Guest post by: Bridget Wise, Sustainability Analyst, Secaro
Although the SBTi’s V2.0 standard is more complicated than its predecessor, it is this complexity, the guardrails of integrity criteria – which allow for a more practical and flexible approach. And, as many companies struggled to meet goals under the V.1 standard despite best efforts, it was critical for the SBTi to introduce more options to achieve the same outcomes and avoid becoming irrelevant. The new standard also aligns with the draft ISO 14060 standard, providing a consistent definition for credible net-zero goals, which is important.
The 100-page document takes some deciphering. Practitioners will undoubtedly need to spend a bit more time studying the route options, but then they can move forward with fewer obstacles to progress. Below are the five key takeaways companies need to know, as well as areas where future consideration is needed.
1. There’s more flexibility and options:
V2.0 provides more diverse pathways and mechanisms for companies to demonstrate progress. While the requirements remain rigorous, they offer various ways to satisfy them.
This is particularly true for Scope 3. Scope 3 targets are optional for smaller companies based in lower-income countries (Category B companies). Category A companies can select an approach:
- Set an absolute reduction target
- Set a supplier or customer alignment target
- Set targets for specific categories or emissions intensive activities
Supplier alignment targets replace supplier engagement targets and get more specific: they relate to the proportion of tier 1 suppliers that are in transition (have a science-based target), or are net zero aligned (have achieved net zero). Where purchased goods are from specified emissions intensive activities (EIAs), companies are encouraged to focus attention on these, and alignment targets can be set for the proportion purchased that are low carbon.
There are also new mechanisms to set downstream targets relating to product use and end-of-life phases.
There is a marked transition away from a ‘one-size-fits-all” approach with V2.0 seemingly designed to create a more practical framework that accounts for real-world limitations.
SBTi’s standards have not changed towards carbon credits with V2.0 maintaining that carbon credits cannot be used as a substitute for decarbonisation. Carbon removal credits can be used to cover residual and hard-to-abate emissions only after all possible emissions reduction has been completed.
2. Long-term targets are a thing of the past
The new standard introduces rolling five-year cycles, a change designed to strengthen accountability by shifting net-zero progress from a distant, future-focussed commitment to an ongoing performance obligation.
Long term and net zero targets become optional. A validated net zero target would require near and long-term targets across all scopes, as well as neutralisation of residual emissions from the net-zero target year.
3. Scope 1 and 2 targets need to be separated
Under the V2.0 standards, Scope 1 and Scope 2 targets are now treated as distinct entities, meaning companies must unravel any previous strategies that combined them.
Treating scope 1 and 2 individually allows for a more granular approach and more focussed oversight.
Scope 1 targets for most industries will mean the phase-out of fossil fuel. If not directly, at the very least by tackling the structural constraints that make fuel switching unfeasible in the short term. This is embedded in the SBTi’s implementation hierarchy, meaning that companies will have to demonstrate to verifiers that all feasible direct action has been exhausted. It is a ‘best-efforts’ approach, and we can expect interesting conversations between companies and assurers on that front.
Electrification may be the answer for some Scope 1 targets, but not for everyone. The impact of electrification will depend on the low carbon content of local grids, which reflect the level of investment in non-fossil-based electricity. We’ve recently seen significant investments in the EU, and the reverse in the US.
Scope 2 targets, relating to purchased electricity, heat and steam, are to be set based on the physical, location-based inventory. This means a change in how companies can report emissions reductions, which can only be realised in the physical inventory. Market mechanisms, however (e.g. PPA’s) remain a valid mechanism for demonstrating progress. i.e. ‘progress’ does not necessarily mean ‘reduction’. The best-efforts approach means that companies will have to undertake all feasible energy efficiency actions, and generate their own low-carbon electricity if possible, before purchased renewable electricity ‘counts’.
4. More supplier specific data will be needed.
Companies with Scope 3 targets will require deeper clarity on their suppliers’ status to understand whether a supplier is categorised as ‘in transition’ and the extent to which the products they sell are considered low carbon or ‘net zero aligned’. This means procurement teams will need to secure at least supplier-specific emissions intensity data, if not full cradle-to-gate product carbon footprints (PCFs).
This will undoubtedly increase the pressure on suppliers to directly reduce their Scope 1 and 2 emissions, which will likely include capital-intensive actions like overhauling industrial heating systems. For this to work, there needs to be increased communication between manufacturers and their customers, and both parties should take advantage of data platforms that make the task of data collection and reporting as easy as possible.
5. Sustainability teams need to build a business case now
V.2.0 imposes stricter rules on how companies can disclose their progress, and this will get boardroom attention. Teams must now clearly differentiate between verifiable ‘emissions reductions’ and broader actions that can be only classed as ‘progress’ or ‘contributions’.
Strategic planning will be critical and Sustainability teams need to build credible transition roadmaps for the 2030-2035 first cycle, validating all proposed actions against the new criteria. For this transition plan to be effective and to maintain SBTi validation, it must have full organisational buy-in. This will mean understanding the cost-benefit to provide a compelling ‘V.2.0 investment case’.
Collaborative action
V.2.0 will bring a new focus on collaborative action. It introduces a tiered hierarchy mechanism that recognises efforts within shared sectors or pools to serve as an alternative when direct individual emissions reduction isn’t feasible. For example, companies could invest in local renewable energy development. Partnering to do this collaboratively with other local manufacturers would scale up the impact and the speed of transition to renewables in the geography or sector.
This is an important shift as it prevents inaction and encourages organisations to continue driving progress through broader initiatives, towards a common goal. .
Future considerations
Beyond the five takeaways above, there are future considerations some companies will need to examine.
Increased assurance beyond emissions inventories: Assurance will now be required to verify claims made about progress, whether they are emissions reduction, alignment, or system contribution. Given the ‘best-efforts’ framework for V.20, companies will need rigorous data to demonstrate that no viable reduction levers have been overlooked.
Finally, these updates are set to elevate the role of procurement in net-zero strategies. Close alignment between Sustainability and Procurement business functions will be critical to success.
