-abate emissions.
Data and research provider MSCI published projections in January that the global carbon credit market is set to grow at least fivefold by 2030, following a period of stagnation.
This week, Amazon launched a carbon credit service. Qualifying companies will be able to purchase credits through the tech giant’s Sustainability Exchange, a digital platform launched last July which offers guidance and other resources on reducing emissions from energy, transport and buildings.
The new carbon credits service is open to US-based businesses that are in Amazon’s supply chain, list products in its platform, or are participants in Amazon’s Climate Pledge initiative.
Last month, the Bezos Earth fund, created by Amazon’s founder, formally ended its financial support for the SBTi. The fund had given the SBTi US$18 million in grants as part of a three-year agreement which started in 2021. The SBTi’s largest current funder is the IKEA Foundation.
Version two re-vamp
SBTi has established expert working groups to consult on five core areas as part of the revision of its CNZS.
“We are placing more emphasis on actions that are consistent with achieving net zero emissions globally,” said Alberto Carillo Pineda, Chief Technical Officer at SBTi. “To support that, we’re separating Scope 1 and Scope 2 emissions and are emphasising action-based targets. These proposed changes are intended to heighten focus on the type of actions and outcomes that are needed to be consistent with achieving net zero emissions globally.”
He added that the standard looks to make science-based target setting and decarbonisation more effective for companies. “As they reduce their emissions, they also reduce the risk associated with those emissions,” said Pineda. “Investors are one of the main drivers for companies to set science-based targets voluntarily.”
Key revisions proposed in the CNZS draft include splitting Scope 1 and Scope 2 emissions to “reflect the unique challenges” decarbonising each category, and offering new options with for tackling Scope 3 emissions reductions, which more than half of businesses surveyed by the SBTi cited as the most significant challenge in net-zero target setting.
It also proposed to simply requirements for medium-sized companies in developing markets and SMEs by streamlining requirements reflective of capabilities and resources, with the ambition of catalysing universal voluntary corporate climate action.
Guy Turner, Head of Carbon Markets at MSCI, described the aims of SBTi’s proposed CNZS changes as “laudable”, but questioned whether they are “realistic”.
He added that manufacturing processes and consumption patterns must be decarbonised to make a “meaningful dent” in global emissions, but noted that doing this will take time, with carbon emissions continuing to accumulate.
“Everything needs to be done to reduce this accumulation,” said Turner. “Carbon markets, using tens of thousands of projects around the world, can help do this, whilst also protecting natural assets and improving society. The aim of the SBTi and like-minded groups should be to reduce the climate impact of society as much as possible, given practical constraints.”
Once the consultation concludes, SBTi will review feedback received both from it, as well as the expert working groups. It will then revise the initial consultation draft, which will be issued for a second consultation later this year.
It will then be pilot tested ahead of its a planned publication of the finalised CNZS in 2026. This process will be steered by David Kennedy, formerly chief executive of the UK’s Climate Change Committee, who will become the SBTi’s CEO in Q2.
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