The SBTi Launches Its “Net Zero” Standard for Companies: An Analysis and Comparison with the Net Zero Initiative

On Thursday, October 28, the Science-Based Targets Initiative (SBTi) unveiled its approach to “net zero” for companies. This remarkable work echoes many of the concepts, rules, and definitions already outlined in the Net Zero Initiative Framework upon its release in April 2020, and which Carbone 4 continues to expand in partnership with its ecosystem of companies and experts.

Given the SBTi’s international influence, the NZI team is delighted to see these concepts take a leap forward in terms of rigor and ambition, and to observe that the simplistic view of “carbon neutrality” that has prevailed until now is being left behind.

How do the SBTi’s Net Zero standard and the NZI framework relate to one another? What points of convergence are worth noting? In what areas does NZI provide a useful complement to the SBTi standard? An in-depth look.

1/ Both frameworks place the company’s emissions reduction at the heart of the approach

First piece of good news: the SBTi is making decarbonization (reduction of companies’ direct and indirect emissions) is the cornerstone of their standard. By moving away from simplistic claims—which suggest that companies can become carbon-neutral overnight simply by purchasing carbon credits—the initiative represents a clear break from traditional approaches to corporate “carbon neutrality” (PAS 2060, Carbon Neutral Protocol, etc.).

For the SBTi, net zero is first and foremost a long-term goal that can only be achieved through drastic reductions in greenhouse gas (GHG) emissions across the entire value chain. The decarbonization pathways to be followed must be compatible with limiting global warming to well below 2°C, or even 1.5°C.

Compatibility with NZI: very high

The Net Zero Initiative has always made reducing the company’s emissions the top priority in its efforts to achieve net zero. The company’s emissions are covered in a dedicated category in the NZI reporting—Pillar A—and are required to follow a decarbonization pathway consistent with climate science.

2/ Both frameworks clearly distinguish between reduction, avoidance, and sequestration

Another significant step forward: the SBTi clearly distinguishes between emissions reduction, emissions avoidance, and carbon sequestration. This may seem obvious, given how different these concepts are from a physical standpoint, but it’s important to understand that this has never been the case in traditional approaches to “neutrality.” In those approaches, not only was no distinction made between carbon credits for avoidance and those for sequestration, but the offsets, which could be offset against emissions, were also seen as alternatives to corporate cutbacks…

Compatibility with NZI: very high

By creating three separate categories (A—Reduction, B—Avoidance, C—Sequestration), the Net Zero Initiative has always placed physical reality at the heart of its approach.

3/ The expected efforts regarding the development of carbon sinks are broadly the same, but the SBTi remains trapped in an individualistic view of net zero

The SBTi considers a company to be “net zero” once it balances its emissions (which have been reduced beforehand; see point 1/) with its carbon sinks. In short, the expected goal for carbon sinks is to achieve a “one-to-one” ratio with residual long-term emissions. However, no specific trajectory is actually proposed for carbon sequestration, which raises the question of short-term goals in this area. The method for accounting for carbon sinks (inventory-based or intervention-based approach) also does not appear to be specified.

Compatibility with NZI: fairly strong

Pillar C of the Net Zero Initiative aims to measure a company’s carbon sinks both within and outside its value chain, and to set a target for expanding those sinks compatible with global needs.

The SBTi and NZI generally agree on the 2050 target: residual emissions (Pillar A) must be balanced by carbon sinks (Pillar C). However, NZI proposes two additional clarifications:

• NZI offers an innovative approach to definition of the trajectory sequestration, based on the company’s contribution to global well development needs. The SBTi, on the other hand, offers only a target.
• NZI offers a territorialization of this objective, by aligning the goal of well development with the needs expressed by the regions where the company operates.

In this regard, the NZI framework can be viewed as even more “science-based” than the SBTi, because The company’s approach to the wells is based on the principle of a “fair contribution” to global efforts, tailored to each region, rather than an individual drive to achieve “one’s own” neutrality.

In that sense, NZI is compatible with the SBTi standard (since they both argue that Pillar C should be equal to Pillar A in the long run) while supplementing it (since NZI outlines a path to achieving this and refines the reasoning by adopting a region-specific approach that could prove very valuable to the company).

4/ Emissions avoided through corporate solutions are not accounted for by the SBTi

The SBTi has chosen to overlook the issue of emissions avoided through solutions marketed by companies, that is, their compatibility with a 1.5°C-compatible world.

This decision stems from the fact that the SBTi has chosen to address the question of how companies canto be net zero, and not in the way they should contribute our fair share to achieving science-based, global net-zero emissions. Consequently, since avoided emissions cannot (rightly) be subtracted from a company’s emissions to “reach zero,” they are not included in the SBTi framework. However, they remain highly significant in terms of their contribution to global decarbonization. For example, it might actually be in the planet’s best interest for a company that sells bicycles to expand its business—and thus increase its carbon footprint!

The SBTi’s decision to exclude avoided emissions from the scope of the standard is a missed opportunity to bring to the table the crucial question of what kinds of products and services we need to bring about a zero-carbon world.

Compatibility with NZI: low

The good news is that the NZI framework addresses this shortcoming of the SBTi by offering a novel approach to measuring the contribution of products and services to the low-carbon transition and to setting science-based targets. A first milestone was reached in the summer of 2021, and continued work will lead to a publication in March 2022.

5/ Carbon Credits and Offsetting: Is There a Need to Clarify the Position?

We saw in section 2/ that the SBTi makes an effort to distinguish between reductions, avoidance, and sequestration. However, it does not assign the same weight to each of these indicators.

On the issue of carbon finance, in particular, the financing of carbon sequestration projects (removals) is encouraged far more than funding for bypass projects (compensation), which is merely optional (even though, in practice, this optional funding can be substantial).

Once again, this choice stems from the SBTi’s desire to define net zero at the company level, which leads them to view avoidance credits as “less valuable” than carbon removal credits… which isn’t necessarily true from the planet’s perspective. The urgent need is, in fact, to reduce our emissions as quickly as possible, whether they are our own (Pillar A) or those of others (Pillar B). Downplaying the importance of financial support for third-party emissions reductions in favor of carbon sequestration projects could prove counterproductive and might discourage valuable funding for emissions reduction projects.

Still on the topic of carbon finance, the SBTi appears to have chosen to retain the term “offsets,” while at the same time maintaining that it is impossible to achieve net zero immediately. However, the term “offsets” implies exactly that. For greater consistency, the term “contribution” could have been chosen.

Compatibility with NZI: average

NZI’s recommendation regarding the financing of emissions avoided outside the value chain (Pillar B, third line) is to set an ambitious contribution target, which must be balanced with funding for carbon sinks.

6/ The SBTi certifies that the targets are “net zero,” but does not verify whether they are actually met over time

Companies’ efforts to reduce emissions and their contributions to carbon avoidance and sequestration must be pursued over the long term: this is a dynamic process. Through its Standard, the SBTi enables companies to inform their stakeholders that they have set the right targets (limited to Pillars A and C, incidentally) to become net zero. This “stamp of approval,” valid for several years, says nothing, however, about the company’s actual climate performance. In other words, the Net Zero Standard does not indicate whether the company is actually meeting its target trajectories (for emissions and sequestration, at least) year after year.

Compatibility with NZI: average

To address this gap, Carbone 4 is currently developing a framework that, while incorporating the SBTi Net Zero Standard’s goal-setting criteria, will also enable companies to accurately report their actual contributions—at the appropriate level—to the global net-zero ambition. The SBTi has thus laid the first foundation for assessing the seriousness of a company’s net-zero strategy (setting the right targets under Pillars A and C). This approach must be supplemented, not only with regard to Pillar B (see points 4 and 5 above), but also to verify that companies are actually implementing actions over time across all three pillars. The goal is to move beyond simply “rubber-stamping” targets and to verify companies’ concrete alignment with their net-zero goals.
Carbone 4 will publish proposals along these lines sometime in 2022.

Conclusion

In conclusion, the SBTi’s net-zero target:

• is generally a good thing;
• includes various points that reflect the key messages conveyed by the NZI framework since its inception, including the need to set an ambitious target for Pillar A and the need to account for the various pillars separately;
• However, there are still many issues that need to be clarified and further developed, particularly regarding the contribution of products and services to the transition, the financing of mitigation projects outside the value chain, and the accounting for carbon sinks.

We welcome the fact that the SBTi has incorporated the elements that we consider essential for the rigorous definition of an ambitious climate strategy aimed at achieving collective net-zero emissions. As a result, the two standards are broadly aligned.

By approaching the issue of net zero from the perspective of companies’ fair contribution to the collective climate goal, the NZI approach proposes going further and being even more precise, notably by accounting for emissions avoided through products and services, and by establishing a more refined approach to setting carbon sequestration targets.