Science-Based Climate Goals for Carbon Buyers

SBTi Alert! Today the Science Based Targets initiative released its updated draft of the Corporate Net-Zero Standard for a second public consultation (linked in the comments). As a one-time critic of SBTi and a member of the Beyond Value Chain Mitigation and Removals Expert Working Group, I wanted to take a moment to share my thoughts. This process has been a good-faith effort by SBTi to engage a diverse array of stakeholders to find a workable, science-based standard that maximizes corporate action. It was a process filled with constructive dialogue and meaningful compromise. All of us working on climate should remain supportive of the organization and the standard. All we can ask is that we operate in dialogue with each other and in good faith, and I can assure you as someone who has participated in this process that SBTi and its staff have passed both of these tests with flying colors. Now, onto the draft standard itself. NO ONE will be totally satisfied by this standard. On each contentious issue, for some the standard will go too far and for some it won't go far enough. In my opinion, that's a sign that SBTi did its job. For carbon markets and "beyond value chain mitigation," here are the highlights from a very quick scan of the draft standard: - No more "beyond value chain mitigation." Now we have "taking responsibility of ongoing emissions." - Companies are required to disclose whether they plan to take responsibility for ongoing emissions. - Responsibility for ongoing emissions will be voluntary through 2035, and mandatory thereafter, with two "tiers" of recognition available until 2035. - Companies will apply a carbon price to their unabated emissions, and then spend a minimum of 40% ex-post outcomes (i.e. carbon credits), with flexibility on the rest. - As they progress towards their net zero year, the share of mitigation that represents "long-lived" removals must increase. - At the net-zero year, 41% of mitigation (which at that point is to neutralize residual emissions) must be with long-lived solutions; the remaining 59% can be short-lived. - In the Annex detailing quality criteria, the Standard explicitly provides for mechanisms for compensating for reversals. What this all adds up to is that the new standard immediately provides a clear and compelling incentive for companies to buy high-quality carbon credits from a variety of project types, and increase their purchasing over time, alongside (i.e, not instead of) their work to reduce their emissions. Furthermore, the standard provides a clear role for both conventional (i.e. nature-based) and novel forms of mitigation. Though there is more to analyze, much to comment on, and much room for improvement, on first glance this standard is an incredible leap forward for SBTi and its multiple stakeholders. Congratulations to SBTi for a job well done!

"Felipe, are there other options beyond #SBTi? Why don't I hear about other standards? I've been receiving this question frequently in conversations with my customers, so I thought it would be helpful to share some insights here. When it comes to driving corporate climate action, several initiatives provide frameworks and methodologies. Here’s a comparison of some key players in the field: "The leader" - Science Based Targets initiative (SBTi): - A collaboration of institutions aimed at increasing corporate ambition on climate action. - Methodology: Independent assessment of companies’ Scope 1, 2, 3 targets, classified into three categories. - Adoption: ~1,200 companies, including Bayer, thyssenkrupp, Saint-Gobain, and PSA. Transition Pathway Initiative (#TPI): - A global initiative led by asset owners and supported by asset managers. - Methodology: Assessment based on publicly available information and classification into five levels. - Adoption: ~370 companies, such as Tesla, P&G, and Ford. X-Degree Compatibility (#XDC): - A science-based climate metric to quantify a company’s contribution to global warming. - Methodology: Emission and economic data are used to calculate XDC value and emission reduction pathways. - Adoption: >30 companies, including BASF, Adidas, and E.ON. The 1.5°C Business Playbook: - An initiative that brings together technology innovators, scientists, companies, and NGOs. - Methodology: Proposed pathway based on the carbon law, which involves halving carbon emissions every decade. - Adoption: No calculation/categorization of companies. ISO Standard on Climate Action (e.g., ISO 14064-1): - Provides guidelines and standards for quantifying and reporting greenhouse gas (GHG) emissions and removals. - Methodology: Focuses on organizational and project-level GHG quantification, reporting, and verification. - Adoption: Widely recognized and adopted globally across various industries for standardized reporting and compliance. ------ Top 3 Key Differences: ------ 1- While SBTi, TPI, and XDC provide specific frameworks for setting and assessing climate targets, the 1.5°C Business Playbook offers a broader pathway approach, and ISO focuses on standardized reporting. 2- Methodology: SBTi and TPI rely on classifications, XDC uses a quantitative metric, the 1.5°C Business Playbook is based on the carbon law, and ISO provides guidelines for GHG quantification and reporting. 3- Adoption: SBTi and TPI have broader adoption among companies, while XDC and the 1.5°C Business Playbook have more specialized use cases. ISO standards are globally recognized and widely adopted across industries. Choosing the right framework depends on your organization's specific needs, whether it's setting science-based targets, aligning with asset managers, quantifying climate impact, following a broad decarbonization pathway, or adhering to standardized reporting. How is your organization navigating these frameworks in its sustainability journey?

So… I was completely wrong about SBTi two weeks ago.  SBTi just published a new V2 Draft. Here’s what I got wrong - and what changed. Starting now, companies must disclose whether they’ll fund climate action for ≥1% of their ongoing Scope 1-3 emissions each cycle. The old “BVCM” language is gone - SBTi now calls it “taking responsibility for ongoing emissions”, and it will be visible on the public dashboard. Instead of defending why you buy credits/removals, you’ll have to explain why you don’t. From 2035: Category A companies (large and medium companies in high-income countries) MUST use carbon removals for a portion of ongoing emissions. At your net-zero year, all residuals are neutralised with removals, and the share of permanent has to be more than 41% at net zero. (Let’s see how this will pan out) SBTi introduces pre-2035 tiers: Recognised and Leadership. Recognised:  Qualify via ton-for-ton (retire credits/removals covering ≥1% of ongoing emissions each cycle) or money-for-ton (apply an internal carbon price to ≥1%; SBTi recommends ≥$20/tCO2e). Leadership:  Apply $80/tCO2e to 100% of ongoing emissions and deliver ≥40% as retired credits/removals (the rest can fund other eligible actions). My view: the Leadership incentive still looks weak relative to the cost. One more thing: Outcomes you finance beyond your value chain don’t reduce Scope 3. If someone tells you otherwise, they're wrong. We held an ad-hoc webinar for our customers - if you want the webinar slides, comment “SBTi” (☝️and then make sure you connect with me so I can DM you) and I’ll send our updated deck + a buyer checklist.