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Carbone 4's Response to the SBTi's Public Consultation on Scope 3
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Discussion questions
The SBTi is undertaking a major revision of the Corporate Net-Zero Standard (CNZS), which was originally published in October 2021. Given the scale and importance of setting Scope 3 targets and the growing urgency to act, the SBTi is undertaking a process to review and update the Scope 3 target-setting framework to ensure it effectively drives decarbonization across the value chain while taking into account the challenges companies face.
Below is Carbone 4’s response to this public consultation.
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Both alignment and emission reduction targets are required for near and long-term targets
We welcome the proposal to integrate the concept of "alignment targets" into the heart of the SBTi Net Zero Standard. We believe that it is appropriate to retain both carbon footprint targets and alignment targets in the SBTi standard. Indeed, instead of the carbon footprint metric alone, outcome based targets or alignment targets provide a clearer picture of a company's relevance in a low-carbon world or a world in transition. However, the carbon footprint remains essential and must be kept under control. We therefore believe that it is appropriate to deal with both types of information together. Both objectives should be mandatory, even for near-term targets.
One way of linking the two could be to make the carbon footprint reduction constraints conditional on the company's current alignment (e.g. a bicycle manufacturer, an activity that can be considered as aligned with a low-carbon scenario, could make less restrictive commitments than a producer of electricity from fossil sources).
In addition, we strongly recommend that these "outcome based targets" be differentiated by sector and by geography, and always be calculated by companies on the basis of physical flows (for example, the outcome proposed by SBTi concerning "Zero or low-carbon transportation activity share" should be calculated on the basis of tonnes.km per mode of transport, and not on the basis of monetary flows).
Several outcome-based targets are sometimes necessary to act simultaneously on substitution, efficiency and sufficiency. We invite SBTi to integrate all the levers of action, in particular via these 3 concepts in the definition of outcome-based targets. For example: committing to increasing the proportion of low-carbon electricity (to act on the substitution lever), and at the same time reducing electricity consumption (to act on the sufficiency or energy efficiency levers).
Lastly, outcome-based targets must be able to incorporate both the challenges of improving business without structural change, and the more far-reaching redefinitions of business models (e.g. business models based on the sale of short-life products, leading to over-consumption of materials). However, we understand the political and economic risk this request could entail: leading companies to reveal certain key elements of their "strategic plan".
Both at the overarching revenue and procurement-level (Option 1) with sub-targets at the activity level (Option 2)
At both the entity level and emissions source level
At both the entity level and emissions source level
We welcome the idea of investigating resources and tools that conceptualise the notion of alignment with a low-carbon trajectory. In our view, relevant resources include:
Please refer to Table 3 on p. 46 and onwards of "Operationalizing the proposals" when answering the question and Key Challenge 3 within Annex I, which describes the limitations of the current approach to target boundaries.
Yes
Note: here we use the term "category" to refer to scope 3 categories as defined in the GHGP Scope 3 Standard
Where categories are identified as high magnitude (i.e. constitute a large volume of emissions), for example the top 2 or 3 categories, break these down at the specific activity, commodity, product or service level using a predefined significance threshold.
We think that option two is relevant, and more specifically, it could be thought of in the following way:
Note: Climate-relevant emissions sources refer here to activities prioritized based on emissions magnitude, high-climate impact sectors and risk of emissions lock-in.
Align near-term boundary with net-zero target boundary requirements (90%), supplemented by climate-relevant emissions sources if necessary.
We believe that taking into account the broadest possible scope of emissions is beneficial for both near-term and long-term targets. The most important thing is that the scope enables the company to implement the key actions it can to reduce the significant sources of emissions in its carbon footprint. By choosing a minimal scope that is too narrow, there is a risk of overlooking a significant source of emission and therefore missing a major potential for reducing emissions. Nevertheless, we understand the difficulty for some companies of committing to a perimeter of 90% of emissions from their first submission of objectives. It therefore seems relevant to us to ask companies to commit to results-oriented targets (whether they relate to emissions or outcomes) for 67% of their scope, and to commit to less stringent objectives, such as means-based targets, for the remaining 23%. A perimeter that evolves over the years could also be envisaged: after 2 years at 67%, or during the compulsory update of targets after 5 years, it might be necessary to extend the perimeter to 90% (based on the idea that the learning process will have allowed the company to better identify the reduction levers for the remaining 23%).
Our experience shows that the notion of influence (understood as the ability of companies to affect the emissions of certain categories) is, in fact, highly subjective and plural, even within the internal organisation of a company. It therefore appears to be a slippery concept for a standard definition of objectives based on science.
Secondly, the notion of influence must not diminish awareness of the company's vulnerability to emissions, even if they are extremely indirect. Excluding certain areas because of a lack of influence is tantamount to refusing to deal with a transition risk.
Conceptually, influence is linked to responsibility, and dependence to risk; these are two ‘orthogonal’ dimensions that we think should be emphasised.
Furthermore, we believe that this notion is better defined at the level of a reduction action rather than an emissions item. We can suggest different types of action that companies can take to reduce their emissions, depending on the degree of influence:
These actions help to prepare the ground for concrete changes within the company, particularly the most structural changes. Although sometimes neglected, they are often necessary for Climate action. However, it is difficult to assess the results of these actions. We therefore recommend means-based objectives for these indirect actions.
We also recommend that the notion of influence not be taken into account when defining the global scope of a company's commitment. However, it is useful for defining the type of objectives according to each lever of action, particularly by introducing means objectives for indirect actions of influence.
Please refer to the section "Exploring the role of environmental attribute certificates in addressing value chain emissions" and "Annex V: Overview of Environmental Attribute Certificates and Chain of Custody Models" when answering these questions.
Environmental Attribute Certificates (EACs) can offer a degree of flexibility in the traceability chain, but should not serve as an excuse or refuge for inaction on the part of certain economic players. EACs should not replace physical action to decarbonise the value chain.
Our recommendations below aim to ensure a minimum of physical consistency in the use of EACs for carbon accounting under the Net Zero Standard (NZS):
If all these conditions are correctly met, Environmental Attribute Certificates (EACs) can be integrated into the accounting of scopes 1, 2 or 3. Company reporting would then more accurately represent the physical reality of exchanges by incorporating rigorous methods and safeguards.
EACs can offer flexibility in the traceability of reductions within a given value chain, but must not allow reductions to be transferred between different value chains. The accounting of these reductions in the carbon footprint of organisations must verify a minimum physical consistency and represent a possible and credible physical reality of the activity in question.
For example, a player that buys steel from a supplier that offers low-carbon steel could use the EACs issued by the supplier to claim that it is buying low-carbon steel, even if in reality the steel delivered to it is not low-carbon. The condition for this use is that these EACs are correctly canceled by the buyer so that they are not counted twice, either by the customer to whom the low carbon steel was delivered, or to reduce the supplier's average emissions factor. On the other hand, a player cannot buy steel from a supplier who only offers carbon steel and buy EACs from another supplier, with whom he has no physical flow exchanges, to claim to be consuming low-carbon steel.
For example, EACs that do not allow a minimum level of traceability of physical flows cannot be used to reduce the carbon footprint.
Finally, certain criteria aimed at guaranteeing physical consistency can be temporarily made more flexible, until the market creates the necessary conditions for ideal traceability. For example, a discount coefficient can be defined to minimise the emissions reduction in the carbon footprint. This flexibility in the criteria must be temporary and must not allow reductions the same level as the more rigorous criteria, in order to encourage the stakeholders to develop traceability chains towards more robust models.
For example, the use of renewable energy certificates should ideally verify temporal consistency between production and consumption on an hourly basis. As the current market does not allow such temporal consistency to be easily ensured, consistency on a daily and/or monthly basis could be temporarily accepted. However, the use of certificates linked to daily or monthly consistency should not make it possible to completely cancel out a company's scope 2, in contrast to the case where hourly consistency is verified.
Carbon credits should not be counted towards GHG reduction targets as a substitute for actions taken by companies to reduce emissions, in a compensation logic.
This use of carbon credits tends to hide the company's dependence on carbon emissions and to slow down (or even prevent) the implementation of reduction actions, as the company sees its scope 3 reduced virtually. This virtual reduction in scope 3 makes no physical sense, given that no reduction in emissions in the value chain has been proven, and distorts the logic of the carbon footprint, which is supposed to represent an organization's dependence on GHG emissions.
Carbon credits should only be used as part of a climate strategy to contribute to the development of carbon sinks in order to neutralize residual emissions and/or to contribute to collective carbon neutrality by mitigating emissions outside the value chain (BVCM).
If the carbon credits are generated within the company's value chain, the company will benefit from a reduction in its emissions through the reduction in its supplier's average emissions factor. Carbon credits cannot be used by the company to claim an even greater reduction in emissions, which makes no physical sense.
A relevant use of carbon sequestration credits is to finance the development of carbon sinks in order to contribute at the right level to achieving global carbon neutrality. To do this, the right level of contribution to the development of carbon sinks must be clearly defined for each player.
Residual emissions are defined as those that remain unabated after the implementation of all possible and necessary reduction actions to align with a 1.5°C trajectory. SBTi currently defines residual emissions as 10% of 2020 emissions for all types of organisation. However, the capacity to reduce and the role in limiting global warming to 1.5°C can vary significantly from one sector to another. Asking for a 90% reduction in emissions is therefore too ambitious for some players and not ambitious enough for others. The percentage of residual emissions should ideally be established at the level of each player, who should justify how they define their residual emissions, or at least at the level of different economic sectors (or even regions).
In addition, for players with significant carbon sequestration potential within their value chain, such as those in the land sector, carbon credits should not replace actions to develop carbon sinks in their value chain. For this type of player, it is necessary to define an additional target, specific to sequestration in their value chain. In this case, sequestration carbon credits could be used to fill the gap between the sequestration potential in the value chain and the level of residual emissions in 2050.
Carbon reduction and avoidance credits should only be used to contribute to collective carbon neutrality by contributing to the mitigation of emissions outside the value chain (BVCM). They can then be integrated into the Net Zero Standard, but must be accounted for separately from the carbon footprint, for example with the avoided emissions indicator.
Main recommendations:
Finally, we would like to emphasise that BVCM is completely separate from unabated emissions and that it is necessary to work on both aspects. The compensation paradigm should be abandoned.
Please refer to Annex VI: Potential Risks and Mitigation Approaches when answering these questions.
We have identified the following other potential risks:
Our comment relates to the long-term objective of achieving a 90% reduction in emissions by 2040 or 2050 for all companies, regardless of their sector or geographical area, and the nature of the products or activities that form the core of their business model.
We understand the importance of controlling and reducing the carbon footprint as part of a contribution to achieving global carbon neutrality. However, we doubt the relevance of basing a company's strategy for contributing to neutrality on a universal objective, identical for all companies, of reducing emissions over the long term, for three main reasons.
Firstly, this objective remains blind to the purpose of the product sold by the company, and more specifically its alignment with the transition of society according to a 1.5° decarbonisation trajectory, as well as to the geographical and sectoral contexts to which companies belong. Indeed, the objectives of a company manufacturing bicycles or other low-carbon means of transport cannot be built solely on the carbon footprint and its 90% reduction, which would not reflect the virtuous modal shift induced by low-carbon transport, and therefore its contribution to global carbon neutrality. Similarly, an OECD company operates in a different economic context to a company in a developing country, and the single value of reducing the carbon footprint by 90% does not reflect these different challenges.
Secondly, our experience has shown that setting long-term emission reduction targets alone is often not enough to trigger action in companies whose governance is more rooted in a short-term system. Indeed, today's managers are generally not committed to the long term.
Finally, the sole objective of reducing the carbon footprint over the long term is often reduced to an annual variation target, encouraging companies to optimise their footprint and implement incremental actions, rather than structural changes or a rethink of their business model. This leaves no room for reflection on the nature of products and activities, and their alignment with a society in low-carbon transition, which is crucial if the latter is to happen.
To summarise our position, we believe that many of the proposals contained in the Scope 3 Discussion Paper are interesting in terms of overcoming the limitations of the current Net Zero Standard's universal emissions reduction target. In particular, we welcome the idea of making "outcome based targets" more operational and believe that it is important to specify them more precisely to ensure their relevance. In addition, we suggest incorporating means-based targets, in particular to implement influencing actions (indirect actions, as defined in Question 12) whose results are difficult to quantify but whose implementation is necessary.
Here is a summary of the ideas put forward by Carbone 4:
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