SBTi Launches Net-Zero Corporate Standard

New framework helps firms align near- and long-term climate action with 1.5°C pathway.

The Science Based Targets initiative (SBTi) has launched the world’s first science-based certification of companies’ net-zero targets.

The individual corporate targets are aimed at staying in line with the Paris Agreement’s goal of keeping planetary warming to 1.5°C.

The launch comes the week before COP26 in Glasgow, where companies, financial institutions and governments are expected to upgrade their strategies for reducing their emissions in line with the Paris goals.

SBTi’s Net-Zero Standard was designed to provide “a credible and independent assessment of corporate net-zero target setting and enable companies to align their near- and long-term climate action with limiting global warming to 1.5°C,” the organisation said in a statement.

There are already five companies from the US, India, and Europe, having their net-zero targets certified as part of the SBTi’s pilot scheme: CVS Health, Dentsu International, JLL, Ørsted, and Wipro. SBTi invited more companies to commit to set net-zero targets, which it aims to begin validating from January 2022.

“Companies are currently self-defining net-zero targets without credible and independent assessment of their integrity,” said Alberto Carrillo Pineda, Co-Founder and Managing Director of the SBTi. “For the first time, the SBTi Net-Zero Standard offers companies certification to demonstrate that their net-zero targets are reducing emissions at the pace and scale required to keep global warming to 1.5°C.”

There are clear calls from corporates for net zero commitments to be science-based. In September, a letter co-ordinated by the non-profit charity CDP, signed by a total of 220 financial firms, including Allianz, Credit Agricole and Legal & General Investment Management, called on 1,600 companies to set targets through the SBTi. They wanted to ensure that “corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets”.

SBTi said in the statement that to achieve net-zero, companies must neutralise the remaining emissions that are not possible to cut through carbon removals. “Companies should invest in climate mitigation beyond their value chains on the road to net-zero, but this must be in addition to, not instead of, deep emission cuts in line with science.”

“We’re now inviting all companies with net-zero targets to show stakeholders that their decarbonisation pathway is aligned with science,” Pineda added.

Certain stipulations will also be in place to maintain adherence to the goals. Through the standard, the SBTi aims to clarify that a science-based net-zero strategy requires companies to achieve a decarbonisation level of 90-95% before 2050.

At that point, SBTi said, a company must neutralise any limited residual emissions that are not yet possible to cut. Clear parameters were set that meant these residual emissions, which must be neutralised through carbon removals, cannot exceed 5- 10% of a company’s emissions. The exact figure was determined by the company’s sector.

These so-called neutralisation activities can take the form of technological removals such as direct air capture (DAC) with geological storage or nature-based solutions such as reforestation.

The release of the new standard follows a process of extensive testing and consultation with users of SBTi’s target-setting framework. SBTi will launch a similar consultation process in November to develop science-based guidance for financial institutions’ net zero targets, referred to as ‘Net-Zero Foundations for Financial Institutions’ (FI).

Among financial institutions already working with SBTi, the first set of FI science-based targets were recently released from KB Financial Group in Korea, La Banque Postale in France and EQT, a Swedish private equity firm.

Separately, 2° Investing Initiative and ADEME launched a climate impact management system that helps financial institutions measure their climate impact at business line or product level. The initiative aims to close the gap between climate targets, which are set several decades in the future, and the near-term where details are scarcer by giving guidelines to fill the gaps.

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