SBTi: Don’t hate the player
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SBTi: Don’t hate the player

The standards-setter has come under fire for announcing plans to allow companies to offset Scope 3 emissions as part of net-zero targets. But this kind of compromise has always been inevitable.

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SBTi, the science-based targets initiative, has been one of the most reputable names in sustainability targets since its launch in 2015.

The standards-setter has previously had banks queuing up to join its ranks and use its name as a badge of environmental, social and governance honour. And banks were some of the earliest adopters. ING joined as early as 2015, while BNP Paribas said it would join 2016.

In 2022, buoyed by the spotlight on the finance sector in the transition to net zero created by COP26, the organization saw banking become the sector with the most science-based targets.

The controversy encapsulates the tension between principles and pragmatism that besets the entire sustainability industry

But SBTi’s reputation took a hit last week after news reports of corporate turmoil as employees formed a revolt over a decision to adjust how Scope 3 emissions are handled in corporate sustainability targets.

On April 9, SBTi’s board of trustees announced plans to allow carbon offsets to be used more widely in net-zero targets for Scope 3 emissions.

That prompted a loud outcry from some commentators and even SBTi employees – the science-based targets initiative shouldn’t be implying that ambitious targets might include something as controversial as carbon offsetting!

But this should have surprised precisely no one. The controversy encapsulates the tension between principles and pragmatism that besets the entire sustainability industry.

The fine line

Since its launch, SBTi has walked a fine line between setting ambitious targets to drive sustainability best practice, while also ensuring those targets are achievable enough to draw a wide set of companies willing to sign up.

This has always been a struggle, as Euromoney reported last year.

Four banks (HSBC, ABN Amro, Standard Chartered and Societe Generale) backed away from their commitments after the organization unveiled a new financial institutions standard that would require banks and asset managers not to finance new fossil-fuel projects that would impact their longer-term emissions targets.

Many more than four European banks remain on board, with lenders including NatWest, Commerzbank and Raiffeisen even having their targets approved by SBTi. But this most recent announcement shows the organization is still toiling to strike the right balance.

Nor is it a shock that the problem area is Scope 3 emissions.

Top barrier

According to SBTi’s Business Ambition For 1.5°C Campaign report released in March this year, Scope-3 emissions are the top barrier faced by participants in setting net-zero targets, with more than half of respondents citing it as an obstacle.

The report concludes that “relatively few companies are ready to adopt long-term deep decarbonization targets for their value chain.”

There is also the question of the integrity of these Scope 3 measurements in the first place.

Some larger companies are able to collect accurate data on the environmental impact of their supply chains. But many others can't. Instead, they use industry averages, such as environmentally extended input-output (EEIO) tables and models, to estimate the carbon emissions of their suppliers and customers.

Industry averages can be a helpful stopgap when used in conjunction with other data specific to a particular company. But, where larger companies rely on them too much, it raises questions about the integrity of the targets and sustainability claims.

If every company is claiming that the average applies to them, then there is no benefit to those working on decarbonization.

On April 12, SBTi responded to the backlash with an announcement confirming there had not yet been any changes to the standards and that there would be a consultation before any such change is made.

Whether it continues with plans to relax the rules around offsets is anyone’s guess now. There may be only a limited relaxation rather than an offsets free-for-all.

But if SBTi doesn’t increase the option to use offsets for Scope 3 emissions, at some point it will have to address the data gap and difficulties faced by adopters of its standards that may be preventing more companies from signing up.

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