Navigating the SBTi’s Updated Corporate Guidance

Introduction

In April, the Science Based Targets initiative (SBTi) released updates to many of its key guidance documents amid the complexities of carbon accounting and climate science alignment. The updates introduce several critical clarifications for companies seeking to set science-based targets (SBTs).

While timeline, emissions scope, and target qualification updates can be found in the SBTi Criteria for Near-term Targets and the SBTi Corporate Net-Zero Standard Criteria, the most foundational clarifications are provided in the Corporate Manual V2.1, which illustrate the accelerated pace of required emission reductions, as published in the Target Validation Protocol 3.0 in December 2021.

If you have set or are considering a science-based target, these guidance updates are critical to securing successful target validation.

Near-term Science-Based Targets

Prior to the updates, Scope 1 and Scope 2 targets required a linear annual reduction rate of 4.2%, while Scope 3 targets required a rate of 2.5%, regardless of your selected base year.

Now, the cumulative total percentage reduction required for base years after 2020 must be calculated as if the base year were 2020.

For example, if your base year is 2023 and your target year is 2030, you must still calculate the total percent reduction as if the base year were 2020. In this case, the total reduction required would be 42%. Fixing the reference year for calculation in 2020 would therefore increase the requisite linear annual reduction rate, as there are fewer years to achieve your goal.

To use a road race metaphor – the clock began in 2020, and the longer it takes you to get to the starting line, the faster your pace must be to reach the finish line.

SBTi Criteria for Near-term Targets

SBTi Criteria for Near-term Targets¹ clarifies that supplier and customer engagement targets can include suppliers and customers. This essentially emphasizes portions of supply chain emissions that may be significant for many businesses. An important qualification to this, however, is that as an engagement SBT, included customers must also be able to set and publish their own SBTs. This requirement eliminates individual customers rather than companies.

Additionally, the SBTi requires companies to show how they can credibly guide their customers in the direction of setting and meeting SBTs. For companies who have significant Scope 3 emissions from commercial customers, consider how to engage your sales team to leverage this as an opportunity to build rapport and credibility with your customers. With increased pressure from investors around sustainability reporting and action, customer engagement can serve as a proactive approach to meeting your customers’ needs.

An additional update requires companies to use a base year emissions recalculation significance threshold of 5% or less².

What does this mean? If changes in your business today, such as acquisitions, mergers, or divestitures, produce a shift in your base-year emissions of more than 5% when backcasted to your base year, you must formally recalculate your base year and reset your target-year emissions accordingly.

This adjustment ensures that comparisons of year-over-year progress are real, and that business changes are normalized and neither hinder nor bolster progress. The implications of maintaining this requirement, however, are notable. If your company anticipates frequent structural changes, you must plan to build internal or external capacity to support these recalculation efforts, as this will ensure a credible emissions inventory.

Other key updates

• SBTi Criteria for Near-term Targets clarifies that the 67% coverage requirement for Scope 3 emissions targets applies to both included and excluded emissions³. In other words, although companies are allowed to exclude up to 5% of Scope 3 emissions to measure or estimate on an ongoing basis, the total excluded emissions must still be added into the calculation of the 67% total Scope 3 target coverage.
• Target submissions in 2023 must include a greenhouse gas (GHG) inventory beginning no earlier than 2021. This is a return to SBTi’s historical requirement to provide a valid inventory alongside the submission that falls within the two years prior.
• To support SBTi’s policy on fossil fuel companies, SBTi Criteria for Near-term Targets and SBTi Corporate Net-Zero Criteria⁴ prohibits companies with more than 5% revenue from fossil fuel extraction assets (e.g., coal mine, lignite mine, etc.) from validating an SBT. This is distinct from the 50% revenue cutoff for companies that sell or distribute fossil fuels, or service or sell equipment to fossil fuel companies. Companies that fall under these restrictions must wait until the oil and gas methodology is finalized to validate an SBT.
• Base year recalculation is also now required under business changes detailed in SBTi Criteria for Near-term Targets and SBTi Corporate Net-Zero Criteria⁵.

Final thoughts

The recent changes in SBTi methodology, along with clarifications and updates to various criteria, ensure that organizations stay on pace with the emissions scenarios needed to limit global temperature rise. This will help drive credible accounting of emissions reductions and provide new opportunities to secure alignment with SBT validation requirements.

If your organization needs support interpreting the new guidance or setting a Science-Based Target, please connect with our team of sustainability experts to help develop an achievable science-based sustainability strategy that can drive value for your business.

¹ Near-term criterion 19
² Near-term criterion 26 and Net-Zero criterion 32
³ Near-term criterion 6
⁴ Near-term criterion 23 and Net-Zero criterion 36
⁵ Near-term criterion 27 and Net-Zero criterion 33