The SBTi was set up in 2015 in collaboration with the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute, and the WWF. Its goal is to encourage and support companies to set emissions-reduction targets in line with the Paris Climate Agreement and enable them to submit the targets for validation. Companies can choose to set short- or long-term targets to align with the goal of staying below 1.5°C or 2°C warming and can also select the date by which they aim to reach the targets.
The SBTi aims to get as many companies as possible to set targets because, as its website states, “evidence shows that businesses with these targets cut more emissions and cut them faster than companies that don’t.”
The initiative’s online dashboard provides an overview of over 8,000 companies that have committed or validated targets. Around 830 companies fall within the latter group and can publicly claim that they have set both short- and long-term Paris-aligned targets in line with the SBTi. These include companies as varied as fashion retailer H&M, energy provider Acciona, personal-care firm Beiersdorf, cement producer Cemex, and the chocolate company Lindt&Sprungli.
It is worth taking a step back to understand what the SBTi is, what the upheaval was about, and the complexities it exposes when seeking to marry sustainability goals and business strategy. The clash can help executives gain valuable insights into how best to navigate similar complexities in their business environment.
The spat started with a statement released by the SBTi Board of Trustees on 9 April 2024, saying, “SBTi has decided to extend [the use of Environmental Attribute Certificates] for the purpose of abatement of Scope 3 related emissions beyond the current limits.” Scope 3 emissions relate to emissions made upstream and downstream from the company’s activities. For a car manufacturing company, for example, these emissions include those released during the production of parts by suppliers and those released when driving the vehicles.
For most companies, Scope 3 emissions not only make up the most significant percentage of their emissions but are the most difficult to influence. They also form the biggest hurdle to companies setting SBTi net zero targets and could explain why certain companies such as Amazon, Unilever, and Walmart have not translated their initial commitments into validated targets.
The Environmental Attribute Certificates (EACs) the board refers to represent environmental gains obtained by generating electricity through renewable sources rather than fossil fuels. Companies can buy these certificates from energy providers or aggregators separately from electricity, helping to support the energy transition.
With the complexity of reducing Scope 3 emissions, EACs provide companies with a simpler way to help support the energy transition. Predictably, when the news of the SBTi’s decision emerged, organizations working on EACs, carbon credits, carbon offsets, and emission trading quickly welcomed the development. In contrast, climate scientists and activists took to social media and the press to express their outrage about the move.
“In a transition phase, allowing for offsetting may be the only option as long as scope 1 and 2 emissions follow the carbon law of fossil-fuel phaseout and if the offsets are truly robust.”
Watchdog and research organization Carbon Market Watch issued a statement saying the decision on offsetting “undermines science and endangers the climate.” Within the SBTi itself, dozens of employees called for the resignation of their CEO, publishing a letter online stating, “SBTi staff are deeply concerned about the content of the statement and the process by which it was developed and released.”
Behind the outrage lies the fear that by allowing companies to use EACs to offset Scope 3 emissions and claim net-zero targets, companies will be freed from the responsibility to reduce their value chain’s actual emissions. Effectively, it opens the door to greenwashing.
Another concern is that the SBTi did not consult with the technical council tasked with making this kind of recommendation. The council is currently assessing the effectiveness of EACs to inform potential revisions to the standards, but the analysis and synthesis of gathered evidence had not been completed at the time of the announcement.
After three days of backlash, the Board of Trustees announced that “no change has been made to SBTi current standards.” The use of EACs will be researched, and a draft proposal about Scope 3 emissions will be published in July 2024.
From its inception, the SBTi has tried to straddle the chasm between science and business, encouraging companies to support the efforts science calls for. EACs and carbon offsetting are among the most contentious issues.
The recent altercations highlight the tension between corporations and their representatives, seeking to support the energy transition through tools that work for them, and scientists, who are worried that the core problem of emissions will not be addressed at the speed and scale necessary.
The Bezos Earth Fund, one of the SBTi’s core funding organizations, is a strong proponent of EACs, as are other influential bodies such as Bloomberg Philanthropies and the Rockefeller Foundation. SBTi’s partner organization, the We Mean Business Coalition, representing thousands of companies, also supports emission compensation tools. A recent report published by the coalition concluded that “companies would substantially boost their climate investments if the corporate net-zero architecture recognizes and rewards investments in transparent, high-integrity carbon credits.”
These corporate- and finance-driven organizations are trying to build and use systems that they know and that can influence to support climate efforts: market dynamics, financial flows, and communication platforms. Constrained by shareholder pressures, the EACs provide a way to support global efforts without compromising their fiduciary duties.
Likewise, environmental scientists are using the systems and tools they have at their disposal to protect the environment. They conduct research, collect data, identify the levers for change, and publish papers calling for action to protect Earth systems. While they have little power to implement changes or redirect financial streams, their role is to advocate for what is best for the environment. The SBTi is trying to bridge this divide while remaining credible to both sides.
Company executives, particularly sustainability managers, will recognize the tensions associated with the need to constantly balance corporate objectives with the environmental objectives they wish to achieve. They must also remain credible to their different stakeholders, from shareholders to employees, customers, suppliers, and the wider community.
The clash over EACs being used to compensate for Scope 3 emissions exposed the complexities that organizations face when seeking to marry sustainability goals and business strategy. It provides valuable insights into how best to navigate similar complexities in the business environment:
There are understandable reasons why businesses might want to purchase EACs. And these certificates can help reach global decarbonization goals. Yet, discretely trying to claim scientific backing for this will not go unnoticed.
Similarly, businesses should avoid portraying themselves as being more environmentally friendly than they are. Eventually, they will be called out for greenwashing. Many companies that are most ambitious in their sustainability goals are also the most open about the areas where they are lacking.
The SBTi Board of Trustees did not wait for the Technical Committee’s report on EACs. With this report in their hands and the different parties around the table, they would have been able to have open conversations about the larger goals they are trying to achieve, the limitations they have, and the best approach to ensure companies do as much as they can without giving way to greenwashing. This might include using EACs with certain limitations. As acclaimed scientist Johan Rockstrom commented to The Guardian, “In a transition phase, […] allowing for offsetting may be the only option as long as scope 1 and 2 emissions follow the carbon law of fossil-fuel phaseout and if the offsets are truly robust.”
Likewise, companies should be ready to have transparent internal conversations, recognizing the tools and limitations unique to their company. This transparency and honesty will help foster trust, collaboration, and action among employees and partners.
The intensity of the SBTi backlash among scientists attests to the fact that offsets do not equal reducing actual emissions. Whatever the SBTi organization decides about EACs, they will undoubtedly continue pushing for emission reductions. Within companies, this should remain the preferred option.
17 July 2024 • by Michael R. Wade, Evangelos Syrigos in Sustainability
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