SBTi Releases Finalized New Corporate Net Zero Standard

The Science Based Targets initiative (SBTi) announced the release of Corporate Net-Zero Standard Version 2.0, its long-awaited update to its flagship standard to assess, certify and track companies’ decarbonization commitments and to support science-based climate target setting.

Among the key changes introduced with the new standard is the use of a “best-efforts” framework, enabling companies to remain in compliance with the standard even if targets are not achieved, with an expectation for companies to utilize “all available levers to drive emissions reductions,” and to be transparent about implementation barriers and mitigating actions, with the SBTi “acknowledging that factors outside a company’s control may affect progress.”

In the forward to the new standard, SBTi Chair Francesco Starace said:

“The expectation is clear: Set targets based on science accompanied by reasonable implementation plans, deploy every lever within your control, be transparent about where barriers have limited what was possible, and demonstrate what you are doing to address those barriers over time. Companies that do this can continue to progress towards net-zero within the SBTi framework.”

The SBTi was founded in 2015 with the goal to establish science-based environmental target setting as a standard corporate practice. The organizations’ key functions include defining and promoting best practice in emissions reductions and net-zero targets in line with climate science, providing technical assistance to companies who set science-based targets, and providing companies with independent assessment and validation of their emissions reduction targets. The organization published its flagship cross-sector Corporate Net-Zero Standard in 2021, and launched the process to update the standard in 2024.

The release of the new V2 standard follows the recent launch of a new five-year strategy by the SBTi, expanding the focus of the organization from target-setting and validation to supporting companies in the implementation of their climate goals.

In addition to the best-efforts framework, SBTi’s V2 incorporates a series of key changes to the flagship standard, designed to introduce more flexibility for corporate target setting to move beyond a “one-size-fits-all” approach and reflect different business contexts, as well as to prioritize direct operational and value chain emissions reduction.

The new standard also introduces more explicit differences in requirements for companies based on size and national context, with a category system distinguishing large companies from all countries and medium-sized companies from high-income countries (Category A), and small companies from all countries and medium-sized companies from lower-income countries (Category B). Under the new standard, all companies are required to set near-term (5-year) targets for Scope 1 and 2 emissions, while only Category A companies are required to set near-term Scope 3 targets. Category A companies are also required to disclose transition plans, and to provide limited assurance of target base year data.

For direct operations Scope 1 emissions, the new standard introduces 3 approaches for target setting – including absolute emissions reduction, utilizing a straight-line emissions trajectory from the target base year to the net zero year; emissions intensity reduction, allowing companies to choose to follow sector emissions-intensity pathways designed to reflect sector-specific emissions reduction opportunities, and; asset transition, designed for companies with capital stock that doesn’t follow a linear or sector transition pathway, with companies setting transition plan to operate existing assets efficiently and replace them with low-carbon assets, using predetermined milestones.

For Scope 2 purchased energy emissions targets, the new standard allows companies to choose to set targets based on emissions reductions or increases in the share of low-carbon electricity, including optional  long-term targets to reach 100% low-carbon electricity or residual levels of scope 2 emissions, with targets able to be implemented either through investment in low-carbon power generation or contracts such as power purchase agreements or renewable energy certificates, subject to a series of conditions.

The new standard’s Scope 3 approach provides companies with 3 options for near-term target setting, including an overarching emissions reduction targets approach with targets constructed on a linear basis, based on a target base year to residual emissions of approximately 10% or less in a net zero year of 2050 or sooner; a supplier/customer alignment targets approach, with targets set based on having a growing set of tier 1 suppliers and customers setting and progressing on science-based targets, and; a category- or activity-specific targets approach, designed for companies with concentrated emissions in certain scope 3 categories or from high-emitting activities, which allows for tailored target-setting options, with the SBTi noting that the approach is “designed to encourage the procurement of lower-carbon commodities and a gradual transition toward lower-carbon products and services.”

The new standard also allows companies to focus on the most material emissions sources in their value chain and areas where they have influence, with the ability to make justified exclusions, on a limited basis, if for example, the category accounts for less than 5% of Scope 3 emissions, or if the company lacks practical influence.

The SBTi’s new standard introduces an implementation hierarchy for companies to prioritize actions to decarbonize their operations and value chain, with a focus on direct actions to reduce emissions at source, such as efficiency improvements, fuel switching and supplier engagement; followed by actions within shared systems, or activity pools, such as the use of market instruments  conveying low-carbon attributes within a shared system such as an electric grid,; and then by sector-level actions – if there are constraints on activity or activity-pool actions – with a requirement that the actions relate to the same type of activity and occur in a relevant geographic or system context.

Another key change in the standard is the introduction of a new “Ongoing Emissions Responsibility” (OER) framework, a new optional framework designed to recognize companies voluntarily taking responsibility for their ongoing emissions, through actions such as funding emissions reductions or removals.

Notably, under the new standard, the OER program only remains voluntary for Category A companies until 2035, after which they will be required to support carbon removals, with companies expected to use them to neutralize 100% of residual emissions by their net zero target year.

David Kennedy, Chief Executive Officer at the SBTi, said:

“Businesses now have a great opportunity to manage their transition risk and strengthen resilience in a fast-changing world. The Standard provides a framework to achieve this in practice across a wide range of contexts, through aligning climate science with actions that they can and should take to transform their businesses. Those that use it will gain competitive advantage while contributing to international climate objectives.”

Click here to access the new standard.