A decade ago, the Science Based Targets initiative (SBTi) was launched with the goal of mobilising the private sector for climate action.

Today, it stands as the largest and most influential validator of corporate climate targets, having confirmed the 2030 goals of around 5,000 companies.

Yet new analysis reveals a leniency within the initiative. According to the 2024 Corporate Climate Responsibility Monitor (CCRM), the emissions reduction commitments of 51 major global corporates are falling short of what’s needed at the global level.

Surprisingly, most of these companies received SBTi validation for their targets to be aligned with the 1.5ºC warming limit backed by governments in the Paris climate agreement. 

What explains this discrepancy?  

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Currently, the SBTi’s 2030 target validations often overlook substantial shares of companies’ full value chain emissions by excluding upstream and downstream value chain emissions, known as “scope 3”. Scope 3 emissions account for the majority of corporate greenhouse gas footprints, sometimes exceeding 95%.  

The SBTi requires companies to set a near-term target for scope 3 emissions, but only when those emissions account for more than 40% of their greenhouse gas footprint. However, these targets do not have to cover all scope 3 emissions and only need to be aligned with global warming of 2ºC or well below 2ºC, not 1.5ºC.  

While the SBTi checks whether companies have set a scope 3 target, the initiative does not provide a temperature classification for these scope 3 targets – only for companies’ scope 1 and 2 targets, which apply to direct operations and their energy use.

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This important nuance is often missed by the public, as many companies nonetheless prominently advertise their scope 3 climate targets as science-based.  

Take Fast Retailing, owner of clothing chain Uniqlo, for example. The company pledges to reduce its operational emissions (scope 1 and 2) by 90% by 2030, which represent just 5% of its total emissions.

It also commits to reduce its emissions from procured goods and materials (scope 3) by 20% by the end of this decade. However, upstream emissions in the fashion sector need to be reduced by around 40% to be aligned with global warming of 1.5ºC.

Whereas the SBTi validated the target for operational emissions as “1.5ºC temperature aligned”, the initiative did not provide a temperature classification for the scope 3 target.

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Yet Fast Retailing also describes this target as “science-based”. This pattern is not unique to Fast Retailing but common across companies validated by the SBTi. 

As a voluntary organisation primarily funded by third parties, the SBTi relies on the voluntary participation of companies. Its methodologies need to accommodate the perspectives of various stakeholders.

This may explain why the SBTi’s methodologies for 2030 targets are not necessarily always aligned with the scientific consensus on limiting global warming to 1.5ºC.

However, addressing the lack of stringency in scope 3 targets is key to ensuring that the SBTi can effectively drive corporate climate ambition. 

Offsetting controversy 

Despite the large degree of leniency that already exists in scope 3 standards today, there is a significant risk that the rules will be loosened even further.

Just this week, the SBTi Board of Trustees issued a unilateral and possibly illegitimate decision to revise scope 3 standards to allow for carbon offsetting.

This decision is not based on scientific insights but comes after a lot of pressure on the SBTi from supporters of carbon markets. SBTi staff have already reacted strongly to voice their discontent with the decision and the process. 

Introducing offsetting in the SBTi scope 3 standards could effectively nullify already insufficient targets, reversing years of incremental progress that SBTi and its member companies have fought so hard to achieve. 

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Allowing companies to offset their emissions could also deprive their suppliers – who are often located in the Global South – of much needed financial and technical support for their own emissions reduction efforts. 

Climate target-setting has become standard practice in the corporate world – progress the SBTi helped foster over the past decade. But the recent decision by the SBTi Board of Trustees on offsetting could bring any further advances to a halt.

Reversing this decision and tightening the rules for scope 3 targets would be the next step to propel corporate climate ambition forward. 

This article argues that the SBTI’s rules are too lax. We have also published a comment piece arguing they are too stringent.

The post SBTi needs tighter rules on companies’ indirect emissions appeared first on Climate Home News.

This – the Swiss giant says – not only captures carbon from the atmosphere, generating credits to be claimed against its climate targets.

But it also protects crops, reduces water reliance and supports workers on the very farms the company sources materials from.

This practice is called insetting, a term creeping into the “net zero” plans of a rising number of corporations.

Instead of buying carbon credits from unrelated third parties – as they would in traditional offsetting schemes – through insetting, companies invest in carbon reduction or removal projects on their own land or the land of their suppliers.

Critical report

Its emergence comes as more doubts are being cast over the reliability of carbon offsets. A new critical report says this is no coincidence.

The New Climate Institute (NCI), a German campaign group, says insetting is simply offsetting in disguise and is plagued by the same integrity issues.

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The report also raises concern over companies “successfully” lobbying standards-setters to rubber-stamp the inclusion of insetting claims within their net zero pledges.

In particular, the report points the finger at the Science Based Targets Initiative (SBTI), a corporate climate target watchdog supported by NGOs like the World Wildlife Fund and World Resources Institute. The report accuses it of “legitimizing” insetting.

What is insetting?

There is no single and universally-accepted definition of insetting, but the term generally refers to a company offsetting emissions through carbon reduction or removal projects along its own supply chain. Insetting is most commonly used by corporations with a large land footprint and involves protecting nature.

The International Platform for Insetting (IPI) – a business-led group – says insetting brings a more “holistic” approach. “Insetting is an important mechanism for companies not only to achieve their net zero commitments,” Michael Guindon, IPI’s executive director, told Climate Home. “But it also helps companies reach other goals, in improving biodiversity, ecosystems and livelihoods for communities they work with.”

But the NCI claims insetting is just a rebranding operation for “low-standard” offsetting. “The impression is that offsetting has gained a bad reputation, so companies are moving to a different term to avoid criticism, rather than abandoning it altogether,” Silke Mooldijk, co-author of the NCI report, told Climate Home News, “This distracts from the need for real emission reductions”.

The NCI scrutinised the climate pledges of 24 major multinational corporations. It found that the practice of so-called insetting is “gaining momentum and undermining more companies’ climate strategies”.

Offsets – also referred to as carbon credits – have come under increasing criticism over the last few years with academics, journalists and NGOs raising questions over the real contributions to emission reduction. In December 2022 a Guardian investigation  claimed up to 90% of forest-based carbon credits approved by a leading certifier are worthless – which the certifier Verra denies.

Methodologies questioned

The NCI report says the insetting claims it analysed are also plagued by a lack of robust methodologies and the required verification steps.

Insetting within a company’s supply chain may take the form of emissions reduction projects or carbon dioxide removals.

The NCI calls both “highly contentious”. It claims that describing emissions reduction projects as insetting is a “false concept”, because this is a measure of reducing its own emissions and should not be used to neutralise some of the companies’ other emission sources. The risk is that reductions may be counted twice.

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Carbon dioxide removals include carbon storage in soil or wood. These projects – the NCI says – may be compromised by the same integrity issues as any other offsetting project: the difficulty in demonstrating the emission reductions are additional to what would have happened anyway and that they are permanent.

Tree planting activity in Thailand. Photo: Chanklang  Kanthong / Greenpeace

Unlike offsets, insetting projects do not currently require verification against globally agreed standards.

“This could offer a potential avenue for companies to bypass those standards,” Justin Baker, a forest economist at North Carolina State University, told Climate Home News. “That raises concerns regarding the credibility or potential climate benefit of the insetting action.”

Nestlé and Pepsi

Nestlé and PepsiCo are among the companies relying on insetting for emissions reductions or removals.

Nestlé plans to halve its emissions by 2030 and to reach net zero by 2050. The company says it does not use offsetting outside its value chain to deliver emissions removals – even though some of its brands do buy offsets

Its main focus, it says, is instead on sucking in carbon through restoring forests, wetlands and peatlands on its suppliers’ land.

Climate Home News asked Nestlé to provide detailed information about the company’s projects but did not receive a response.

Nestlé ’s publicly available information on insetting overwhelmingly refers to tree-planting initiatives.

A chart from a Nespresso report shows the role of removals and insetting in the company’s net zero strategy. Credit: Nespresso’s Positive Cup report)

Critics like the NCI say tree planting does not always have permanent benefits. If, for example, trees were cut or went up in flames, the carbon sequestered would be immediately released back into the atmosphere.

A Nestlé spokesperson said that “when it comes to the food and agriculture sector, the NCI approach to decarbonization simply does not work”. “Food and agricultural companies like ours can and must play a role in adopting nature-based solutions to achieve their climate targets,” it added.

PepsiCo aims to reduce emissions by 40% by 2030 and to reach net zero ten years later. In its strategy, the company says it wants to deploy “carbon insetting at scale” without elaborating on specific practices and targets.

In 2021 PepsiCo announced a partnership with the Soil and Water Outcomes Fund to subsidize regenerative agricultural practices on 20,000 acres of land in Illinois, a supply area for the company. They claimed this project would “generate verifiable carbon reductions” that could be used to inset corporate emissions.

“Lobbying to legitimise insetting”

The NCI claims Nestlé and PepsiCo are “among the companies successfully lobbying to legitimise the contentious practice of what they label as insetting”.

Nestlé and PepsiCo are among over a dozen large corporations who provided input into SBTI’s guidance for the forestry, land and agriculture (Flag) sector, alongside experts from several NGOs.

The guidance was supported by the charitable foundation of Intel co-founder Gordon Moore and “additional support was provided” by companies in the Flag sector like furniture shop Ikea and food companies Cargill, Mars and General Mills.

The SBTI is the most prominent standard-setter for corporate climate targets globally. It says its targets are “grounded in an objective scientific evaluation” and represent a more robust approach for companies to manage their emissions.

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It treats offsets and insets differently. SBTI’s April 2020 guidance said that “offsets and avoided emissions should not count toward [science-based targets]”.

But, in its September 2022 Flag sector guidance, SBTI accepts removals within a company’s supply chain towards greenhouse gas emission reduction targets.

“No company can purchase offsets to meet its near-term Flag or energy/industry target,” the guidance says, “only removals on land owned or operated by a company or within a company’s supply chain can be included”.

In a separate document, the group said it would “assess insetting on a case-by-case basis during the validation process” due to the absence of a “standardization of the term”.

Climate Home News asked SBTI to provide details on the number of insetting claims approved or declined, but received no response.

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An SBTi spokesperson told Climate Home News that “carbon credits may be used between producers and buyers as evidence that a reduction or removal occurred in association with a commodity to ensure unique claim to the [greenhouse gas] reductions or removals”. It added that “this only applies for Flag if such a reduction or removal is associated with on-farm actions that sit within company value chains”.

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Bill Baue was among half a dozen people to start developing the concept behind the Science-Based Targets initiative (SBTi) in 2012 and served on its technical advisory group until recently.

Last week, he submitted a formal complaint to the initiative’s executive board and published it on Medium, with a detailed critique of the framework used for major corporations to set climate targets.

“Science-Based Targets is not a science-based approach,” Baue told Climate Home News. “I believe in this instance that SBTi… are putting their own interest above the interests of the public.”

The Science-Based Targets initiative (SBTi) was launched in 2015 to set the standard for companies to align with the goals of the Paris Agreement on climate change and vet targets set by businesses.

More than 1,000 companies across 50 sectors are working with the SBTi to reduce their emissions, according to the initiative’s latest progress report. This includes household names like Siemens, Heineken and S&P Global.

These companies represent nearly 20% of global market capitalisation, or about $20.5 trillion. In recent months, the number of businesses joining the initiative has surged.

As companies trumpet their climate ambition, there is growing scrutiny of their plans and actions — and the opaque vetting process for the coveted “science-based” label.

“To quell the great public skepticism about this initiative, what’s needed is an additional emphasis on transparency and accountability, using the latest science to guide these targets, and for these companies to back up their targets with their investment plans,” said Jennifer Morgan, executive director at Greenpeace International.

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SBTi’s proposition is that it works with companies to develop and approve targets and strategies to cut emissions in line with 1.5C  — the toughest Paris goal.

That involves a number of hidden assumptions. The size of the global carbon budget for 1.5C depends on how much carbon dioxide you expect to remove from the atmosphere and the temperature “overshoot” tolerated mid-century. Then there are judgement calls about how to share the shrinking carbon budget between sectors and geographies.

Baue accused SBTi of “potential self-dealing and conflict of interest” for recommending two ways of calculating corporate targets that were developed by the initiative’s partners and excluding a method that could yield more robust emissions cuts.

There was no transparency over which route the companies chose, he added.

“[SBTi] are basically asking us, the world, to trust them to do this assessment and they are not going to reveal even the methodology that these companies use,” he said. “They are the lawyer, the judge and the jury in this situation.”

After raising these concerns internally for the past two years, he escalated them to the executive board, which is constituted of the heads of the UN Global Compact, of the World Resources Institute, of WWF and of CDP.

At the time of making his complaint, Baue still believed himself to be an advisor to SBTi. He only found that following publication of his concerns that the initiative had reconvened a new advisory group in October 2020 to improve gender, geographical and sectoral diversity – excluding him.

SBTi acknowledged that it failed to inform previous advisors of their expired membership “due to an internal miscommunication” and “greatly regret this lapse”.

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Responding to Climate Home’s questions, the steering committee of the Science Based Targets initiative said: “A rigorous, science-based approach is at the very core of the SBTi’s work and we take extremely seriously our role in upholding this. This is why our methodologies undergo strict evaluation each year, to ensure they are in line with the latest climate science.

“Our mission is to drive down corporate emissions for a net-zero, 1.5C world, and this goal ultimately is at the heart of our decision-making.”

SBTi denied that it or partner organisations derived any benefits from the use of the methods it recommends. “It is not clear to us what other ‘interest’ this supposedly conflicts with.”

Baue’s complaint followed the publication of an independent study in the journal Environmental Research Letters.

The study assessed seven methods for setting corporate climate targets. It found that a target-setting methodology developed by the US-based Center for Sustainable Organizations (CSO), was aligned with the latest 1.5C climate science and offered the lowest risk of an under or overshoot of the global carbon budget.

While initially endorsed by SBTi, the CSO methodology was dropped from its toolkit in recent years.

“SBTi now finds itself in what we might call an ‘inconvenient’ position of recommending against the very methodology that is the most robust!” Baue wrote in his complaint.

SBTi said its reason for dropping the CSO methodology was its reliance on economic intensity as an input. That decision was based on concerns that economic performance indicators have “a weak and unstable link” to emissions at the company level.

The steering committee said it had intended to present these concerns formally in a research paper but this had been delayed because of resource constraints and competing priorities.

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Instead, SBTi recommends companies reduce emissions in line with 1.5C in a straight downward trajectory, known as the Absolute Contraction Approach (ACA).

The study in Environmental Research Letters found this method had a much larger risk of overshoot of the carbon budget to 2050 than other methods. SBTi said it used the method to help companies set 5-15 years targets, for which the method shows no or limited overshoot.

The second method recommended by SBTi, known as the Sectoral Decarbonisation Approach (SDA), only aligns with holding temperature “well below 2C” rather than 1.5C. Only power utilities can align with 1.5C using this method.

That is because the sectoral approach was initially developed using scenarios from the International Energy Agency aligned with 2C. The IEA has yet to release its 1.5C-aligned scenario, which is expected in May.

SBTI’s steering committee said the lack of 1.5C-aligned SDA pathway was an issue it took “very seriously” and described the delay in updating the model as “frustrating”. It said it did not rely solely on IEA data and was working to update the methodology.

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Anders Bjørn, co-author of the recent study from Concordia University in Montreal, told Climate Home he was “puzzled” by SBTi’s decision to only recommend two methodologies and that its rationale for doing so “lacked transparency”.

Bjørn called on SBTi to require more transparency from companies. Companies setting climate targets under SBTi don’t usually disclose what methods they have used to set their goals — something that should change, Bjørn said.

“There is not even a mention that there is a choice in the method,” he said, adding that companies should be honest about the fact their targets reflect a value judgment on how to share the global emissions budget.

Jed Davis, director of sustainability at Cabot Creamery Co-operative and a former SBTi advisory board member, told Climate Home: “There needs to be a deeper valuing of transparency in the process. This won’t serve anybody if it is a black box process.”

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