SBTi Proposes Stricter Scope 3 Target Standards
Supply-chain emissions have been considered too hard to deal with by many companies, but that needs to change, the SBTi says.
Companies would have to adopt more ambitious targets for Scope 3 emissions under a preliminary proposal issued by the Science-Based Target Initiative (SBTi).
In a new discussion paper issued alongside material on carbon credits, the SBTi proposed new standards for how companies must set targets if they are to be accredited as being in-line with climate science.
Scope 3 emissions refer to upstream and downstream emissions that are not directly produced by a company (Scope 1), or produced through the generation of electricity it uses (Scope 2).
This class of emissions makes up three quarters of an average company’s footprint, according to the SBTi. But because these are outside their direct control, and are therefore difficult both to measure and reduce, companies have tended to focus much more on Scope 1 and 2.
The UN-linked SBTi – which was set up to provide standards to allow companies to align their emissions targets with the goal of keeping global warming to no more than 1.5°C – now says improvements in emissions reporting mean it is time to adopt more exacting standards for Scope 3 target-setting.
“The outputs released today are a critical step in understanding how the SBTi can develop a more sophisticated approach to Scope 3 to help more businesses set targets,” said Alberto Carrillo Pineda, Chief Technical Officer at the SBTi.
“[We] believe that direct decarbonisation must remain the priority for corporate climate action and look forward to the extensive public consultation on the draft Corporate Net-Zero Standard.”
The paper is now open to consultation. The process will inform the SBTi’s updated Corporate Net-Zero Standard – a draft of which will be made public in the fourth quarter of this year.
The fine print
The paper examines methods to improve data and certification of emissions reductions, so companies can get a more accurate reading of suppliers’ and customers’ emissions. This will allow them to set targets and – with the aid of more detailed, reliable certification methods – prove when those targets are being met.
It examines scenarios in which ‘environmental attribute certificates’ (EACs) – including carbon credits – may be used in Scope 3 target-setting. EACs aim to certify and communicate the environmental impact of any given product or activity, and are used by companies to substantiate environmental claims. They can include carbon credits – though SBTi said in this context carbon credits refer to carbon reduction credits, not to offsets.
The report also details how credits might be used to provide evidence of decarbonisation within the value chain, or the permanent storage of carbon to counterbalance the impact of residual emissions to meet the requirements in the current Corporate Net-Zero Standard.
In addition, the Scope 3 paper outlines a scenario in which companies take on expanded responsibility for their emissions.
“In this case, credits might be used to cover emissions excluded from target boundaries established within the current standard – ensuring they go above and beyond the existing requirement for decarbonization within the value chain,” it says. “This could incentivise additional finance for climate action, without diverting resources from emissions reduction within their businesses.”
The paper puts a lot of emphasis on the strategic targeting of emissions in the value chain, where they have the most impact. Rather than counting all emissions as equal, it recommends targeting those that might have implications beyond the immediate tonne of carbon emitted today.
That might mean targeting activities that are more carbon-intensive than others, while looking for areas where carbon lock-in – that is, activities where if left unaddressed, emissions could be locked in long into the future – is a key risk.
Progress so far
The SBTi said there has been major progress on Scope 3 targets since it released its first standards almost a decade ago, shifting from being a practice adopted only by the most ambitious companies, to a mainstream one.
By the end of 2023, 4,205 companies and financial institutions had SBTi-validated targets, representing 39% of the global economy by market capitalisation.
Approximately 97% companies included Scope 3 emissions in their targets, indicating “a strong recognition of the critical role that indirect emissions play in a company’s overall climate impact and the need to manage them effectively,” the paper said.
To take Scope 3 targets to the next level, the SBTi proposed a five-step process.
First, companies must measure and publicly disclose their GHG emissions across the value chain. Second, they should identify and prioritise climate-relevant emissions sources – aiming to tackle the Scope 3 emissions with the biggest long-term impact in priority.
Third, once these are identified, companies should establish targets, policies and other interventions to mitigate climate-relevant emissions sources within the target boundary. They should then implement a plan to tackle those emissions – and finally, should report their progress.
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