SBTi Standards for ESG Reporting - Guidelines

» Science Based Targets initiative (SBTi)

About SBTi Standards

The signing of the Paris Agreement in 2015 created the need for defined GHG emission reduction roadmaps. It is the SBTi’s role to translate global carbon budgets into sectoral or cross-sectoral pathways, to enable companies to target themselves in a manner that is scientifically and can be validated.

• Five Priority Outcomes are emphasized:
1. Reducing direct emissions (scope 1).
2. Transitioning to zero-carbon electricity (scope 2).
3. Decarbonizing value chains (scope 3).
4. Driving innovation in low-carbon solutions.
5. Financing climate mitigation beyond the value chain.

Framework of SBTi Standards

• There are two cross-sector standards:
1. Corporate Net-Zero Standard (for all non-financial companies)
2. Financial Institutions Net-Zero Standard (for banks, asset managers, etc.)
• There are also sector-specific standards for industries like power generation, oil and gas, chemicals, etc., especially high-emitting ones.
• Companies first refer to the cross-sector standard and then apply relevant sector-specific criteria if they meet sector threshold definitions (like the power sector standard).
• This ensures consistency in how targets are set across the entire corporate landscape.

Intended Users of the SBTi Standards

• Established, for-profit companies of all sizes, with at least one year of operation, are covered. Nonprofits, government bodies, or partly public organizations have different guidelines.
• Company Categorization: A new feature of v2.0.
• Category A: Large and medium companies in higher-income geographies (high or upper-middle income per the World Bank classification). Must fulfill all requirements thoroughly.
• Category B: Small/micro companies in all countries + medium companies in lower-income geographies. Some criteria become optional or more flexible.

Bold note: This differentiation acknowledges resource and data constraints faced by smaller entities or those operating in emerging economies, ensuring the standard remains globally inclusive.

Validation Model

• A new end-to-end cycle:
1. Entry Check: Basic readiness check and net-zero commitment.
2. Initial Validation: Once the company has set near-term and long-term targets that meet SBTi criteria, the SBTi (or a designated validation body) verifies them.
3. Renewal Validation: After ~5 years (the recommended near-term target cycle), the company’s progress is assessed. The company must set new targets that reflect updated baselines and continue the journey to net-zero.
• Spot Checks: The SBTi can conduct audits or checks at any point to maintain credibility.
• There is a reference to a Procedure for Validation of SBTi Targets, which details how validation is carried out.

Structure of SBTi Standards

• Standards include chapters with “Criteria” (must be followed) and “Recommendations” (best practice).
• Some criteria are “optional” if a company wants additional claims or recognition.
• The SBTi uses the standard ISO-style approach to normative language:
• “Shall” = required
• “Should” = recommended
• “May” = permissible

Terminology

This standard aims to clarify the meanings of such words as “shall,” “should,” “must,” “can,” and “may.”

A glossary is under development to account for the most significant GHG accounting concepts and important roles (e.g., base year, alignment target, scope 3, residual emissions).

Compliance with Regulatory Requirements

• Aligning with the SBTi Standard does not exempt the company from any local or national regulations. They must comply with the strictest requirement where overlaps exist.

Language and Translations

• The official language of the Standard is English. Other translations are for reference only, and in the event of discrepancies, the English version prevails.

Review and Revision

• Every five years (maximum), a formal public consultation occurs to determine if the Standard needs updating. In emergent situations, an earlier update can be triggered (e.g., new climate scenarios or major policy changes).

Purpose of the SBTi Corporate Net-Zero Standard

Vision: The global economy transforms into net-zero by 2050 and in a just transition.

Mission: The mission of empowering science-based climate action through enabling the companies to set and achieve reduction goals, which will keep them in line with 1.5°C elevated global temperatures.

Standards are updated on a rolling basis to ensure that they remain in line with the newest IPCC data inputs in addition to reflecting stakeholder feedback.

Scope

• The Standard applies to all for-profit corporations that have operational emissions (scope 1 and 2) and value chain emissions (scope 3).

Sector-Specific Criteria: If a company belongs to a sector that has specialized guidance (e.g., power generation), that guidance must be followed in addition to the cross-sector net-zero Standard.

Structure of the SBTi Corporate Net-Zero Standard

Outlines six chapters that collectively form an end-to-end system:

1. Corporate Net-Zero Commitment
2. Determining Performance in the Target Base Year
3. Target Setting
4. Addressing the Impact of Ongoing Emissions
5. Assessing and Communicating Progress
6. SBTi Claims

» Corporate Net-Zero Commitment

Background and Key Concepts

• This chapter explains how a company officially declares its intention to achieve net-zero emissions by a certain year (no later than 2050).
• Version 1.2 used a commitment letter approach, wherein companies had 24 months to set science-based targets.
• Version 2.0 introduces a more robust commitment process with structured requirements:
• A public statement of intent to reach net-zero.
• Targets set according to SBTi rules within 12 months (Category A) or 24 months (Category B).
• The requirement that leadership or Board-level governance is aware of, approves, and oversees the net-zero ambition.
• Aligns with UN High-Level Expert Group on Net-Zero (UN HLEG) recommendations and the UN Race to Zero criteria.

Important Distinctions:

1. Net-Zero by 2050: A universal outer limit. Some high-ambition sectors (e.g., power) must aim for earlier dates if a Sector Standard requires it.
2. Scope: Encompasses all operations, geographies, and relevant emissions. No partial or selective net-zero coverage is allowed.
3. Immediate Transparency: Companies shall define how and when they will report on progress—annually is recommended but not mandatory.

Draft Criteria and Recommendations

• Criterion CNZS-C1: Public Net-Zero Commitment
• The net-zero year shall be no later than 2050.
• The commitment must apply to all subsidiaries, affiliates, and joint ventures in the organizational boundary.
• Companies must commit to removals for any “residual emissions” in the net-zero year.
• The statement of commitment must be approved by top governance bodies and made publicly available.
• “Shall/Should” Language: Some sub-criteria remain under consultation regarding whether they become absolute requirements (“shall”) or strong recommendations (“should”). This standard encourages stakeholders to provide input via the consultation survey.

Key Recommendations (R1.1, R1.2, R1.3, etc.)

• Encouraging Earlier Dates: If a company can achieve net-zero before 2050, it is strongly encouraged to do so.
• Public Communication: Ensure internal and external stakeholders (employees, investors, suppliers, the public) are aware of the commitment.
• Fossil Fuel Discontinuation: The standard recommends that companies clarify how they will phase out or limit reliance on fossil fuels, consistent with a 1.5°C pathway.

Transition Plan

• A transition plan is a documented strategy covering governance, actions, and resources to achieve net-zero. It should be publicly accessible.
• Time Frame: The plan must be finalized and published within 12 months of a company’s initial validation. Companies in Category A typically have more rigorous reporting expectations than Category B.

What the Transition Plan Should Contain:

• Time-Bound Emissions Targets (near-term and long-term).
• Investment Strategy: How capex or opex budgets align with decarbonization.
• Operational Shifts: The approach to new technologies, product re-design, supply chain reconfigurations, etc.
• Governance Structures: Which committees or roles oversee the plan and track progress.

Consultation Aspect: The SBTi requests feedback on whether to make transition plans fully mandatory (“shall”) for both Category A and B, or partly optional (“should”) for smaller companies. The current text is leaning toward a mandatory approach for Category A, with certain flexibilities for Category B.

Additional Recommendations (R2.1, R2.2, etc.)

• Category A: Encouraged to support Category B companies (e.g., smaller suppliers in low-income countries) by facilitating tech transfer or providing finance to help them decarbonize.
• Framework Alignment: Mention of Transition Planning Taskforce Disclosure Framework, the UN Race to Zero criteria, and similar best-practice guidelines.

Bold note: The chapter strongly emphasizes that a net-zero commitment is not only a formal pledge but a process that must be backed by resources and accountability.

» Determining Performance in the Target Base Year

Background and Key Concepts

Step Before setting targets : A firm has to first establish a base year which has strong, precise, scope 1, scope 2, and relevant scope 3 emissions inventories. The base year becomes the reference lip for ten creditable discharge abatement achievements.

• The Standard clarifies how to determine:
1. Organizational Boundaries
2. Applicability of Sector-Specific Criteria
3. Inventory Assurance
4. Data Quality Considerations

Significantly: Building a baseline and proper accounting system matters as it minimizes or even eliminates questions and doubts, or very surprises in accounting, ensuring that this is accomplished with respect to trust, comparability, and “gaming” of results. It also assists in complying with added and revised upcoming regulations such the Corporate Sustainability Reporting Directive (CSRD) in the EU in terms of assuredness and consistency in reporting boundaries.

Organizational Boundary

• The recommended approach is to use financial control or operational control criteria from the GHG Protocol.
• If a company operates multiple subsidiaries or has partial ownership stakes, the standard clarifies how to include or exclude them in the boundary:
• Majority-owned subsidiaries are typically included 100% in scope 1 and 2 calculations (unless the power sector standard says otherwise).
• Minority stakes or joint ventures can require proportional accounting or a specific method if that JV is material in emissions.

Important: The boundary chosen for the base year must remain consistent for future inventory calculations. Changes (e.g., acquisitions or divestments) can trigger base year recalculations.

Select Base Year for Target Setting

• Criterion: The base year must be recent, representative, and not artificially low or high due to anomalies.
• The look-back period can vary:
• Some companies choose the most recent year with reliable data (e.g., 2022 or 2023).
• Others with stable data sets may pick an earlier year for alignment with existing climate commitments.
• Recalculation Policy: If the company experiences major structural changes (like merging with another corporation or large acquisitions), the standard outlines how to adjust the base year emissions to maintain a fair “apples-to-apples” comparison over time.

GHG Emissions Inventory

• Companies must conduct a complete GHG inventory covering CO2, CH4, N2O, HFCs, PFCs, SF6, NF3 (the “Kyoto basket of gases”).
• Scope 1 and 2: Fully required.
• Scope 3: All categories must be screened for relevance. Then the company identifies the emissions sources that are material and must be included in the boundary (refer to Annex D for a list of emission-intensive activities).
• This standard references the GHG Protocol for methodology. If the GHG Protocol conflicts with an SBTi criterion, SBTi guidelines take precedence for target validation.

Data Assurance:

• Category A: Must obtain third-party assurance (at least limited level) on base year emissions. This step ensures high data quality and reduces the risk of manipulative baselines.
• Category B: Encouraged but not strictly required to undergo third-party assurance.

Determination of Applicability of Sector-Specific Criteria

• After establishing a complete inventory, a company checks whether it meets thresholds for certain sector standards (e.g., if 40% of revenue or production is in power generation, then the Power Sector Standard applies).
• Sector standards may have stricter or more specific rules on setting and tracking scope 1, 2, or 3 for that industry. The standard references an external “Sector Resources Summary” to determine if additional criteria are mandatory.

Identification of Relevant Scope 3 Emissions Sources

• A departure from version 1.2 (which used fixed coverage thresholds, like 67% or 90%). Now, companies prioritize:
• High-emitting categories (e.g., purchased goods for a manufacturing firm).
• Activities where the company has influence or leverage (e.g., strategic suppliers, or direct involvement in downstream product usage).
• Annex D includes a classification of “emission-intensive” activities. If a company is exposed to any of these (such as steel production, petrochemicals, or large-scale transportation), they typically must be included in scope 3 boundary settings.

Determining Performance in the Target Base Year

• This step aggregates the company’s selected boundary (organizational and operational) and the relevant scope 3 categories to produce the “official” base year figure for each scope or sub-scope.
• In addition to raw emissions (metric tons of CO2e), the standard suggests collecting activity data that might help track changes over time (e.g., kWh usage, miles driven, purchased materials in tons, etc.).

Assurance of GHG Emissions Inventory

• For Category A: This is mandatory. Must show a limited assurance statement from an accredited verifier (ISO 14064-3 or an equivalent).
• For Category B: It remains a recommendation, unless local regulations require it.
• Assurance ensures consistency with the GHG Protocol and major climate reporting frameworks (e.g., CDP, ISSB, or local market regulations).

Improving Data Quality

• Recommendations to use primary data whenever possible (especially in scope 3 “purchased goods and services”).
• Encourages companies to collaborate with suppliers, forging data-sharing or vendor compliance programs, so future data are more accurate.
• The standard also recognizes the possibility of estimations or proxies for smaller segments, as long as the approach is transparent and includes a plan for improvement in subsequent years.

Recalculation of Target Base Year Indicators

• Recalculation is triggered by significant changes (acquisitions, mergers, production expansions, or methodological shifts):
1. Structural Changes: If the changes increase or decrease baseline emissions by a set threshold (e.g., 5% to 10%).
2. Methodology: If new GHG Protocol guidance or SBTi updates require re-estimation of emissions factors.
• Companies must inform the SBTi or relevant stakeholder and maintain consistent historical data.
• The principle is: avoid artificially inflating or deflating the baseline, but remain accurate over time.

» Target Settings

Background and Key Concepts

This chapter builds directly on the base year performance insights from Chapter 2. Once a company has determined its organizational boundaries and GHG inventory (all scopes), it can set targets that:

1. Fulfill the global carbon budget consistent with 1.5°C warming scenarios (no or limited overshoot).
2. Provide interim near-term milestones and a long-term net-zero goal (2050 or earlier).
3. Reflect the latest scientific data, including that from the IPCC AR6.

Three Key Shifts from Version 1.2 to Version 2.0:

1. More Nuanced Benchmarking Approach: Targets are derived from top-down benchmarks (using 1.5°C pathways) in tandem with a company’s current performance gap.
2. Scope 1, 2, and 3 Targets: Each scope has clearer rules on ambition, coverage, and timeframe. In particular, scope 3 now has a stronger focus on prioritized high-emitting segments rather than a blanket 67% or 90% rule.
3. Explicit Guidance on Substantiating Progress: Companies must plan from the start how they will show real-world emissions reductions, focusing on “direct mitigation” and improved data quality in the supply chain.

General Target-Setting Criteria

The Nature of Science-Based Targets

• All net-zero targets must align with limiting global temperature rise to 1.5°C, referencing current IPCC AR6 models. Any mention of “well below 2°C” is no longer a standard option (a shift from prior versions).
• Near-Term Targets: Typically set at 5-year intervals (e.g., 2025–2030, 2030–2035, etc.).
• Long-Term Targets: Aim for the ultimate net-zero year (no later than 2050, potentially earlier for some sectors).

Target Timeframes

• Near-Term: ~5 years from the initial validation date. Companies are strongly discouraged from setting near-term targets beyond 2030 if they first adopt them in 2025–2026, to maintain a 5-year near-term cycle.
• Long-Term: Typically up to 20–30 years from the base year. If a sector standard requires an earlier date (e.g., some power or heavy industry might be 2040–2045), the company shall adhere to that.

Target Ambition

• The revised Absolute Contraction Approach (ACA) or Sectoral Decarbonization Approach (SDA) can be used. The SBTi is consulting on two variations of the ACA that incorporate a “budget conservation” principle—recognizing companies that have already achieved major reductions.
• Companies with minimal scope 1 or scope 2 can still adopt the relevant cross-sector pathways or references in Annex E.

Required vs. Optional Criteria

• Certain elements are mandatory for Category A (larger or higher-income-based companies). They must fully comply with near-term, long-term, and in many cases, sub-sector targets (e.g., scope 2 market-based, scope 3 alignment).
• Category B (smaller or lower-income-based) can be exempt from certain criteria or may have them as optional, acknowledging resource constraints. Still, if they choose to claim certain validations, they must meet the same technical standards.

Addressing Operational (Scope 1 and 2) Emissions

Scope 1 Targets

• Key Requirement: All companies in Category A must set both near-term and long-term scope 1 targets aligned with a 1.5°C scenario. Category B must at least set near-term targets.
• Decarbonization Methods:
1. Absolute Contraction Approach (ACA): Requires a fixed linear reduction in emissions from the base year, guided by a 1.5°C scenario. Two options under consultation:
• Option A: Standard uniform reduction percentage per year (e.g., 4.2% absolute emissions cut annually).
• Option B: Budget-based approach where companies that have already reduced extensively get credit, so future reductions might be a lower annual percentage.
2. Sectoral Decarbonization Approach (SDA): Based on “emissions intensity” targets for specific sectors (steel, cement, aviation, etc.). If a sector has a dedicated SBTi sector standard, it must be used.

Scope 2 Targets

Significant Revisions from version 1.2:

1. Separate Targets for Location-Based and Market-Based: Companies can no longer simply “choose one.” They must address both, although the market-based portion can be supplemented by a zero-carbon electricity target.
2. Energy Procurement Quality:
• Direct Procurement (e.g., power purchase agreements in the same market) is preferred for claims.
• Unbundled Renewable Energy Certificates (RECs) may be used in special cases, but the standard clarifies they only count toward progress if strong temporal/spatial matching criteria are satisfied.
3. Interim Indirect Mitigation: If direct procurement is not currently feasible, the new standard acknowledges “contributions to other grids” or “book-and-claim” style instruments as transitional measures, but with more rigorous quality checks (e.g., no double counting, robust chain-of-custody).

Notes on Fossil Fuels in Scope 1 and 2

• Phasing Out Unabated Fossil Fuels: The standard strongly encourages or, in some sector-specific cases, requires that companies have a timeline for ending direct fossil fuel consumption.
• Bioenergy: If used for thermal needs or combined heat and power, it must meet sustainability criteria (lifecycle GHG, land use, etc.). The standard acknowledges ongoing debates about biogenic CO2 and references SBTi research for guidance.

Addressing Other Value Chain (Scope 3) Emissions

This is typically considered the most challenging aspect for companies because scope 3 can be large, fragmented, and dependent on external suppliers or customers.

Why a Change?

• Old Approach (v1.2): A universal rule that near-term targets must cover at least 67% of scope 3, and long-term targets 90%.
• New Approach: “Relevant source approach.” Companies identify emissions-intensive or influential categories (per Annex D), focusing resources there. If that coverage is below 67%, a rationale is needed to show meaningful decarbonization potential is still captured.

Target Composition and Methods

Scope 3 targets can be:

1. Emissions-Reduction Targets: For categories with good primary data or direct influence (e.g., direct suppliers).
2. Alignment Targets: For categories where direct accounting is tough, companies can set targets tied to:
• Procurement from net-zero-aligned suppliers (a ratio or percentage).
• Percentage of products or services that are verified net-zero (for scope 3 downstream).
• Performance-based (activity-level alignment) metrics, e.g., average gCO2 per unit of upstream product.
3. Indirect Mitigation (Book-and-Claim): The draft acknowledges the complexity of tracking every emission source. In certain categories (e.g., airline fuel or commodity chemicals), a book-and-claim system might be permissible. However, the standard sets strict quality parameters to avoid double counting or low-integrity offsets masquerading as scope 3 reductions.

Substantiating Progress Against Scope 3 Targets

• Traceability Hierarchy:
1. Direct Mitigation: Clear chain-of-custody from the company’s supplier or the commodity in question.
2. Activity Pools: Group-level data where fully granular tracking isn’t feasible (e.g., multiple farmers in a region supplying raw materials).
3. Indirect Mitigation: If the above two options are not possible, a company can rely on credible instruments, but must be transparent about it being a transitional measure.
• Data Quality: Encouraged to transition from average or secondary data to primary supplier-level data over time, potentially enforced via procurement policies or vendor codes of conduct.

Category A vs. Category B

• Category A: Required to set near-term (5-year) and long-term (up to net-zero) scope 3 targets across priority categories.
• Category B: May adopt scope 3 target setting as an option (not strictly required). However, if they want the standard’s “full net-zero validated” claim, they must eventually include scope 3 if it constitutes a major share of overall emissions.

Addressing Residual Emissions

Residual emissions are those that remain in the net-zero year after all “feasible” abatement has occurred. The chapter devotes a subsection to clarifying how to handle them:

Requirement to Neutralize

• CNZS-C criterion states that residual emissions must be neutralized or removed from the atmosphere.
• The standard proposes three options for handling these:
1. Mandatory Removals: Companies must incorporate removal targets from the start, including interim milestones (e.g., removing 20% of projected residual emissions by 2040).
2. Optional Removals with Additional Recognition: Companies that commit to robust carbon removal projects get special labeling or claims. Others can rely entirely on emission reductions to approach near-zero, acknowledging some minimal leftover.
3. Flexibility: Allowing companies to choose either approach, so long as the final outcome is verified net-zero.

Removal Durability

• Two potential approaches under consultation:
1. Like-for-Like Permanence: Only permanent sequestration (e.g., geological storage) can neutralize CO2. Temporary storage solutions (e.g., soils, forests) might be disqualified or heavily discounted.
2. Gradual Shift: Companies can initially use nature-based solutions (NBS) with partial durability but must progressively transition to more durable removals over time.
• The standard requests stakeholder feedback on whether to fully disallow short-lived carbon sequestration for net-zero claims or apply a “hierarchy of removals.”

Accounting Methods

• A reference is made to an upcoming Carbon Removals Accounting Guidance to ensure consistent methodologies and minimize risks of double-counting removals.

Target Transparency

• Companies shall publicly disclose key details of each target, such as:
• Base year and target year
• Scopes and boundaries covered
• Percentage reductions (absolute or intensity)
• Any specific chain-of-custody or indirect mitigation approaches used
• Reporting Frequency: At least annually, aligned with external frameworks (CDP, TCFD, ISSB). Some details (e.g., scope 3 data breakdown) might be disclosed with a year or two lag, if data are not immediately available.

Credibility and Accuracy

• Companies must ensure consistency between what is reported to SBTi and what is disclosed in financial filings, annual reports, or sustainability disclosures.
• Any external communications that conflict with SBTi-validated targets or misrepresent the scope or ambition would result in credibility issues or potential spot checks.

Target Review and Adjustment

Regular Review Cycle

• As part of the new “renewal validation” cycle, companies must:
• Review near-term targets after five years or whenever the target year ends.
• Assess progress and realign their goals if they under- or over-performed.
• Increase ambition if new science emerges (e.g., an IPCC scenario update).

Adjusting Targets for Structural Changes

• If a major acquisition or divestiture drastically alters the company’s emissions profile, a target recalculation may be necessary.
• The standard sets thresholds (e.g., a 5–10% shift in overall emissions from the baseline scenario) that trigger mandatory recalculations.

» Addressing the Impact of Ongoing Emissions

Background and Key Concepts

• Ongoing Emissions: These are the actual GHG emissions that a company’s activities continue to generate each year until it reaches its net-zero target date. Even if a business is pursuing an ambitious decarbonization path, it will still produce some emissions during the transition.
• BVCM (Beyond Value Chain Mitigation): A concept introduced in Version 1.0 and 1.2 as a recommendation—companies were encouraged to finance or support climate efforts outside their direct value chain. Under Version 2.0, the SBTi proposes stronger recognition for organizations that engage in BVCM to address ongoing emissions, especially since early action can mitigate near-term warming.

Why It Matters: Even if full decarbonization is targeted by 2050 (or earlier), GHGs continue to accumulate in the atmosphere. Addressing ongoing emissions is viewed as a crucial “bridge” measure that can reduce the overall climate impact before net-zero status is achieved.

Draft Criteria and Recommendations

Intended Outcome

Companies take responsibility for GHG emissions they produce each year leading up to net-zero, reducing their real-world impact on the climate and catalyzing broader mitigation action globally.

Key Requirements

• CNZS-C4: “Companies (shall/should) address the impact of their ongoing emissions through climate-finance mechanisms, beyond-value-chain mitigation, or comparable interventions.”
• The standard is consulting on whether this becomes a mandatory requirement (shall) or a strong recommendation (should).
• If mandatory, companies would have to demonstrate an approach (financial, technology-based, etc.) to mitigate or offset a share of their annual emissions, especially those that cannot yet be abated within their direct or indirect (scope 3) footprint.

Recognizing BVCM

1. Quality of Mitigation Activities: BVCM should prioritize legitimate, verifiable climate benefits. The Standard references potential alignment with best-practice frameworks (e.g., ICROA guidelines, VCMI initiative) that define offset quality and environmental integrity.
2. Time Bound: The Standard clarifies that BVCM is an interim action, not a replacement for scope 1, 2, or 3 abatement. Ultimately, net-zero requires eliminating most emissions at the source or capturing them via durable removal solutions.
3. Eligibility for Claims: Companies that meet certain BVCM quality benchmarks may be allowed to make supplementary claims (e.g., “Accelerating global decarbonization through climate finance” or “Supporting a just energy transition in emerging markets”). Additional details are in Chapter 6: SBTi Claims.

Approaches to BVCM

• Offsetting: Purchasing certified credits from outside projects that reduce or remove carbon. Must comply with robust quality and additionality criteria, and should not double-count or undermine local communities.
• Climate Financing: Direct investment in low-carbon technology R&D or infrastructure in developing regions. This is often more transformational than project-based offsets but can be harder to quantify in terms of immediate tons of CO2 mitigated.
• Insetting: While typically insetting is defined as inside the value chain, the standard acknowledges some “extended insetting” for borderline categories.
• Capacity Building: Funding or providing expertise to smaller businesses or communities to accelerate adoption of renewable energy or sustainable land use.

Minimal vs. Significant Engagement

• Minimal Engagement: Purchasing a small fraction of carbon credits that lack a direct tie to the firm’s ongoing emissions. Under the new rules, this approach may offer limited recognition if it fails to meet quality benchmarks.
• Significant Engagement: A robust, scaled approach that invests enough funds or offsets to address a meaningful portion (e.g., 50–100%) of the company’s annual scope 1, 2, and possibly scope 3 ongoing emissions. This approach could potentially unlock an “ongoing emissions neutralization” or similar claim, subject to the SBTi’s rules.

Recommendations for BVCM Strategy

• Integration into Transition Plan: Companies should outline in their transition plan (from Chapter 1) how they plan to incorporate BVCM, annual budgets, and targeted impacts.
• Transparency: Publicly disclose the type, volume, and cost of BVCM projects, including the rationale and location.
• Preference for Projects with Co-Benefits: E.g., those that also enhance biodiversity, support climate adaptation for communities, or improve local socio-economic conditions.

» Assessing and Communicating Progress

Background and Key Concepts

• The new validation model introduced in Version 2.0 includes periodic renewal validations: once a company finishes its near-term target cycle (about five years), it must verify whether those targets were met.
• Progress Assessment: Companies evaluate their actual emissions against the stated targets, checking if they achieved the intended absolute or intensity reductions for scope 1, scope 2, and scope 3.
• Communication: Transparent reporting is crucial for stakeholder trust. The SBTi also wants to publicly track whether companies meet or miss their validated targets.

Draft Criteria and Recommendations

Assessing and Communicating Target Progress

1. CNZS-C5.1: “Companies shall complete a progress assessment at the end of each near-term target cycle (approximately every five years).”
• Progress is measured using the formulas in Annex G for emissions reduction or alignment targets.
• Companies must document any methodological changes or boundary shifts that occurred during the cycle.
2. Scope of Assessment: The evaluation covers all scopes included in the original targets (1, 2, and relevant 3). Partial or selective reporting is not permitted if a target was validated for a particular scope or category.
3. Public Reporting: “Companies shall publish a progress statement” (or an updated transition plan) to show actual performance data vs. targets.
• Must include at least the base year, current year emissions, percentage reduction achieved, and any material changes from the plan.
• For Category A: This may be aligned with financial disclosures or regulatory submissions (e.g., CSRD in the EU). Category B can use simpler or more flexible channels, as resources allow.

Setting Targets for the Next Cycle

• Once a near-term target cycle ends (or even if the company finishes earlier), they must renew or set new near-term targets that maintain alignment with the latest science and take into account the current performance level.
• If a company exceeded its previous targets, it can reflect that in more ambitious next-cycle commitments. If it fell short, the new targets must bridge the gap and ensure the company still aligns with a 1.5°C trajectory over time.

Renewal Validation

• The Renewal Validation step is an official check by SBTi or an SBTi-designated validation body to confirm whether the company meets the relevant criteria at the close of the five-year cycle.
• Key aspects:
1. Conformance: The company must show it met its near-term targets or explain shortfalls.
2. Increased Ambition: Each new near-term target cycle must be aligned with the most up-to-date SBTi pathways (which might become stricter based on IPCC developments).
3. Integrated Approach: Companies also reconfirm or update their long-term net-zero target if any structural changes or new best practices have emerged.

Guidance on Underperformance

• If a company fails to meet its near-term targets, the standard does not invalidate prior claims automatically, but it does require:
• Disclosure of reasons for underperformance (market shifts, data errors, lack of investment, etc.).
• Corrective Plans that accelerate abatement or revise capital expenditures. The standard is exploring how to handle repeated shortfalls and the possibility of limiting a company’s public “SBTi validated” status if improvements are not shown.

Progress Reporting Methods

• Alignment with CDP and TCFD: The standard encourages synergy with existing disclosure frameworks. One recommended approach is to share progress in annual sustainability or financial reports to maintain consistency across investor communications.
• Verified Data: For Category A companies, continuing third-party assurance on the progress-year emissions inventory is typically required. This ensures credibility when stating progress toward SBTi targets.
• Data Visualization: The standard encourages use of simple charts or tables showing year-by-year emissions alongside target milestones.

» SBTi Claims

Background and Key Concepts

• In the sustainability space, claims are statements companies make about their climate performance or targets—e.g., “Our targets are SBTi approved,” or “We have achieved net-zero in line with the SBTi Corporate Standard.”
• Ensuring accurate, verifiable claims is crucial for public trust. Misleading or overstated claims can undermine the credibility of science-based targets.
• Version 2.0 clarifies the type and timing of claims that a company is permitted to use, contingent on the stage of validation (Entry Check, Initial Validation, Renewal Validation) and actual performance or progress relative to the targets.

General Claims Requirements

Honesty and Accuracy: Only accurate, truthful and supporting evidence, where available, should be offered by organizations in respect of the Standard.

Transparency: Any net-zero or SBTi validation shall include cited, externally available references or other sources where the data and SBTi endowment/sustainability verification is publicly documented.

No Inconsistent Claims: There are examples where a company can be seen lobbying against climatic changes or for other reasons involving opposite positions, in which case it could challenge or revoke the “valid” SBTi status received.

Eligible Claims Before Initial Validation

• Before a company’s targets are fully validated (that is, during the “Entry Check” or “Pending” stage), it may declare:
• “We have publicly committed to set science-based net-zero targets in line with 1.5°C.”
• “We are working toward an SBTi-validated net-zero target within 12 (or 24) months.”

These statements must be unambiguous that the company is still in the process of obtaining SBTi validation and does not yet have a validated target.

Eligible Claims After Initial Validation

• Once the SBTi designates a target as validated, the company can say:
• “We have a validated near-term (and/or long-term) science-based target, aligned with 1.5°C.”
• “Our net-zero target for [scope(s)] is validated by SBTi, consistent with limiting warming to 1.5°C.”

Additionally:

• If the company also follows recommended or optional criteria—e.g., beyond value chain mitigation or advanced data assurance—it may highlight these as leadership or exemplary actions (subject to SBTi definitions).

Restrictions:

• They may not declare themselves “net-zero” unless they have actually reached the net-zero year and neutralized residual emissions in line with SBTi requirements.

Eligible Claims After Renewal Validation

• After a full target cycle (about five years), if the company has demonstrated meeting or exceeding its validated near-term targets, it proceeds with the Renewal Validation:
• They can claim: “We have successfully achieved our near-term targets as validated by SBTi.”
• They then set new targets for the next cycle, which again, once validated, allow them to claim ongoing alignment with SBTi best practices.
• If the company did not achieve its near-term targets, it must publicly disclose that shortfall. It can still claim to be part of the SBTi process if it has updated or renewed targets, but cannot claim to have “met” them.

Adaptation Notice under the Science Based Targets initiative (SBTi)

This text has been adapted in accordance with the guidelines set forth by the Science Based Targets initiative (SBTi). In our efforts to ensure transparency, accountability, and alignment with sustainable practices, we have carefully reviewed and incorporated SBTi principles into the content. This adaptation process reflects our commitment to high-quality, accurate, and comprehensive sustainability reporting, ensuring that the information presented adheres to internationally recognized standards.

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