The Science Based Targets initiative (SBTi) is undertaking its first major revision of the Corporate Net-Zero Standard (CNZS) version 1.0 since the standard was released in October 2021. The SBTi believes that setting science-based emissions reduction targets across corporate value chains not only supports combating the climate crisis, but also ensures that business models continue delivering value in a carbon-constrained world. It also believes that Scope 3 target setting will motivate companies to work toward net-zero by fostering comprehensive decarbonization throughout the entire supply chain.
Scope 3 emissions are indirect greenhouse gas (GHG) emissions that occur in a company’s supply chain, but outside its direct operations (Scope 1) and energy use (Scope 2). These emissions are often the largest source of a company’s carbon footprint, sometimes accounting for up to 90% of total emissions. Scope 3 emissions include:
- Production and transportation of goods and services that a company buys
- Transporting products to customers or receiving materials from suppliers
- Air travel, car trips, and other forms of transportation used by employees
- Disposal of waste generated by a company’s operations
- Customers using a company’s products
Scope 3 Reporting Challenges
Because Scope 3 emissions occur outside a company’s direct operations, sustainability professionals must rely on information from other sources, such as suppliers and transportation companies. This data can be difficult to access, and might not be very accurate. Another issue is the sheer complexity of supply chains. Many companies have large global networks, which makes it difficult to track emissions across every step of the process. In addition, there is no universal standard for measuring Scope 3 emissions, therefore companies use different methods. which makes it difficult to compare data to obtain a clear picture of the overall impact.
Essentially, Scope 3 reporting is a complex and challenging undertaking. It requires companies to navigate data gaps, intricate supply chains, a lack of standardization, and potential confidentiality concerns. Despite these challenges, reporting Scope 3 emissions is becoming increasingly important as stakeholders, including investors, customers, and regulators, are demanding greater transparency and accountability regarding climate change.
In order to understand their value chain climate impact and identify emission hotspots, companies must first develop a Scope 3 GHG inventory. Under the current approach, companies prioritize emissions reductions through target boundaries that address at least 67% of their Scope 3 emissions for near-term targets and a minimum of 90% for long-term targets. Companies can choose from various methods to address scope 3 emissions, including:
- Reducing absolute emissions (64% of validated targets)
- Engaging suppliers or customers to set science-based targets (14%)
- Decreasing physical intensity (11%) or economic intensity (5%)
- Using a sectoral decarbonization approach (6%)
The SBTi is a crucial force in driving corporate climate action for several key reasons:
- The SBTi offers a globally recognized framework for companies to set emissions reduction targets that are aligned with the Paris Agreement goals of limiting global warming to well below 2°C, preferably 1.5°C. This gives companies a concrete roadmap for decarbonization.
- By validating corporate targets, the SBTi ensures that companies’ commitments are credible and ambitious enough to make a real impact thus avoiding greenwashing and ensuring that companies are truly taking climate action seriously.
- The SBTi engages companies and financial institutions across various sectors to take a leading role in combating climate change in order to achieve global emissions reductions targets.
- Companies with validated science-based targets demonstrate their commitment to climate action, which can improve their reputation with investors, customers, and other stakeholders.
- Setting science-based targets can drive companies to innovate and develop new low-carbon technologies and solutions, which can lead to increased competitiveness and long-term sustainability.
To address emissions in high-impact industries and align with its Corporate Net-Zero Standard, the SBTi is updating its terms of reference for three sector projects: oil & gas, chemicals, and power.
These updates are essential to provide comprehensive, practical and well-defined criteria, with input from external stakeholders shaping their development. The SBTi prioritizes those sectors with the greatest potential to drive decarbonization with science-aligned net-zero pathways.
Oil & Gas
Fossil fuel combustion and industrial processes account for 85% of global CO2 emissions and 64% of total greenhouse gas emissions. SBTi’s Oil and Gas Standard will demonstrate how companies in this industry can decarbonize their business models, retain and attract financing, and lead the energy transition. The next major step is the release of a draft for public consultation in early 2025, providing stakeholders with an opportunity to help shape the standard. A second public consultation, extended to 45 days in line with SBTi’s procedures, will follow to inform rigorous stakeholder engagement and robust outcomes.
Chemicals
The chemical sector is the third-highest industrial emitter worldwide, contributing to almost every sector of the global economy, including healthcare, agriculture, construction, and renewable energy systems. It is also key to the plastics value chain. Nearly all (95% of) manufactured products rely on the chemicals sector. The SBTi is developing Chemicals Sector Criteria to help decarbonize this sector. Currently, the project is undergoing a second round of public consultation and calling for the chemicals sector companies to pilot the criteria. The updated Terms of Reference are now expected to be the release of the final Chemicals Criteria in Q3 2025.
Power
The power sector is the largest source of CO2 emissions globally, with global electricity demand forecast to grow by around 4% in 2024, up from 2.5% in 2023. The next major milestone will be the release of the first public consultation draft in Q2 2025.
Conclusion
The SBTi is crucial in driving corporate climate action by providing a standardized framework for setting ambitious emissions reduction targets aligned with the Paris Agreement. While Scope 3 emissions pose significant reporting challenges due to data gaps, complex supply chains, and a lack of standardization, the SBTi’s work, including the ongoing revision of its Corporate Net-Zero Standard and the development of sector-specific criteria for high-impact industries like oil & gas, chemicals, and power, is essential for fostering comprehensive decarbonization. These efforts not only help combat the climate crisis but also ensure businesses remain competitive and sustainable in a carbon-constrained future. The upcoming revisions and sector-specific standards will further refine the process, providing clearer guidance and ultimately accelerating progress towards global net-zero emissions. Please contact Canopy Edge if your organization needs assistance in setting science-based targets, establishing abatement strategies to achieve them, or implementing measurement programs to assess progress.
