SBTi publishes new documents relating to companies’ use of carbon credits in Scope 3 target setting, but overall direction of travel remains unclear

The Science Based Targets initiative (SBTi) has published an update relating to Scope 3 (i.e., indirect emissions) target setting and the use of carbon credits, as part of its process for revising its SBTi Corporate Net-Zero Standard (Standard). 

Although the SBTi’s findings, set out in technical papers, are largely inconclusive, and the SBTi has stated that further work is needed in order to draw firm conclusions, the SBTi has committed to issuing its draft revised Standard for public consultation towards the end of Q4 2024, with the revised Standard scheduled to come into effect in 2025. In the meantime, businesses wishing to set or update net-zero targets should refer to the current version of the Standard.

The SBTi is a corporate climate action organisation that develops standards, tools and guidance which allow companies to set science-based greenhouse gas emissions reductions targets. Through its validation services arm, the SBTi assesses and validates companies’ targets. 

The SBTi’s key goals for its review of the Standard are to align with the latest scientific thinking and best practice; to address challenges relating to Scope 3 target setting and implementation; to integrate continuous improvement and target delivery; and to improve structure and enhance interoperability with other SBTi standards and relevant external frameworks.

The SBTi has stated that direct decarbonisation efforts remain the priority for corporate climate action. The existing Standard explains that carbon credits do not count as reductions toward meeting near-term or long-term science-based targets, including for Scope 3 emissions, and that carbon credits may only be considered as an option for neutralising residual emissions or to finance additional climate mitigation. However, earlier this year, the SBTi announced that it planned to permit increased use of carbon credits towards Scope 3 emissions reductions targets, as part of broader revisions to the Standard. It has been reported that the announcement was controversial within the organisation, with opponents citing concerns about the integrity of voluntary carbon markets and related greenwashing risks. 

The publication of the technical papers is a key step in the revision of the Standard, and offers insight into the SBTi’s thinking on changes to Scope 3 target setting, including the use of carbon credits. Some key takeaways include: 

• The SBTi acknowledges that there are challenges in Scope 3 target setting and implementation. This is due in part to the levels of influence that companies have over actors in their value chain (given that Scope 3 emissions are ‘indirect emissions’), with some companies less able to influence and mitigate different emissions sources within their value chains. These challenges have played a part in the SBTi evaluating the role that carbon credits could play in meeting targets. 
• More research is needed on the effectiveness of the use of carbon credits by companies. The (albeit limited) evidence submitted to the SBTi suggests that there could be risks to corporate use of carbon credits for the purpose of offsetting emissions, which include issues such as carbon leakage and double counting or over counting of credits, with potential negative impacts including hindering the net zero transformation and/or reducing climate finance. However, the SBTi is clear that it must assess a wider body of evidence in order to reach a conclusion. 
• The SBTi is considering multiple options for how carbon credits and/or other ‘Environmental Attribute Certificates’ could play a role in meeting companies’ Scope 3 emissions reductions targets. These include counting carbon credits from mitigation activities within a company’s value chain, whenever they represent emissions abatement (i.e., preventing, reducing, or eliminating sources of emissions) from activities traceable to the company’s value chain; using carbon credits to support neutralisation of residual emissions; and purchasing high-quality, high-impact ‘commodity certificates’ that can demonstrably lead to net-zero aligned market transformation.  

The SBTi is keen to receive feedback from stakeholders, including civil society, business and government. Stakeholders are encouraged to share their feedback on the SBTi’s Scope 3 discussion paper via this feedback form, and can feed back on the overall revision to the Standard here.

Companies who use carbon credits as part of their decarbonisation strategy and/or targets would be well-advised to follow developments in this area closely, as the SBTi’s approach, once finalised, is likely to be viewed as best practice for corporate target setting. Aligning with the SBTi’s guidance and Standard can be an effective way to demonstrate that methodologies sitting behind targets are robust and reputable, which may assist with mitigating against greenwashing risks.