Corporate Net-Zero Standard Version 2.0 Public Consultation

Previous versions of SBTi target-setting criteria have had a central focus on raising the ambition of target-setting practices by using Paris-aligned pathways as an objective, science-based benchmark. As companies decarbonize, it is important that the approach to inform target ambition considers mitigation pathways and the decarbonization that a company has already achieved. Through the new benchmarking approach proposed in this draft standard, companies can assess the gap between current performance and science-based mitigation pathways. Through this approach, companies that have already achieved net-zero emissions for a portion of activities in their value chain can commit to maintaining that level of performance for those activities and focus their target-setting efforts on activities that still need to undergo decarbonization.

Scope 1 emissions represent the direct emissions from sources that are owned or controlled by the reporting company. Reducing scope 1 emissions to a level consistent with global 1.5°C pathways with little to no overshoot (see Annex F: Cross-sector pathway for more information) is the primary responsibility of a company in its transformation towards a net-zero-aligned business model.

A key challenge in relation to the current scope 1 target-setting methods offered by the SBTi is that they may not guarantee conservation of the underlying carbon budget over multiple target cycles. As such, this draft standard proposed a new method for setting scope 1 targets to ensure company carbon budget conservation over multiple target cycles. This method works by increasing ambition over the longer term if companies fall short in decarbonization efforts in the short-term. This is particularly relevant for clarifying how the second generation of targets set by companies are informed not only by external benchmarks (derived from pathways) but also by the performance of the company over their previous target cycle.

To reach a net-zero-aligned state, it is critical for companies to align their procurement and revenue-generating activities with global climate goals. Recognizing the importance of this, whilst acknowledging the challenges and opportunities associated with scope 3 target setting, this draft standard introduces a series of changes intended to make scope 3 targets more effective in driving net-zero transformation across value chains. The key changes relate primarily to the requirement to set scope 3 targets, scope 3 target boundaries, available target-setting methods, and substantiating progress claims.

Requirement to set scope 3 targets

In previous versions of this standard, companies were only required to set scope 3 targets if scope 3 emissions represented 40% or more of total emissions. However, as 97% of companies with validated science-based targets have included scope 3 emissions, this requirement has been revised and simplified. This standard replaces this threshold with a company categorization-based approach, making scope 3 targets mandatory for Category A companies and optional for Category B companies. This draft does not require companies to set long-term scope 3 targets, but the SBTi is consulting on whether these targets should be required in addition to near-term targets and the net-zero commitment in CNZS-C1.

Scope 3 target boundaries

The current version of this standard requires companies to set scope 3 targets using a minimum percentage coverage threshold (e.g., 67% for near-term targets and 90% for long-term targets). This approach presents several challenges, including the risk of misleading target formulations, the exclusion of significant emission sources, and difficulties in tracking progress over time.

The revised standard explicitly incentivizes companies to prioritise action on the most relevant sources of emissions in their value chain. Instead, it adopts a more focused approach, requiring companies to prioritise scope 3 targets on the most emission-intensive activities within their value chain and those where they have the greatest influence (e.g. Tier 1 suppliers).

Target-setting methods

Recognizing the challenges associated with value chain emissions data and existing scope 3 target-setting methods, the revised standard places greater emphasis on alignment metrics and methodologies. The alignment method was introduced to address challenges with aggregated scope 3 indicators and to diversify ways to align value chain activities with global climate goals. This includes measures such as the share of procurement allocated to net-zero-aligned suppliers and activities, as well as the share of revenue derived from net-zero-aligned activities. The alignment method is also intended to be well-suited for companies offering climate solutions, which may experience a near-term increase in scope 3 emissions.

Companies can choose from multiple methods including absolute, intensity or alignment methods. Allowing companies to choose their target-setting methods accommodates different business models and varying levels of data availability and maturity while enabling more advanced companies to adopt sophisticated approaches.

This draft introduces a new requirement for companies to require tier 1 suppliers to align with net-zero. The intention behind this is to leverage companies’ direct influence over tier 1 suppliers to drive climate action, prioritizing emissions-intensive activities that are critical to achieve net-zero. The SBTi will consult on the feasibility of this criterion and whether supplier engagement should remain an optional method companies may use to address relevant emissions within the target boundary. The definition of “alignment” at the supplier level evolves over time, first focusing on the suppliers setting science-based targets, then assessing performance against targets and reaching net-zero emissions, as defined in Annex E: Indicators, Benchmarks and Methods. The eligibility of methodologies that can be used to measure this transition will be updated to reflect the move from ambition to progress over time.

Substantiating progress against scope 3 targets

Beyond placing greater emphasis on non-emission metrics and targets, the revised standard also enhances clarity and flexibility in how companies can demonstrate progress against scope 3 targets. It acknowledges challenges related to traceability and data quality and allows for interventions at the activity-pool level (e.g. supply sheds) when direct traceability to specific emission sources is not feasible. Additionally, the standard recognizes the use of indirect mitigation approaches (e.g. book-and-claim commodity certificates) where direct traceability is not possible or persistent barriers prevent mitigation at the source. This is further explained in the next section.

CDR is an important part of global climate mitigation along with efforts to reduce emissions. While abatement represents the majority of mitigation efforts, in pathways that limit warming to 1.5°C with no or limited overshoot, CDR plays a role in counterbalancing the impact of residual emissions and addressing any potential emissions overshoot. This highlights the need for deployment of carbon dioxide removals (CDR) in line with 1.5°C-pathways in parallel with abatement measures.

Consistent with previous versions of this standard, companies are required to neutralize the impact of residual emissions with permanent removals from the net-zero year and thereafter. However, this draft proposes two approaches to proactively address residual emissions: removals targets and net emissions reduction targets. Both approaches are limited to addressing scope 1 emissions. This is based on the projection that no residual emissions will be associated with energy generation (i.e. scope 2 emissions) in scenarios that limit warming to 1.5°C. Additionally, it accounts for the uncertainties involved in projecting long-term residual emissions for scope 3, given the dynamic nature of value chains and the challenges in estimating residual emissions for value chain counterparties. SBTi Sector Standards may consider scope 3 removal targets, depending on sector-specific considerations.

In the first approach, companies set near- and long-term removal targets to address the impact of their projected residual emissions. Removal targets are set separately from abatement targets, and indicate the level of removals required at the end of the target cycle based on the projection of residual emissions. With the removal target approach, the volume of removals gradually increases over time in line with the CDR growth rate in climate scenarios (see Documentation of Target-Setting Methods). By the net-zero target year, 100% of a company’s residual emissions will be matched by a corresponding level of CDR.

In the second approach, rather than mandating an additional removal target, companies are allowed a degree of flexibility in addressing projected residual emissions. They can address these residual emissions through additional reductions beyond science-based pathway requirements, removals, or a combination of both. Removals are limited to the small share of emissions projected to remain at the net-zero target year (i.e. less than 10% of base year emissions). Over time, a progressively increasing proportion of residual emissions is eligible - but not required - to be addressed through removals. The maximum volume of removals allowed is the same as the removal target volume in the first approach. However, this option allows companies to address these emissions through reductions first where possible, in alignment with the mitigation hierarchy.