These papers set out the SBTi's initial thinking on options being explored to refine scope 3 target setting and enhance the effectiveness of corporate climate action.
The release looks at potential improvements to how scope 3 targets are set and implemented, outlining several potential solutions and new approaches to enhance scope 3 target setting. These include:
The SBTi release also outlines five “potential scenarios" where EACs could be used in corporate decarbonisation strategies:
In looking at the effectiveness of environmental attribute certificates in meeting scope 3 targets, the SBTi release finds that:
Over the past decade, we've seen a remarkable increase in voluntary climate action and target setting, with about 97% of companies now including scope 3 emissions in their targets. This reflects the growing recognition of the importance of addressing emissions across the entire value chain, not just within direct operations. As companies have transitioned from setting targets to actually implementing them, a deeper understanding of the complexities involved in decarbonising corporate value chains has emerged. The scope 3 discussion paper is a response to this evolving landscape, where the SBTi seeks to identify and acknowledge existing challenges and shares its initial thinking on potential solutions to improve the effectiveness of scope 3 targets.
The paper starts by acknowledging the existing limitations in how scope 3 targets are set and measured. It reflects on the gaps between setting ambitious targets and the practical challenges of achieving them, particularly when it comes to the complexities of value chain emissions.
The paper outlines several innovative solutions under consideration to enhance scope 3 target setting. These include:
Overall, the scope 3 discussion paper is a significant step forward in addressing the real-world complexities of corporate decarbonisation. It reflects SBTi's commitment to evolving its guidance in response to the challenges and opportunities companies face as they work towards a sustainable future.
As mentioned above, the SBTi's latest scope 3 discussion paper presents five potential scenarios for the use of environmental attribute certificates (EACs) in corporate mitigation strategies:
It should be noted that these are only potential scenarios but are promising use cases under consideration by the SBTi. However, they have not yet released any definitive guidance on the implementation specifically.
Under Scenario 1, the SBTi explores the use of commodity certificates from a company's value chain activities in corporate mitigation strategies. The scope 3 discussion paper acknowledges that this could be an important approach for supporting a company's value chain mitigation claims, provided they have strong traceability or are produced in a way that is consistent with reaching net-zero emissions.
Similar to Scenario 1, Scenario 2 explores the use of commodity certificates but from activities with lower traceability. It proposes guardrails, such as potential limitations on volumes and maximum periods of interim use, to ensure the high-quality of certificates from activities that can demonstrably lead to comparable net-zero aligned outcomes.
The last three of these potential scenarios consider the specific use of carbon credits.
Scenario 3 looks at the use of carbon credits from activities within the value chain and whether they could be used towards emission reduction claims. Ultimately, there are still no firm conclusions: the SBTi is continuing its research to reach conclusive decisions on factors such as double counting and the standardisation of value chain traceability.
Scenario 4 considers the neutralisation of residual emissions using carbon removal credits up to a volume of 10% of base year emissions to meet net-zero requirements. The SBTi suggests that they will perform further research to specify guidelines on areas such as matching the emissions type (fossil or otherwise) with the types of removal credits used. To this extent, the SBTi actually encourages and indeed requires companies to compensate for their residual emissions, including those in scope 3, at net-zero target years.
Scenario 5 encourages companies to use carbon credits to contribute to beyond-value-chain mitigation to account for residual emissions along their decarbonisation pathway. The SBTi also suggests guardrails to mitigate potential risks. These include considering supply-side quality criteria (when sourcing credits), as well as using robust claims systems to ensure their transparent and clear use, especially when making corporate-level climate claims.
In short, the SBTi papers are not suggesting that carbon credits can currently be used for scope 3 abatement. Instead, credits should be used in the near term to contribute to mitigation activities and in net-zero years across all scopes to neutralise emissions. We hope to see further guidance to clarify the use of commodity certificates and credits as part of corporate climate strategies.
It is key to highlight that these are discussion papers – not guidance. Some in the market may take it as an indication of guidance until further clarity in 2025, but the SBTi states it should not be taken as such. Despite the absence of any significant near-term guidance from the SBTi to date, the carbon market has grown significantly overall in the last four years – committed market participants are leveraging these markets to go above and beyond. While it's unlikely that the lack of clear guidance will cause a significant retreat, it may discourage new participants in the short term.
Let's explore some of the notable market developments and important areas of focus under the scenarios that SBTi has put forth.
The SBTi reiterated that their net-zero standard requires companies to neutralise their residual emissions at their target year with removals. Even with this step, there remains a huge potential demand for the use of carbon removals in the next few decades. Forward-looking companies will recognise the need to engage in the market well ahead of their target years to ensure they can guarantee supply. In support of the near term, the SBTi continues to promote its own Beyond Value Chain Mitigation (BVCM) approach, which effectively encourages companies to use carbon credits to offset their emissions while decarbonising their value chain—which reflects the current market best practice.
While the effectiveness of carbon credits has been questioned, the SBTi themselves highlight the limitations in the evidence of their report. Furthermore, there are several integrity initiatives looking at carbon credit project quality, as well as best practices in the use and claims made surrounding credits which are providing confidence to buyers in the effective use and deployment of carbon credits.
We're seeing increased engagement from the public sector as governments, with ambitions to be carbon exporters and importers, seek to define their strategies to meet national climate targets. While the SBTi remains an important framework, governments will be watching project-based compliance markets and Article 6 as fundamental drivers to their strategies as these initiatives are refined and improved over time.
Carbon credits should always complement, not replace, deep decarbonisation efforts. While reducing emissions across the value chain is vital, carbon credits are essential for addressing residual emissions and contributing to beyond value chain mitigation finance on the journey to net zero. The urgency of the climate crisis demands both approaches. By integrating carbon credits alongside strong decarbonisation strategies, companies can effectively progress toward net-zero while contributing to broader climate solutions.
The SBTi is expected to release more reports as it continues its process for revising the Corporate Net-Zero Standard. The draft of the revised standard is expected to be released for public consultation later this year in Q4 with the official version to be finalised in 2025.
We encourage organisations to continue to take climate action and commit to decarbonisation – the global climate challenge is urgent. We cannot and should not wait for further guidance before taking action.
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